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The approval of Senator Bernie Sanders' amendment to audit the Fed [1]
is an important victory, and the 96-0 vote is something to celebrate
and admire--Senator Sanders was shrewd from start to finish in
achieving this. The audit will show not only where the money flowed,
but also potentially shed light on the conflicts of interest and incestuous relationships [2] between Wall Street and the Fed that riddled those decisions.
The approval of Senator Bernie Sanders' amendment to audit the Fed [1]
is an important victory, and the 96-0 vote is something to celebrate
and admire--Senator Sanders was shrewd from start to finish in
achieving this. The audit will show not only where the money flowed,
but also potentially shed light on the conflicts of interest and incestuous relationships [2] between Wall Street and the Fed that riddled those decisions.
But I'm inclined to agree with Nation national affairs
correspondent William Greider who called the audit amendment a "free
vote" since it was clearly going to pass--an easy way for conservative
Senators to join authentic reform advocates like Sanders and portray
themselves as "down with the people."
Put it this way--who has constituents out there who are pro-bailout, pro-bank, and pro-Fed?
A far more difficult vote is expected this week on an equally
important amendment to the financial reform bill--one which will be
much more revealing in terms of who is doing the people's work and who
is doing the banks' bidding.
The Merkley-Levin amendment [3]--introduced by Democratic Senators Jeff Merkley [4] (OR) and Carl Levin [5]
(MI) and cosponsored by Sanders, among others--would rein in
proprietary trading (i.e. subprime securities, derivatives) by
"regular" banks; impose capital requirements on "systemically
important" nonbanks (think Goldman, AIG, Morgan Stanley) so when their
crappy bets don't pan out we don't have to pick up the tab; and prevent
investment banks from betting against the very securities they peddle
to their clients (call it "The Goldman Rule").
Here is how the Senators' press release describes key aspects of the legislation [6]:
According to Senate staffers, the banks have mobilized against this
amendment big time. The vote is expected to be close. Now is the time
for you to call your Senators [8]
and demand that they support the Merkley-Levin amendment. Let them know
that their vote on this will clarify for you whether they put the
people or the banks first.
Now, for your entertainment pleasure, your outrage, and your
motivation to get involved in passing this amendment--in case you
missed it, check out this ABRIDGED hearing transcript of Chairman Levin [9]
pressuring Goldman CEO Lloyd Blankfein to simply acknowledge that there
is a conflict of interest between selling clients securities your own
people call "crap", and not disclosing that your firm is betting
against--and will profit from--those very securities tanking. (You can
watch the full exchange here [10] by scrolling to the 6:30 mark.)
It's really astounding. These people can't be trusted--and the stakes here really can't be overstated. Call your Senators today [8].
LEVIN: We've heard example after example
where Goldman was selling securities to people and then not telling
them that they were taking and intended to maintain a short position
against those same securities. I'm deeply troubled by that. And it's
made worse when your own employees believe that those securities are
"junk" or "a piece of crap" or "a shitty deal," words that those
e-mails show your employees believed about a number of those deals. Do
you think [your clients] know that you think something is a piece of
crap when you sell it to them and then bet against it?
BLANKFEIN: There were individual e-mails that were picked out and some people thought something. But I will tell you...
LEVIN: I'm just asking you a question. Do you think, if
your people think something is a piece of crap and go out and sell that
and then your company bets against it, do you think that that deserves
your trust?
BLANKFEIN: The act of selling something is what gives
us the opposite position of what the client has. The nature of the
principal business and market making is that we are the other side of
what our clients want to do.
LEVIN: It's not just that you sold something which
obviously meant someone was buying it. There's a seller and a
buyer. That's not what we're talking about. We're talking about betting
against the very thing that you're selling. Betting against it. Going
short against it without disclosing that to that client. Do you think
people would buy securities from you if you said, "You know, we want
you to know this. We're betting against this very thing we're selling
to you."... My question is is there not a conflict when you sell
something to someone and then are determined to bet against that same
security, and you don't disclose that to the person you're selling it
to? Do you see a problem?
BLANKFEIN: In the context of market making, that is not
a conflict. What the clients are buying is they are buying an
exposure. The thing that we are selling to them is supposed to give
them the risk they want. They are not coming to us to represent what
our views are. I don't think our clients care or they should care.
LEVIN: That you are betting against a security you're
selling to them? They don't care? You're selling securities many of
which are described as crap by your own sales force internally. And you
don't think that's relevant to a client?
BLANKFEIN: You know, we live in different context. And this is a professional --
LEVIN: Put this in the human context.
BLANKFEIN: In the human context the markets work on
transparency with respect to what the item is.... The people who were
coming to us for a lift in the housing market wanted to have a security
that gave them exposure to the housing market. And that's what they
got....
LEVIN: You don't believe it's relevant to a customer of
yours that you are selling a security to--that you are betting against
that same security? You just don't think it's relevant and needs to be
disclosed. Is that the bottom line?
BLANKFEIN: Yes.
LEVIN: ...What do you think about selling securities which your own people think are crap? Does that bother you?
BLANKFEIN: I think they would -- again, it's a hypothetical?
LEVIN: No. This is real! We heard it today. "This is a shitty deal." "This is crap."
BLANKFEIN: I think that the investors that we are
dealing with on the long side or on the short side know what they want
to acquire.... And as far as whether something is a weak security going
bad, we are selling securities all the time that are weak. That we
ourselves don't like. It's just a function of the price in the market....
LEVIN: We're talking where you were the seller of the
security, and you -- Goldman Sachs--believes [it's] a piece of crap....
And whether there's not an obligation then to disclose to the people
you're selling to in that deal. "Hey, we, Goldman -- we may be selling
it to you, but we believe that this thing is going the other
direction. We're taking the short position." You don't see any conflict
in that?
BLANKFEIN: My understanding is that that is disclosed. That we can have a short or a long position in those securities.
LEVIN: And when you take a short position, do you think
that should be disclosed? Where you're betting against that same
security yourself, do you think that ought -- yes or no? Do you think
it ought to be disclosed or not?
BLANKFEIN: If somebody bought -- as a market maker...
LEVIN: No. Let's just -- just try my question.
BLANKFEIN: All right. Have to be able to...
LEVIN: No. Just try my question. Can a deal where you
are selling securities, and you are intending to keep the short side of
that deal, which is what happened here in a lot of these deals. Do you
think you have an obligation to tell the person that you're selling
that security to in that deal that you are keeping the short position
in that deal? That's my question.
BLANKFEIN: No. I don't think we would disclose that...
LEVIN:. You've made a decision to bet against--to take
the short side of a security that you're selling. And you don't think
that there's any moral obligation here? Put aside the legal
obligation. You don't think there's an obligation to tell the person
that you're selling this to that you are betting against that security
by maintaining a short position in it?
BLANKFEIN: I don't think so...As a market maker we are buying from sellers and selling to buyers.
LEVIN: But I'm saying you are selling to somebody and
you are taking the opposite position. You are betting. You are going
out and getting a default swap. You are betting against the very
security that you are selling to that person. You don't see any
problem? You don't see that you have to disclose? When you put together
a deal, and you go looking for people to buy those securities. That
just adds insult to injury when your people think it's a pile of junk....
But the underlying injury is that you have determined that you are
going to keep the opposite position from the security that you're
selling to someone. You just don't see any obligation to disclose that?
BLANKFEIN: I don't believe in a disclosure obligation.
LEVIN: Do [clients] have a belief at least when you're
going out peddling securities that you want that security to
succeed? Don't they have that right to assume that if you're going out
selling securities, that you have a belief that that's something which
would be good for that client?
BLANKFEIN: I think we have to have a belief, and we do have a belief that if somebody wants an exposure to housing...
LEVIN: You know what? You're out there selling it to
them. You're out there selling these securities. This isn't going to
walk in [their] building... You're picking up the phone. You're calling
all these people. You don't tell them that you think it's a piece of
junk. You don't tell them that this is a security which incorporates or
which in some way references a whole lot of bad stuff in your own
inventory--bad lemons I think the word was called. You're out there
looking around. Over and over again we have emails. You're out there
looking around for buyers of stuff....Where you are betting against what
you're selling. This isn't where you're just selling something from
your inventory. This is where you are betting against the very product
you are selling. And you're just not troubled by it. That's the bottom
line. There's no trouble in your mind or your heart.
BLANKFEIN: I can't endorse your characterization...
LEVIN: It's a question. Not a characterization. I'm saying you're not troubled.
BLANKFEIN: I'm not troubled by the fact that we market
make as principle, and that we're the opposite end. And when somebody
sells, they sell to us. Or when they buy, they buy from us.
LEVIN: And where you are betting -- keeping a betting
interest against the security. It's not just they're buying from
you. That's not my issue. They're buying something from you where you
solicit them to buy, and then you are betting against. You are keeping
the short side. You are going out and getting a default swap. You are
taking a position against the very security that you are selling. And
you are not troubled? And you want people to trust you?
BLANKFEIN: Senator, I think people...
LEVIN: Why would -- I won't trust you. If you came to
me and wanted to sell me securities. And you didn't tell me that you
have a bet against that same security...
BLANKFEIN: Senator...
LEVIN: You think -- you don't think that affects
my... I just got to keep repeating this. I'm not talking about
generally in the market. I'm saying you got a short bet against that
security. You don't think the client would care?
BLANKFEIN: I don't. Senator, I can't speak to what --
what people would care. I would say that the obligations of a market
maker are to make sure your clients are suitable and to make sure they
understand it.
LEVIN: OK.
BLANKFEIN: But we are a part of the market process. We
do hundreds of thousands, if not millions of transactions a day as a
market maker.
LEVIN: This is much more than a market maker. You're
keeping a proprietary interest in a position that is exactly opposite
of what you are selling. OK. We're going round and round.
BLANKFEIN: I think, Senator...
LEVIN: We're going round and round on this, and I don't
think we're going to get an answer from you, basically, that you have
any concern about that kind of a situation.
Senator McCain?
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The approval of Senator Bernie Sanders' amendment to audit the Fed [1]
is an important victory, and the 96-0 vote is something to celebrate
and admire--Senator Sanders was shrewd from start to finish in
achieving this. The audit will show not only where the money flowed,
but also potentially shed light on the conflicts of interest and incestuous relationships [2] between Wall Street and the Fed that riddled those decisions.
But I'm inclined to agree with Nation national affairs
correspondent William Greider who called the audit amendment a "free
vote" since it was clearly going to pass--an easy way for conservative
Senators to join authentic reform advocates like Sanders and portray
themselves as "down with the people."
Put it this way--who has constituents out there who are pro-bailout, pro-bank, and pro-Fed?
A far more difficult vote is expected this week on an equally
important amendment to the financial reform bill--one which will be
much more revealing in terms of who is doing the people's work and who
is doing the banks' bidding.
The Merkley-Levin amendment [3]--introduced by Democratic Senators Jeff Merkley [4] (OR) and Carl Levin [5]
(MI) and cosponsored by Sanders, among others--would rein in
proprietary trading (i.e. subprime securities, derivatives) by
"regular" banks; impose capital requirements on "systemically
important" nonbanks (think Goldman, AIG, Morgan Stanley) so when their
crappy bets don't pan out we don't have to pick up the tab; and prevent
investment banks from betting against the very securities they peddle
to their clients (call it "The Goldman Rule").
Here is how the Senators' press release describes key aspects of the legislation [6]:
According to Senate staffers, the banks have mobilized against this
amendment big time. The vote is expected to be close. Now is the time
for you to call your Senators [8]
and demand that they support the Merkley-Levin amendment. Let them know
that their vote on this will clarify for you whether they put the
people or the banks first.
Now, for your entertainment pleasure, your outrage, and your
motivation to get involved in passing this amendment--in case you
missed it, check out this ABRIDGED hearing transcript of Chairman Levin [9]
pressuring Goldman CEO Lloyd Blankfein to simply acknowledge that there
is a conflict of interest between selling clients securities your own
people call "crap", and not disclosing that your firm is betting
against--and will profit from--those very securities tanking. (You can
watch the full exchange here [10] by scrolling to the 6:30 mark.)
It's really astounding. These people can't be trusted--and the stakes here really can't be overstated. Call your Senators today [8].
LEVIN: We've heard example after example
where Goldman was selling securities to people and then not telling
them that they were taking and intended to maintain a short position
against those same securities. I'm deeply troubled by that. And it's
made worse when your own employees believe that those securities are
"junk" or "a piece of crap" or "a shitty deal," words that those
e-mails show your employees believed about a number of those deals. Do
you think [your clients] know that you think something is a piece of
crap when you sell it to them and then bet against it?
BLANKFEIN: There were individual e-mails that were picked out and some people thought something. But I will tell you...
LEVIN: I'm just asking you a question. Do you think, if
your people think something is a piece of crap and go out and sell that
and then your company bets against it, do you think that that deserves
your trust?
BLANKFEIN: The act of selling something is what gives
us the opposite position of what the client has. The nature of the
principal business and market making is that we are the other side of
what our clients want to do.
LEVIN: It's not just that you sold something which
obviously meant someone was buying it. There's a seller and a
buyer. That's not what we're talking about. We're talking about betting
against the very thing that you're selling. Betting against it. Going
short against it without disclosing that to that client. Do you think
people would buy securities from you if you said, "You know, we want
you to know this. We're betting against this very thing we're selling
to you."... My question is is there not a conflict when you sell
something to someone and then are determined to bet against that same
security, and you don't disclose that to the person you're selling it
to? Do you see a problem?
BLANKFEIN: In the context of market making, that is not
a conflict. What the clients are buying is they are buying an
exposure. The thing that we are selling to them is supposed to give
them the risk they want. They are not coming to us to represent what
our views are. I don't think our clients care or they should care.
LEVIN: That you are betting against a security you're
selling to them? They don't care? You're selling securities many of
which are described as crap by your own sales force internally. And you
don't think that's relevant to a client?
BLANKFEIN: You know, we live in different context. And this is a professional --
LEVIN: Put this in the human context.
BLANKFEIN: In the human context the markets work on
transparency with respect to what the item is.... The people who were
coming to us for a lift in the housing market wanted to have a security
that gave them exposure to the housing market. And that's what they
got....
LEVIN: You don't believe it's relevant to a customer of
yours that you are selling a security to--that you are betting against
that same security? You just don't think it's relevant and needs to be
disclosed. Is that the bottom line?
BLANKFEIN: Yes.
LEVIN: ...What do you think about selling securities which your own people think are crap? Does that bother you?
BLANKFEIN: I think they would -- again, it's a hypothetical?
LEVIN: No. This is real! We heard it today. "This is a shitty deal." "This is crap."
BLANKFEIN: I think that the investors that we are
dealing with on the long side or on the short side know what they want
to acquire.... And as far as whether something is a weak security going
bad, we are selling securities all the time that are weak. That we
ourselves don't like. It's just a function of the price in the market....
LEVIN: We're talking where you were the seller of the
security, and you -- Goldman Sachs--believes [it's] a piece of crap....
And whether there's not an obligation then to disclose to the people
you're selling to in that deal. "Hey, we, Goldman -- we may be selling
it to you, but we believe that this thing is going the other
direction. We're taking the short position." You don't see any conflict
in that?
BLANKFEIN: My understanding is that that is disclosed. That we can have a short or a long position in those securities.
LEVIN: And when you take a short position, do you think
that should be disclosed? Where you're betting against that same
security yourself, do you think that ought -- yes or no? Do you think
it ought to be disclosed or not?
BLANKFEIN: If somebody bought -- as a market maker...
LEVIN: No. Let's just -- just try my question.
BLANKFEIN: All right. Have to be able to...
LEVIN: No. Just try my question. Can a deal where you
are selling securities, and you are intending to keep the short side of
that deal, which is what happened here in a lot of these deals. Do you
think you have an obligation to tell the person that you're selling
that security to in that deal that you are keeping the short position
in that deal? That's my question.
BLANKFEIN: No. I don't think we would disclose that...
LEVIN:. You've made a decision to bet against--to take
the short side of a security that you're selling. And you don't think
that there's any moral obligation here? Put aside the legal
obligation. You don't think there's an obligation to tell the person
that you're selling this to that you are betting against that security
by maintaining a short position in it?
BLANKFEIN: I don't think so...As a market maker we are buying from sellers and selling to buyers.
LEVIN: But I'm saying you are selling to somebody and
you are taking the opposite position. You are betting. You are going
out and getting a default swap. You are betting against the very
security that you are selling to that person. You don't see any
problem? You don't see that you have to disclose? When you put together
a deal, and you go looking for people to buy those securities. That
just adds insult to injury when your people think it's a pile of junk....
But the underlying injury is that you have determined that you are
going to keep the opposite position from the security that you're
selling to someone. You just don't see any obligation to disclose that?
BLANKFEIN: I don't believe in a disclosure obligation.
LEVIN: Do [clients] have a belief at least when you're
going out peddling securities that you want that security to
succeed? Don't they have that right to assume that if you're going out
selling securities, that you have a belief that that's something which
would be good for that client?
BLANKFEIN: I think we have to have a belief, and we do have a belief that if somebody wants an exposure to housing...
LEVIN: You know what? You're out there selling it to
them. You're out there selling these securities. This isn't going to
walk in [their] building... You're picking up the phone. You're calling
all these people. You don't tell them that you think it's a piece of
junk. You don't tell them that this is a security which incorporates or
which in some way references a whole lot of bad stuff in your own
inventory--bad lemons I think the word was called. You're out there
looking around. Over and over again we have emails. You're out there
looking around for buyers of stuff....Where you are betting against what
you're selling. This isn't where you're just selling something from
your inventory. This is where you are betting against the very product
you are selling. And you're just not troubled by it. That's the bottom
line. There's no trouble in your mind or your heart.
BLANKFEIN: I can't endorse your characterization...
LEVIN: It's a question. Not a characterization. I'm saying you're not troubled.
BLANKFEIN: I'm not troubled by the fact that we market
make as principle, and that we're the opposite end. And when somebody
sells, they sell to us. Or when they buy, they buy from us.
LEVIN: And where you are betting -- keeping a betting
interest against the security. It's not just they're buying from
you. That's not my issue. They're buying something from you where you
solicit them to buy, and then you are betting against. You are keeping
the short side. You are going out and getting a default swap. You are
taking a position against the very security that you are selling. And
you are not troubled? And you want people to trust you?
BLANKFEIN: Senator, I think people...
LEVIN: Why would -- I won't trust you. If you came to
me and wanted to sell me securities. And you didn't tell me that you
have a bet against that same security...
BLANKFEIN: Senator...
LEVIN: You think -- you don't think that affects
my... I just got to keep repeating this. I'm not talking about
generally in the market. I'm saying you got a short bet against that
security. You don't think the client would care?
BLANKFEIN: I don't. Senator, I can't speak to what --
what people would care. I would say that the obligations of a market
maker are to make sure your clients are suitable and to make sure they
understand it.
LEVIN: OK.
BLANKFEIN: But we are a part of the market process. We
do hundreds of thousands, if not millions of transactions a day as a
market maker.
LEVIN: This is much more than a market maker. You're
keeping a proprietary interest in a position that is exactly opposite
of what you are selling. OK. We're going round and round.
BLANKFEIN: I think, Senator...
LEVIN: We're going round and round on this, and I don't
think we're going to get an answer from you, basically, that you have
any concern about that kind of a situation.
Senator McCain?
The approval of Senator Bernie Sanders' amendment to audit the Fed [1]
is an important victory, and the 96-0 vote is something to celebrate
and admire--Senator Sanders was shrewd from start to finish in
achieving this. The audit will show not only where the money flowed,
but also potentially shed light on the conflicts of interest and incestuous relationships [2] between Wall Street and the Fed that riddled those decisions.
But I'm inclined to agree with Nation national affairs
correspondent William Greider who called the audit amendment a "free
vote" since it was clearly going to pass--an easy way for conservative
Senators to join authentic reform advocates like Sanders and portray
themselves as "down with the people."
Put it this way--who has constituents out there who are pro-bailout, pro-bank, and pro-Fed?
A far more difficult vote is expected this week on an equally
important amendment to the financial reform bill--one which will be
much more revealing in terms of who is doing the people's work and who
is doing the banks' bidding.
The Merkley-Levin amendment [3]--introduced by Democratic Senators Jeff Merkley [4] (OR) and Carl Levin [5]
(MI) and cosponsored by Sanders, among others--would rein in
proprietary trading (i.e. subprime securities, derivatives) by
"regular" banks; impose capital requirements on "systemically
important" nonbanks (think Goldman, AIG, Morgan Stanley) so when their
crappy bets don't pan out we don't have to pick up the tab; and prevent
investment banks from betting against the very securities they peddle
to their clients (call it "The Goldman Rule").
Here is how the Senators' press release describes key aspects of the legislation [6]:
According to Senate staffers, the banks have mobilized against this
amendment big time. The vote is expected to be close. Now is the time
for you to call your Senators [8]
and demand that they support the Merkley-Levin amendment. Let them know
that their vote on this will clarify for you whether they put the
people or the banks first.
Now, for your entertainment pleasure, your outrage, and your
motivation to get involved in passing this amendment--in case you
missed it, check out this ABRIDGED hearing transcript of Chairman Levin [9]
pressuring Goldman CEO Lloyd Blankfein to simply acknowledge that there
is a conflict of interest between selling clients securities your own
people call "crap", and not disclosing that your firm is betting
against--and will profit from--those very securities tanking. (You can
watch the full exchange here [10] by scrolling to the 6:30 mark.)
It's really astounding. These people can't be trusted--and the stakes here really can't be overstated. Call your Senators today [8].
LEVIN: We've heard example after example
where Goldman was selling securities to people and then not telling
them that they were taking and intended to maintain a short position
against those same securities. I'm deeply troubled by that. And it's
made worse when your own employees believe that those securities are
"junk" or "a piece of crap" or "a shitty deal," words that those
e-mails show your employees believed about a number of those deals. Do
you think [your clients] know that you think something is a piece of
crap when you sell it to them and then bet against it?
BLANKFEIN: There were individual e-mails that were picked out and some people thought something. But I will tell you...
LEVIN: I'm just asking you a question. Do you think, if
your people think something is a piece of crap and go out and sell that
and then your company bets against it, do you think that that deserves
your trust?
BLANKFEIN: The act of selling something is what gives
us the opposite position of what the client has. The nature of the
principal business and market making is that we are the other side of
what our clients want to do.
LEVIN: It's not just that you sold something which
obviously meant someone was buying it. There's a seller and a
buyer. That's not what we're talking about. We're talking about betting
against the very thing that you're selling. Betting against it. Going
short against it without disclosing that to that client. Do you think
people would buy securities from you if you said, "You know, we want
you to know this. We're betting against this very thing we're selling
to you."... My question is is there not a conflict when you sell
something to someone and then are determined to bet against that same
security, and you don't disclose that to the person you're selling it
to? Do you see a problem?
BLANKFEIN: In the context of market making, that is not
a conflict. What the clients are buying is they are buying an
exposure. The thing that we are selling to them is supposed to give
them the risk they want. They are not coming to us to represent what
our views are. I don't think our clients care or they should care.
LEVIN: That you are betting against a security you're
selling to them? They don't care? You're selling securities many of
which are described as crap by your own sales force internally. And you
don't think that's relevant to a client?
BLANKFEIN: You know, we live in different context. And this is a professional --
LEVIN: Put this in the human context.
BLANKFEIN: In the human context the markets work on
transparency with respect to what the item is.... The people who were
coming to us for a lift in the housing market wanted to have a security
that gave them exposure to the housing market. And that's what they
got....
LEVIN: You don't believe it's relevant to a customer of
yours that you are selling a security to--that you are betting against
that same security? You just don't think it's relevant and needs to be
disclosed. Is that the bottom line?
BLANKFEIN: Yes.
LEVIN: ...What do you think about selling securities which your own people think are crap? Does that bother you?
BLANKFEIN: I think they would -- again, it's a hypothetical?
LEVIN: No. This is real! We heard it today. "This is a shitty deal." "This is crap."
BLANKFEIN: I think that the investors that we are
dealing with on the long side or on the short side know what they want
to acquire.... And as far as whether something is a weak security going
bad, we are selling securities all the time that are weak. That we
ourselves don't like. It's just a function of the price in the market....
LEVIN: We're talking where you were the seller of the
security, and you -- Goldman Sachs--believes [it's] a piece of crap....
And whether there's not an obligation then to disclose to the people
you're selling to in that deal. "Hey, we, Goldman -- we may be selling
it to you, but we believe that this thing is going the other
direction. We're taking the short position." You don't see any conflict
in that?
BLANKFEIN: My understanding is that that is disclosed. That we can have a short or a long position in those securities.
LEVIN: And when you take a short position, do you think
that should be disclosed? Where you're betting against that same
security yourself, do you think that ought -- yes or no? Do you think
it ought to be disclosed or not?
BLANKFEIN: If somebody bought -- as a market maker...
LEVIN: No. Let's just -- just try my question.
BLANKFEIN: All right. Have to be able to...
LEVIN: No. Just try my question. Can a deal where you
are selling securities, and you are intending to keep the short side of
that deal, which is what happened here in a lot of these deals. Do you
think you have an obligation to tell the person that you're selling
that security to in that deal that you are keeping the short position
in that deal? That's my question.
BLANKFEIN: No. I don't think we would disclose that...
LEVIN:. You've made a decision to bet against--to take
the short side of a security that you're selling. And you don't think
that there's any moral obligation here? Put aside the legal
obligation. You don't think there's an obligation to tell the person
that you're selling this to that you are betting against that security
by maintaining a short position in it?
BLANKFEIN: I don't think so...As a market maker we are buying from sellers and selling to buyers.
LEVIN: But I'm saying you are selling to somebody and
you are taking the opposite position. You are betting. You are going
out and getting a default swap. You are betting against the very
security that you are selling to that person. You don't see any
problem? You don't see that you have to disclose? When you put together
a deal, and you go looking for people to buy those securities. That
just adds insult to injury when your people think it's a pile of junk....
But the underlying injury is that you have determined that you are
going to keep the opposite position from the security that you're
selling to someone. You just don't see any obligation to disclose that?
BLANKFEIN: I don't believe in a disclosure obligation.
LEVIN: Do [clients] have a belief at least when you're
going out peddling securities that you want that security to
succeed? Don't they have that right to assume that if you're going out
selling securities, that you have a belief that that's something which
would be good for that client?
BLANKFEIN: I think we have to have a belief, and we do have a belief that if somebody wants an exposure to housing...
LEVIN: You know what? You're out there selling it to
them. You're out there selling these securities. This isn't going to
walk in [their] building... You're picking up the phone. You're calling
all these people. You don't tell them that you think it's a piece of
junk. You don't tell them that this is a security which incorporates or
which in some way references a whole lot of bad stuff in your own
inventory--bad lemons I think the word was called. You're out there
looking around. Over and over again we have emails. You're out there
looking around for buyers of stuff....Where you are betting against what
you're selling. This isn't where you're just selling something from
your inventory. This is where you are betting against the very product
you are selling. And you're just not troubled by it. That's the bottom
line. There's no trouble in your mind or your heart.
BLANKFEIN: I can't endorse your characterization...
LEVIN: It's a question. Not a characterization. I'm saying you're not troubled.
BLANKFEIN: I'm not troubled by the fact that we market
make as principle, and that we're the opposite end. And when somebody
sells, they sell to us. Or when they buy, they buy from us.
LEVIN: And where you are betting -- keeping a betting
interest against the security. It's not just they're buying from
you. That's not my issue. They're buying something from you where you
solicit them to buy, and then you are betting against. You are keeping
the short side. You are going out and getting a default swap. You are
taking a position against the very security that you are selling. And
you are not troubled? And you want people to trust you?
BLANKFEIN: Senator, I think people...
LEVIN: Why would -- I won't trust you. If you came to
me and wanted to sell me securities. And you didn't tell me that you
have a bet against that same security...
BLANKFEIN: Senator...
LEVIN: You think -- you don't think that affects
my... I just got to keep repeating this. I'm not talking about
generally in the market. I'm saying you got a short bet against that
security. You don't think the client would care?
BLANKFEIN: I don't. Senator, I can't speak to what --
what people would care. I would say that the obligations of a market
maker are to make sure your clients are suitable and to make sure they
understand it.
LEVIN: OK.
BLANKFEIN: But we are a part of the market process. We
do hundreds of thousands, if not millions of transactions a day as a
market maker.
LEVIN: This is much more than a market maker. You're
keeping a proprietary interest in a position that is exactly opposite
of what you are selling. OK. We're going round and round.
BLANKFEIN: I think, Senator...
LEVIN: We're going round and round on this, and I don't
think we're going to get an answer from you, basically, that you have
any concern about that kind of a situation.
Senator McCain?