Published April 26, 2010
WASHINGTON -- Goldman Sachs' chief executive says in prepared remarks to Congress that the firm didn't bet against its clients and can't survive without their trust.
CEO Lloyd Blankfein and several other executives will testify Tuesday to the Senate Permanent Subcommittee on Investigations. Earlier this month, the Securities and Exchange Commission filed a civil fraud case against Goldman, saying it misled investors about securities tied to home loans.
Goldman is fighting back. At the hearing, Blankfein will repeat the company's argument that it lost $1.2 billion in the residential mortgage market during 2007 and 2008. He also will argue that Goldman wasn't making an aggressive negative bet -- or short -- on the mortgage market's meltdown.
"We didn't have a massive short against the housing market, and we certainly did not bet against our clients," Blankfein says in prepared remarks released by the company. "Rather, we believe that we managed our risk as our shareholders and our regulators would expect."
The SEC has alleged that Goldman concocted mortgage investments without telling buyers that the investments had been put together with help from a hedge fund that was betting on them to fail. Goldman disputes the charges.
"If our clients believe that we don't deserve their trust, we cannot survive," Blankfein says in the prepared remarks.
Blankfein acknowledges, "We have to do a better job of striking the balance between what an informed client believes is important to his or her investing goals and what the public believes is overly complex and risky."
Some experts say damage to Goldman's reputation has already been done and might be long-lasting.
Regardless of the outcome of the SEC's case, "Goldman Sachs has lost," said James Cox, a Duke University law professor and securities law expert. "It's lost in the arena of public opinion."