After a day of grilling of Goldman Sachs (GS) executives, the Senate Permanent Subcommittee on Investigations is finally hearing from CEO Lloyd Blankfein.
(Live feed is here.)
As mentioned this morning, Blankfein conceded that the complexities of Wall Street can appear confusing to much of the public and that the bank needed to do a better job of explaining derivatives.
His prepared remarks also reiterated the firm’s contention that “we were not significantly net short the housing market.”
Chairman Carl Levin starts off the questions by noting the firm’s bets against structured products it was selling to customers, while Goldman executives described the products in emails as “a shitty deal” and “crappy.”
“Internally your own people believed that these are crappy securities. How do you expect to earn the trust of your clients. And is there not a conflict of interest?”
Blankfein’s: “Our clients’ trust is very important to us.”
Levin: “Do they know your own people think something is a piece of crap?”
Blankfein: “The nature of market making is that we are taking the other side.”
Levin: “Would they buy this from you if you said, We’re going out and betting against it? Is there not a conflict?”
Blankfein: “In the context of market making, that is not a conflict. The thing we are selling them is supposed to give them the risk they want. They shouldn’t care what our views are. There are parts of the business where we are fiduciaries.”
Levin: “That’s the part that confuses people. You don’t explain that your’e betting against them.”
Blankfein: “They don’t care.”
Levin: “They don’t care that there’s an inherent conflict that you don’t disclose to your client that you’re short on that security? You don’t think that’s relevant?”
Blankfein: “Just think of buying in the stock market. You could be buying from the biggest mutual fund in the world, and you would never know it. Our clients wanted exposure to the market, and that’s what they got.”
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