From Democracy Now
Guests:
Greg Gordon, investigative journalist with McClatchy Newspapers. In November, he published a multi-part investigation of Goldman Sachs and how it secretly bet against the housing market. See previous interview
Rob Johnson, former economist at the Senate Banking Committee and the Senate Budget Committee. He’s now the director of the Economic Policy Initiative at the Franklin and Eleanor Roosevelt Institute.
snip* GREG GORDON: Well, it was really a circus. We had people dressed up in prison uniforms demanding jail time, one of them bearing a sign “Martha Stewart spent time in jail for what she did, why not you?” And the scene was really typical for a Washington tempest, with a packed hearing room, a row of lawyers behind the witnesses who were well-prepared, members of the Senate investigations, permanent investigations subcommittee coming in and taking turns grilling Lloyd Blankfein and six other executives of Goldman Sachs. What we saw is, I think, kind of remarkable in the current climate where you have Republicans and Democrats at pretty much of an impasse over financial regulatory reform, and here the middle of all of this you have a subcommittee that is working in a bipartisan way and you really got to hand it to them, because they subpoenaed this company and went through 2 million documents to try to piece together exactly what happened as Goldman Sachs became the only Wall Street firm to make a safe exit from the subprime market.
JUAN GONZALEZ: And Greg, in terms of those many email that were gone over during the hearing, obviously Goldman officials were saying that they were doing nothing different from what other Wall Street firms were doing and the senators saying they knew exactly or were peddling, basically, investments that they knew were going to go down in value and were betting against. Could you talk about—were there any real smoking guns that occurred during the hearing or were revealed during the hearing?
GREG GORDON: Carl Levin was like a jackhammer. He just went at Lloyd Blankfein again and again about the issue id whether Goldman sold short, whether it did a big short behind the veil of—–it was basically, it was secret bets that its clients did not know about while it was unloading all of these securities and packaging so-called synthetic securities which are basically exotic bets between two parties and often one party which was betting against the housing market was Goldman and the other party was its client, or clients.
What we saw, I think, was more of a picture of what Goldman was doing. Goldman maintains that it barely made any money on this so-called big short, less than $500 million in 2007, which for a company its size is a tiny percentage of its revenues. But Senator Carl Levin drove home the point finally that Goldman was unloading tens of billions of dollars of these securities in late 2006 and 2007, before anybody else in the Wall Street community had awakened to what was happening, and Goldman made a clean exit. Yes, maybe the net result was less than $500 million in profit in 2007 on the secret ballots and a net loss over those years of $1.7 billion on the securities, but Goldman was in deep. It wasn’t the biggest player in the subprime market, but it had tens of billions of dollars invested in these risky mortgages backed by … risky mortgage securities backed loans to very shaky borrowers.
JUAN GONZALEZ: We’re also joined by Rob Johnson, a former economist at the Senate Banking committee. Rob, welcome to DEMOCRACY NOW! again. Could you talk to us about how this hearing and the investigations into Goldman Sachs are affecting the battles over financial regulation in the Senate?
snip* ROB JOHNSON: Yeah, we’re conducting a purity ritual right now. Politicians in both parties are trying to distance from Wall Street because the public has been waiting for a year and a half for meaningful legislation and they fear these people in both parties have been in bed with the financiers. Bismarck used to say, you shouldn’t ever see legislation or sausage made. Now we can add finance to that. There are three things that you shouldn’t see the inside of.
Regardless of what’s legal, you could take this to a small school child and they’d say, “That’s just wrong.” And what we’re finding out, I mean, Greg’s done great work. Where were the SEC and the Fed? These things, I mean, if they were serious about this, and I believe Senator Levin is, they would have unleashed Bill Black and Eliot Spitzer a year ago on this case. And Goldman’s right, that every one of these banks, the same kind of activities are going on. We just need all of their emails and a lot of time and some staffing to get this done.
But what they’re trying to do is, Senator Dodd overstated his bill. It will end too big to fail. Even Ted Kaufman, a Democrat, objected to that. We come back to the other side and Mitch McConnell says, “These guys are in bed with Wall street.” At that point, the White House pulled the trigger on a file that they had about Goldman Sachs to show they’re not in bed with Wall Street, they’re taking on Goldman Sachs, and now they’re the scapegoat. And everybody’s trying to increase the public’s what you might call confidence that the legislature really means business. What the public has to do is keep the floodlights on not only through Senate passage, but when we go to the conference, when they try to do things with the lobbyists in the dark again.
interview in full:
http://www.democracynow.org/2010/4/28/goldman_execs_grilled_over_role_in
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