Politics rule at Goldman Sachs hearing on Capitol Hill
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Top officials from Goldman, Sachs & Co. will testify before the Senate Permanent Subcommittee on Investigations as it probes the role of investment banking in the recent financial crisis. Here is a look at the political stakes in what is expected to be a dramatic televised hearing.
Facing civil fraud charges lodged by federal regulators, Goldman Sachs has been set up to be the villain in the script. Senate investigators say that Goldman Sachs earned $3.7 billion by selling short during the collapse of the mortgage market, which precipitated the swift decline of the economy whose shards the government is still trying to paste together.
Chief Executive Lloyd Blankfein is expected to be forceful in defending his company and will insist that Goldman Sachs did nothing fraudulent or improper.
Fabrice Tourre, the trader who is the focus of a fraud suit by the Securities and Exchange Commission, will also insist he is not at fault.
“I deny – categorically – the SEC’s allegation. And I will defend myself in court against this false claim,” he will say according to prepared testimony. Known as “fabulous Fab,” Tourre, 31, will face tough questions about his role in setting up an investment vehicle that the government charges was expected to fail.
The political stakes for the company remain high as it tries to navigate between having to defend itself from the fraud charges and the need to show that it was legally effective in making a profit for its investors.
The Goldman Sachs executives will face a tough panel of questioners and a dubious audience because Wall Street at large has already been cast as the villain in the popular mind.
According to polls, the public overwhelmingly believes that Wall Street did an array of tricky things that brought down the economy. The Goldman Sachs investment vehicle, involving aggregating mortgages that were doomed to fail, may have been legal, but in the public mind it is just one more tactic designed to hide huge profits at the expense of the general society. Senate interrogators will play to that sentiment, pushing to cast Goldman Sachs in the worst possible light.
But lawmakers have their own problems. Democrats and Republicans are split in the Senate over the politics of financial regulation. On Monday, Republicans blocked a Democratic bill from coming to the floor.
With an eye on the midterm elections in the fall, both parties insist that they are in favor of toughening regulations against Wall Street, particularly when it comes to those tricky investments, including derivatives. However, they are split over the details.
But there is no split over the politics: Each side will blame the other. Democrats want voters to see Republicans as the servants of a greedy Wall Street, while the GOP wants them to see Democrats as being at fault for a crippled legislative process.
In addition to castigating Goldman Sachs, expect Democrats and Republicans to try to carve out their own political areas against each other.
-- Michael Muskal
