Goldman’s Blankfein under fire at financial crisis inquiry hearing

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For those who wondered how aggressive members of the Financial Crisis Inquiry Commission would be in questioning Wall Street executives at the panel’s first hearing today, chairman Phil Angelides quickly left no doubt.

After starting the hearing by vowing that ‘we’re after the truth, the hard facts,’ the former California state treasurer and 2006 Democratic gubernatorial nominee listened to the testimony of the four executives. Then he fired tough questions at Goldman Sachs Chief Executive Lloyd Blankfein. Blankfein hardly blinked in defending his company.

Angelides questioned Goldman’s practice of selling securities containing subprime mortgages and then shorting those investments to hedge the firm’s risk.

‘Do you believe that was a proper, legal, ethical practice?’ Angelides asked.

Blankfein defended the practice, saying it was the role of a ‘market maker’ even as he said, ‘We regret the consequence that people may have lost money.

Blankfein said Goldman needed to manage its risk. But Angelides said the practice was inappropriate.

‘I’m going to be blunt. ... It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars,’ Angelides said.

The two continued to spar for a few more minutes. Blankfein said it was difficult to assess risk after a major crisis. He noted that the assessment of the risk of a hurricane was greater after a season in which four major hurricanes hit the East Coast.

‘Acts of God are exempt,’ Angelides shot back. ‘These were acts of men and women.’

But Blankfein said the crisis has had an effect and, in retrospect, his firm should have done some things differently.

‘Clearly, we are much less leveraged now, consequently I wish we were much less leveraged then,’ Blankfein said. ‘f you’re asking me would I do something different then knowing what I know now … how could you not? Of course.’

-- Jim Puzzanghera