Goldman Sachs executives strove to fend off accusations they helped inflate the housing bubble and then made billions off of its collapse, in a high-stakes US Senate hearing that shined a harsh spotlight on the powerful investment bank's trading practices.
Facing accusations that they had hurt clients, lenders, and the overall economy, Goldman Sachs Group Inc officials stressed that the firm was managing its risk on individual positions rather than making a broad bet against the future of the housing market.
Fabrice Tourre said he did not hide material information from clients, in his first public appearance since the Securities and Exchange Commission accused him and Goldman of civil fraud for withholding vital information from investors.
The Senate subcommittee fired a broad fusillade against investment banks, but focused on Goldman Sachs, one of the oldest investment banks on Wall Street. Goldman has become a lightning rod for criticism for traders' behaviour before and during the worst economic decline since the Great Depression.
Today, senators from both sides of the aisle questioned current and former Goldman employees, walking them through evidence folders nearly six inches thick, crammed with emails and other internal Goldman communications.
In a tense exchange, Senator Carl Levin, chairman of the Permanent Subcommittee on Investigations, asked Dan Sparks, former head of the mortgage department at Goldman Sachs, whether he felt obliged to tell clients when he was betting against their trades.
Mr Levin pointed to a particular transaction that one of Sparks' bosses termed a "shi**y deal." The Senator used the phrase "shi**y deal" at least a half dozen times.
Mr Sparks did not respond directly, and said it was not his own description of the transaction.
A subcommittee statement said Goldman Sachs helped inflate the mortgage market by packaging toxic mortgages into bonds for fees from 2004 through 2007, then repackaging those bonds into complex securities.
When the mortgage market began sinking, Goldman Sachs then shorted it, betting on its decline throughout 2007. It did not disclose its position to clients, the subcommittee said, and sold securities it wanted to get off its books to clients.
Senator John McCain said that he did not know if Goldman Sachs did anything illegal, but added there was "no doubt" that Goldman Sachs behaved unethically.
Goldman Sachs shares were up 0.5 per cent to $152.82 in afternoon trading, defying the drop in the broader market that was hit hard by downgrades in Greek and Portuguese debt.
Reuters