The masters of the universe were forced down to earth on Tuesday.
Goldman Sachs Chief Executive Lloyd Blankfein, the head of the most powerful investment bank in the world, faced a blistering cross-examination from U.S. lawmakers about the company's ethics and behavior toward its clients.
Blankfein conceded after two hours of questioning that the criticism his firm was facing would lead to some big soul search. He said everything that's been the subject of criticism will be tightened up, an indication that the pressure on Wall Street may be starting to change behavior.
Blankfein, who said late last year he was doing God's work, was asked time and time again whether he felt it was morally correct for the bank to sell its clients securities while at the same time the firm was betting against them.
In an interrogation by Senator Carl Levin, Blankfein was constantly interrupted, told to answer the question and stick to the point. He often squinted as if puzzled by the questions.
You're going short against the very security (you're selling) ... many of which are described as crap by your own sales force internally. said Levin, chairman of the Senate Permanent Subcommittee on Investigations.
How do you expect to deserve the trust of your clients, and is there not an inherent conflict here?
Blankfein was the last in a parade of Goldman Sachs Group Inc current and former executives who tried to fend off accusations they helping inflate the housing bubble and then made billions off the market's collapse.
Blankfein said, as a market maker, it was not Goldman's responsibility to tell customers how to trade or invest.
Clients are not coming to us to represent what our views are, they probably wouldn't care what our views are. They shouldn't care, he said at the hearing, which was still going 10 hours after it started.
The hearing comes less than two weeks after the U.S. Securities and Exchange Commission filed a civil fraud suit against Goldman, charging that it hid vital information from investors about a mortgage-related security.
Edward Rogers, CEO of Tokyo-based hedge fund advisor Rogers Investment Advisors said Goldman's difficulties could hurt its ability to retain talent.
The government hates you. Your friends throw tomatoes at you. You are evil now. You are not the smart guy in the room -- you are the evil, twisted greedy crook guy, said Rogers.
Despite the hearing, Goldman Sachs shares were up 0.7 percent at $153.04 by the close of trading on Tuesday, defying a drop of about 2 percent in the broader market triggered by downgrades in Greek and Portuguese debt.
The hearing room was full of protesters, some wearing striped prison outfits, holding pink signs reading SHAME and GOLDMAN BANKSTERs.
The hearings recalled the Pecora Commission hearings that investigated the causes of the 1929 stock market crash. The head of the commission, Ferdinand Pecora, is often credited with popularizing the word bankster, which combines banker and gangster.
Goldman bond trader Fabrice Tourre, the only individual named in the SEC suit, said he did not hide material information from clients.
Senator Tom Coburn, the top Republican on the subcommittee accused Goldman of making Tourre a whipping boy and questioned the firm's motivation for releasing personal emails from 2007 between Tourre and his girlfriend.
Blankfein stammered through his response, saying There were elements here that spoke badly to the firm, and we just wanted to come abreast of all the issues about which were bad to the firm.
The current and former employees said Goldman was managing risk on individual positions rather than making a broad bet against the future of the housing market.
The Goldman executives spoke deliberately, but at times looked uncomfortable as they were asked to leaf through massive evidence binders, crammed with emails and other internal Goldman communications.
The executives insisted they took responsibility for their actions, but mostly blamed the housing crisis on broader industry issues, rather than their own conduct.
Former mortgage chief Dan Sparks came the closest to an apology, saying the bank made some poor decisions in hindsight. He added: I don't have any regrets about doing things that I think were improper, but we were participants in an industry that got loose.
Levin told Sparks and other executives, You should have plenty of regrets.
The SEC's April 16 fraud suit centers on a subprime mortgage-linked product known as Abacus 2007-AC1. The agency says Goldman failed to disclose that hedge fund Paulson & Co had input into its construction and was betting it would fail.
A 6 billion euro ($8 billion) Dutch transport pension fund said it had dropped Goldman as its fiduciary manager, but said the decision had no connection to the SEC charges.
The subcommittee has held a series of hearings into the origins of the crisis, buttressing work on a bill to overhaul financial regulation. Senate Republicans on Tuesday again united to prevent floor debate on the bill.
(Reporting by Steve Eder and Dan Margolies; Additional reporting by Dan Wilchins in Washington, Jonathan Stempel and Christian Plumb in New York, and Kei Okamura in Tokyo, editing by Tim Dobbyn)