Wall Street on Trial

Goldman Sachs chief executive Lloyd Blankfein, JPMorgan Chase Chief Executive Jamie Dimon, Morgan Stanley Chairman John Mack Bank of America chief executive Brian Moynihan

Financial Crisis Inquiry Commission Begins
WASHINGTON (AP) — Challenged by a skeptical special U.S. commission, top Wall Street bankers apologized Wednesday for risky behavior that led to the worst financial crisis since the Great Depression of the 1930s. But they still declared it seemed appropriate at the time.

The tension at the first hearing of the Financial Crisis Inquiry Commission was evident from the outset.

“People are angry,” commission Chairman Phil Angelides said. Reports of “record profits and bonuses in the wake of receiving trillions of dollars in government assistance while so many families are struggling to stay afloat has only heightened the sense of confusion,” he said.

Testy exchange over ‘shorting’ securities
In Wednesday morning’s testiest exchange, commission chairman Phil Angelides, a Democrat and former California state treasurer, pressed Lloyd Blankfein, head of Goldman Sachs, about one particular financial practice.

Why did Goldman take bad financial assets, package them together into bond-like securities, and sell them to investors – while at the same time “shorting” those securities, or making investment bets that they would fail?

Mr. Blankfein said the behavior was improper, but he hedged on fault, saying, “These are professional investors who wanted [these securities]…. I felt good about it.”

Mr. Angelides struck back that Goldman was really double-dealing.

“I’m just going to be blunt with you,” Angelides told him. “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.”

Blankfein replied: “I do think the behavior is improper. We regret the consequence that people have lost money in it.” Later, though, he defended the firm’s actions as “exercises in risk management.”

In a moment of self-analysis, Blankfein said the world of high-finance simply rationalized its way into risky transactions. Summarizing the thinking in the industry at the time, he said: “Gosh, the world is getting wealthier. Technology has done things. … These businesses are going to do well. You talked yourself into a place of complacency,” he concluded.

The Financial Crisis Inquiry Commission website

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6 thoughts on “Wall Street on Trial

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