Goldman Sachs (GS) took the stand last week as the government’s financial crisis investigation committee grilled the company over its role in the Great Recession.
A host of questions were asked about the SEC civil charges against the firm, and some of Goldman’s employees came out looking better than others.
But may of the inquisitors also did well for themselves, as others looked lost in a sea of derivatives they failed to comprehend and had no desire to understand.
As the scandal's key name, Fabrice Tourre is the target of the bulk of the SEC's charges.
Tourre's testimony during last week's hearing shifted between a tight and scripted speech and an unclear and damning defence.
Tourre at different times said ABACUS was selected by Paulson and ACA and 'selected by ACA with recommendations from Paulson and Goldman.'
He also played dumb too often, not knowing what terms 'thin files' or 'barbelling' are.
The newest e-mails released by the Senate and Goldman before the hearing show that 'The Fabulous Fab' is actually a warm-hearted sucker for love. The new emails offer context that legally, should help his case. Later when he's trying to get another job though, the poor judgment on display in his emails can only hurt.
Of the four men in the first panel, Josh Birnbaum speech was the least scripted. He was also able to complete more than one sentence in a few answers, something only Blankfein and he seemed able to accomplish.
When asked whether or not Goldman's pay practices incentivized ethical behaviour, he said:
'The way people are paid there has a lot to do with performance of a qualitative manner. I can assure you that you could have tremendous financial performance and that if you were not ethical, you would not be promoted and you would probably be fired.'
Score 1 for Goldman and Birnbaum.
Mr. Viniar was leaps and bounds superior to any other Goldman witness. All the time composed and competent, Viniar presented his opinions with polish and truth, something that could not be said for the day's earliest testimony.
Viniar went back repeatedly explaining why shorts where not bad, or illegal, to Senator Levin. He also clarified that Goldman Sachs would not have money from AIG, if it was not for government decision making. Finally, he knew when to apologise, noting calling a security 'shitty' via e-mail was not a wise choice, and that the role of the ratings agencies would be one worthy of investigation.
Mr. Broderick barely spoke during his testimony before the investigative committee, but when he did he looked skittish and under-confident next to his colleague Mr. Viniar. Although, any other Goldman Sachs witness would have looked that way next to the competent David Viniar.
Broderick defended Goldman's position in the subprime market, but did so quite shabbily compared to Viniar. Surely in the corporate pecking order at Goldman, Broderick slid behind Viniar, if he wasn't there already.
At times Senator Levin appeared overbearing. At times he seemed out of touch with the issues. But, throughout 10 hours of extensive questioning, he always remained focused on his goal: naming and shaming Goldman Sachs for their role in the financial crisis.
While many viewers, and Senators attention waned, Sen. Levin ramped up his accusations, more effectively attacked Goldman's testimony, and cited extensive knowledge of the inner workings of the financial world.
His staff should also be commended for their extensive research at his behest.
Senator McCaskill wielded the day's best analogy, going on a long-winded explanation of how a bookie was no different than a CDO dealmaker. She showed us a thing or two about betting in general, and found a way to communicate her point, that banks like Goldman Sachs are simply betting agencies, better than many of her counterparties.
Her position will continue to rise in the democratic party.
Michael Swenson gave a solid performance, probably because he blended into the background and got the least attention of everyone in the first panel.
Swenson admitted the firm had a good year and appeared remorseful for it, gaining sympathy points from the audience.
He was unassuming while answering the Senator's questions clearly and insisted there was constant debate about which position the company should take on housing.
Dan Sparks appeared inconvenienced by the hearing. He played dumb and pissed off the Senators and everyone watching.
Whenever Senator Levin referenced an email, Sparks asked Levin to find the email he was referring to. It took up ridiculous amounts of time and made the Senator's blood boil.
Luckily for him, Levin and another Senator made sniding remarks about his 'refusal' to answer questions and took some of the negative attention away from Sparks.
After a quick reference to the emails released and their 'clearly unethical' nature, McCain switched focus and only asked the panelists about the $10 billion bailout Goldman took two years ago and the financial crisis and the size of Blankfein's bonus.
He asked how banking is different from hitting the tables at Ceasar's Palace, also completely irrelevant to the case at hand. Then later Blankfein had to define a CDO for McCain. But when he mispronounced ABACUS, cracking up Lloyd Blankfein, who corrected him, McCain really put the nail in his coffin.
The mistakes made McCain look out of touch, like he had been living in a hole for two weeks. It was obvious he hadn't done his homework.
Goldman Sachs is the big name defendant in the SEC's charges. They are being charged for misleading clients buying into the ABACUS deal by not revealing to them the role of Paulson in ACA's structuring arrangements.
All seven defendants combined made Goldman look good. They didn't say too much, they looked sharp and were polite. Most importantly, they gave the public no real fuel for the fire. The backlash could have been much, much worse if the men were more loose-lipped, but they were very careful. No surprise here! Their lawyers were paid for by Goldman.
Goldman CEO Lloyd Blankfein is almost sure to lose over this in the long run, but for now he's holding up very well.
During the hearing he was aggressive, careful, sensitive, and even funny (once - he made a joke about the 'Royal We'). His argument was tough and good and the firm came out looking good, which is Blankfein's job and means Blankfein looks good.
Goldman bet against Paulson and Co. on the ABACUS deal, indicating that the company did take positions against its own clients.
Blankfein may have a credibility gap to deal with.
AIG could potentially jump on the ABN Amro and IKB bandwagon and strike back at Goldman for misrepresentation of some of the deals they insured.
During the SEC hearing, Senator Levin repeatedly asked Lloyd Blankfein why Goldman took $2.5 billion of AIG's bailout dollars. AIG looks like one of the victim's of Goldman's evil market prowess.
The SEC's case might not look complete against Goldman Sachs, but the SEC got a case through against Goldman, and its sure to help their institutional goals of expanding regulation.
It was also revealed through a damning report that the SEC failed to charge ponzi schemer R. Allen Stanford in a timely manner, even though they knew of his corrupt financial dealings. The SEC effectively covered up that Friday news dump with the Goldman charges.
President Obama's financial reform push has just received a major shot in the arm.
Its unlikely Republicans will be able to convince the American public they are on their side in the fight to derail Senator Dodd's bill, when Dodd's party is now actively prosecuting a major bank.
Republicans have already got themselves in a kerfuffle this weekend, with their too big to fail strategy not seeming wholly honest. The Goldman charges fallout seems unlikely to help their cause.
Paolo Pellegrini, John Paulson's former right-hand man at Paulson and Co., is the source for the SEC's information on the case.
Pellegrini was told by his boss, Paulson, to speak to the SEC. So it wasn't as if he crossed his boss.
Even though Pellegrini didn't choose to be honest, he still looks better than his former employer.
Paulson looks bad because he structured the ABACUS deal to his liking and his name is getting slammed in the press. And now there's even talk of an all-girls private school, Spence, kicking him off their board.
There's no way he will get in any trouble for this though, because he had no obligation to tell the people on the other side of his trade, 'Hey! I selected some of the mortgage bonds in that CDO you just bought, and I'm about to short it.'
Thanks to 15 minutes (or 11 hours) of fame on national TV, now everyone knows their name and thinks of ABN Amro as the little guy taken advantage of by big bad Goldman.
ABN Amro bought ABACUS and lost when the mortgage bonds inside went bad (because the borrowers were unable to pay).
ABN had assumed the credit risk associated with some of ABACUS based on information sent to it from Tourre. Essentially, ABN were long ABACUS based on not all of the information available to Tourre. RBS, which bought part of ABN Amro, may be able to sue Goldman and make some of their money back.
IKB is in a similar position to ABN. They were invested in ABACUS and may have a case against Goldman that they were misled into going long on the CDO.
Essentially, IKB went long $150 million in ABACUS based on not all of the information available to Tourre. They might have a case against Goldman.
The Republican Party's movement against financial reform looks a likely loser in the fallout.
The key argument of the GOP has been that the Dodd bill fails to fight too big to fail. But the reality is the party's tightening with Wall Street has been public, perhaps too public for them to risk standing up to the democrats' legislation in an election year.
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