Goldman Sachs' Lloyd Blankfein Defends 'Market Maker' Firm On 'Charlie Rose Show' (VIDEO)

Goldman Sachs CEO Lloyd Blankfein defended the firm during an interview on "The Charlie Rose Show" Friday.

Asked by Rose whether Goldman investment advisers had ever bought securities from the firm, sold them to clients, and then bet against those same securities, Blankfein paused. And after a solid six seconds of silence, sought to explain that Goldman's role as a "market maker."

"We're like a machine, that lets people buy and sell what the want to buy and sell" Blankfein said. "That's not the advisory business. That's just a facility for market making."

Blankfein argued that there's no problem in selling clients a security that Goldman will then bet against, because that's the nature of the market.

"By the way, we would'nt even know," Blankfein said of the conflicting market positions.

On Friday, The Washington Post reported that the Justice Department's criminal investigation into Goldman's trading was more broad than that of the SEC's probe.

WATCH:

Comments

[idyl]

06:13 PM on 05/04/2010

I can't quite figure this out:

1) these financial instruments are so complex nobody understands them.
Or 2) Blankfein is pretty inept and can't articulate (clearly define) the Goldman Sachs business model.

This interview (and I watched the full version on C. Rose, and also the Senate hearings on same day) is nearly incomprehensible. It is "Alice in Wonderland" kind of stuff. They have clearly placed the term "market maker" at the top of their list of talking points. But in doing so, they miss a crucial ironic dimension of this term. There is more than one way to "make a market," and herein lays the crux of the problem.

[worker beenumbed]

11:02 PM on 05/03/2010

Paulson could buy 20 mil.of Abacus long.Fabrice uses that in his efforts to sell Abacus.Paulson shorts the underlying mortgage backed securities for ONE BILLION.This is also a misrepresentation of a product if it happened.Paulson did use naked cdos and Soros calls them a license to kill in the Financial Times.Sen Dorgan wants to ban them--please do.TheSEC complaint is sad reading.Fabrice the Fabricator only fooled a few buyers who were ruined.

[KrugnacTheMagnificent]

01:10 AM on 05/03/2010

I want to hear Carl Levin from the great state of Michigan defend the "sh177t deal" Obama and the Dems FORCED onto the bondholders at GM.

He's sitting there complaining that an investment bank got a "sh177t deal" by losing a few hundred million dollars in a free market transaction, while the government itself wrote the terms of the "sh177y deal" that cost GM bondholders BILLIONS of dollars.

The UAW was handed a 39% equity stake in return for their $10 billion in claims, while the bondholders got a 10% equity stake in return for their $27 billion in claims.

THAT'S a pretty "sh177y deal."

[jrutle]

10:58 PM on 05/02/2010

Somali Pirates Say They Are Subsidiary of Goldman Sachs

http://www.truthdig.com/report/item/somali_pirates_say_they_are_subsidiary_of_goldman_sachs_20100502/

[Carolab]

10:19 PM on 05/02/2010

“Goldman wasn’t structuring a trade between two clients, as far as IKB and ACA were concerned. It was working to form a business entity called ABACUS 2007-AC1, LTD and UNDERWRITING an issue of securities by that entity. The only clients formally involved were IKB and ACA, and they were on the same side.

The whole issue is that IKB/ACA did not know that they were in an adversarial negotiation and that the other guy had Goldman as its agent. They thought Goldman was working for them, underwriting securities of a special purpose entity it was putting together to satisfy investor interest. If IKB/ACA had been negotiating a very complex $192M custom trade with Paulson, there would not have been a “flipbook” and a “prospectus”, just sign the dotted line. There would have been conference rooms and long hours and thousand-page paranoid contracts scrutinized and initialed in triplicate.

WHAT HAPPENED HERE IS NOTHING LIKE WHAT A MARKET MAKER DOES. A market maker takes the other side of client-initiated trades, and then lays off the risk. ABACUS was initiated and sold by Goldman, at a hidden party’s request. Goldman was unwilling to make a market for Paulson at a price he would have accepted, so it manufactured an entity willing to do so. Investors in that entity were not informed that they were dealing with an active, involved adversary. And Goldman has the nerve to call both sides “customers”.

http://www.interfluidity.com/v2/822.html”

[usedtowork]

12:43 PM on 05/04/2010

That's exactly the point, and that's where Blankfein's market maker defense falls down. Unfortunately the Senate subcommittee in their ignorance chose to hammer at GS for taking the opposite side of client trades - the absolute foundation of risk transfer* - that they made themselves seem either woefully unqualified to pass judgment on even rudimentary financial products and practices, or like a mere mob out for blood carrying torches and pitchforks.

*Let's say you're a farmer in the spring and you want to lock today's selling price for your corn in the fall. The farmer goes to the local mercantile exchange and enters into what's called a forward contract with a market maker who agrees to pay him today's current (or "spot") price for corn when he delivers it in the fall. In this way the farmer has transferred the risk of corn prices falling to the market maker, who has by definition assumed the opposite side of the trade - the farmer is now obligated to deliver corn in the fall while the market maker is obligated to pay the farmer today' corn spot price upon delivery in the fall, or in other words the farmer is short a forward of corn while the market maker is long a forward of corn.

This type of contract and thus the notion of market makers assuming opposite sides of client positions underlie the entirety of the modern financial system, it's shameful that senior senators are so in the dark about such

[Subversive]

09:37 PM on 05/02/2010

After reading many comments on this story, I find it amazing that so many average people know exactly what's taking place on Wall Street, even more than the "experts". Like a lot of others, I watched the hearings and came away less than impressed with all the witnesses. None of the witnesses seemed to be able to grasp basic investment concepts, such as "fiduciary," "stated loan mortgage," or "conflict of interest." The use of such meaningless terms as "market maker" rather than "broker" also struck me as odd. If these were "the best and the brightest," I'd sell my GS stock immediately! We poke fun at used car salesmen, but they seem honest compared to these jokers.

[DazedandConfused]

04:04 PM on 05/02/2010

Blankfein seemed to be annoyed that we don't understand what "traders" (market makers) do. And maybe I don't understand completely, but in the Fab Fab case, GS was an underwriter. They were creating a debt instrument specific for the transaction. Perhaps there is no fudiciary responsibility related to the underlying assets that isn't specifically spelled out in the prospectus. Fab Fab's comment about the security value being nothing more than mental masturbation (based on models that were obviously flawed and obviously no relation to reality) seems to bring into question GS's level of due diligence. I can understand how a security could decline in value -- particuarly in the long term. But there were quite a few GS securities that lost most of their value in 6 months. 6 months? How sad that GS only made 15 million (or even lost money) on the transaction. Strictly as an underwriter, they didn't deserve to earn a dime.

[rad21]

03:38 PM on 05/02/2010

Zakaria's interview of GS-CEO was a load of non-sense. Everybody knew or should have known about the hollow or soon-to-be-defunct loans. My cousin working in the loan dept of a NJ bank told her higher-ups about the default-certainty of many applicants. She was told to shut-up and process them.

What and Why do due-diligence at the local bank or mortgage originator, if the product would be bought by another bank?? The goal was to originate the product en-mass and package it (a.k.a. camouflage it) with the best packaging for the bond-holders to give their AAA ratings. The whole thing was a conveyor-belt operation.

Blankfein was doing a great SPIN-job and Zakaria was buying it. In the corporate world, the CEO says, "Jump" and mid-level managers say, "How high?" Even after these types are fired, (and more recently corporation crashes), they walk away with a golden parachute ... by contract.

[realpolitic]

01:49 PM on 05/02/2010

Blankfein has that high-pitched, squeaky voice, which may make it sound he is being less than honest at times. His voice has a certain tension.

[Rallis]

11:49 AM on 05/02/2010

Mammon must be proud of his children

[LouEstes]

11:38 AM on 05/02/2010

Wait until the real #1 asks him to account......

[mounthood]

11:10 AM on 05/02/2010

Broadbrush criticism and hatred of MBSs is common these days. It is simplistic and ignorant. MBAs are as varied as school teachers, MDs, ministers, PhDs, saints and criminals. Ignorance, stupidity, greed, etc. seem to follow a normal distribution across all professions, and all levels of education.
Don't categorically knock MBAs. I are one.

[DazedandConfused]

10:32 AM on 05/02/2010

I love Charlie Rose. But he's way over his head. He really doesn't have a clue about finance. And the question from the "financial jounalist" wasn't any better.
When Blankfein starts talking about Goldman giving sophisticated investors the risk they want, WHY (oh, why) don't they ever follow up with appropriate questions. Most of these securities were AAA-rated. Even the "sophisticated investors" didn't really intend to buy high-risk securities (high risk of not getting money back). Most of these institutions were required to buy AAA-rated securities for safety. Yes, these sophisticated investors were trying to find the highest return for their AAA (i.e., safe) investments. But Blankfein acts like these investors were seeking investments that were intentionally risk and speculative. These were NOT junk bonds (according to their ratings). So why did GS sell them junk?

[zbig]

03:51 PM on 05/02/2010

Please send your comment to Charlie Rose, CNN, etc. It clarifies everything!

[rad21]

10:25 AM on 05/02/2010

There are several varieties of prostitution .... and it is always easy money. Prostitutes and known to make a donation. This covers their conscience for their immoral deeds.

Supervised by Congress and Federal agencies, every player along the conveyor-belt dealing with the Derivatives and home Mortgage bubble received a lucrative bonus for delivering on their well- packaged (a.k.a camouflaged) product in a timely manner.

The recepients of these well packaged deals are the likes of Buffett. The Oracles and other hedge fund managers in a timely manner unload these on an un-suspecting public or other equally ignorant financial 'gurus'.

[PhilipTaylor]

09:11 AM on 05/02/2010

BLANKFEIN IS GOING GOING GONE! BUT THIS GOES FAR DEEPER THAN THAT!

IT GOES TO THE VERY CULTURE OF WALL STREET EXPOSED IN RAW FOOTAGE!

It is time to REWORK AMERICA from the Corporate TOP DOWN!

50,000 Specially Trained FBI, SEC, and IRS Agents to weed out the White-Collar Crime starting at the TOP of Wall Street and working down as facts are REVEALED!

50,000 Police Officers cleaned up the Street Crime Wave for Clinton!