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Securities Law

Goldman Sachs Lawyer Advises Long Pauses, Rambling Answers

Posted Apr 27, 2010 7:26 AM CDT
By Debra Cassens Weiss

A lawyer reportedly helping Goldman Sachs executives prepare for a Senate hearing today revealed his usual strategy for congressional hearings in an interview last year.

O’Melveny & Myers partner K. Lee Blalack II told the American Lawyer last March that a congressional hearing room is not a forum for divining the truth, according to The BLT: The Blog of Legal Times. The goal, he said, is minimal damage to reputation.

“Long, thoughtful pauses followed by rambling nonresponsive answers can easily devour half of a member’s allotted questioning time,” Blalack told the American Lawyer.

The New York Times says Blalack is helping the executives prepare along with Michael Bopp, a partner at Gibson, Dunn & Crutcher.

Related coverage: "SEC Accuses Goldman Sachs of Selling Mortgage Investment Designed to Fail"





Apr 27, 2010 8:32 AM CDT

And if at the end of the pauses and rambling the quesiotn’s not answered, there’s always the contempt remedy.


B. McLeod
Apr 27, 2010 8:53 AM CDT

If the questioner even realizes the question has never been answered.  Or cares.  So many of their questions more often seem to approximate rhetorical comment/statement/speechifyin’ that never was designed to elicit information in the first place.

Apr 27, 2010 9:01 AM CDT

Andy: It’d be extremely hard to get a contempt charge out of this.  No one is getting tossed in jail for taking time to think about answers to complex, difficult questions, and it’d be very hard to prove that a rambling answer that goes off topic was intentionally non-responsive.


Apr 27, 2010 9:55 AM CDT

Agree with - the answers will be only contemptible, not contumacious (though the questions are not likely to be complex or difficult).


Apr 27, 2010 11:19 AM CDT

The questioners usually deserve long-winded, unresponsive answers to their questions.  I have always wanted someone testifying to a senate panel to point out when there is no question but only a statement, and then wait on a question.


Apr 27, 2010 12:11 PM CDT

#3 and 4—But such ramblings are usually repetitive.  The inference of intent is proveable when the same quesiotn has to be asked again and again because it wasn’t answered in the first instance, and it never gets answered despite multiple opportunities.  The problem is, those in Congress aren’t good at paying attention and following up, as McLeod pointed out.


Apr 27, 2010 12:49 PM CDT

I watched part of this this morning on CNBC. They did exactly as they were advised, hemming and hawing, stalling, claiming not to know what page they were on, asking them to repeat the question.  I think we all learned that in grade school.  Why did they need a highfalutin’ law firm to tell them that.  Disgusting…not holding my breath waiting for any criminal charges but that is what NEEDS to happen.


Apr 27, 2010 12:53 PM CDT

These hearings are just a photo / video opp for these phony “investigators” to act like they are “getting tough” on the executives—-nothing will happen, no changes will be made, and the members of these committees will still be in the pocket of lobbyists making all decisions with their money.  It’s a big circus.


#9 Jim-OH 2010-04-27 14:54 −0400 @ Samurai & dan
Apr 27, 2010 1:58 PM CDT

I suppose placing a large Sumo wrestler dressed in “tails” and armed with a Samurai sword adjacent to those testifying giving the admonition, “Don’t dance with him/her,” would trigger and objection from counsel.


Apr 27, 2010 11:03 PM CDT

I loved the part where they were asked if they owed a fiduciary duty to their clients, and the reply was basically no.


B. McLeod
Apr 28, 2010 12:40 AM CDT

Could be important to keep that in mind.  After all, these people don’t produce anything.  They just play the markets as their mechanism to redistribute existing wealth, basically from everyone else to themselves.  Parasites.


Dave G.
Apr 28, 2010 7:37 AM CDT

While comments by the Goldman execs may have “shocked” some listeners, I was actually more shocked by the asinine leading questions from the committee.  There was no interest in finding truth…only in good photo ops for the politicians.


Apr 28, 2010 9:13 AM CDT

I feel like I’m reading an article from “The Onion.”


Apr 28, 2010 5:44 PM CDT

Why does wall street get away with fraud and no one goes to jail?  When wall street is approving any bill by the legislature you know its a bad bill.  Wall street is only out to get rich at the expense of the little man.

Who from goldman is going to face criminal charges?


B. McLeod
Apr 28, 2010 6:23 PM CDT

If we could only do things like the Chinese, this would already be fixed.


Apr 28, 2010 8:17 PM CDT

Hemming and hawing through this seems like good advice. That said, I am unsure why Blalack would actually say this.

An old finance prof (former wall street guy) always said that we should remember how to hunt and fish because the system is a house of cards built only upon belief - once folks quit believing…

One day I’ll research and write on my belief (I’m not an expert or anything) that the value of the market is a bit like a ponzi scheme propped up by a continuous influx of 401k and other retirement money that ‘artificially’ inflates values. I just hope that my 401k doesn’t become an additional social security tax.


Apr 30, 2010 3:54 AM CDT

The market is an Auction; the last bid is the present market value. Built into the formula is a system of self-cleansing which over time wipes out all excesses, high or low.

The brokerage houses operate the same way a casino does, betting against its customers. So Wall Street sold products which were inherently sub-standard. That in itself is not a problem, many if not most of its products could be characterized as such.

In every case the brokerage house must balance its position by betting the products they sold to the customer will in fact decline in value. Placing put options against long positions creates profits for the brokerage when the market value of the clients portfolio drops.

The problem becomes evident when there are no more buyers for the product, when the market has exhausted itself, and the value of the product goes into a free-fall. Liquidating the product/position is impossible since there are no buyers and no tangible product to salvage.

Wall Street did nothing wrong except generate obscene profits and in the process cause enormous devastation to the economy. But this is why they are in business (for the profit aspect, the devastation is merely a byproduct). This is why they exist.

Explaining how this works to a Senator while maintaining an aura of integrity is difficult, but not impossible. Their eyes glaze over when the answer takes longer than 42 seconds. Hence the recommendation to draw out the answers and use techno-jargon to create confusion. Televised hearings are perfect for this strategy since politicians must look competent on camera and this financial stuff is way over their head.


Apr 30, 2010 4:34 AM CDT

Shame on all of us for sitting idle when wrong is done.  Where are the Thomas Jeffersons, Patrick Henrys, James Madisons of the modern age?  Andythelawyer’s naive reference to contempt is almost painful to read.  We have had sitting President’s lie under oath and no “contempt” order was issued.  We have become numb to justice and accept institutional wrongdoing as the norm.  Nether senators nor judges nor common people nor able lawyers are willing to actually step up and do something in today’s world to combat the intrinsic wrongs in our society.  So we sit by and watch as the instiutional and societal chicanery continues.  We are sheep glued to sitcoms and stilted notions the law presently has anything to do with justice.  Wall Street did nothing wrong except make obscene profits?  As I recall there was a recent taxpayer-funded bailout for the suckers that weren’t as clever as Goldman.  Yet who stepped forward from the legal “profession” to lift a single finger against these abuses?  Who mentioned self-dealing then?  There is a fiduciary duty.  It is shrouded in the mist, but it exists and perhaps some day it will survive arbitration clauses and summary judgment so the voice of the common person may be heard.  But, not until we remember our calling as “professionals” and do something more than make deposits in our bank accounts.


Apr 30, 2010 5:36 AM CDT

In my former life, I worked for 15 years and ended up running a globsal prop desk at a major investment bank. With that knowledge, I would like to make a few points:

1. As much as some may want to create a fiduciary duty, it only exists when Goldman is acting in an advisory capacity. When they are acting as a principal and/or market-maker, that duty is (and should be) absent. Should these functions have greater separation and clarity? Perhaps, but there is not a single Goldman customer who is unaware of these dual roles or unaware of which role Goldman is filling at which moment.

2. While it is popular to comment that Wall St. proprietary activities serve no valuable function, without the banks serving a market-making function, capital markets would essentially freeze. Traditional investment banking is built upon two foundations: advice and distribution. If you remove the proprietary aspect from the banks, you will also severely damage the distribution component. The net effect of that will dramatically increase decrease liquidity. As everyone is aware, liquidity has a tremendous effect on capital costs which, in turn, serve as the regulator on economic growth.

3. It seems, after reading Goldman’s “pitchbook”, that Goldman was misleading in its marketing of Abacus. I received an unmistakable impression that the underlying tranches were screened to outperform on the upside. Obviously, that was not the case. However, the question of whether the misleading impression was material is a far trickier question. These was a synthetic CDO so, by definition, any buyer knew that someone was taking a short position. It had no natural interest and could not be in existence without such a countervailing position. Further, the buyers were sophisticated nvestors who were buying billions of similar securities. Would they have purchased without Goldman’s misleading statements? I do not know - a court will decide.

4. The Senate grandstanding was absolutely attrocious. Levin’s insistence on Goldman being short without offsetting it against their preexisting long was either incredibly ignorant or purposefully misleading. If i sell stocks out of my portfolio, I am flat. I am not “short” with, as Levin put it,  a “historical long.” Investments are neither good or bad in a vacuum. The Senators refused to acknowledge that investments must be evaluated with price as a reference point. Repeatedly, our Senators showed little or no knowledge as to the basics of market functioning. The thought that these people will be creating new regulations for capital markets (which are needed) is akin to me creating the protocol from knee surgery - only frighteneing.

Just a few thoughts on the farce.


J. Gregg
Apr 30, 2010 5:58 AM CDT

AaronK is absolutely on the money. Levin’s lack of understanding of the market was remarkable.  It is like having Chris Dodd overseeing the new financial regulation-0h wait he IS. There has been very little discussion and, as I understand it, nothing in the new financial bill that changes Freddie and Fannie. Dodd (and Frank) was at the heart of leaving Freddie and Fannie regulation alone in the 2000’s. That was a major part of the root cause of the financial collapse. Demonizing Goldman is much easier, more politically expedient and fits the game plan.


Bill D
Apr 30, 2010 6:15 AM CDT

This is dumb stuff.  Men should be able to testify without fear of getting reamed by Congressmen.

I personally do not think these congressmen are so regal.  When did their poop stop stinkin?


Apr 30, 2010 6:56 AM CDT

It is one thing to give the advice—it is another to publicly state what the advice was.  Amazing arrogance/stupidity—did the lawyer speak to Goldman’s PR firm, if indeed it does exist?  And what about the attorney-client privilege?  The lawyer is an arrogant, entitled jerk—clients find lawyers that suit them.


Apr 30, 2010 7:41 AM CDT

Agree with McLeod @ #2 and esp. RHL @ #5.  I too have always wanted to be before a Senate panel, hopefully being questioned on something I know a lot about (but that does not involve potential criminal charges against me), sit through one of those pompous jackass senator’s self-serving, long-winded “questions,” and then simply sit there.  “Are you going to answer the question?”  “Oh, I’m sorry, was there a question there?  I was still waiting for a question.”  Calling the whole thing a circus is an insult to circuses.  And both parties are equally bad.

Only our elected politicians could manage to make Goldman look good by comparison.


just another lawyer
Apr 30, 2010 7:42 AM CDT

Why in the world are people so contemptuous of lawyers?  I just can’t imagine it.


James Hetfield
Apr 30, 2010 7:52 AM CDT

The ultimate in vanity
Exploiting their supremacy

Seeking no truth
Winning is all


Apr 30, 2010 8:08 AM CDT

I have absolutely no experience in this area…but is the below statement really correct?  It seems to me that without the banks someone else would swoop in to fill the void they leave.  After all, there is some serious cheese to be made here.  And as for the capital markets freezing, isn’t that sort of what happened anyway?  The banks did their magic, and markets froze once everyone realized what was going on.  And they dramatically decreased liquidity too, didn’t they?  I guess I’m just doubtful of the claim that these banks serve a valuable function…I’m just not seeing it.  Or at least they don’t appear to serve a valuable function for anyone but themselves.   

2. While it is popular to comment that Wall St. proprietary activities serve no valuable function, without the banks serving a market-making function, capital markets would essentially freeze. Traditional investment banking is built upon two foundations: advice and distribution. If you remove the proprietary aspect from the banks, you will also severely damage the distribution component. The net effect of that will dramatically increase decrease liquidity. As everyone is aware, liquidity has a tremendous effect on capital costs which, in turn, serve as the regulator on economic growth.


Apr 30, 2010 8:08 AM CDT

The model Rules of Professional Conduct provide:
“In representing a client, a lawyer shall not use means that have no substantial purpose other than to . . . delay, or burden a third person. . . .  Rule 4.4(a). 
“It is professional misconduct for a lawyer to . . . engage in conduct that is prejudicial to the administration of justice.”  Rule 8.4(d). 
Maybe the actions of the Goldman Sachs lawyer don’t fit within the letter of these rules, but I’d like to see some disciplinary authority try to make the case.


B. McLeod
Apr 30, 2010 8:09 AM CDT

When anybody wins this one, please send me a heads-up (I would like to see what that looks like).


Apr 30, 2010 8:09 AM CDT

Thank you, AaronK!  Bill, Nathan, et al.—you’re falling for a con by buffoons.  A fiduciary duty exists for an asset manager,  not a market maker.  In fact, it is a misnomer to refer to the parties to a synthetic CDO as “clients.”  Blankfein said it again and again, but the committee members were either too dim to understand it or ignored it because it undercut their talking points.  None of the hominids in Congress saw what was going on in the economy in 2006-2007; neither did the Fed, nor the SEC, nor most of the business and finance media.  On the contrary, the government entities were as responsible as anyone for causing the meltdown by promoting home ownership for paupers and interest rates that made speculation inevitable.  Regardless of what you think of the Goldman execs, they saw what was going on and were able to act upon what they saw.  Now, the primates who were asleep at the switch are not only going to create new rules for those who saw the situation clearly, but also conduct a public pillorying?  Would Levin et al. have preferred that Goldman go down the drain with Bear Stearns and Lehman?  Would he have preferred Goldman in the position to have to come round with the other for a bailout?  As for the hearing, only such disgraceful posturing by the committee members—combining utter ignorance with sickening sanctimony—could make one root for the plutocrats.  Dan Sparks had his routine tuned to perfection—deadpan earnest cooperation, with his underlying contempt for Levin and the rest of the baboons palpable, but too subtle to be imputed.  A court will decide whether the representations regarding Abacus were misleading, but what took place in the committee room was pure scapegoating, and an abuse of government power that should trouble us all.


Apr 30, 2010 8:49 AM CDT

Thank you Donald. I am tired of these free marketers saying GS just did what they had to do and were smart while doing it. Where is the brilliance?? They not only made the market but played in it. They had the total advantage of knowing who was buying what and where risk was. Of course, you can make money while doing this. There needs to be a dividing line between the casino and those who play in it.

Btw, this isn’t a free market at all. Adam Smith would cringe at this version of capitalism. Talk about asymmetric information!! The fact is they can’t make the big bucks on traditional stocks etc, which do have value, because of technology and places like etrade. Instead they have to invent proprietary bets.

Guess what— their behavior, among others including the rating agencies, brought this country and the world to its knees. We have real problems to solve—energy, healthcare, etc. People who solve these problems were hurt far harder than these GS execs even though these little guys create real value. Wall Street has increasingly reduced the amount of capital that they allocate to real problems and real growth areas (if any $$ at all) to create ridiculous bets that just redistribute wealth because they can make a quick buck. The money they toss at this nonsense represents money that could solve problems, create jobs, and achieve growth. In history we have the Iron age, the Bronze age, the Industrial age etc. Ages characterized by something tangible that improved the world. What is this the “Casino age?”

The rules need to be changed. The few cannot get incredibly wealthy at the expense of the many. They are total parasites. We need Glass-Steagall back in place.


E Muel
Apr 30, 2010 8:50 AM CDT

The answers do not matter. Think of Joe Biden’s rambling discourse in “questioning” Justice Alito, which lasted most of his five minutes, and at the end of which he basically asked, “what was I asking?”


Apr 30, 2010 8:53 AM CDT

As a 29 STATE regulator I have said for years that these firms should be held accountable, but nothing happens.  The states haven’t stepped up either to bring these complicated criminal cases, but we have held these firms accountable more often than the Feds.  For example, it was Massachusetts who brought the case against UBS and forced them to repay investors in the auction rates securities markets collapse (resulting in many, many other firms settling and repaying investors who were stuck with these securities).  Congress doesn’t help.  The continue ot pass laws that give lip service to regulation, but nothing gets enforced.  When something blows up, it’s all duck and cover and blame the other guy for the debacle.  The SEC has been a toothless lion for so long its ridiculous…


In House Looking Out
Apr 30, 2010 8:56 AM CDT

While I respect the efforts of people who understand the CDO business to explain it, as a person involved in a “main street” business I struggle with the concept of whether lawyers should defend these schemes and how they could possibly result in more efficiency and liquidity in the market.  I understand that traditional market making, with real positions and real options against them, requires a banker to play both sides to balance supply and demand.  But I don’t follow how a CDO does that, as neither the investors nor the “market maker” has acquired any interest in the positions being traded, or any impact upon the supply or demand in the underlying trades other than the ability to spook markets as they did in late 2008.  When the decision was made not to regulate synthetics, it also opened the possibility that some of the larger “investors” could make actual trades in underlying securities against the trends of the real market in order to drive prices in the direction of their bets and recoup their investment losses from the leverage of their synthetic contracts (an allegation by some of the shorted companies in 2008, and never investigated since by our intrepid Senators).  Hiwaves’ logical assumption that Goldman operated like a casino (or even its lesser cousin, the bookie) is flawed, as in traditional gambling operations the games have established odds that people other than “financial engineers” can understand, the regulators make sure that dealers don’t stack decks in favor of the house or the house’s favorite high roller, and if the pit boss allows somebody to make a wild sucker bet that hits and “breaks the bank”, the casino doesn’t set up a commercial banking subsidiary so it can collect corporate welfare from the FDIC and Federal Reserve.


Apr 30, 2010 9:20 AM CDT

The “truth” rarely comes out in a courtroom setting so how can anyone even remotely hope that it would come out in a congressional setting? It’s hardly ever about the “truth.” Rather, it’s mostly about damage control, confusion, credibility and winning.


Both Sides Now
Apr 30, 2010 9:22 AM CDT

These are crooks on both sides of the questions—-I’m not sure who the bigger phonies are:  Goldman con artists or members of Congress, acting angry, but getting paid off by these investment banks with big money on the side.


Apr 30, 2010 9:25 AM CDT

@33:  As you state, “traditional market making, with real positions and real options against them, requires a banker to play both sides to balance supply and demand.”  The function of the synthetic, however, is to balance risk.  That means that an investor can hedge its positions in a market through a CDO that balances its risk in the opposite direction.  By allowing for such risk reduction, the synthetic allows the investor to pursue further investment with less danger of getting over extended, thereby promoting liquidity.  Whether other effects of the synthetic are too dangerous to warrant its continued use can be debated.  It can hardly be questioned, however, whether “lawyers should defend these schemes,” since the deals were perfectly legal, and the policy and ethical issues are hardly foreclosed.


Apr 30, 2010 9:36 AM CDT

How about recommendations for a simple primer on G.S.‘s alleged iniquities for we lawyers who sit at our desks or stand in court all day with the DVR set to record Fringe, CSI, or a ball game rather than Congressional hearings?  Armed with the knowledge, we may then share the OUTRAGE over the apparent insouciance of the denizens of the Hamptons (which is where I assume G.S.‘s execs reside) and the buffoonery of our elected reps, and righteously demand that certain heads roll.  References to published “primers” (e.g., newspaper, magazine articles) are welcome. I’ve already read Adam Smith re free markets and Edmund Burke re “the rise and fall of ..............”.  Please use little words for this Hoosier hillbilly lawyer.  By the way, it was great to discover this site - way to go ABA!


Eric Taussig
Apr 30, 2010 10:08 AM CDT

And for that one can charge $1000 an hour to GS. and damn any ethical obligations.


Apr 30, 2010 10:09 AM CDT

As if congress isn’t expecting this… let’s keep in mind that the majority of those in congress are former lawyers who, undoubtedly, know all the “tricks in the book”.  This is nothing but grandstanding for the press and the people, so we think they’re actually “doing something”.  Once the hearing is over, Blalack and his clients will continue to hand over very sizeable wads of cash to their democrat friends with a wink-wink and a nudge-nudge and everyone will go away happy.


Apr 30, 2010 10:23 AM CDT

Lawyers ranting that there are other industries that produce nothing except transfer of wealth to themselves.  Wow.


Apr 30, 2010 10:44 AM CDT

“Showtime”, “Dave G.”, “Both Sides Now”, - you are all SOOOO right.  This whole thing is nothing but a photo-op for the Congressional panel and a lame attempt at “appeasing” the average voter into thinking that Congress is going to do “give the big investment banks/companies what they deserve.”  Yeah, right.  I’m not fooled.  They’re ALL a bunch of phonies.


Apr 30, 2010 11:24 AM CDT

With regard to stevethelawywer’s comment,

“Lawyers ranting that there are other industries that produce nothing except transfer of wealth to themselves.  Wow. “

I actually am not a lawyer. Just a scientist interested in the law since ip is important.

Guess what people who produce things (scientists and engineers) were slammed with this economy. It’s close shop in the US and head to India or just stop R&D completely.

IMO, lawyers seem to produce a lot more real products (patents, etc.) than these i-bankers and hedge fund folks.


Tom E.
Apr 30, 2010 12:34 PM CDT

There is always the 5th amendment that would shut up those sanctimonious senators, or reminding them that the elected officials (Barney Frank & Co.) has ultimate control over the situation regardless of what Goldman was “morally obligated” to do by not following standard industry practice and protecting the Goldman shareholders….my dog knew the mortgage bubble would bust, so is he smarter than the senators questioning those guys that didnt have to even answer?


Apr 30, 2010 1:23 PM CDT

umm…  ....  .... ....  ..... .....  .... .....  ..... We are in the BUSINESS of harnessing synergy!....  .... ... Don’t tell ME how to cook a tomato!......  .....Nineteen…..  ...... ....  ..... George Thorogood always said this would happen.


B. McLeod
Apr 30, 2010 3:34 PM CDT

. . .but, I digress. . .


William B. Leavenworth
Apr 30, 2010 4:07 PM CDT

I can’t help but think that these catamites of Mammon would answer promptly and to the point if they were waterboarded as they were questioned.


Apr 30, 2010 5:01 PM CDT

I’m guessing everyone on this board is a lawyer. Now stop for a moment and think about how a non-lawyer will read that advice that the Goldman lawyer gave.  Your average truck driver might hate Congress but odds are he’ll hate even more the conniving mouthpiece who gives the bigshot banker advice on how to evade the truth.  That truck driver will be thinking that if he gets called on the carpet he won’t get the deference that a billionaire banker gets, and he certainly won’t get a staff of underlings to prepare briefing books, and he certainly doesn’t get a $800/hour lawyer to tell him how to spin.  And the law profession will have earned yet another point in the hate column.


Jim Calle
Apr 30, 2010 7:32 PM CDT

I agree with No. 13, Elizabeth. Definitely Onion material that only confirms what people already believe - that lawyers only gum up the system and get in the way of the truth regardless of how pathetic the setting.  “Grandpa, what gives you the greatest pride about being a lawyer?”  “Well, I have become exceptional at coaching people in how to waste time, avoid answering questions and generally obstruct justice.  And I get paid $500 an hour to do it.”

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Jesus Christ people... do we REALLY need a "journalist" to state the obvious?

Another one for the #NoShitSherlock files.

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