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Previous of Images Next Daniel Sparks, Joshua Birnbaum, Michael Swenson, Fabrice Tourre prepare to testify Protestors barrack the bankers before they start their testimony Sparks, Birnbaum, Swenson and Tourre are surrounded by a hungry press pack Frenchman Fabrice Tourre awaits is given little breathing space by the army of photographers Fabrice ‘fab’ Tourre answers a question before his testimony Daniel Sparks, who used to run Goldman’s mortgages business, reads some of his prepared evidence Protestors hold up a photos of Lloyd Blankfein, the Goldman chief executive, during the Senate committee hearing. Photo: AP Goldman Sachs, one of the most prestigious banks in the world, has issued a detailed rebuttal of the SEC’s accusation of fraud Fabrice Tourre, Goldman Sachs vice president Lloyd Blankfein, chairman and chief executive officer of Goldman Sachs Photo: BLOOMBERG US Senator Carl Levin, a Michigan Democrat, explains the Goldman hearing to reporters in Washington on April 26
1945: The mammoth first session ends.
1936: Levin presses Tourre on the structure of the Abacus deal. Was half the Abacus portfolio selected by Paulson? “I don’t remember,” the French trader says.
1930: Senator Coburn asks about those short positions again. Tourre boldly declares: “I think we’ve been through this before.”
1921: Odd exchange about the email policy at Goldman. The panel seem particularly wary about questions to do with internal firm rules, however straightforward. Q: “Is there a policy within Goldman Sachs that restricted what you could write in emails about issues relation to the business?” Sparks say there were some policies about personal mails and information going outside. Birnbaum says: “I don’t remember all the policies.” Swensen and Tourre eventually provide the firm answer: there were no policies.
1919: Here’s Levin’s point. On Oct 4th 2007, he says, Goldman wrote a note to the SEC that explains that “during most of 2007, we maintained a net short sub-prime position so stood to benefit from the declining prices in the mortgage market.” Was this a true statement, Levin asks? Answer: “They weren’t my words…” “I’m just asking you if the darn statement is true…” He gets two out of four yeses.
1902: Levin starts delving into details of specific deals and reads a few statements that he throws out to the panel. It includes one that Allied Irish Bank declined to invest in because the bank deemed it to be junk. Levin’s point is whether Goldman’s risks were aligned with clients, he waves a document: “You say on this that you’re interests are aligned and they’ re not.”
Another reads: “Need to you send message to [Goldman's CDO bosses] tell them what a great job they did… they make some lemonade from some big old lemons.”
1857: Senator Tester says he understands the Goldman panel’s position but asks them in turn to understand that “we can’t let this happen again. We’ve all got to think about this.” He hands back to Chairman Levin.
1853: Tester: “What would change about the regulatory structure?” Sparks: “It’s a very hard question. When you look at what gradually became too much credit in the system, there wasn’t a defuse valve to monitor it.”
1851: Tester seems pretty amazed: “I think everybody recognises that there needs to be some kind of regulation here,” he says.
1842: Tester lists a range of CDO deals from Timberwolf to Abacus, that were all down-graded to junk within months. “How in good faith can you set these up, sell them out and collect the fees?” Sparks: “We made bad business decisions. These performed horribly… That said, people in my business unit had different views of them.”
Tester: “Do you believe that clients and the rating agencies had all the information? Including the information about Paulson?” Sparks responds: “Rating agencies rate the deal, whatever the assets are, they are. The deal is the deal.”
Tester tries again: “So Paulson, having a role in picking the assets, and a rating agency saying that that information would have had a big impact on their view, that doesn’t register with you?” Apparently not.
1840: Senator Tester: “Mr Sparks, do you think Goldman Sachs did anything wrong in this whole process of CDOs?” A: “I don’t think Goldman didn’t perodically make mistakes, doesn’t mean wrong.”
1835: Birnbaum: “If you were not congnisant of ethics you would not last, you would be paid.” Tourre and Swenson say that Goldman pay was fair. Ensign: “Thank you Mr Chairman: As all the questions have showed today, we’re seeing some of the problems”
1833: Here we go with the big one: Pay. Senator Ensign: “Do you think Goldman’s pay structure and the way bonuses are set up lead to ethical behaviour?” Sparks shoots back: “I don’t work there any more… I don’t know.”
1828: It’s the turn of Senator John Ensign, a Republican from Nevada. He’s interested in rating agencies. Goldman admitts that it pays the rating agencies “large amounts of money.” Do you think Goldman Sachs “improperly influenced the rating agencies?” We get a rare clear answer: “No.”
Ensign concludes that the evidence is “complex” but questions have “just scratched the surface…. reform is going to be hugely important.”
1817: Pryor’s summary is slow and considered but punchy: “Mr Chairman: There is a concern around the country that Wall Street has caused the economic crisis – that you’re betting with other peoples money and lives. And yet all of you have said that there’s not a real clear ethical standard, you just said that your wear different hats and it’s complicated… Some of the things we’re hearing today are very troubling. You are not taking responsibility for your actions, or your bank’s actions or your industry’s actions.”
1817: Tourre: “I am saddened and humbled by 2008. Goldman Sachs was involved in some of these products but I firmly believe my conduct was correct.”
1816: Swensen: “I do not think we did anything wrong. There are things in hindsight we could have done better.”
1815: Hang on – drum roll – an answer from Mr Sparks: “We participated in that industry. We participated in an industry that got loose.”
1813: Senator Pryor gives the Goldman boys a big hint: “I’m looking for you guys to take responsibility for your actions.” It appears lost on Birnbaum who asks: “Which specific actions?”
1812: Mr Birnbaum, same question. He doesn’t directly answer the question. Too much credit may have caused a bubble and we’re all sympathetic to the pain caused by that bubble. There’s a lot of human pain…. then I guess it’s possible.
1810: Do you think Goldman’s actions contributed to the financial downturn we experienced in 2008? Long, long pause. Sparks: Look we had clients who lost money… we made mistakes and we made some poor business decision. Senator repeats question: “I don’t know, I’d like to think about that.”
1809: We’re back on Paulson and his role in creating the specific Abacus deal. Sparks: “What people should have concentrated on was the securities themselves not who’s idea the deal was.”
1805: Pryor: “Most professions have ethical standards, some kind of code they have to follow, is this case in your industry?” Sparks hesitates. He says yes but can’t say whether the ethical standards were set by the company, industry or Government. He simply says Goldman’s standards were “very well thought out.”
1802: Intriguing. The questioning shows how complex the relationships between banks and its clients.
Senator Pryor, a Democrat from Arkansas, returns to a previous question: “Do you have a responsibility to disclose to the client when you have an adverse interest to the client?” Sparks replies: “If you mean, is our position different to clients, then no, if you mean one that could harm them, then yes.” Q: “Do you have to tell clients your positions?” A: “No.” Q “Should you have to?” A: “That could present issues.”
So let’s be clear: “At the time your client is making the decision, don’t you owe them all the information, including where your firm sits on the particular deal?” Sparks: “We owe the client all the information, but not our position because it won’t effect how the deal performs.”
1800 McCaskill is defeated; time is out.
1755: McCaskill – what’s clear here [from these emails] there’s not much confidence in the long side of this instrument, yet sales people are being told to push it. You guys are not just making the market but playing the market and messing it up. Do you understand that?
1750: McCaskill waves emails about “sxxxxy deals” but her run is interrupted as the Goldman bench insist on finding the correct piece of paper. She will not have her time wasted and, despite Goldman protestations, says “don’t worry, I have plenty more.” This is one formidable lady.
1746: Panicked looks on the Goldman bench. Sparks tries to restore order, using his slow, technical voice to point out some tedious point that may or may not be interesting. McCaskill listens but will not be distracted: “We’re here to learn why people in my state have lost money, that’s why we’re here and we’re going to.”
1742: Senator McCaskill has moved on to Paulson. Tourre in the firing line – and giving answers, ish. What’s Paulson doing in the room when the deal was being put together? “Erm.” Was IKB in there too? “No IKB was not.” Tourre adds: “I didn’t tell IKB about the existance of Paulson.” McCaskill goes in for the kill: “I don’t think anyone was in the room except Paulson, were they Mr Tourre? You put ACA in the room as a figleaf….Everyone else involved was your alumni, your former desk buddy.”
1736: Coburn changes tact: How many Goldman lawyers have prepared you for today? Tourre says he doesn’t know how many but agrees he has spoken with Goldman lawyers ahead of the hearing.
1735: Here we go: the Tourre emails. Coburn wants to know how Tourre felt about Goldman releasing personal emails showing him being flippant about the risks within some of the deals. The Senator’s point is clear: surely Goldman was trying to offer up the young trader as the fall guy? Tourre refuses to take the bait and insists he was at fault, that he’s embarrassed about the mails and he alone is to blame.
1733: Coburn tries again: “If you had a product that you knew stinks, everyone knows if even if it’s the worst possible combination of securities, there’s still a price that a market can be made?” Ans: “Yes.” Phew.
1731: Did you ever see flaws in the ratings of securities were being given by the rating agencies? Robotic answer from Sparks: “That was not my job. My job was to offer a view to buy or sell.”
1728: Coburn asks specifics about a deal called Longbeach which had AAA-rated. Goldman’s response is that the bank invested in some of these dodgy assets too.
1720: Coburn quickly runs into the same problem. Q: “Who’s responsible here?” A: “We were a team.” Q: “Who was the leader of the team?” A: “We were a team.” Q: “Who was the leader?” A: “Swenson was my superior, Sparks was his superior.” Wow. See, it wasn’t that hard was it?
1715 Bit of a breather as Tom Coburn, the senior Republican, arrives – he says he’s being “dealing with an even bigger financial problem” with the White House. He makes slightly bland opening statement. Then turns to questions.
1708: Kaufman asks them if they’ve ever heard of the terms “thin files” and “bar-belling”. Each them has “heard of that somewhere.”
1700: Goldman executives argue that some people “like the risk” of the mortgages-backed securities that were being sold. Mr Kaufman is incredulous: “I don’t think anyone in American wants to buy a mortgage from someone who can just walk into a bank, state what their income is and get a mortgage. No-one wants that. Would you agree?” Sparks won’t say: “What now? In hindsight?” he asks. Kaufman snaps: “That language works in a lot of place, but I really don’t think it works here.”
1655: Senator Kaufman is on the attack. He glares at the Goldman panel: “This is what I’m getting out of this: that you all say this is a natural disaster and no-one fault, like a hurricane or something. Did you ever have any concerns in 2006/7 at all that there were an awful lot of home loans being securitised?” Question seems to flaw the Goldman executives.
1653: Goldman boys seem unfazed by Levin’s threats. They are asked, do you know what a state income loan is? And all flounder. It’s like pulling teeth.
1652: Levin wades in: “We’re going to stay here for as long as it takes to get the information infront of the public. So if there’s a strategy among the Goldman executives, it’s not going to work, we’re going to stay here.”
1650: Birnbaum’s turn to avoid the question. “You asking me to interpret an email when I wasn’t on the deal.” Ms Collins is getting cross: “It’s clear what the Goldman executives meant. I too am baffled that they continue to maintain they did not have an overall short position.” Birnbaum interrupts: “Your charts are at best misleading.”
1643: Ms Collins is openly exasperated: “Mr Chairman, I can’t help getting the feeling that the strategy of the witnesses is to burn through the time of the questioners.”
1640: She asks the Goldman panel that, given the obvious confusion over duties to clients, should Congress change the law to introduce a fiduciary duty for brokers to act in the interests of clients. Answer: “Erm, conceptually it’s an interesting idea.”
1637: Collins to Swenson, same question: do you have a duty to serve your clients?. Complex answer. Now Tourre’s turn: “I believe we have a duty to serve our client by showing prices on transactions they ask us to show them, I don’t believe we are acting as investment advisers to our clients.” What??
1635: “I’m starting to share the chairman’s frustration and I’m only 30 seconds into my time. Please answer the question: do you have a duty to act in the best interests of your client?” Sparks can’t answer. Amazing.
1635: “I can see that I’m not going to get a straight answer out of you. You’ve taken up enough of my time.” Hands him over to Ms Collins.
1633: Sparks hesitates again and Levin lets rip over the Timberwolf deal: “How much of that sxxxy deal did you sell to your clients? You didn’t tell them it was a sxxxxy deal? You knew it was a sxxxy deal.” Sparks: “My performance on that deal wasn’t good, we lost money. I don’t recall selling “hundreds of millions.” Levin is having none of it: “Ok, let’s have a look. This email shows that your top priority is to sell a sxxxxy deal.”
1630: American TV channel interrupts to explain that US markets are down because European markets are closing and worried about the sovereign outlook of Portugal – “not because of the Goldman Sachs hearings”.
1625: Levin turns to another deal – Timberwolf, a $1bn hybrid CDO that Goldman put together and under-wrote in 2007. Levin pre-empts an answer from Sparks: “you don’t remember this deal, you don’t remember if you were on the short side, you don’t remember how much money you made.” Sparks’ forehead is showing a shine.
1623: Gosh this is painful. Another question from Levin and Sparks starts laboriously looking for the relevant bit of paper. He seems not to have any knowledge of the evidence.
1621: Levin demands to know whether Goldman felt it a duty to tell a client if it had an “adverse interest” in the asset. He interrupts Sparks: “I’m just going to keep going because it’s obvious that you don’t want to answer the question.”
1620: 10 minutes in, and Goldman’s Sparks is still stuck on the first question. Tension mounting already: Levin insists on an answer to”how to you get comfortable” with the sale of an asset.
1615: Chairman Levin starts the questioning: why did you not inform your clients that Goldman was going short a product you were selling to a client? Sparks is not endearing himself by fumbling with the documents, apparently refusing to recognise Levin’s assertion that an email proves Goldman was going short.
1609: Tourre ends with sharp reminder to the chairman that he and his family suffered as a result of the “unfounded attacks on my character and motives.” He looks the Senator in the eye and can hardly hide his anger as he says: “I wish to repeat – I did not mislead IBKB or ACA, two of the most sophisticated institutional investors in these products anywhere in the world.”
1605: Tourre is on a roll, systematically dismissing each of the SEC’s charges: The Abacus deal was “not designed to fail” while Goldman had “nothing to gain” from his failure. ACA chose the securities in the deal, not Paulson.
1602: Here we go Fabrice Tourre. Chairman checks he’s pronouncing Tourre’s name correctly (“Tor” not “Tor-rey”). He has a clipped accent and is speaking faster than his colleagues. From the start, he’s far more aggressive than the colleagues. “I deny categorically SEC allegations and will defend myself in court”.
1558: Michael Swensen, boss of mortgage department at Goldman. Same monotone description, polite but defiant. The story is exactly the same as his former colleagues: as the crisis took hold, action meetings were held where was instructed “not to go short or long, just to reduce risk.”
1555: John Birnbaum, a former managing director in Goldman’s structured products department. He says he’s proud of his 15 years at Goldman though, like Sparks, also quit the firm in 2008 – just at the zenith of the crisis.
1550: Dan Sparks: I was told to reduce Goldman risks, not to go long or to go short.
1545: Goldman bankers stand to be sworn in. Daniel Sparks, former head of the mortgage department, is up first, Fab Tourre will be called last.
1542: One Wall Street proponent comes onto CNBC about to burst: “What do Senators want? Would they prefer stupid bankers who see the trends and decide to lose money instead?”
1541: The opening comments end – the longest ever made infront of the committee according to CNN. Commentators across the US business TV channels are furious by the rhetoric, especially the view that it is being “unpatriotic to profit”.
1540: Senators’ desire to hit Goldman no matter what the legality is made clear: Ms Collins: “Some conflicts may not have been illegal but morally questionable… we need reform.”
1536: Ms Collins: Goldman was one of the only firms to make money in the financial crisis – “this hearing is not to celebrate” that success “but examine how the trading system in Goldman make those profits possible.”
1530: Time for the leading Republican to reply. Senator Tom Coburn is “away on pressing business at the White House”so his deputy Senator Susan Collins does the honours.
1529: Levin concludes with stark warning of his intentions: “I hope this Congress will follow the example of another Congress, eight decades ago, and enact the reforms that will put a cop back on the Wall Street beat.”
1525: Levin quotes Senators who investigated Great Depression in 1930s: “There is no such thing as absolute security. But while the banker may make mistakes, he must never make the mistake of offering investments to his clients which he does not believe to be good.”
1515: While Levin goes through fairly familiar review of the financial crisis, Twitter users concentrate on Fabrice. Quite a few are tickled by his looks, others show the anger against Goldman. @karenrothstein tweets: “Sorry. I have no compassion for Goldman Sachs today. No one is above having their greed examined.”
1510: The Goldman panel looks uncomfortable as Levin slams Goldman and says its actions have polluted Wall Street: “Goldman’s actions demonstrate that it often saw its clients not as valuable customers, but as objects for its own profit. This matters because instead of doing well when its clients did well, Goldman Sachs did well when its clients lost money. Its conduct brings into question the whole function of Wall Street.”
1508: Here’s the numb of the allegations: “..the evidence shows that Goldman repeatedly put its own interests and profits ahead of the interests of its clients and our communities. Its misuse of exotic and complex financial structures helped spread toxic mortgages throughout the financial system. And when the system finally collapsed under the weight of those toxic mortgages, Goldman profited from the collapse.”
1506: Levin’s not pulling any punches: Goldman’s “activities contributed to the economic collapse that came full-blown the following year.”
1500: Senator Carl Levin kicks off by reading his pre-prepared opening statement giving the background to three previous hearings into the “worst economic decline since the Great Depression.” He adds: “Behind every number we cite are American families who are still suffering the effects of a man-made economic catastrophe.”
The Goldman executives look nervous too. They’ve clearly been told to clamp their hands together and not fiddle.
1455: Fab Fabrice Tourre arrives at the Senate Committee room and had to push demonstrators dressed in black and white stripped prison-style outfits. He’s young, dark haired, wearing an unremarkable suit with a maroon tie. He looks around nervously.