Inside the Goldman Trade

There have been reports detailing the fact that top Goldman execs, including president Gary Cohn, began increasing their oversight of the firm’s mortgage unit at the end of 2006, that they were on the trading floor, that this went all the way to the top. Do you think they knew exactly what was going on? Do you think Lloyd Blankfein knew about this stuff?
It was clearly well known within the firm that they were working on these kinds of deals—senior people knew a lot of details about them, and knew that Paulson had a hand in putting them together. The question is whether more senior people knew how they were being marketed. And I tend to doubt they did. And that’s sort of why they’re focusing on this one guy, Fabrice Tourre.

So you don’t think Mr. Fantabulous is being made a fall guy? How is it possible that he’s the only one that did anything wrong?

I don’t know. I mean, it’s the government that’s the one just charging him personally, so I’m not sure it’s Goldman throwing him under the bus.
A bunch of people have said that Lloyd Blankfein won’t survive this, including analyst Dick Bove. But he’s also made bold claims like ‘Ken Lewis is a brilliant visionary and tactician.’ Do you think Lloyd could actually get canned over this?
I have to say, all indications are they really believe and are confident it will be proved they did nothing wrong. You talk to them off the record, and they really don’t think they did anything wrong. So knowing that, I can’t see them getting rid of Blankfein.

So is Goldman going to be fine, a couple months of bad press but nothing long term?
I’m not sure about long term. It’s definitely a black eye. I can’t tell you how many people have emailed me and talked to me about their anger at Wall Street. Goldman symbolizes that for them. It’s definitely a big PR black eye and that could last a while.

What is the impact of this case going to be on financial reform? Is it unfair that hedge funds—who weren’t really responsible for the mess we got into, since they just made the trades—are going to pay for it in regulations?

It’s remarkable. And the repercussions are going to be huge, and there will definitely be more scrutiny on hedge funds, not all of it warranted.

Paulson hated your book when it came out. Do you know why?
At the time, I thought it was because I dug into his past. He was a playboy, he got married later, he enjoyed himself and I thought maybe he didn’t like me writing about that. But now I do wonder whether or not he disliked it because he thought that shedding light on what was going on would create the perception he did something wrong, or make him look bad. Which is actually pretty impressive that he had a sense something big was going to come out of all this.

Bess Levin is editor of DealBreaker.com.