Tales told, but little signified

Much has already been written about the appearance of "Goldman Sachs" before the "Senate" in the 18 hours since it actually happened. There may be little to actually come from this very public event, but there were at least a few stand-out moments in the day's seemingly endless proceedings.

While most of the mainstream press had been heralding yesterday's appearance of seven present and former members of Goldman Sachs in front of the Senate Permanent Subcommittee on Investigations (SPSI) as 'the Lloyd Blankfein show', it was clear to many that the real interest would be in the 'gang of four' appearing in Panel 1. The Goldman 'gang' comprised Daniel Sparks, former partner, head of mortgages department; Joshua Birnbaum former md, structured products group trading; Michael Swenson md, structured products group trading; and, of course, Fabrice Tourre, executive director, structured products group trading - most famous for his emails and being the subject of an SEC investigation. Indeed, that turned out to be the case.

As always appears to be the case with these kind of Congress hearings, the first hour was spent testing the levels of people's interest in what was to follow (and perhaps also it was an effort to break the will of witnesses before proceedings truly began). All watching were subjected to an interminable re-cap of the story so far in the honest, yet humble, opinion of the SPSI.

Unclear motive
What still remains unclear is why this hearing was held in the first place. For its part, the SPSI avowed that it was merely the fourth in its series of hearings on the causes and consequences of the financial crisis and that it intended to "focus on the role of investment banks in the crisis, using Goldman Sachs as a case study". Those of a more suspicious nature have suggested a number of alternative aims; notably, an effort to add impetus to the progress of financial reform bill or to force Goldman's hand and encourage a settlement in the SEC case (see also separate News Analysis).

The potential need for the latter was highlighted by the first stand-out moment provided by Tourre's testimony that: "I deny - categorically - the SEC's allegation. And I will defend myself in court against this false claim."

True, we do not yet have the SEC's full evidence for the case. But if part of the gamble was that Tourre would be left hanging out to dry by the bank, it seems for now at least that it won't pay off.

However, it was during the Q&A that things really took off, after some considerable time wasted on the SPSI members' irritation at the witnesses' time-wasting tactics. Though hardly an unusual strategy, it took quite some leap of faith to believe that an institution such as Goldman should ever employ four such slow-on-the-uptake men as these, all of whom appeared cursed with significant memory loss. Mind you, the obtuse nature of some of the questions being asked didn't help.

The first hurdle to sanity in this regard was a whole misguided discussion over morals (note to senators, morality may play well to your audience, but it has nothing to do with money in this context), combined with confusion over the different roles banks have as investment advisers, market makers etc - if only there was a law against such things...

Crying wolf
Once we were through that, there were plenty of accusations and innuendo, but things really got interesting with the introduction of Timberwolf into the conversation. It was alleged that Goldman had sold the RMBS deal to customers, despite internally characterising the transaction in less than complimentary terms. Chairman Levin, in particular, seemed to take great delight in repeating over and over again the scatological description used in an email by Tom Montag, the then co-head of the securities business at Goldman Sachs and now president of global banking and markets at Bank of America Merrill Lynch.

But the real moment came when one of the committee members honed in on the "hedging" activities around the deal and the firm's move into using equity as well as fixed income products. It was pointed out that US$300m had been sold to Bear Stearns and, in addition to shorting the underlying in the RMBS, Goldman had also bought put options on Bear stock. Ouch! A denial of this being a deliberate strategy immediately followed.

However, at this point someone should probably have stood up and said something like: "Fellahs, that may not be your strategy and it may not be illegal, but it looks awful bad to anyone with even the slightest sense of decency." Then, the matter could have been pursued relentlessly; instead, it was allowed to slip by and some other personal agenda taken up instead.

That, inevitably, will be the tombstone for this hearing and the others to come - missed opportunities. Someone needs to decide what is 'on trial'.

Is it capitalism? If so, then go for your lives. But it appears to be more about the spurious idea of bad people doing bad things.

Are investment bankers bad people? Maybe, sometimes. Do they do bad, but legal things to make money? Yes - it's their job.

Doris Marx*

*Doris Marx is a pseudonym and her views are her own and not necessarily those of SCI.