Senate report on financial crisis points finger at Goldman Sachs
Goldman Sachs emerged as the villain in a senate investigation report on the financial crisis released Wednesday. Other Wall Street banks, financial regulators and Congress also shared the blame, but Goldman Sachs was singled out for fleecing its clients on mortgage-backed securities and collateralized debt obligations. Details of the report also suggest that Goldman executives committed perjury during Senate hearings on the financial crisis a year ago.
Goldman described as greedy snake pit
Goldman Sachs was described as a “financial snake pit rife with greed, conflicts of interest, and wrongdoing,” by Sen Carl Levin, D-Mich., chairman of the Senate subcommittee investigating the causes of the financial crisis. The 63-page report, presented by Levin and Sen. Tom Coburn, R-Okla., contains documents discovered during the two-year investigation that they say prove Goldman misled both its clients and Congress. In particular, Goldman allegedly sold risky securities and then bought insurance against their failure, knowing that when the loans went bad their clients would suffer significant losses and the firm would make a profit. The report detailed several incidents where Goldman said its interests were aligned with investors who bought collateralized debt obligations, when in fact the firm held a 100 percent short position against those same CDOs.
Goldman execs may face perjury charges
The Senate report also questioned the truthfulness of testimony given by Goldman Sachs’ executives, including CEO Lloyd Blankfein, at a Senate hearing on the financial crisis last April. Documents submitted to the Senate investigation by Goldman appear to conflict with statements Blankfein made under oath to the subcommittee. In the hearing, Blankfein denied that Goldman held a huge short position against the housing market and bet against its clients. He described what appeared to be conflicts of interest as “managing risk.” A Goldman spokesman said the Senate report confirms that the testimony given by Blankfein and others was “truthful and accurate,” but it has changed business practices to “strengthen relationships with clients.” Levin said he will refer the case to the Justice Department, an implication that Blankfein and other executives could be charged with perjury.
Business as usual on Wall Street
Goldman stock fell as much as 3 percent after the report was released. But analysts figure that Blankfein and Goldman will somehow wiggle off the hook. Analysts at S&P Equity Research expect Goldman stock to rise and view the Senate financial crisis investigation as only a “potential negative.” The fact that Goldman has simply denied wrongdoing seems to be enough for the firm to expect that nothing will come of Levin’s wrath. According to S&P Equity Research, “we expect GS to report robust global banking fees and strong trading revenues.” Goldman may ultimately be successful in arguing that what they did wasn’t illegal, just business as usual on Wall Street. Caveat emptor.