8:42: AND IT’S ADJOURNED!
The HUGE binder that has been sitting in front of everyone? Senator Levin calls it a “bowl of cherries.” Haha
8:40: “Wall Street needs a cop” – Levin.
Wall Street needs to address prop trading that puts the firm’s trading above the client’s.
Needs to address synthetic products…
Needs to end these reckless loan processes…
Need stronger re-enforcement tools for regulators.
We need to protect Main Street from the excesses of Wall Street. (REPEAT ALERT! Same point he opened with!)
8:38: Ok The fact that this hearing is taking so long just proves that the Senate knows it’s losing. It can’t let go.
8:36: Yikes. Levin is offended that Blankfein thought he said “We,” when he actually said “I?”
Blankfein gets the humour, says he was taking it as a ROYAL “we.” Ah, of course. Whatever that means.
8:31: Blankfein has now been testifying for over three hours. So many empty chairs in the hearing! Glad to see we’re one of the lone survivors. Even CNBC gave up.
8:29: Interesting. The VaR of “the big short” was 56%.
Blankfein says that’s right, says it’s because that’s the value the market gave it.
8:27: Levin’s scolding Blankfein now. He’s saying you shouldn’t sell crap.
Again, off point. UM HELLO? McDonald’s?
And Blankfein calls him out for it: Sir, have we moved away from…?
8:25: Your big short put your bank in the rare position where you did well in 2007.
Levin is revealing why these hearings are happening. Because Goldman did well while everyone else in the country lost money. This is ugly and shouldn’t be at the heart of the case. It just makes us look jealous of Goldman’s success. We really think that’s straying from the issue.
8:24: Blankfein tries to jump in. Levin holds ground. He wants to make his point.
8:22: Levin: I’m not sure why you’re saying these things like there wasn’t a big short or you weren’t making one directional bet, but you won’t say it.
So you want folks to trust you, but the way I see it, I think you can understand why a lot of folks have some real doubts.
8:20: Levin is still sketching out timeline… Then in Q2 and Q3 in 2007: You say you “positioned yourself proactively.”
Here’s what you did. You shorted synthetics. You shorted CDOs. You reduced your long inventory.
You were short, short, short. It’s clear from all these documents.
There is clearly a directional change.
8:18: Levin is sketching out a timeline:
In 2006: In the 3rd and 4th quarter, you scaled back on your risky loans.
Then in a presentation you made to your board, you write, Goldman reverses long-market position. That’s a DIRECTION in most people’s vocab. (I know you don’t like to use that word.)
8:17: Levin is going over filings… Looks like he’s trying to nail down a date when Goldman decided to short the market.
8:10: Levin: Do you see your profit was $3 billion from shorting the housing market? Those are tge profits you made on short sales in 2007.
What you want to do, is you want to deduct the long positions where you lost money. That’s not the question. The question is, did you bet big time against the housing market.
Blankfein: NO WE DID NOT.
Blankfein has a real point here. Going almost even isn’t “betting against the housing market.” It’s going even on the housing market – in a big way.
8:05: Levin: $12 billion was your short. Is that what you’d call a small short?
Blankfein: This didn’t act like a $12 billion position. Our entire P&L for the whole year of 2007 was around $500 million.
Blankfein goes hard: You can throw out that huge “headline” number but the market didn’t react that way. That’s why our risk manager said, you really have to look at how the market behaved.
8:04: Blankfein can’t find the graph. BTW, Levin has like 3 people helping him find graphs. Blankfein’s on his own.
8:03: Levin: Let’s take a look at how “small” your net shorts were.
8:01: Levin: Put up the chart about the long positions.
8:00: Levin: Of course you can’t make sure that an investment is going to go well for a client. But it troubles me that you don’t see that you should have to disclose to clients that you believe an investment is a bad one and that you’re betting against that investment.
7:57: Levin’s going old-school. Referring to something from the 1930s.
7:56: Levin: Did you have any conversations with anyone at Treasury about whether or not AIG would get those payments and pay you off?
7:52: How many billions of dollars flowed through from AIG to you?
Blankfein: $12.9 billion dollars, but that wasn’t net.
Levin: So what was it net?
Blankfein: AIG paid us an additional $2.5 billion that we could have gotten from insurance.
Levin: But taxpayers ended up paying that?
Blankfein: Yes, because the US Gov decided not to allow AIG to default. So we would have gotten that money from the insurance company anyway.
7:50: Levin: Synthetics don’t serve a social purpose. They are a BET. A bet on something you have no interest in. Where people are betting on whether or not something will occur.
Blankfein: That misses the point, with due respect.
7:50: Montana (Tester) is done. Now it’s back to Levin.
7:47: Montana: Now. Creating these synthetic CDOs is just “playing around” as far as I’m concerned.
7:44: Montana: Are you embarrassed that the taxpayers had to embarrass you out?
Blankfein: It was embarrassing then and it’s embarrassing now.
Did you need the bailout funds?
Blankfein: They were critically important to the system and therefore critically important to us.
I’m really glad that we were beneficiaries.
Hmmm still not saying GS needed the bailout. But kind of admitting they did. INTERESTING….
7:42: Montana: if disclosure isn’t given equally to both sides.. who’s responsibility is it to give that disclosure?
Blankfein: I think the disclosure documents expose to the world what that disclosure is.
7:40: Montana: it was ironic to me that no one would say they work for the clients. They kept saying they were market-makers.
Blankfein: I can understand their confusion in answering the question. There are parts of the business where you’re a money manager where you owe a duty to the investor. There’s another part that wouldn’t work if you had to make sure that it was good for the client.
Montana: And one doesn’t bleed into the other?
7:36: Blankfein: The securities weren’t meant to fail. They succeeded by conveying the risk that people wanted them to have. Good point B!
7:36: Oh boy, Montana is looking for an analogy now.
7:35: Montana: When ABACUS was marketed to IKB, was IKB told that Paulson was a part of the process of choosing the securities.
Blankfein: All I have is the testimony from Fabrice Tourre. I don’t have independent knowledge. I just don’t
7:33: Montana: ACA was an 80-90% buyer of ABACUS. Are you saying IKB only had 10% of it? What are you saying here?
Blankfein: I think IKB. We can provide the number but I think IKB had a total position of $150 million. I think ACA had something more like $900s of millions.
7:32: Montana’s talking about ACA and asking why GS chose ACA.
Blankfein doesn’t know. Montana understands.
7:31: Pryor’s done. Onto Montana.
7:25: Blankfein: Given the way that we’re being treated right now, the way the SEC is handling this (seems to laugh to himself) we wouldn’t do things the same way.
The recent crisis will reverberate with me for the rest of my career.
7:23: Pryor: What is Goldman doing differently internally now?
Blankfein: There is not a thing that will arise here and elsewhere that won’t be the result of some big soul search and a tightening up of standards.
7:22: What steps will Wall Street take to make sure there isn’t another crisis?
Blankfein: Reform. The need for higher capital standards. Every firm needs to manage their risks. Our firm especially needs to look into our business practices and make sure that we do a better job next time.
7:17: Blankfein: A reminder. There was no obligation for us to disclose whether or not we were short.
(WORTH NOTING: In legal terms, there’s a big distinction between being “obligated” and being “obliged.” Obligated means legally bound and required to. Obliged means really should have given the circumstances.)
7:13: Pryor: I have a question about SIVs. Why would you want to use an off-balance sheet investment?
Blankfein: I’m not sure.
Pryor: But GS does that right?
Blankfein: I’m not sure that we do. But we Mark-to-Market so it wouldn’t affect our P&L.
(SORRY, how does the CEO not know whether or not GS uses SIVs?)
Pryor: So the off-balance sheet is disclosed?
Blankfein: I don’t know.
7:12: Pryor: What ability do banks have to influence a ratings agency?
Blankfein: I never dealt with a ratings agency other than the rating of GS. I’m not sure that I’ve ever been able to influence them.
7:12: Pryor: Why did they miss the ratings so bad?
Blankfein: They couldn’t predict that the market would fall like it did.
7:11: Senator Pryor now.
7:10: She’s done! Closing on the football analogy.
We have conflict of interest, disclosure, and transparency issues that we need to resolve. AND done.
7:05: Football. The analogy she’s going to use with Blankfein is football. She says it feels like if a football player were going in with a bookie to discuss how to structure the odds on an upcoming game. (Referring to Paulson being in the same room with ACA and Goldman’s not telling IKB. Same point she made in the first round.)
7:04: Collins: Is there anything that you would not create a market for if someone came to you and asked you to?
Blankfein: I’m sure there is.
6:59: Collins: There’s an email from you to Tom Montag. “Should we have cleaned up these books before and are we doing enough now to sell off cats and dogs?”
Blankfein: I got to the page! (Applause erupts. JK. We wish.)
Collins: That would seem to be you indicating that in early 2007, before you marketed more of these synthetic CDOs, you were saying let’s clean up these residuals and push them to traders.
Blankfein: I don’t remember typing this but I can tell you how I use that statement. (Best Vocab Lesson Yet –>) By “cats and dogs,” I mean “miscellaneous stuff.”
6:58: Collins: It feels like we’re dragging you along kicking and screaming to more disclosure. Is that a fair statement?
Blankfein: I’m not sure.
6:58: Collins: Would more disclosure hurt your business model?
Blankfein: I don’t think so.
6:56: Collins: Looking back, do you think you did enough to look at what’s in these instruments?
Do you think you exposed the kind of problems that these loans represented?
Blankfein: In hindsight, I wish we had done more. I think we thought at the time, and again, I don’t have contemporaneous knowledge, but I believe we thought we were doing enough. Now I wish we had done more.
6:54: Collins: So when you found fraud. I think it would be important for us to see those documents where you said you recorded the due diligence that you say you did.
Blankfein: *looks confused* Ok, sure.
6:51: Blankfein: I don’t know who these people are…
Collins clarifies: A GS employee has analysed a group of CDOs and so I take from this that you analysed the mortgages regularly.
Blankfein: I would assume that appropriate due-diligence was done because of our standards, yeah.. your point?
6:48: It’s Collins again! Senator Collins. She’s a tough cookie. She made horse-betting analogies with Tourre and the first bunch. What fun analogies will she come up with for Lloyd??
6:47: Blankfein: I don’t think we added to the state of knowledge about those emails…
6:46: Senator: We didn’t release anything that referred to Tourre’s personal life – why did you? Basically, YOU HUNG FABULOUS FAB OUT TO DRY, LLOYD. WHY!?
6:45: Blankfein: I wasn’t close to the decision. But I think what we… we wanted to get… but I wasn’t thinking about that… but we also provided some information from emails with respect to the business.
We just wanted to come abreast to all of the issues that spoke badly about the firm.
I didn’t think we were adding anything.
6:43: Senator is wrapping up. Final Q: You set the tone, do you not, Blankfein?
Why did GS decide to release the personal emails of Mr Tourre and no one else’s? Was that a right decision? Was it fair to your employee?
6:40: Senator: Were you too big to fail? (At the time of the bailout?)
Blankfein: At that time, yes. There was so fragility. I think everyone was.
6:39: Blankfein: And then on the 3rd level, You have to make sure that an institution that was poorly run doesn’t bring down the system (Basically, AHEM, AIG – AGAIN! Whoa there!)
6:37: Blankfein: I think the most important thing being discussed is that despite trying to see around every corner, you’ll miss stuff. So the system should be better able to absorb that.
You might limit our leverage ratio. You might have people required to give us money at times that we need it (It’s like he’s thinking AHEM, AIG)
6:34: Senator: Have you spoken with anyone at Treasury about regulatory reform? In the past 6-9 months?
Blankfein: “I might have. But they would have been at a very general and high level.“
“The same way I’m talking to you.” NICE SAVE B!
6:29: Senator: Have you accessed the government-discount window since becoming a bank holding company?
Blankfein: Other than to test it, I would say no. But I’d feel better about backing that up with documentation, which I don’t have right now.
6:28: Senator: Would you prefer NOT to be a bank holding company right now?
Blankfein: “We’ll have to see.”
6:27: Senator: Did you have plans to convert to a bank-holding company before Sept 21?
Blankfein: Yes, it was something we discussed. It was decided at a board meeting NOT to do that.
Senator wants those documents. Blankfein says OK.
6:26: Now it’s Senator …?
6:24: Kaufman finishes with this: everyone hates how Wall Street came out OK from all this. People think that you did this on purpose basically.
6:20: Kaufman: Everyone I know on Wall Street is REALLY smart.
Blankfein: We’re not that smart.
6:19: Kaufman: Why didn’t you ever reach a point where you said, I just can’t sell this stuff any more?
6:19: Blankfein: I don’t know that a decision was made to leave that business rather than protect risks.
6:17: HAD we known, our trades would have reflected that, rather than reflect, as they do, that we were about as short we we were long. (This really does look true (at least for 2 quarters in 2007). Check the numbers here. Point three.)
6:16: Blankfein: We did not know what subsequently happened in housing. We did not trade as though we DID know!
6:14: Kaufman: What is inherently wrong is you start selling a series of securities and then at some point, you decide, these securities are really bomb… At that point you say, we have to get out of this business.
6:10: Kaufman: At what point did Goldman Sachs say, we want to get out of the housing market? That’s what we’re trying to get to the heart of here.
Kauf, gotta say, we don’t get why that matters.
6:07: Blankfein: We keep those two businesses (prop trading and client trading) very separate.
OMG, Kaufman, ASK WHY THE CDO PROP TRADING AND CDO CLIENT TRADING DESKS HAVE THE SAME MANAGER!!!! He doesn’t ask. Maybe he doesn’t know?
He (Kaufman) does say: But there’s an inherent conflict of interest, you agree with that, good.
6:05: Kaufman: Does prop-trading ever run in opposition to the clients interests?
You’re saying that because of Chinese walls, there is no conflict of interest. So basically, you’re saying that there is, but you handle it well.
6:02: Kaufman: So banks are getting away from i-banking and moving to trading?
Blankfein: Kiiind of. But basically, Yeah.
Clients used to ask you for advice and then go to someone else for financing.
THEN investors stopped asking you to do stuff FOR them and started asked banks to do stuff WITH them. (Create markets for them.) We made the move reluctantly. We were the last of the firms to make the move to make this change.
6:01: Senator Kaufman takes over.
5:59: INTERESTING –> Blankfein: There’s a conflict about whether or not we should have disclosed our short position in the housing market. I don’t think we should have.
5:57: McCain mis-pronounced ABACUS. Lloyd corrects him.
5:56: So in a CDO, you’re just betting on the fortunes of that CDO, right?
Blankfein: Basically, yes.
McCain: How does that differ from going out to Ceasar’s Palace and making a bet?
Blankfein: I think the people participating want to take particular risks pertaining to the housing markets.
They either want to adjust their risk profile or make a directional bet.
5:55: Definitions of a CDO… YAWN
5:53: McCain: Has Goldman tried to help these community members that are trying to make their mortgage payments? I mean, you did get $10 billion in taxpayer money.
Blankfein: We have always been a philanthropic organisation. Last year, we gave $1 billion to community programs. $500 million of which went to small businesses. (We know all about this.)
5:50: Now Levin’s referring to Blankfein’s email,”of course we didn’t dodge the housing crisis, we lost money then we made more than we lost because of the shorts.” How much did you make?
Blankfein: we made less than $500 million in revenue one year (2007).
In the succeeding year, we lost $1.7 (or maybe $1.2 – lost it for a sec).
What I was referring to in my email was that…. our goal was just to manage our risk down.
5:48: McCain: And your bonus was?
BFein: $9 million dollars.
5:47: You received $10 billion as a part of TARP?
Why did you think you needed that money?
We were part of a group of banks that were brought in and that at the same time needed to be stabilised.
OH HE’S STUMBLING! For the first time, Blankfein is stumbling.
5:46: MCCAIN TAKES THE STAGE
5:46: Wait now Blankfein just said he can’t speak to what the client would or would not care about.
5:44: Blankfein: The buyer won’t care.
5:43: You’re betting against a product you’re selling. You’re not troubled by that?
Blankfein: Where I’m selling a product that a client wants to buy.
Levin: They’re buying something from you that you SOLICIT them to buy (Good point, Lev) that you’re also betting against. You don’t have a problem with that?
5:42: Levin: Don’t your clients have a belief that if you’re selling products, you believe in their succeeding?
5:41: Blankfein says that doesn’t matter. There’s a buyer and seller in every trade.
5:40: Now Levin says the subprime market wasn’t Goldman market-making. He says they were trading in this instance.
5:39: Where you intend to keep a short position, is it your duty to tell your investors?
Blankfein: I don’t think that we would
5:38: Blankfein: You keep using the term “betting against” Senator, *looks confused*
5:36: Blankfein: The investors know what they want to acquire.
INTERESTING –> Blankfein: If they ask the salesperson’s opinion, THEN that sales per osn has a duty of honesty.
5:35: Blankfein: The people that are selling these things in our firm wouldn’t even know what position we’re taking on it. They might have an idea, they might not have an idea.
Levin is happy he got him to admit they MIGHT have an idea.
5:34: Lloyd is raising his voice here and being pretty confrontational. It’s awesome!
5:34: We’re just like on an exchange, says Lloyd, no one knows who is on the other side or why they’re selling it.
5:33: Levin is saying: why isn’t it relevant, why don’t you tell your client, we are taking the opposite side of this bet?
5:32: Blankfein is really knocking it out of the park. The thing that we’re selling them is supposed to give them the risk they want. They institutional investors wouldn’t CARE what we think about it. I don’t think they SHOULD care what position we’re taking.
5:30: Blankfein: The act of selling something is what gives us the position of betting against them. NICE ONE LLOYD.
Also good point (summary): We are the other side of what our clients want to do. Always. Clients know that because they’re in effect, selling it to us. As soon as they ask us to create it, we own it, not them.
5:28: Blankfein: Our clients trust is not only important, it’s essential to us. Our clients understand our position as market-makers.
WHOA LEVIN: So, Do they know its a piece of crap when you sell it to them?
5:27: Levin: Do you believe that Goldman treated those clients properly, Blankfein? How do you expect to deserve the trust of your clients?
5:25: Levin gives another example of Goldman betting against its clients: A client asked, “how did you get comfortable with this deal?”
Goldman Sachs didn’t reply and say, we’re short.
Instead, the client was told that Goldman was an equity holder. That was a half-truth because at the same time, it was also betting against that deal. In 7 months, that deal was dead. Your clients lost. Goldman profited.
5:24: Levin is making his point. Basically: Goldman sold Tigerwolf while holding a short position against it. It was a priority to sell Tigerwolf, the “Shitty Deal” for 2 months. While at the same time it was short Tigerwolf. Goldman Sachs made money on deals like this, deals that they marketed and sold to clients.
5:23: Levin begins the questioning.
5:23: He NAILS it home: “We were not significantly net-short the subprime market.”
“We managed our risk.”
“We did not bet against clients.”
5:22: He’s almost finished. Grilling time!
5:21: Aw, Blankfein just said it (April 16) was one of the worst days of his professional life.
5:20: What we failed to do was sound the alarm [that things had gotten out of hand]
5:18: The prepared statement. Blankfein is reading off this statement: The Blankfein Testimony.
Finally, the moment we’ve all been waiting for. Blankfein testifying in front of the Senate.
We already know what Blankfein will say in his testimony, so stay tuned for when he answers the questions put to him by Carl Levin and the members of the Senate committee soon after.
Things got interesting when Tourre and Sparks had to speak for themselves. We can only hope the same will be true for Goldman’s CEO.
If you’ve been following along with our Goldman hearing drinking game (highly recommended), you should already be wasted. If you haven’t start now!
Business Insider Emails & Alerts
Site highlights each day to your inbox.