For a moment last week as the Goldman Sachs drama unfolded, it looked as if the bank might defend itself against a sensational civil fraud charge by hanging out to dry one of its vice presidents, the fabulous Frenchman, Fabrice Tourre.
"This all seems to be, at root, about whether someone intentionally misled someone, and that's not something we would approve of or sanction," Goldman co-general counsel Greg Palm told analysts last week.
Now, given the testimony of the Goldman guys before a Senate subcommittee Tuesday, we can infer a different meaning from Palm's statement. It's a denial that anyone at Goldman misled anyone else.
As senators eager to score points against Wall Street cross-examined bank executive after former executive, what emerged from the witness table was a unified defense.
There was no misconduct. Not by Tourre. Not by Goldman.
Yes, there were misjudgments. Sure, some bad deals resulted. Real bad deals.
Several e-mails were ill-advised. Some "could have been more accurate," as Tourre put it.
And, of course, everyone is so very sympathetic to all those people who don't know a CDO from a CDS and yet lost their homes, savings, jobs or retirement incomes to the recession while Goldman raked in billions.
Chief executive officer Lloyd Blankfein said Goldman does bear some responsibility for that.
As for securities fraud, no way.
Tuesday's testimony won't do much to cool public fury at Wall Street. But as a legal defense, Goldman's all-out denial just might work. It certainly stands a greater chance than any rogue-employee strategy, which would have offered no cover at all. The law clearly makes the employer vicariously liable for the conduct of its agent. Besides, Tourre wasn't acting alone.
For more than five hours — without so much as a restroom break for the witnesses — a panel of four current and former Goldman executives insisted that they didn't "bet" against clients or even the mortgage market.
They simply put together securities that clients could and did evaluate for themselves. They have no obligation to tell clients when Goldman essentially shorted a security, since Goldman's positions so often change, and there is no disclosure obligation anyway.
Plus, as Blankfein later testified, investors have different reasons for wanting or avoiding exposure to certain industries or securities, as does Goldman.
And, no, the firm didn't design any collateral debt obligation to fail, Goldman witnesses said. Not even when a client — say, hedge fund Paulson & Co. —wanted to go short on the mortgage market.
As for the specific transaction featured in the Securities and Exchange Commission complaint, everything that should have been disclosed to potential investors was disclosed, they maintained.
Blankfein seemed stumped by the question of whether Goldman should tell clients its assessment of the derivatives it packages.
Different clients will have divergent views on a security's value and price it accordingly. Sometimes, for any number of reasons, Goldman will want to sell something others want to buy.
So what? No conflict of interest there.
That's the sort of thing that makes Wall Street look bad, and makes Congress want to rein it in.
But as for defeating the SEC case against Goldman, it just might work.