Lloyd Blankfein Of Goldman Sachs Drops A Clue
The Financial Crisis Inquiry Commission (FCIC) held its first hearing today. According to its website (http://www.fcic.gov/about/), the Commission was established to "examine the causes, domestic and global, of the current financial and economic crisis in the United States."
FCIC Chairman, Phillip Angelides, led the charges with this statement about the investment vehicles Goldman Sachs promoted and insured, all the while they were betting against them:
"It sounds to me a little like selling a car with faulty brakes and then buying an insurance policy on the buyers of those cars."
Chairman Angelides challenged Lloyd Blankfein on how Goldman Sachs could sell a package of bad real estate loans as an investment vehicle, while Goldman Sachs was betting against them by shorting them. Lloyd Blankfein drops us a clue. Mr. Blankfein repeatedly said the investors wanted them. The FCIC needs to go and talk to these investors who wanted them and find out why they wanted these really bad investments? They also can find out if Mr. Blankfein is telling the truth. After all, these investors are professional investors.Some of these investors are pension fund managers for teachers and firemen. Since Mr. Blankfein wants to point the finger and put the blame on others, the FCIC should interview and investigate all of these buyers who wanted these bad investments. Find out why they bought these bad investments? Why did the buyers want them? Find out what the buyers found so appealing about these bad investments. Or perhaps, the buyers can tell us exactly how Goldman Sachs marketed these bad investments. I find it difficult to accept that these experienced professional investment managers would purchase such really terrible investment vehicles.
There is something key missing here. I want to hear the Goldman Sachs sales pitch. Did Goldman Sachs threaten them with financial repercussions if they didn’t go along? If you, or anyone you know, bought these bad investments for the funds and pension plans you were managing, please come forward and tell us why. Please let us hear the Goldman Sachs sales pitch and the motivation for wanting these terrible investments.
A bright spot at today's hearing was when Brooksley Born took her turn grilling the bank executives. Ms. Born has been trying to warn government officials about this impending crisis for over ten years. Recently, the Washington Post reminded its readers:
"A little more than a decade ago, Born foresaw a financial cataclysm, accurately predicting that exotic investments known as over-the-counter derivatives could play a crucial role in a crisis much like the one now convulsing America.
"The same class of derivatives that preoccupied Born -- including the now-infamous "credit-default swaps" -- have been blamed for accelerating last fall's financial implosion."
Today, Ms. Born asked Lloyd Blankfein (Goldman Sachs), Jamie Dimon (JP Morgan), John Mack (Morgan Stanley) and Brian Moynihan (Bank of America), what percent of their holdings contained these toxic derivatives. Blankfein and Mack said they would have to report back later.
Ms. Born told all four men to send the information to the Commission. She also told them to send the Financial Crisis Inquiry Commission information on their proprietary trading.
If the Commission hears from those who bought these terrible investments, and if the Commission receives the percentage of derivatives these banks held along with their proprietary trading information, we just may be able to get to the bottom of this.