‘Fabulous Fab,’ Goldman offer vigorous defense before Senate

In testimony to a Senate panel on Tuesday, Goldman Sachs representatives are aggressively defending their actions.
 
Fabrice Tourre, the Goldman vice president named in fraud charges brought two weeks ago by the Securities and Exchange Commission against the firm, categorically denied the SEC’s allegations he failed to disclose material information to investors about an investment that lost millions.

He also said the investment at the center of the SEC charges was not designed to fail, and that Goldman Sachs had no incentive for it to fall apart. ACA, an investor in the security, was involved in setting it up and chose the portfolio of transactions that were included, Tourre testified.

The SEC alleges Goldman and Tourre sold a mortgage-backed security
that was put together by a hedge fund that believed the security would
fail, and bet against it.

{mosads}Tourre, who called himself “Fabulous Fab” in e-mails to friends released by the SEC, said he would defend himself vigorously in court against “the false claim.”

Tourre was appearing on the first panel of witnesses before the
Senate Permanent Committee on Investigations, which is probing the
financial crisis.

Goldman has come under fierce attack from the
panel’s chairman, Sen. Carl Levin (D-Mich.), who said the firm misled
investors by selling mortgage-backed securities that Goldman was
betting would fail.

Levin has also accused the firm of profiting handsomely by
betting against mortgage-backed securities, even as homeowners across
the country suffered.

At times on Tuesday, Levin and other members of the panel, including ranking Republican Susan Collins (Maine), expressed frustration at the lack of candor from the Goldman officials.

Several witnesses appeared confused by questions from senators, and asked that they be repeated several times.

Levin (D-Mich.) warned he would keep Goldman executives at the witness table until he and other
members were satisfied with their answers. 

“It [the stonewalling] is not going to work,” he said. “We will stay here for as long as it takes.” 

Tourre’s was possibly the most highly anticipated testimony of the
day, given the central role of the trader in the SEC complaint.

He said the weeks since the SEC probe have been difficult ones for his family, and criticized the “unfounded attacks” on his character and motives.

But he said he regretted sending the personal e-mails that became front page news when the SEC made its charges.

In e-mails released by the SEC, Tourre, 31, appears to describe his
own lack of understanding about complicated securities Goldman Sachs
was peddling.

He wrote that “the
entire system is about to crumble at any moment” and that decision
makers at the firm were unaware of the “monstrosities” they created by
transforming subprime loans into investment vehicles.
The “business is totally dead and the poor little subprime borrowers
will not last so long,” he wrote on Mar. 7, 2007. “I do not intend to
wait for the complete explosion of the industry and the beginning of
distressed trading, I think there might be more interesting things to
do in Europe.”

He also wrote of how the “fabulous Fab” might be
the only potential “survivor” of the collapse.

“I
regret those e-mails,” he told the committee on Tuesday. “They reflect very badly
on the firm and on myself. And I wish I hadn’t sent them.” 

Goldman Sachs CEO and Chairman Lloyd Blankfein, who will appear on the final panel to testify Monday, has denied the charges from Levin and the SEC.

Although Goldman showed a profit since the 2008 financial crisis, the company lost about $1.2 billion for its involvement in the residential housing market, Blankfein will say in his testimony.

Former
Goldman Sachs executive Joshua Birnbaum told the panel he was never instructed by
his bosses to shift his investment strategy so the bank could reap
billions in betting against the success of mortgage-backed securities. 

“No
one from senior management told me to make a directional bet against
the sub-prime market,” he said.

Birnbaum did say management stressed that the bank should reduce this risk to its books.

This story was updated at 11:38 a.m. and 1:11 p.m.