Today, Goldman Sachs sent its second-highest-ranking officer to Washington, D.C. to tell the Financial Crisis Inquiry Commission that his company is staffed and managed by complete idiots. In an effort to evade investigation, Goldman Sachs Chief Financial Officer David Viniar claimed that his company really just doesn’t know how to do basic book-keeping. It was a silly and transparent lie, but if it were true, every investor the world over would be pulling its money from Goldman as fast as possible.
At this point, Goldman Sachs execs have made clear that are very good at making themselves look like jerks. Viniar’s comments at yesterday’s hearing follow a series of, let’s say, unflattering public appearances over the past few months involving fraud investigations, “shitty deals” and “God’s work.” But Viniar still had some real whoppers ready for the FCIC:
“We don’t have a derivatives business.”
Viniar actually said that, and he said it to FCIC Commissioner Brooksley Born, one of the world’s most seasoned experts on derivatives. Her response, somewhat incredulous, was to point out that Goldman has well over $40 trillion worth of derivatives housed at its commercial bank. That’s a lot of money for a business that doesn’t exist.
Viniar backed off a bit, saying that, sure Goldman does do derivatives operations, but they don’t separate those businesses from other activities. This fact, according to Viniar, makes it impossible to say anything substantive about Goldman’s derivatives deals at all.
Derivatives, of course, have gotten Goldman Sachs into an awful lot of trouble. The SEC’s fraud suit against the company is based on a horrific derivatives deal the company set up, and investigators are looking into other transactions the company established that their own employees described as “shitty.” They entered into several billions of dollars worth of derivatives bets with AIG that would have bankrupted Goldman had AIG gone down. In 2008, Goldman used derivatives to quite literally make a killing by jacking up the price of food around the world, causing mass starvation, along with tidy speculative profits for Goldman. That same year, Goldman was also heavily involved in pushing the price of oil through the roof with, you guessed it, derivatives.
So it’s no surprise that Goldman wants to evade answers from the FCIC on the subject. These businesses are enormously profitable for the company, and help the company make money by doing things that are morally repulsive (setting their own clients up to fail, starving people, etc.).
But while nobody at the hearing took Viniar’s evasive tactics seriously, the claims he made about how Goldman certainly make the firm look bad. Viniar claimed that Goldman operates with basically no internal accounting or transaction oversight, under a bookkeeping system more akin to Bernie Madoff than a prestigious Wall Street investment bank. Viniar insisted that it is absolutely technically impossible for Goldman to provide the FCIC with any information regarding Goldman’s derivatives revenues, profits or losses, because the company just doesn’t organize its finances that way. And what’s more, it has no way of tracking or adding up the revenues from individual derivatives contracts.
“Are you telling me you have no system at your company that tracks revenues under contracts?” FCIC Chair Phil Angelides demanded. Viniar insisted that, yes, he could not track revenues under contracts.
If Goldman Sachs is truly not technologically capable of simply adding up the values of its derivatives contracts, every investor in the world should run screaming from the firm. Fundamentally, Viniar is claiming that Goldman Sachs cannot do basic bookkeeping. Other banks have provided the FCIC with exactly this kind of information, and for Goldman to be incapable of doing so would be evidence of mass incompetence across the entire firm.
Nobody believed Viniar. But you really have to wonder why Goldman would go to such absurd lengths to conceal such basic information about its derivatives operations from the Financial Crisis Inquiry Commission, when they know it makes them come across like shadowy villains. Which, of course, they are.