Stephen Foley: Time for you to say sorry, Blankfein-san

Saturday 27 February 2010 01:00

US Outlook: Transcript of Congressional testimony from Lloyd Blankfein, chief executive of Goldman Sachs, in the style of the president of Toyota, Akio Toyoda*:

Chairman and members of the committee, thank you for giving me this opportunity to speak today, and to address the safety issues surrounding Goldman Sachs, its products and its culture.

I hope to explain to the American people, and to our global stakeholders, how seriously we are taking our responsibilities to act ethically and with restraint in a new era for global finance. But first, I want to make a clear, sincere and unreserved apology for the role of my bank in the excesses that led up to the crisis of 2007-08. To people who have lost their homes, their jobs, or their savings – or all three – as a result of this crisis, I want to personally say sorry for Goldman's contribution to building a system that caused so much pain.

We are humbled by what happened. Excesses had become so great that our entire financial system was put in jeopardy. We survived. Partly this is because many of our employees became concerned about those excesses and, as a firm, we dialled back many of our activities and acted to protect ourselves.

But we survived mainly because the panic of September 2008 was stopped not by Wall Street, but by government actions, and by the promise of taxpayer money. We, therefore, owe the American public not just a debt of gratitude but a debt of monetary value. Our return to significant profit is already resulting in increased tax payments to the US government, but I promise today that we will co-operate with Congressional and White House efforts to recoup overall bailout losses with additional levies on us and our Wall Street peers. We will not lobby against such a tax; we will work with you to design one that brings in the required money as quickly as possible.

It is hard for us to admit that we remain intact only as a result of government action. I equivocated last time I was asked the question.

Other things are hard to admit, too, but there is one more thing I want to say today, particularly to Goldman Sachs staff and to other people working on Wall Street.

Our pay is too high. We make large profits, in part, simply because we are large. The intelligence and hard work of our employees are reflected in long-term profits in which they should share, but the size of those profits depend, too, on the amount of capital or leverage that is available to them – and that money is not theirs. We are not a hedge fund, nor will we strive to compete with hedge funds.

I want to say again: we are humbled by what happened. We have taken too long to say sorry, and we have adopted an arrogant tone when dealing with Congress, the media and the wider public. We are not naturally focused on our public image; it has always been most important to us to win the trust of clients and the respect of our peers. Our operations are not well understood, because the finance industry has become very – perhaps, too – complex. I hope that, over time, people will see that our entire financial system was in the grip of a great error. We put too much faith in the accuracy of mathematical models and the chimera of ever-rising house prices to justify greater and greater amounts of debt and leverage. Our mistakes were usually ones of misunderstanding, not malice.

There is a vigorous debate about the nature of all these mistakes. But dismissing and demeaning our critics, while it has played well to an unreconstructed Wall Street, has set back efforts to explain how our industry works, and to debate how best to reform it. We promise to do better in that communication effort, in the hope that closer public oversight of our industry will follow.

To this end, I ask that a formal statement from our chief spokesman, Lucas Van Praag, be entered into the Congressional record, in which he recants his descriptions of our critics as "naive", "stupid", and likely to publish "effluent". Mr Van Praag knows better than anyone that when a spokesman becomes the story, something is awry. Together, we are considering how to deal with this problem.

Let me stress that I don't believe ours is a problem only of communication. We have done things that we regret. In recent days we have received criticism for currency swap deals we entered into with Greece that allowed that country to minimise its apparent public debt. These were client-driven, legal transactions. But they were designed to use the letter of the law to subvert the spirit. Lest you believe that my apology today is insincere – a stunt, or the product of a newspaper columnist's fevered imagination – I commit to you that we will re-examine our business practices in the light of what we now know, namely that rampant legal and regulatory arbitrage leads to serious social and economic consequences.

These are, in historical terms, still early days in the recovery from a great crisis. We will discover more about what went wrong. I am confident that Goldman Sachs will emerge as having been one of the most ethical and risk-averse institutions on Wall Street, even while our size and our prominence puts us in a harsher spotlight at this point. But the public has been unforgivably let down by its financial institutions, and it has been let down by Goldman Sachs. We acknowledge our mistakes, we apologise for them and we promise to learn from them.

(*as imagined by Stephen Foley)

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