Gov. Ned Lamont delivered a full-throated defense Monday of David Lehman, the former Goldman Sachs partner whose nomination as commissioner of economic and community development has prompted questions about whether Lehman is tainted by the firm’s role in the financial collapse of 2008.
On WNPR’s “Where We Live,” the governor said Lehman is unfairly suffering from guilt-by-association with Goldman Sachs, a firm that figured prominently in a scathing post-mortem of the financial collapse conducted by the U.S. Senate Permanent Subcommittee on Investigations.
“I think that’s fundamentally unfair to his young man and what he wants to do for this state,” Lamont said. “And, yup, Wall Street was selling some lousy products, but they were generally selling lousy products to hedge funds that were derelict and not paying attention to what they were buying. That doesn’t have anything to do with David.”
Off air, Lamont said he and Senate President Pro Tem Martin M. Looney, D-New Haven, who pointedly refused last week to commit to voting for Lehman’s confirmation when it comes before the full Senate, have since talked about Lehman’s nomination. Looney said he has advised the governor to call other senators and make the case for Lehman.
“We haven’t caucused it yet. We want to allow members of the caucus to express their opinions. That’s why I suggested to the governor that he reach out,” Looney said.
Looney, who said he has directed his legal staff to examine the public record concerning Lehman’s tenure at Goldman Sachs and his testimony before the U.S. Senate, acknowledged that governors generally are presumed to be entitled to their own nominees.
The burden would be on the Senate to find cause for rejecting Lehman, he said.
“If the status quo prevails and nothing new is revealed, I think the presumption in favor of the governor’s nominee would carry,” Looney said.
At issue is what Lehman knew about the poor quality of collateralized debt obligations, exotic and risky financial instruments known as CDOs, sold by Goldman Sachs to investors. Lehman, now 41, joined the firm in 2004, when he was 27 or 28 and became co-leader of its Structured Products Group Trading Desk in 2006.
Last week, Lehman told the legislature’s Executive and Legislative Nominations Committee, “Any suggestion that I knew a product was going to be worthless and subsequently sold it to a client is completely and wholly untrue.”
In 2010, Lehman was one of 700 witnesses called to testify before the Financial Crisis Inquiry Commission, which was created by Congress to perform an analysis of the collapse.
Lehman testified about Goldman’s high-stakes fight with American International Group, whose Connecticut-based subsidiary, AIG Financial Products, grew a booming business in credit-default swaps.
“In exchange for a stream of premium-like payments, AIG Financial Products agreed to reimburse the investor in such a debt obligation in the event of any default,” was how the commission described the product. “The credit default swap is often compared to insurance, but when an insurance company sells a policy, regulations require that it set aside a reserve in case of a loss. Because credit default swaps were not regulated insurance contracts, no such requirement was applicable.”
AIG’s biggest customer was Goldman Sachs. In mid-2007, Goldman and AIG began a long fight about the value of $23 billion of complex mortgage securities. According to the New York Times, Goldman had insured those securities by paying $100 million in premiums to AIG.
A more prominent Goldman Sachs witness was Henry Paulson, the CEO of Goldman Sachs from 1999 until he became George W. Bush’s secretary of the Treasury in 2006.
Under Paulson, Goldman Sachs played a major role in the creation and sale of the mortgage securities that were a central element of the financial collapse.
“From 2004 through 2006, the company provided billions of dollars in loans to mortgage lenders; most went to the subprime lenders Ameriquest, Long Beach, Fremont, New Century, and Countrywide through warehouse lines of credit, often in the form of repos. During the same period, Goldman acquired $53 billion of loans from these and other subprime loan originators, which it securitized and sold to investors,” the commission reported.
Lamont said he understands the the lingering anger about the collapse and Goldman’s role.
“I get it, a lot of people have googled Goldman Sachs. And they say Goldman Sachs is a firm where he was, and they blame them, blame the firm or Wall Street for a lot of what happened,” Lamont said. “And Wall Street deserves some of that blame, absolutely. We leveraged ourselves to the eyeballs. Deregulation was a disaster in the 90s and how that resulted out. But that’s not David Lehman. David Lehman was 28 years old. He had just showed up.”
Off air, the governor said Hollywood has played a role in the public’s view of the 2008 crash.
“These guys have all seen ‘The Big Short,’ ” Lamont said. “And they think Goldman Sachs was responsible for the crash.”