Goldman Sachs: Execs defend details of deals to skeptical senators
God, or the devil, is in the details, and Goldman Sachs executives illustrated that point Tuesday as they pushed to explain the nitty-gritty of their dealings to a Senate investigating committee.
In their testimony, the four-person panel of witnesses defended the company's actions in creating an investment vehicle, and insisted that clients were sophisticated enough to understand the complexity of transactions, which included selling short. They went on to blame the general market collapse for the difficulties that the investments underwent before they too went downhill.
The first witness was Daniel Sparks, the head of Goldman Sachs’ mortgage department from late 2006 until mid-2008, when he left the company. He said the company had “high ethical standards,” and he denied there was a major shift by Goldman Sachs to bet against the housing market. The company was simply trying to reduce its short-term risk during a “very challenging” period in the financial markets.“I was not instructed to “go long” or to “go short,” he said. “The focus was on risk, and not direction.”
The market was so volatile and erratic, he said, that it often was difficult to know if the mortgage department was long or short. He said he left the company to spend more time with his family and in his community, but was proud then and still is of what Goldman Sachs' mortgage company accomplished “during a difficult period.”
Fabrice Tourre, the key trader, took the same tack, defending his role and insisting that the investment vehicle was not designed to fail, a key contention in the civil fraud charges he faces. Goldman Sachs actually lost $100 million in those trades, though investigators say that the company made billions of dollars overall.
Senators tried to respond by asking detailed questions about the deals. Committee Chairman Carl Levin (D-Mich.) argued that company e-mails showed that Goldman Sachs knew some of the deals were of low quality, raising the question in whose interest does the firm and other investment banks act? Is the role to protect the clients or just to take advantage and make money from linking buyers and sellers and creating a market.
Republican Susan Collins of Maine pressed on the role of the investment bank, but she seemed frustrated by the lack of specificity of the answers.“I believe we have a duty to serve our clients,” Tourre said, “by showing prices on transactions.”
Tourre was careful to separate the role of investment advisor from the bank’s job to make a market.
-- Jim Puzzanghera, reporting from Washington
-- Michael Muskal, reporting from Los Angeles
Photo: Former and current Goldman executives Joshua Birnbaum, Michael Swenson and Fabrice Tourre. Credit: Mark Wilson / Getty Images