Sen. Jon Tester will tell you that he is just a simple Montana farmer. He's savvier than the image he presents, but nonetheless he played the role of the outraged populist well yesterday, joining Sens. Carl Levin of Michigan, Claire McCaskill of Missouri, and Tom Coburn of Oklahoma in interrogating four former and current Goldman Sachs employees. "It's like we're speaking a different language here," Tester marveled at one point.
It was a marathon, 11-hour scolding of Wall Street by four representatives of middle America. The bankers did their best to play dumb, or at least confused, as the senators berated them about financial transactions not all of the bankers participated in and some of the senators didn't understand. "Again, I'm trying to understand what the question is," was a typical confession as the Goldman managers tried to explain themselves.
The hearing will do little to change the pace of financial reform; the general outlines of what Goldman and other major investment banks did during the crisis are known. Nor will it likely affect the Securities and Exchange Commission's investigation into Goldman and one of those who testified, "Fabulous" Fabrice Tourre, who is charged with misrepresenting a complex financial instrument he sold. What the hearing will do is further damage the unloved firm's reputation among its peers but perhaps at the risk of forgetting that what Goldman did, nearly every (surviving) investment bank did as well.
More often than not, the senators confused themselves or simply made the unctuously polite bankers more sympathetic. No one's private e-mails -- or self-evaluations -- make them look good when discussed in public. Imagine going through your own work e-mail on national television while being scolded by America's wise men. It sounds excruciating, and I don't engage in multibillion-dollar deals or refer to myself in the third person with an absurd nickname.
Once in a while, though, the senators managed to hit pay dirt by finding language that the bankers couldn't equivocate around. "Boy that timeberwof [sic] was one shitty deal," an e-mail sent to one executive read, referring to a structured investment the bank peddled to clients. The committee's chair, Levin, reveled in the comment, repeatedly demanding how and why the Goldman bankers sold such shitty deals to customers. Clients may think twice now before they sign with Goldman -- but then again, they haven't stopped patronizing the ratings agencies that approved the deals.
Unfortunately, Goldman's decision to short the mortgage market was the focus of the hearing, but that's not illegal, merely dubious -- although it is an argument for ending proprietary trading and the attendant conflicts of interest at commercial banks, and perhaps barring banks from buying out insurance on products they don't own. More focus on actual improprieties around the construction of these instruments -- and whether they were disclosed to investors -- would get to the heart of the unethical double-dealing that many suspect of these investment banks. A congressional hearing is not the best venue for such an investigation; that's the SEC's job.
Using Goldman as a case study sheds light on how it survived the crash, but other banks using the same strategy haven't received nearly as much negative attention from the press or a hearing devoted to their ethical lapses. Yesterday was a useful rallying flag for financial reformers looking for a symbol, but it didn't always get at the heart of what actually needs to change in the financial sector. It's pretty tough to legislate putting the customer first -- something the hearings dwelt on -- but these senators could certainly put derivatives on a transparent exchange.
Problems like what we've seen in the financial sector require systemic answers -- barring banks from specific types of business, reducing risk -- that can get lost if all the focus is on one player. You see that when critics of financial reform complain that Goldman's lobbyists support certain provisions of the financial-reform bill, and that means the whole thing is compromised. But Goldman's recognition that certain provisions are worse for its competitors than for itself don't undermine the bill's quality.
It's a delicate line to walk: Policy-makers need to produce the kind of scaled-up solutions found in the financial-reform legislation, but the lack of easily identifiable characters makes telling the public about these abstract issues difficult at best. Advocates for reform shouldn't mistake a communications tactic for an effective policy response.
During a recess from the hearing, I walked past two Code Pink demonstrators, dressed in prison uniforms, who had been particularly vocal about the quality of the bankers' answers, calling them out when they failed to answer clearly or stalled. They were talking to capital police officers about what they were and weren't allowed to do during the hearing.
"I don't understand clearly the question that you're asking me," one Code Pink demonstrator told an officer, echoing the stalling bankers. Guess it's not always easy to hold up under interrogation.
