Mortgages: The Hearing Washington Won’t Have
Yesterday was the big showdown on Capitol Hill, Goldman Sachs versus the universe. The universe won.
In testimony before the Senate Permanent Subcommittee on Investigations various officials from Goldman Sachs responded to an assortment of allegations and outrage regarding their part in the sale of mortgage-backed securities.
In basic terms, the folks from Goldman explained that in some transactions they were agents of a buyer or seller and thus had a fiduciary obligation to a client, while in other transactions they were a principal and a party to the transaction, a buyer or seller themselves.
This was all fine, said the Goldman representatives, because they only dealt with qualified and experienced individuals who understood how the game was played and disclosed all required information and details — a view now being contested by the Securities and Exchange Commission.
Bipartisan
What was most interesting about the hearing was the senators’ bipartisan sense of outrage, the idea that some moral or ethical barrier had been broken. Equally interesting was Goldman’s contention that they had done nothing wrong.
Perhaps the most important exchange took place between Sen. John McCain (R-AZ) and Goldman chairman and CEO Lloyd C. Blankfein. McCain pointed out that Goldman got $10 billion in TARP money — money since repaid — as well as TARP money through AIG. McCain asked about Blankfein’s bonuses, some $9 million last year according to the CEO, and then went on to contrast Goldman’s profits, bonuses and federal help with the fate of community banks.
Unlike much of the hearing, it was a discussion the public could follow.
Don’t Ask, Don’t Tell
But what no senator of either party discussed was the role of mortgage originators in the, well, mortgage mess. Borrowers rely on mortgage lenders for rates and program information — and do not understand that the lender is simply a salesperson, someone who under federal rules has no obligation to get the best rates and terms for the borrower.
Goldman is in the news not because it sold mortgage-backed securities but because it sold mortgage-backed securities that failed — meaning that well-healed investors lost money and humans lost their homes. The Senate seems very concerned about securities investors but has nothing to say about the mortgage lenders who did business as usual representing themselves — and made all of this possible.
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