WASHINGTON — Facing a hail of criticism, Goldman Sachs' top officer has offered a halting apology for the premier investment bank's role in the subprime mortgage crisis that sank the nation's economy.
In a simultaneous move apparently intended to help repair its battered image, Goldman announced a $500 million program to invest in small businesses across the country. That's 2.5 percent of the $20 billion in bonuses that Goldman is expected to pay its 31,000 employees next month.
Speaking at a New York forum for corporate board members Tuesday sponsored by Directorship Magazine, Lloyd Blankfein said his company had been picketed recently about things "that we couldn't affect even if we wanted to."
However, he said, "there's also people who feel — and are right — that there's some meaningful things where we may have — not may have, certainly our industry is responsible for things. And we're a leader in our industry, and we participated in things that were clearly wrong, and we have reasons to regret and apologize for."
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Blankfein's comments came two weeks after McClatchy Newspapers published a four-part series describing how Goldman sold more than $40 billion in bonds tied to risky mortgages in 2006 and 2007 without telling investors that it was secretly betting on a sharp housing downturn that would depress the securities' value.
The series also detailed how Goldman had joined other Wall Street firms in creating a colossal secondary market for subprime mortgages, converting them to securities and selling many of those securities offshore to circumvent federal tax laws and securities regulations.
A number of pension and union funds that bought the bonds have alleged in class-action suits that the firm knew more than it told investors about the risks of its mortgage-backed securities backed by dicey home loans.
Goldman also has been under fire for its anticipated bonuses next month amid the nation's worst economic crisis in 80 years, and for Blankfein's comment, as quoted in the Times of London, that he's "doing God's work." In addition, Goldman and other Wall Street investment banks have drawn heat because they obtained early allotments of vaccine for the H1N1 virus despite a nationwide shortage.
During his appearance at the New York forum, Blankfein denied that analysts at Goldman had anticipated the housing crash, leading to the firm's secret, contrary bets beginning in 2005 and its selloff of riskier types of mortgage-backed securities before the housing bubble burst.
"If you'd ask me, 'Would real estate assets at the end of '06 or the beginning of '07, at a point at which we were trying to get our risks down, did we think that prices would go down?' I had no idea," Blankfein said."... We were in the world of risk management, not in the world of guessing where things were going."
When he was asked what lessons he and the company have learned, he said: "Listen, there was a lot of negligent behavior, improper, bad behavior, behavior that has to be fixed and sorted through. There's no doubt about it, and everybody succumbed to it, some more or less. We don't take ourselves out of that. I include ourselves in that."
Blankfein said he agreed with congressional and Obama administration moves to tighten regulations to prevent a recurrence.
"I know I've learned a lot from this, and we should put those lessons into practice," he said.
He said that because Goldman was "a confidence business," his "stomach turns a bit" at the negative publicity.
Instead of responding in kind, he said, the firm's leaders have chosen to ask, "What are we going to do now to fulfill our obligations in the world to be good allocators of capital, grow businesses and generate jobs, make sure we're helping the country grow out of recession?"
Blankfein made his comments as Goldman announced that it would invest $500 million in assisting small businesses, including $300 million for Community Development Financial Institutions in underserved communities.
The donation equals the entire federal commitment to the 15-year-old program that Congress created to inject money into financial institutions to serve people who lack access to affordable credit and capital.
The company said its "10,000 Small Businesses" initiative, to be co-chaired by Berkshire Hathaway Chairman Warren Buffett, who invested $5 billion in Goldman last year, is aimed at "unlocking the growth and job-creation potential" of small businesses across the country.