Goldman Sachs: Buyer beware is the bottom line

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As far as Lloyd C. Blankfein, chairman and chief executive of Goldman Sachs Group Inc., is concerned, buyer beware is the bottom line.

Blankfein testified on Tuesday before the Senate Subcommittee on Investigations and, after a formal statement, found himself in a grueling exchange with chairman Sen. Carl Levin (D-Mich.) over what is ethically correct for an investment bank to do.

Goldman is accused in a civil complaint of committing fraud by selling a mortgage investment vehicle to those expecting the value to increase while a key client was selling the investment short. Blankfein denied the fraud charges and said he strongly disagreed with the complaint brought by the Securities and Exchange Commission.

A salesperson “owes a duty of honesty, representing what the security is and what the security will accomplish,” Blankfein insisted in response to repeated questions by Levin, who pursued the same line with other Goldman execs throughout the day-long hearing.

“Do you think you have an obligation to tell [investors] you have short positions on the deal?” Levin asked.
“No I don’t think we would have to tell them,” Blankfein said. “I don’t think we would know ourselves.”

Is there a moral question, Levin asked, since Goldman was betting against the security and perhaps clients would want to know that.

“I don’t think so,” Blankfein said. “We are market makers buying from sellers and selling to buyers.”
“We’re just going round and round,” Levin finally said.

-- Jim Puzzanghera reporting from Washington; Michael Muskal reporting from Los Angeles