PAUL SOLMAN: So, Goldman might insist that, technically, it isn't front-running, or that the charge could never be proved.
So, let's move to another. How about the extravagantly profitable bets, for its own account, that "Goldmine Sachs," as some call it, placed with insurer AIG, against the very products, mortgage-backed securities, that the firm was trading to customers?
McClatchy reporter Greg Gordon was the first to uncover the practice.
GREG GORDON, investigative reporter, McClatchy Newspapers: In 2006, Goldman began, in different ways, to make bets that the housing market would turn south. When you're selling $40 billion in securities, U.S.-registered securities, to investors here and abroad in 2006 and 2007, and, at the same time, you're secretly betting that these securities are going to go south, are going to lose value, well, that raises a big question.
PAUL SOLMAN: Lloyd Blankfein's response?
LLOYD BLANKFEIN: What we do is risk management. Because we had this risk, because we were accumulating positions, which, by the way, we acquired from clients who want to sell them to us, we have to go out ourselves and provide and source the other side of the transactions, so that we can manage our risk. These are all exercises in risk management.
PHIL ANGELIDES: Well, I'm just going to be blunt with you. It sounds to me a little bit like selling a car with faulty brakes, and then buying an insurance policy on the buyer of those cars, the pension funds who have the life savings of police officers, teachers.
LLOYD BLANKFEIN: These are the professional investors who want this exposure.
PAUL SOLMAN: Professional, sophisticated investors, who should have known what they were getting into with mortgage backed securities, a theme Blankfein hit again and again.
LLOYD BLANKFEIN: A sophisticated investor that creates the exposure that these professional investors are seeking.
Again, the most sophisticated investors, who sought that exposure.
PAUL SOLMAN: And, look, says investment adviser Jeff Macke, even if Goldman's people are more sophisticated than their clients, Blankfein's still right.
JEFF MACKE: Caveat emptor. Goldman Sachs didn't get to become Goldman Sachs because they're bad traders. Of course they know more than the other guys. They're packaging the goods. It's their book. They know more about it than anyone. And, if they're selling it, well, you probably don't want to be a buyer. I want to buy things from people who I know more than, not people who are creating these instruments for me to buy.
PAUL SOLMAN: But pension funds don't bring in the math whizzes, the quants, the people that Goldman Sachs has. They're no match for Goldman Sachs' salespeople or traders.
JEFF MACKE: Generally speaking, they aren't. So, what is a pension fund doing involved in these securities?
PAUL SOLMAN: Even if you think Macke and Blankfein provide a reasoned defense, however, one huge last question remains: Has the firm been making record profits with your and my money?
Friday, February 12, 2010
On the PBS Newshour with Jim Lehrer, last night and tonight. His understated report made Goldman Sachs look like a bunch of crooks... A sample: