Patterico's Pontifications

4/26/2010

Goldman Sachs Goes to Congress

Filed under: Government — DRJ @ 4:04 pm



[Guest post by DRJ]

Goldman Sachs officials and a former employee will appear before a Senate subcommittee tomorrow to answer questions. Apparently the subcommittee wants to know why Goldman Sachs’ employees discuss making money in emails:

“As the U.S. housing turned downward in January 2007, a Goldman Sachs trader wrote in e-mails to a woman he apparently was courting that investments he had sold were “like Frankenstein turning against his own inventor.”

“I’m trading a product which a month ago was worth $100 and today is only worth $93,” wrote Fabrice Tourre, who was charged along with the bank in a civil complaint filed this month by the Securities and Exchange Commission. “That doesn’t seem like a lot but when you take into account … (the investments) are worth billions, well it adds up to a lot of money.”

Tourre was talking about investment products like the one at the heart of a federal complaint against his firm. For Tourre, the investments were like an invention gone awry: He had started arranging them when the market was on the upswing. But he continued selling them after the market turned — now with Goldman betting against them, in one case allegedly misleading investors about a deal’s origin.

Goldman Sachs Group Inc. released that e-mail and 25 other internal documents Saturday in response to a Senate panel’s release of messages in which Goldman executives boast about money they were making as the market imploded later in 2007.

When credit rating agencies downgraded many billions of dollars of mortgage-backed investments in October 2007, Goldman executive Donald Mullen was unabashedly pleased.

“Sounds like we will make serious money,” Mullen wrote to Michael Swenson, another executive, in one of the e-mails released by the Senate Permanent Subcommittee on Investigations.

Goldman has argued vehemently that it did not profit from the mortgage meltdown.

Swenson and Tourre, along with Goldman CEO Lloyd Blankfein, will face a public grilling on Capitol Hill Tuesday from the subcommittee.”

I believe the Senate had previously subpoenaed Goldman Sachs’ records, including the emails that were recently released by Senator Carl Levin:

“The internal e-mails among Goldman executives were released by subcommittee chair Sen. Carl Levin, D-Mich. In a statement, Levin called banks like Goldman “self-interested promoters of risky and complicated financial schemes that helped trigger the crisis.”

Are documents turned over to Congress pursuant to a subpoena public records? Probably. If so, is there any restriction on their release by Congress in the manner orchestrated by Senator Levin? Probably not, but …

In 1975, a dispute arose between the FTC, a Congressional committee and Ashland Oil regarding documents subpoenaed by Congress that Ashland claimed contained confidential, privileged or proprietary information. The case — Ashland Oil, Inc. v. F.T.C., 179 U.S.App.D.C. 22, 548 F.2d 977 (1976) — authorized the release of confidential information to Congress:

“A federal district court agreed that the data at issue constituted “trade secret” information within the purview of Section 6(f) of the Federal Trade Commission Act. However, the court noted that the restrictions in FOIA do not refer to Congress, and that the information sought in the subpoena was properly within the subcommittee’s jurisdiction.

Finally, the court ruled that Ashland Oil had failed to show that release of the material to the subcommittee would irreparably injure the company. The court rejected the argument that the transfer of the data from the FTC to the subcommittee would lead “inexorably to either public dissemination or disclosure to Ashland’s competitors.” Courts must assume that congressional committees “will exercise their powers responsibly and with due regard for the rights of affected parties.”

That decision was affirmed by the D.C. Circuit.”

It’s not clear if the Goldman Sachs emails contained confidential, privileged or proprietary information. But even if they didn’t, did this Senate subcommittee exercise its powers “responsibly and with due regard for the rights of the affected parties” by releasing selected inflammatory emails prior to the hearing?

— DRJ

3 Responses to “Goldman Sachs Goes to Congress”

  1. Your quote from the Ashland case shows even the DC circuit had a sense of humor once upon a time.

    SPQR (26be8b)

  2. “did this Senate subcommittee exercise its powers “responsibly and with due regard for the rights of the affected parties” by releasing selected inflammatory emails prior to the hearing?”

    No, Congress just needs a convenient target to help get the Financial Reform Bill passed, but I’m sure the timing of the subcommittee hearing and that of the bill hitting the Senate floor is purely coincidental.

    Also, those Goldman folks should be embarrassed. I know I always compose every internal email with the idea that it is going to be released on Congress as part of some show trial by some thug congresscritters who don’t understand anything about business.

    Why couldn’t they just have watched porn like good government employees instead of sending around emails? I know, because most private business have filters or screens that prevent that.

    daleyrocks (1d0d98)

  3. I am shocked, shocked I tell you, to find out that G-S insiders, in conversations (emails) with others within G-S, were talking about work (making money is what the are supposed to be doing at G-S, is it not).
    Oh, the Humanity!

    Next thing, I’ll probably find out that General Officers at the Pentagon are actually doing War Planning?
    What is the World coming to?

    AD - RtR/OS! (69f893)


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