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Live Blogging: Levin Lashes Out at Goldman Execs for Stonewalling

Posted by Larry Doyle on April 27, 2010 12:16 PM |

A few quick thoughts on the Senate subcommittee hearing with Goldman Sachs executives today.

1. Senate subcommittee chair Carl Levin (D-MI) just unleashed what could only be defined as a tirade at the Goldman team of execs Dan Sparks, Josh Birnbaum, Michael Swenson and Fabrice Tourre for “stonewalling.” Levin lashed out in saying that he would keep the subcommittee there for as long as it takes to get the answers America wants.

2. Levin made the following quotes:

>>”In the absence of a cop on the beat…” Sense on Cents repeats my long held view, “where was FINRA??”

>>” Enact the reforms that will put a cop back on the beat.” Sense on Cents repeats, “why doesn’t Congress investigate the actions or inactions of FINRA.”

3. Dan Sparks who ran the Goldman Mortgage Trading Department is being castigated by the committee. Sparks’ testimony strikes me as truly being exceptionally cautious. Little doubt he is protecting himself from potential legal liability.

4. The committee is beginning to address the quality or lack thereof of the underwriting of sub-prime, option ARMS, and alt-A mortgages. They should stick with this line of questioning because this is where the fraud occurred.

I am sure all the Goldman execs have been carefully prepared by Goldman’s attorneys not to reveal any sort of incriminating information that could be used against the firm, but right now Goldman and Wall Street are getting skewered.

The fact that Greece has been downgraded to a junk credit rating is most negatively impacting the market today but the fact that America sees that Goldman is being drawn and quartered in this hearing is not helping the industry or the market.

12:50 pm….Senator Claire McCaskill is displaying why America has little confidence in Congress. She does not properly reference e-mails. She shows absolutely NO understanding of how capital markets work. Wow. America deserves better than this.

1 pm...Wow, Senator Mark Pryor also shows no understanding of how markets work. He does not understand why market makers do not reveal what their positions are.

Goldman’s Dan Sparks explains why new issues require disclosure while secondary trading does not. Pryor is truly wasting America’s time with his line of questioning here.

Sparks properly highlights that investors in CDOs need to truly focus on the underlying collateral in the deal. When will Congress fully investigate that the fraud involved in mortgage underwriting needs to be explored and exposed? What role did Wall Street play in that process?

Pryor remarks that he believes the Goldman execs are not taking proper responsibility for Wall Street’s role in the economic meltdown. He also remarks that he believes the Goldman execs are not properly focused on their ethical responsibilities. Pryor needs to bone up on his own understanding of capital markets.

1:20pm…. Senator Ensign immediately goes on the attack stating that casinos are a fairer place for betting and gambling than Wall Street. He balances that by taking a shot at Washington and Freddie and Fannie. Ensign is now going to pursue whether Goldman worked to manipulate markets.

Ensign is addressing the mechanics of structured transactions and the role of the rating agencies. Ensign also shows a lack of understanding of the capital markets and the nature of structured finance. Ensign seems to believe that investors were totally duped without knowing how these deals worked.

Dan Sparks acknowledges that the business models of the ratings agencies certainly gives the appearance of a conflict of interest.

Ensign believes that Congress is only scratching the surface and that transparency needs to be promoted. He takes a shot at AIG, Goldman, Freddie and Fannie in the process.

Ensign clearly also feels that the Goldman execs are less than fully forthcoming.

1:45pm...Sparks again touches on the requirement for disclosure of new issues but does not touch upon the need for investors to receive true loan level data and that, boys and girls, is where the HUGE gap exists.

Sparks comments that he believes deals would have performed when deals were issued but the fact is the deals were downgraded extremely quickly. Sparks believes disclosure provided was good. I strongly disagree.

1:52pm… Senator Tester also uses his time to address the need for further financial regulation. Would Tester know who and what FINRA is? Tester asks the execs what they would change in financial regulation. Sparks basically takes a pass on taking on the industry and the self-regulatory nature of Wall Street oversight. Whiff.

Tester offers the execs to go out for a pop. He himself and Congress as a whole needs to understand how markets work.

2pm…Levin references the fact that a Goldman CDO, Hudson, is qualified by a Goldman saleswoman as junk. Levin references that a Goldman saleswoman remarks that AIB, Allied Irish bank is too smart to buy this ‘junk’.

Levin is attempting to hammer Dan Sparks on a particular deal but does not appreciate that Goldman’s overall risk management is a dynamic development not a static process.

Levin is trying to make the case that Goldman’s incentives are misrepresented on a specific Hudson CDO. He is very clearly trying to state that Goldman is lying in a pitch book.

Levin is railing on Josh Birnabaum’s getting short the market. Levin is providing good theatre for America but he is missing out on the fact as to why Goldman was shorting not how or when. Birnbaum did his job but Levin believes Birnbaum lied to the SEC in a presentation. I do not see where or how Birnbaum lied based on the statement Levin read.

2:20pm...Senator Coburn is questioning whether Goldman had a policy restricting people from addressing ethical questions via e-mail. In my experience on Wall Street there never was  a policy of this sort but there was always an unwritten rule as to what one should or should not put in a written communication. That rule required one to use basic common sense. If a trader did not have that common sense he as not trading very long.

Coburn is now passing out e-mails that were collected from Goldman Sachs. What cards is he holding? Coburn is referencing an equity investment in regard to a CDO deal thinking that equity in this case may refer to stocks not equity in fixed income deals which means the ‘first loss’ position in a deal. Coburn does not understand what equity in a CDO deal is. Ouch, not good.

Coburn tried to make a case that Paulson selected the collateral on the oft referenced Abacus CDO. He scored few points.

Levin picks up on this line of questioning and is trying to pin Tourre on it. Tourre is struggling here. Tourre states twice, “I do not remember.” Interesting.

Signing off here. Aside from one brief flurry in the morning when a Senator whose name escapes me tried to drill the Goldman execs on the mortgage underwriting process, this hearing fell into the “as expected” category. The Senators were weak in terms of understanding the nature of markets. The Goldman execs were not surprisingly cautious in their responses.

America learns very little new.

Incest wins again.

LD

  • divvytrader

    LD …..

    with all due respect ? Levin and his half wit politicians couldn’t even get their exhibits straight and looked like complete idiots ….

    and on a day that most banks are down 2-3% , GS is up $2 as traders give their view ….

  • Petric456

    Banks are down because of Greece and Portugal. GS is up today because it actually looks cheap to investors down near its January 2010 lows. If Greece and Portugal present true contagion risk, GS will go down like the rest of them…

  • Mike

    Goldman is probably up because the VIX is up. they don’t lose money on days with big swings

  • Vin

    There was a HUGE buyer of GS today around $152…would be great to know who it was. Senator Levin and his staff were impressive. Pretty sophisticated stuff for the layman to understand. I was much less impressed with Blankfein. I thought he was more knowledgable. He had “no idea” that a AAA rating was very desirable and important and that many classes of investors are prohibited from buying anything less than that? Either he a liar, or should be fired for not knowing.

  • Bill

    I like what Powerlineblog said: “I’m not a particular fan of either Goldman Sachs or Congress, but today’s hearing confirms that, given a choice, I’d rather have Goldman Sachs regulating Congress than Congress regulating Goldman Sachs. Goldman’s employees are much smarter, considerably more honest, and far more likely to have my interests at heart.”

  • Fred

    Mark to market, Glass Stegall repeal, both were implemented with good intentions, the former to improve transparency and the latter to increase competion and reduce costs.

    The mistake, we put the “cart before the horse”; before we changed things we should have performed a worst case stress test and implemented financial reform. Neither caused the financial meltdown, but both contributed to the severity.

    Interestingly, “real” fraud (lies on mtg appl), government altruism (homeownership), and misguided Fed policy (low interest rates, weak $) were the causes.

    Deficits required foreign investment, Foreigners demanded higher safe returns to offset weak dollar and fulfill fiduciary responsibility, wall street fed them AAA rated mortgage backed securities. Then the Fed raised rates and the “shit hit the fan”.

    • Fred

      Oh forgot the role of banks; they processed, and approved mortgages that they never would have held in their own porfolio and sent them to Aunt Ginnie to be packaged and sold to wall street. Toward the end, wall street became impatient with the process and went direct to lender and to feed the insatiable investor demand. “AAA, 3 point above treasuries with gov’t backing” it’s a no brainer right?

  • Petric456

    Wholeheartedly agree re: Powerlineblog… Not sure how one can say they were impressed with Senator Levin given that the terms “CDS”, “synethetic CDO” and “MBS” were used interchangably in his questioning of Blankfein. Senator Levin should focus on creating a real economy for Detroit rather than trying to impress voters with a seemingly intelligent beat-down of an actually more intelligent CEO.

  • Fred

    Don’t get me started on Detroit. Hmmm…who benefits from Toyota’s woes, has NASA figured it out yet?






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