A Senate report investigating the cause of the financial crisis accuses Goldman Sachs of misleading both its clients and Congress. Image: Flickr/greyloch CC-BY-SA

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.

Sources

ABC News

Reuters

Fortune

The Federal Reserve was one of the government institutions singled out by the FCIC as being responsible for the financial crisis. Image: CC skpy/Flickr

When the Financial Crisis Inquiry Commission report was issued Wednesday, partisan bickering was the big story. The FCIC report concluded that the financial crisis was ultimately the federal government’s fault, and it could have been avoided. The FCIC report was endorsed by six Democratic members of the commission, while the four Republicans disagreed with its conclusions and published their own.

FCIC report cites failure of government oversight

The FCIC was established in 2009 to determine the causes of the 2008 financial crisis and hold those responsible accountable. The commission’s report said the financial catastrophe that led to the Great Recession was the climax of three decades of financial deregulation. The commission implicates a long list of players, especially the Federal Reserve and Treasury Department. These institutions are charged with failing to reign in the financial malfeasance that pushed the nation to the brink of a depression. The FCIC report cites a litany of familiar terms such as toxic subprime mortgages, mortgage-backed securities, collateralized debt obligations and excessive, unsustainable leverage.

Partisan sideshows defeat purpose of FCIC report

While the FCIC report is the commission’s majority opinion, three Republican members released a minority report saying the FCIC’s conclusions are simply a list of what went wrong, not an examination of the root causes. The minority report focuses not on financial regulatory failures, but on market forces, which created a credit bubble that burst. Another report by the fourth Republican blames the government for promoting home ownership as the American dream. Republicans on the commission also accused Democratic members of keeping them in the dark about key decisions and ignoring their recommendations. Rep Darrell Issa, R-Calif., the new chairman of the House Oversight and Government Reform Committee, has launched an investigation of the FCIC, citing overspending, partisanship and conflicts of interest.

Business as usual on Wall Street

Despite the political theater in Washington inspired by the FCIC report, Wall Street went about its business as usual. Financial analysts don’t expect the markets to react to either the commission’s findings or the controversy. Wall Street banks, which got away scot-free when they were bailed out by hundreds of billions of dollars from the Federal Reserve, are once again swimming in money. This week the stock market has been flirting with 12,000, the level it had reached before the U.S. economy nearly collapsed.

Sources

Reuters

San Francisco Chronicle

MarketWatch

CNNMoney.com