Goldman Sachs concedes case for restraining the big banks
Lloyd Blankfein says he 'could' support Volcker rule, if it makes institutions safer
The Goldman Sachs chief executive, previously an outspoken opponent of proposals to break up the banks, has conceded that such a move might make institutions such as his "safer".
In American television interviews, Lloyd Blankfein also said he wished his firm had "not done some of those things", in relation to its activities in the now-notorious mortgage-backed securities market and conceded the institution would have to "regain the trust of the public". "We have no choice," Mr Blankfein said. "We can't survive without people thinking well of us."
The Goldman chief said that he "could" support the Volcker rule – the proposal framed by the former US Federal Reserve Chairman Paul Volcker, who is now an adviser to President Obama, that would place restrictions on investments banks. "If it makes institutions safer, that's good," Mr Blankfein said. "But if it make institutions forgo revenue opportunities, that fact by itself is bad."
In relation to his own bank, Mr Blankfein stated that it would lose only a small portion of business. "I think that if we eliminated all the activity that's unrelated to client activity at Goldman Sachs, we would probably do away with about 10 per cent of our revenue," he said. He maintained that allowing different investors to take different views on the progress of those prices was elegant and served a "social purpose".
But he admitted: "If the derivatives become too complicated and illiquid, then notwithstanding the purpose, you may say: 'Let's not do those things.' So in hindsight, I wish we had not done some of those things."
Mr Blankfein added: "We'll look at all of our business practices. But we have to do more about examining the cross-currents and we have to look at the conflicts inherent in the business where you're a go-between, between buyers and sellers, people who need to invest money and people who need those investments. We're always intermediating in our business between interests that are in conflict and we help to resolve those conflicts."
He also seemed sensitive to some of the language in emails presented to Congressional investigators. "When I was sitting there at the Senate hearings – and after having given over 20m pieces of paper, emails, conversations and other documents which were basically snippets and conversations – there were some emails where some people were projecting I would say at best an indifference, and at worst a callousness to the fact that we had sold something in time," he said.
"And in a couple of the emails...there was more of an expression of relief that we didn't do badly and not a regret that a client did do badly as a result after the fact," he added. "That kind of indifference, and that kind of callousness in some cases, is something that was very disturbing to me."
Goldman Sachs has come in for intense criticism in recent weeks both for its business practices and the rewards given to its staff. The firm has seen its reputation badly dented after a decision by the US Securities and Exchange Commission (SEC) to lodge fraud charges against it.
The SEC alleges Goldman failed to inform investors in its Abacus bond that a hedge fund helped to pick the portfolio of the credit it contained, and then bet against it.
Fabrice Tourre, the London-based bond trader named in the civil fraud case against the bank, and one of the people who helped to devise Abacus, said he "categorically" denied the SEC's charges. Goldman has stood by Mr Tourre and has strongly rejected the claims as wrong "in fact and law".
In the UK, senior politicians have called for the firm to be sacked from its role advising the Treasury and other official bodies. In response to criticisms, Mr Blankfein has angrily denied that his firm has acted improperly. He maintains that the firm simply gave its clients what they wanted: exposure to the housing market. However he appears to have now softened his line. Over the weekend there were press reports that Goldman Sachs paid its London staff $5bn (£3.6bn) in salary and bonuses last year, equivalent to a payout of $1m (£650,000) each.
When that prospect was put to the Prime Minister Gordon Brown a few weeks ago, he called for a "special investigation" into Goldman Sachs, describing the situation as one of "moral bankruptcy".
Blankfein also conceded yesterday that Goldman had "made a contribution" to the market bubble. "How did we make the contribution? We were a lender. We lent money to companies... [and] real-estate ventures that had too much leverage," he said.
Goldmans, memorably described in Rolling Stone magazine as a "great vampire squid wrapped around the face of humanity", continues to polarise opinion. It has received support for its activities from Warren Buffett, who has invested $5bn (£3.6bn) in the firm.
But Nouriel Roubini, one of the most influential economic voices on the planet, has called for the firm to be dismembered. In his new book Crisis Economics, Mr Roubini writes: "People talk of tinkering with the financial system, as if what happened was caused by a few bad mortgages.
"Throughout most of 2009, Goldman Sachs chief executive Lloyd Blankfein repeatedly tried to quash calls for sweeping regulation o the financial system. In speeches and before Congress, he begged his listeners to keep financial innovation alive and 'resist a response that is solely designed to protect us against the 100-year storm'."
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