Let’s play Congressional Multiple Choice with Goldman Sachs. This week, helpful members of Congress are going to ask the gentlemen from Goldman, who were shorting the bejesus out of the mortgage market after the company feared the whole house of subprime cards was coming down. It will be something like: Tell us Goldman CEO Lloyd Blankfein, were you:
a) lying to the American public
b) cheating the American public
c) stealing from the American public
d) all of the above
Unfair? Count on it. If the questioning is merely unfair, Goldman might take that as a victory.
Blankfein and his French, structured- product pâtissier Fabrice Tourre aren’t guilty of anything, at the moment, but they will be testifying in a Congressional hearing, not a courtroom. And the jury is not of their peers but of their legislative overseers, who are not in a jovial mode, having had to bail out the entire banking system so Goldman could continue to hand out billions of bonus money. The solons have learned that Goldman was shorting the housing market in 2007, aided and abetted by its lackeys in the ratings agencies, Standard & Poors and Moody’s, outfits that seemed to have an endless supply of triple-A ratings for whatever garbage the investment banking gang was dishing up. They are going to have a great time with Fab, who couldn’t stop telling his girlfriend how much he wanted to merge with her while at the same time bragging about throwing another log on the pyre that the mortgage market was becoming.
Now, we’ve all done some e-mail bragging to friends and loved ones about our major victories on the work front. And here’s the lesson kids: using a private e-mail account from your computer at work means it is NOT private. Those emails can be subpoenaed by the cops, Congress, or your soon to be former spouse. So we can cut Fab a little slack for turning the volume up for his girlfriend. But you can recognize the tune: as the Camembert was hitting the fan, Fab and Goldman were ducking.
Goldman has some pretty good explanations for its behavior, not the least of which is that they short stuff all the time, they were offsetting risk, (which they should have been doing earlier anyway), or they were making a market for their customers, because that’s what Goldman does. Good luck with that before Congress, guys.
Roll ahead to September, 2008, though, when the whole financial system is reeling, and Morgan Stanley and Goldman are whining about being victimized by short sellers. Morgan CEO John Mack complained bitterly about brazen speculators and manipulators who have no interest in where the economy is going—people who are just out to make a buck. Shocking, isn’t it? He was backed by Blankfein, because both companies were facing ruinous runs on their stocks. The SEC caved, and prohibited the shorts from attacking more than 700 financial stocks. Pity Goldman didn’t feel the same way about your mortgage.