Blankfein to FCIC: Asset Owners Are Professionals Who Wanted Mortgage Exposure

(January 14, 2010) – In fiery testimony on day one of the Financial Crisis Inquiry Committee (FCIC), Goldman Sachs’ CEO Lloyd Blankfein stated that institutional investors were responsible for taking the bad sides of mortgage bets as the crisis reached its apogee.

While admitting changes were necessary – “Anyone who says ‘I wouldn’t change a thing’, I think, is crazy,” – Blankfein stated, in the opening morning’s session, that investors who bought mortgage-backed securities (MBS) and other securitized assets from Goldman while other sections of the bank were simultaneously shorting the same instruments were “professional investors who want[ed] this exposure.”  

FCIC Chairman Phil Angelides, who was once the Chairman of the nation’s largest pension fund, the California Public Employees Retirement System (CalPERS), had a retort: “It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars.”

The FCIC has a mandate to investigate the financial crisis and make recommendations to Congress on how to avoid such problems in the future. The Commission mirrors that seen following the great Depression — the New Deal’s Pecora Investigation – which indirectly led to the passage of the Glass-Steagall Act and the Securities Exchange Act. The report is expected by December 15, 2010, and hearings will continue throughout the year.