Goldman under attack as US begins credit crisis hearings

Banks face inquisition amid atmosphere of public anger over bonuses

Goldman Sach's trading of mortgage-related securities has emerged as an early focus of the Financial Crisis Inquiry Commission, the US body set up to get to the bottom of the causes of the credit crunch and the financial panic of 2008.

Lloyd Blankfein, the Goldman chief executive, bore the brunt of intense questioning on the first day of the commission's public hearings in Washington yesterday, and admitted to the inquiry that his firm got caught up in "elements of froth" in the market for mortgage investments.

But commission members signalled they would go after more than an admission of mistakes, and demanded more information on potential conflicts of interest and on whether Goldman misled its clients.

Inquiry chairman Phil Angelides, a Democrat who was formerly California state treasurer, accused Goldman of activity that "sounds like selling a car with faulty brakes and then buying an insurance policy on those cars". He pressed Mr Blankfein repeatedly on why Goldman had continued to sell mortgage-related derivatives to investors, even as the company was placing bets that the US housing market and the value of these investments was going to fall.

As the most powerful and widely recognised name on Wall Street, Goldman Sachs has become a lightning rod for public fury over the bailout of the nation's leading banks. For this reason – and because his name put him first on a panel arranged alphabetically – Mr Blankfein was yesterday cast as chief spokesman for the investment banking industry.

Also appearing before the commission were Jamie Dimon, chief executive of JPMorgan Chase, John Mack, chairman of Morgan Stanley, and Brian Moynihan, the new chief executive of Bank of America, which owns Merrill Lynch. "Without trying to shed one bit of our industry's accountability, we would also further our collective interests by recognising other contributing causes to the severity of the crisis," Mr Blankfein said in his testimony. That was dismissed in a one-liner by Mr Angelides. "Maybe this is like Murder on the Orient Express," he said, "and everybody did it."

In the end it was Goldman's activities that most interested the chairman and for long periods the hearing became a feisty debate between the two men. Mr Blankfein repeatedly interrupted to try to explain that Goldman's main activities were as a broker of mortgage securities and that it was not "betting against" the market, just trying to reduce its substantial overall exposure to housing and mortgages. He likened the practice of short-selling the mortgage market to taking out "hurricane insurance", prompting Mr Angelides to cut in: "Acts of God we will exempt, these were acts of men."

The chairman also repeatedly tried to get Mr Blankfein to admit that Goldman could have gone under in the week after Lehman Brothers failed in September 2008, if it were not for the extraordinary interventions in the market by the US government. Neither Mr Blankfein, nor any of his peers on the panel, would agree that their own firms were certainly doomed.

The commission is beginning its work in an atmosphere of public anger over the effects of the financial crisis, which exacerbated an already deep recession, and just days before Wall Street banks are due to reveal a return to the pre-crisis levels of bonuses for staff. Today, President Barack Obama is planning to set out ways in which the costs of the bailout will be recouped via a "fee" on the industry. Mr Angelides has been told to produce a report on lessons from the crisis by December.

Morgan Stanley's Mr Mack yesterday called the financial crisis "a wake-up call" and said: "Many firms were too highly leveraged, took on too much risk and did not have sufficient resources to manage those risks effectively in a rapidly changing environment."

News
The surrealist comedian at the Q Awards in 2010
people
News
Russell Brand arriving for the book launch in East London
peopleRussell Brand cancels his book launch debate due to concerns about the make-up of the panel
Sport
Christiano Ronaldo enjoys his opening goal
champions leagueLiverpool 0 Real Madrid 3: Ronaldo and Benzema run Reds ragged to avenge thrashing from their last visit to Anfield
Arts and Entertainment
Awesome foursome: Sam Smith shows off his awards
music22-year-old confirms he is 2014’s breakout British music success
PROMOTED VIDEO
Life and Style
Six of the 76 Goats' cheese samples contained a significant amount of sheep's cheese
food + drink
Arts and Entertainment
Contestants during this summer's Celebrity Big Brother grand finale
tvBroadcaster attempts to change its image following sale to American media group
Extras
indybest
Arts and Entertainment
Sir Nicholas Serota has been a feature in the Power 100 top ten since its 2002 launch
art
Arts and Entertainment
Sarah Dales attempts to sell British Breeze in the luxury scent task
tvReview: 'Apprentice' candidate on the verge of tears as they were ejected from the boardroom
News
Call me Superman: one of many unusual names chosen by Chinese students
newsChinese state TV offers advice for citizens picking a Western moniker
News
ebooksAn unforgettable anthology of contemporary reportage
News
Wilko Johnson is currently on his farewell tour
people
Voices
New look: Zellweger at Elle's Women in Hollywood awards on Monday
voicesRenée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity, says Amanda Hess
News
Let’s pretend: KidZania in Tokyo
educationKidZania lets children try their hands at being a firefighter, doctor or factory worker for the day
Life and Style
CHARGE BOOSTER: Aeroplane mode doesn't sound very exciting, but it can be a (phone) hacker's friend. Turning on the option while charging your mobile will increase the speed at which your phone battery charges
techNew book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone
Arts and Entertainment
Julianne Moore and Ellen Page are starring together in civil rights drama Freeheld
film
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultants

£20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...

Day In a Page

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
The 10 best smartphone accessories

Make the most of your mobile: 10 best smartphone accessories

Try these add-ons for everything from secret charging to making sure you never lose your keys again
Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

Liverpool v Real Madrid

Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
West Indies tour of India: Hurricane set to sweep Windies into the shadows

Hurricane set to sweep Windies into the shadows

Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?