I'm not sure I'll ever get tired of seeing financial-sector executives dragged before congressional committees to testify, and so today I'm at a hearing of the Permanent Subcommittee on Investigations, where top Goldman Sachs executives, including Lloyd Blankfein and Fabrice Tourre, will talk about their firm's actions leading up to the 2008 crash. Not that the testimony will be that surprising, but it does a democracy good to see those at the top of the ladder explain themselves publicly.That said, this hearing is more smoke than fire: Levin and his staff are focusing on the fact that Goldman Sachs bet against the housing market, but that's neither illegal nor surprising, although it should shed light on the macro trends that drove the housing bubble.
The real question of criminal and ethical concern, however, is whether the firm lied to their clients and ratings agencies about the products they sold, and hopefully the testimony will dig deeper into that question. Jacob Goldstein has a good take:
So the key question isn't whether Goldman was net short or net long the housing market. It's whether the company told its clients everything it should have told them.The issue of disclosure is at the center of the SEC's fraud lawsuit against Goldman. The SEC says Goldman wrongly failed to tell its clients about the role of a hedge fund that took a short position on a mortgage-related security. Goldman denies the charges.
In other financial reform-related news, after yesterday's failed cloture vote, Senate Democrats are set to force the issue again, with another vote to move Sen. Chris Dodd's regulatory overhaul to the floor set for today, and, if necessary, a third is prepared for tomorrow.
-- Tim Fernholz
