The Senate hearing on Goldman Sachs concluded at about 8:40 p.m., nearly 11 hours after it started at 10 this morning. I commented earlier on the hostility of some of the senators, including the Republicans. Two other points come to mind.
The first is that, even though Goldman had the better of the argument on many of the substantive points, it had to be an unpleasant experience for the Goldman witnesses. They are used to being people that everyone wants to get closer to -- charities wanting donations, journalists wanting interviews, business school students wanting jobs, politicians wanting campaign contributions, clients wanting information, preferably over an expensive lunch or dinner. Today they were treated like Oliver North before the Iran-Contra Committee or some communist hauled before Senator McCarthy, subjected to camera flashes of the press on the way in and out of the meeting that were more akin to a perp walk than a celebrity red carpet appearance. It was not a day on which a lot of people would have wanted to trade places with Lloyd Blankfein or David Viniar. These Goldman guys are used to thinking of themselves, and being thought of by others, as the smartest and most hardworking of an organization full of smart and hardworking people. But yesterday, the senators seemed to treat them as a bunch of poster children for unethical and greedy behavior.
"I wouldn't trust you," the chairman of the hearing, Senator Carl Levin, a Democrat of Michigan, told Mr. Blankfein, the Goldman CEO. "You shouldn't be selling junk. You shouldn't be selling crap. You shouldn't be betting against your own customers."
Mr. Blankfein is supposed to be a smart guy. I met him once briefly at an Economist magazine reception at the Frick Museum, where an Economist correspondent introduced me to him as the managing editor of the best newspaper in New York. Mr. Blankfein immediately replied, "The New York Sun?" I appreciated that. I also have an admitted soft spot for Harvard guys from Brooklyn.
That brings me to the second point, which is that it was amazing to me that Mr. Blankfein would aver, toward the end of the hearing, "clearly the world needs more regulation." You'd think that a guy who has just spent 11 hours listening to politicians, many of whom have little private sector experience, try to score political points by vilifying his firm and distorting its behavior might be a little less enthusiastic about having these same politicians rewrite the nation's laws so that Goldman has to spend more time and energy on lobbying, litigation, and compliance instead of on serving clients. The hearing came after an SEC complaint that destroyed $12 billion in Goldman's market capitalization. Wouldn't "more regulation" mean more similar complaints?
There are at least three possible reasons why Mr. Blankfein is calling for more regulation. The first, which we have noted here in the past and which he echoed in today's hearing, is that he wants Goldman Sachs to be protected by government regulators from reckless behavior by its trading partners. Good luck with that: the ones doing the "protecting" will be the same SEC lawyers who just shaved $12 billion off Goldman's market cap, and the ones writing the laws will be Senators Levin and McCain. The second is a self-interested judgment that Goldman, with its size and Washington clout, is better equipped to navigate a complex regulatory regime than are Goldman's smaller competitors or new entrants. The third is that he may figure that advocating more regulation will help get the Obama administration and the Democrat-controlled Congress off his back.
The downside is that calling for more regulation isn't likely exactly to ingratiate Goldman Sachs with the free-market forces who would be its natural ideological allies in its showdowns with Congress and the SEC.