The Senate tries to get the bankers to admit they sold America a pile of crap.
Fine, then. If Team Goldman wasn't going to talk about its business, the senators would talk about it for them—using Goldman's own words. Levin first quoted an e-mail from a Goldman trader describing the instruments as "junk." He later cited references to the so-called "crap pools"—again, a Goldman employee's words—that the firm tried to sell. He also managed to repeat the phrase "shitty deal," used by another trader in an e-mail to describe a security Goldman Sachs was selling, more than a dozen times. "When your employees say, God, what a shitty deal. God, what a piece of crap. How does that make you feel?" Levin asked Goldman CFO David Viniar. Viniar replied: "I think that's very unfortunate to have that on e-mail."
Even as senators slipped away to cast their votes on financial regulatory reform along party lines, they united in bipartisan support of populist grandstanding. Sen. John McCain asked Blankfein if he realized that Americans were hurting, and what he planned to do about it: "Has Goldman tried to do anything to help smaller banks?" Sen. Claire McCaskill, D-Mo., compared Wall Street to Las Vegas, telling one Goldman employee he "had less oversight than a pit boss"—prompting Sen. John Ensign, R-Nev., to take offense: "In Vegas, you know the odds. On Wall Street, they manipulate the odds while you're playing the game." Sen. Mark Pryor, D-Ark., noticed another difference: "People in Vegas are betting with their own money."
Another refrain among senators was, essentially: I'm not angry. I'm just disappointed. "I'm not saying it's bad," said Sen. Ted Kaufman, D-Del., of shorting mortgage securities. "I'm not saying it's illegal. I'm just saying it's a tough conflict of interest that you have to deal with every day."
And there was the rub. The behavior the senators were bemoaning—that Goldman had bet against its clients—happens all the time. As the Goldman execs kept reiterating, Goldman acts as a "market maker." A middleman. It puts investors in touch with each other. Any time one of its clients makes a bet, Goldman is technically on the other side—at least until it finds another client to take the opposite side. Not always, of course. Goldman invests its own money, too. And it may have stretched the definition of "middleman" in this case by keeping the short positions on mortgages for itself instead of looking for other buyers. But what was it supposed to do, give away the best investments even as the mortgage market tanked? As Blankfein put it, Goldman can't serve its clients if Goldman doesn't exist.
That says nothing about the SEC case, of course. The lawsuit hinges on whether Goldman broke the law by failing to tell investors that a particular subprime CDO was assembled with the help of someone who was betting against it. If a court determines that that information was "material" to the investors' decision to buy, Goldman employees could face huge fines. *
But that's a separate question from whether investment banks should be able to bet against their own clients. Because there's no law against being a jerk, public shaming would have to do. "You say nothing you heard today troubled you," Levin said to Blankfein toward the end of the hearing. "That concerns me, and it concerns a lot of people in this country. You shouldn't be selling junk. You shouldn't be selling crap. You shouldn't be betting against your own customer you're simultaneously selling to." It's not a crime. It's just a shitty thing to do.
Slate V: Sen. Levin's NSFW outburst
Correction, April 28, 2010: This article incorrectly stated that the SEC lawsuit was a criminal case. It's a civil suit. (Return to the corrected sentence.)
Christopher Beam is a writer living in Beijing.