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A very strong performance for Mr. Viniar, who defended himself and his firm very well. At times he made Mr. Levin’s attacks look overboard and exaggerated, and at his best he was brutally honest.
5:15: Viniar’s views on reform:
Against (very difficult) to reinstate Glass-Steagall
Has problems with the Volcker Rule, would make U.S. financial institutions weaker in the marketplace.
5:12: The issue of credit ratings agencies have come up, and Viniar is saying that yes, paying those agencies to rate your products might be a conflict of interest. Honesty, the best policy here.
5:10: Sen. Pryor is also pressing Sen. Levin’s conflict of interest point. Viniar is saying that the company acts on a daily basis to deal with those conflicts, whether its in the investment banking division with representing two clients in the same deal, or the securities sales portions of the business.
5:08: Sen. Levin is now hammering home his point: it is a conflict of interest for Goldman Sachs to be selling securities to clients and buying securities for itself.
5:05: After a lengthy interlude from Sen. Levin, Dr. Coburn is now asking Mr. Viniar’s opinion on financial reform.
Viniar says Goldman Sachs are generally pro-financial reform, but he doesn’t feel current legislation addresses all the problems.
4:58: Dr. Coburn is pressing the two on the question of ethics at Goldman Sachs.
Viniar is defending the firm’s emphasis on ethics, where year-end reviews include ethics in their scoring.
Viniar has defended Goldman’s decision to release Fabrice Tourre’s private e-mails saying that was not unethical.
4:53: Broderick explains Goldman Sachs’ switch on subprime as a change in risk dynamics. Originally they viewed the market as low risk, high reward.
Viniar is offering up another example of the bank acting in that manner. Leveraged loans in 2008, where Goldman saw risks spike and acted in response.
The question of commercial real estate is raised, with Viniar admitting the firm is largely out of it.
4:49: Dr. Coburn is reading Goldman Sachs’ disclaimer over how they sell and hold securities.
He pretty much cleared up Viniar’s point that Goldman does have opposing positions to what they sell, and covered that positions with a legal presentation.
4:44: And we have a short break, with Viniar clearly winning the total round, but Sen. Levin scoring significant results in the end.
4:40: Senator “Big Short” Levin has changed his focus, and is now going back at Viniar on the conflict of issue debate.
Sen. Levin: “Does the customer have a right to think that Goldman Sachs wants the security (they sell) to succeed?” He also succeeds in calling it “shitty” again.
Viniar is getting hammered here, but this is mostly about Sen. Levin establishing a case for financial reform.
It concludes with Viniar admitting that YES, calling securities “shitty” in an e-mail is bad, and selling them believing that to be true is also not good.
4:38: Sen. Levin is now up, the “big short” is back, and Mr. Broderick is the new target.
4:35: Viniar is done for the short term, and he has done himself well.
4:34: Viniar is answering Sen. Ensign’s questions about what to change to make the system better. Higher capital requirements for less liquid assets is his answer. Not a bad one, but not one controlled by the U.S. government I believe (is that not Basel’s domain)?
4:27: Viniar has had to awkwardly defend his firm’s end of quarter actions, specifically whether or not Goldman engaged in any Repo 105 style activity.
Viniar, quite solidly, defended himself and his firm.
4:23: Sen. Kaufman is now pushing the conflict of interest issue, specifically on selling long positions of securities the firm is choosing to short.
Its fair to say this is what this is all about. Goldman was shorting the mortgage market as a firm, but continued to sell RMBS and other MBS instruments to clients. Sen. Kaufman thinks this is a conflict of interest in terms of client relations. Viniar is defending the firm’s actions, saying the firm often changes its positions.
Extrapolating from that, how would Goldman choose to only sell securities to buyers than matched its positions, if it held multiple positions, often conflicting, in many different securities?
4:18: Viniar is admitting that the best way to hedge risk is to sell the long position. Sen. Ted Kaufman is prodding Viniar on this, and Viniar is responding quite logically that its all about pricing. If your long positions won’t sell for the right price, then you might take up other ways that are more cheap to hedge that risk.
So buying CDO’s or other derivatives which could offset the risk of the long positions is often a more cheap way of achieving the same goal: reducing risk.
4:15: Final word on AIG from Viniar: There was no Treasury interference in the par payout from AIG.
4:11: And now Viniar has to defend against earlier testimony, specifically how Goldman fought its way back to risk zero while punting securities off to buyers.
He is explaining that buyers bought securities believing, in some cases, something different from Goldman. If the securities didn’t sell, Goldman would lower the prices. Buyers would think it was worth the price.
4:06: And now AIG. Things get messy here. Viniar is trying to say that Goldman was insured against AIG’s default, double insured even.
Viniar is explaining each and every part of where Goldman’s AIG payout came from, and how it concluded. Dr. Coburn seems largely convinced, thought he’s now having his people root through some documents…
4:03: The talk has now turned to market-making. Viniar is explaining how that actually works at Goldman, where securities are bought and sold, as well as made.
Viniar is not stepping up to defend his colleague Mr. Birnbaum over his confusion on the matter.
4:00: Dr. Coburn is now defending shorts, and Viniar is taking the advantage, commenting on the value of shorts for creating more equity in the marketplace.
3:57: The big different between the first set of testimony and the second is, as some commenters have said, a touch of professionalism and polish from Viniar. He is sticking to his defence of Goldman Sachs’ position, while Sen. Levin is prodding.
Viniar is saying that, yes, Goldman Sachs made a tremendous amount of money on its short positions, but that income stream offset the long losses. Sen. Levin keeps saying “big short,” Viniar keeps saying we have a “big long” too.
3:48: Sen. Levin has whipped out a chart detailing Goldman Sachs short positions for the SPG department. Viniar is contesting that this is only part of the company’s mortgage portfolio.
Both have clarified that this is all synthetic shorts. Viniar is fighting to say that the company had many long positions that were excluded from this chart.
What this is is Goldman Sachs shorting subprime through synthetic derivatives, while they remained long in other ways. Sen. Levin doesn’t seem to be buying the long position argument, nor do I think he’ll come around to it.
3:42: Viniar and Sen. Levin are fighting over short and long positions. Viniar is trying to explain that yes, Goldman was very short the mortgage market, but was also significantly long. The short positions were taken to reduce risk. Sen. Levin is arguing this is misrepresentation. More misunderstanding, perhaps?
3:40: Viniar says that in 2007 Goldman Sachs was short, but not massively short, making repetition of the “big short” phrase slightly moot. He also clears up worries over VaR, saying Goldman did bump up against it, but that they always do. That’s how VaR works.
3:39: Broderick points out that different risk measures pointed to completely opposite conclusions in 2007 for Goldman Sachs. This should have the impact of hindering questioning which tries to hammer on a single risk indicator.
3:35: Chief Risk Officer Craig W. Broderick is now speaking defending Goldman’s risk functions. He’s extremely keen to point out the firms mark-to-market accounting measures, which are not the norm throughout the industry.
3:32: Viniar strongly defended Goldman Sachs risk management moves, describing them as appropriate and responsible. A solid defence at the start, which will surely receive a hammering from the Senate questioners.
3:30: David Viniar, CFO speaks first. He’s quickly clearing up that Goldman Sachs has to have long and short positions to control its risk positions, something that other individuals failed to do in the previous round of testimony.
Get ready for eight hours of non-stop action today.
We’ll be live-blogging the action right here. Just keep refreshing.
We continue our live coverage of the Goldman Sachs hearings with
- David A. Viniar: Executive Vice President and Chief Financial Officer of Goldman Sachs
- Craig W. Broderick: Chief Risk Officer of Goldman Sachs
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