Yesterday’s Goldman Sachs hearing on capitol hill provided hours of highly-anticipated political theater. Democratic Senator Ted Kaufman led the charge by loudly accusing Goldman executives of lying — he effectively says it was obvious that subprime loans wouldn’t perform, that they were full of fraud, and that Goldman was being underhanded in their dealings with clients. They must have known — because it was common sense that giving loans to people without verifying their income was a bad idea, right?
Of course, it’s not true that “everybody knew” that the crisis was coming — Moody’s credit rating agency gave the infamous ABACUS deal (the one the SEC accused Goldman of fraud in) a AAA rating. In addition, if the imminent subprime meltdown was so obvious, why did Kaufman invest heavily in Moody’s stock? His personal financial disclosures reveal he must have thought the company was doing something right. Not to mention of course, that Kaufman also has substantial investments in other banks that were holding sub-prime mortgages — if everyone knew what was coming — why didn’t he?
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