There's one thing Democrats and Republicans can agree on: their hatred of Goldman Sachs.
That fact couldn't have been clearer through the nearly 11 hours of testimony yesterday when a Senate subcommittee aggressively questioned past and present Goldman bankers. Senators from Carl Levin (D-MI) to Susan Collins (R-ME) to Claire McCaskill (D-MO) to John McCain (R-AZ) all angrily censured these executives for their role in the financial crisis. The hearing amounted to little more than a modern-day witch trial.
Did Goldman Sachs play a part in inflating the housing bubble? Absolutely. But so did JP Morgan, Citigroup, Morgan Stanley, Lehman Brothers, Wells Fargo, Wachovia, and every other bank involved in the mortgage business. So did the rating agencies, foolish investors, Fannie Mae, Freddie Mac, Congress, the Federal Reserve, the Treasury, the SEC, mortgage brokers, house flippers, and dozens of other actors. To be fair, some of those parties have been grilled by Congress as well, but none were the subject of a singular hearing lasting half a day that contained so much anger and even some vulgarity.
But maybe Goldman deserves it. They did, after all, come out a lot better than most banks, due to their earlier recognition of housing's decline than their competitors. And then they continued to sell mortgage securities to investors who wanted them. That was the crime that was investigated for 11 hours. Yet, each and every other bank would have done the same. If you believe that a market is changing, you have a duty to protect your shareholders. You can't do that without lessening your exposure to a shock. How do you lessen your exposure? By purchasing protection against it or selling your long position in assets that you believe will decline.