Lloyd Blankfein sneaks through bruising encounter

Did US legislators land a knockout blow on Goldman Sachs yesterday - or were the Senate hearings in Washington an inconclusive spectacle more akin to watching two crime families point the finger at one another in a bizarre, scripted morality play?

"Both sides got what they wanted," said securities law professor Robert Hillman. "The Senate probably did what it felt it had to do, which was bring Goldman people up and embarrass them. For Goldman, the goal was to demonstrate that they had not engaged in fraud or illegal conduct. They probably succeeded in that."

The session concluded with Goldman bruised and chastened by an intense 11-hour public grilling and - crucially - with investors still no closer to knowing if Goldman bankers are even half-plausibly capable of placing clients' interests ahead of their own.

Everyone played their scripted part: outraged senators huffing and puffing on behalf of an outraged public; well-rehearsed bankers, including the odious Fabrice "Fab" Tourre and the professionally penitent Lloyd Blankfein, conceding weakly that their wrongdoings - if any - were never more than what the system itself permitted.

Blankfein, at the end of the proceedings, conceded that if the synthetic CDOs central to the government's complaint are too complicated and risky, then perhaps they should not be permitted. "Clearly, the world needs more regulation," he offered.

Still, yesterday's hearings made clear - if any further proof was necessary - how deep conflicts of interest lie beneath the showy professionalism at the world's most profitable banks. Is it plausible to think that Goldman - or any bank with a proprietory trading business, advisory and securities arms - can really operate each division behind Chinese walls?

If Goldman was betting against the securities it was offering - one trader pitching the controversial Timberwolf group of securities as "one shitty deal" - can it still expect to reassure regulators it can make a market, sell products in that market and play in it without misleading investors, if only through omission.

And how can investors really take seriously the investment grades assigned by ratings agencies when the designers of those investments are the paymasters?

The year-long investigation into Goldman may not have concluded with a "gotcha moment" but it has certainly exposed the obvious flaws in the system and offered clear evidence that market conventions are designed to mislead. You can almost hear the Marxists turning in their graves: "Typical Capitalists - always rigging the game." By the end of the day, the 141-year old firm's valuation had risen by $549 million.

Even Goldman execs yesterday admitted as much: the investment vehicles they designed were not for amateurs; they were for professional investors who would - or should - have known the risks involved in playing the game and that some serious sharks were on the other end of the deal. But that's barely one step from the mugger blaming the granny for getting her handbag snatched.

"You shouldn't be selling this junk, you shouldn't be selling crap," Senator Carl Levin concluded. "I happen to believe in a free market, but if it's going to be free ... it's got to be free of deception."

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