NEW YORK (CNNMoney.com) — Top Goldman Sachs representatives — including CEO Lloyd Blankfein — attempted to deflect criticism Tuesday as they faced a blistering cross-examination from lawmakers about the firm’s role in the financial crisis.
For more than ten hours, members of a Senate panel skewered current and former executives at Wall Street’s top firm with pointed questions and criticisms in an effort to understand how Goldman had positioned itself just as the nation’s housing market started to come unraveled in 2007.
[Goldman Sachs’] conduct brings into question the whole function of Wall Street,” said Sen. Carl Levin, D-Mich., who chairs the Permanent Subcommittee on Investigations, the same committee hosting Tuesday’s eagerly anticipated hearing.
Goldman has been accused in recent days by Levin’s committee of betting aggressively against the nation’s housing market, making as much as $3.7 billion in the process.
Documents released by the committee this week also demonstrated that Goldman may have been engaging in other questionable practices, including selling investment products with names such as “Timberwolf I” to customers knowing that they might fail.
“Boy that timeberwof [sic] was one shi**y deal,” according to one internal Goldman e-mail released by the committee Monday.
The New York City-based company is currently facing a federal lawsuit along those lines. Earlier this month, the Securities and Exchange Commission, charged Goldman with defrauding investors in the sale of a complex mortgage investment.
Disclosures such as the employee e-mail involving “Timberwolf I” became an easy target for lawmakers on both sides of the aisle.
“You had less oversight than a pit boss in Las Vegas,” said Sen. Claire McCaskill, D-Mo., a member of the Permanent Subcommittee on Investigations, the committee hosting Tuesday’s closely watched hearing.
Lawmakers made little headway in getting Goldman to concede the company did anything wrong even as they honed in on the firm’s bet against the housing market and its questionable role as a so-called “market maker,” partnering buyers and sellers of securities.
“We are going round and round on this” said Levin after an aggressive line of questioning aimed at Blankfein late in the day.
Faced with such attacks, individuals appearing on the firm’s behalf adopted a tone of respectful defiance, but showed little regret for whatever role Goldman played in fueling the financial crisis.
“Regret to me is something you feel like you did wrong,” said Daniel Sparks, the former head of Goldman’s mortgages department. “I don’t have that.”
All along, the company has maintained that it too got hit when the U.S. housing market collapsed, losing some $1.2 billion in 2007 and 2008. It has also rejected recent charges that it bet against American homeowners or against its own clients.
Rather, the company has maintained it merely was trying to insulate itself from other large bets it made on residential real estate.
“We didn’t have a massive short against the housing market and we certainly did not bet against our clients,” said Blankfein.
If nothing else, Tuesday’s hearing provided a rare glimpse behind the normally opaque world of Wall Street and its top firm, Goldman Sachs.
Until the crisis struck, firms such as Goldman and its peers operated in a lightly regulated world and were virtually unknown to everyday Americans.
Goldman’s profile has steadily risen over the past two years though. The firm was propped up with taxpayer dollars in the fall of 2008, enjoyed a windfall from the collapse of insurer AIG and as it was poised to pay large bonuses to its employees for last fiscal year.
Much of the focus in Washington, as a result, was centered on Tuesday’s hearing, which attracted throngs of reporters and even hecklers.
“Goldman Sachs is a bunch of thieves!” said one audience member prior to the hearing’s start.
It also marked the first public appearance of Fabrice Tourre, the 31-year-old French trader who allegedly helped broker an investment deal that is now the subject of a civil lawsuit brought by the Securities and Exchange Commission earlier this month.
Both Goldman and Tourre face fraud charges after allegedly allowing hedge fund operator John Paulson to help select securities that were bundled into a complex mortgage investment called a collateralized debt obligation, or CDO.
Regulators maintain that Goldman didn’t tell investors of Paulson’s involvement and that Goldman itself was betting that the value of the investment would fall. Paulson netted $1 billion on the deal, according to the SEC.
Goldman has since rejected the agency’s claims, maintaining that Paulson never had a hand in selecting the securities but that he merely made suggestions. The company has also maintained it had no “economic motivation” for its investors to lose money, adding it lost more than $100 million as a result of the transaction.
Tourre echoed those claims Tuesday, even as the firm has increasingly distanced itself from him.
Last week, the company placed the London-based employee on paid leave indefinitely and stripped him of some of his credentials with British regulators. Over the weekend, the company released a series of embarrasing e-mail messages he had sent to a girlfriend.
“Why would you do that to one of your employees?” said Tom Coburn, R-Okla. “Somebody made the decision that he’d be the whipping boy.”
That came just days after it had placed him on paid leave indefinitely and stripped him of some of his credentials with British regulators.
Tourre, the only individual implicated in the SEC’s case against Goldman, maintained Tuesday that he planned to fight the charges brought by the federal government.
“I deny — categorically — the SEC’s allegation. And I will defend myself in court against this false claim,” he said.
Goldman has also said on more than one occasion that the company plans to “vigorously contest” the charges against it.