become unglued, but undisclosed that paulson was betting against those mortgages. paulson and his firm not charged here. sources say a former fund manager was the source of the investigation, an the investigation has been going on for two years. the one person who was charged. fabrice tourre, in an e-mail saying in 2007 according to the complaint -- more and more leverage in the system, the whole building is about to collapse anytime now. only potential survivor, the fabulous fab, referring to himself, setting up and structuring this portfolio at the behest of paulson. goldman sachs in many cases becoming a scapegoat, if not more, for all of this, and just this week revelations that rajat gupta, a goldman sachs board

member, who's already said he's not standing for reelection, is under investigation in the ongoing investigation of insider trading. a rough time for goldman sachs. the company says it will vigorously contest these charges, and as we had, try to defend its reputation, a reputations that's now under siege. erin? >> thanks very much, scott cohen. let's get the market reaction. bob, off the lows for the market for now. >> but not by much. the most interesting thing is over here at the politics and the timing of the announcement. we have a huge financial regulatory reform bill up in the senate, probably in the next couple weeks. senator dodd has been shepherding that. roger freeman, a pretty respected analyst over at barclays had a note out in the middle of the day, which i think crist liesed a lot of people's comments. it was a way to sway some of the

on the fence republicans to support a tougher financials bill. the president has said that anybody who votes against this -- so strong rhetoric around here today. the goldman sachs here, a low of about $155, well off that low, huge volume, north of 0 million shares changing hands. citigroup also dropped initially, but has come back a bit. there were questions whether this would cause the government to delay selling its stake. i can't imagine why that would be, but it was curious how many questions i got about that earlier. the key is you want to watch the xlf. that had a hit, huge volume, almost 400 million shares changing hands, five or six times the normal volume, but that too is well off the lows. finally the other major sector is the materials name. if the dollar pushed forward are earlier, the materials were to

the down side. erin, back to you. >> bob will be back. now, we want to tackle the three big questions that we think are out there. is it a game changer for goldman or politics? >> or what does it mean for the bull run? is it over? tom lee joins us, a strategist at jpmorgan, and jim cramer you, and i both in different divisions spent time at goldman sachs. one thing that stood out after reading this complaint, is the man in the center of it, this guy, fabrice, a 30 years old vp, the s.e.c. says he was in charge of putting the books together. that's not a call the shots position at goldman sachs. >> no, it's not. i wanted to mention at the top that i have information that leads me to believe that goldman sachs was an investor in, not against, but in -- and i think that's a game changer when it

comes to what the case is. i'm going to repeat it. my information is goldman sachs was an investor, not a short seller. >> so goldman sachs was long -- this is a game changer, so the billed oncdo that we're talking about is abacus 2007 ac-1, you're saying -- >> my information is that they were an investor, which may explain the incredible confidence they had, if this were an open-and-shut case, believe me, this is the way it works. goldman sachs, we're sorry we did this, we're going to throw over the guy, 31 years old, he didn't know what he was doing, poorly supervised, why are they so confident? my understanding is they were an investor. we're were not shooting against the client. i know that's a very important fact. >> but i want to make sure -- you obviously can't disclose

your sources, but you know this to be fact? >> my sources indicate this is true. >> let's get reaction. jim bianno, you thought this could be a game changer, does this change the entire situation? if goldman sachs itself was betting on this subprime mortgage pool going up, betting against paulson? >> yes, it depends on what tranches they were invested in, depending on where in the capital structure they decided to put their money. as far as it potentially being a game changer, i think we have to keep in mind what's going on here. as far as fabrice tourre, this whole thing was abacus was laid out in a "new york times" piece written by gretchen morgan. we knew about this four months ago, at least if you read "new york times." what changes here is we seem to be criminalizing this. if that's where the s.e.c. is

going with this, that would be a game changer. >> if it were criminal, it would be the justice department. that's an important distinction. s.e.c. does not put people in jail. >> it's civil fraud, and we have not even heard from andrew cu o cuomo. he obviously could press criminal charges, and has not yet made a comment to what he's going to do, but jim, are you saying what could change here is that we're going to start to see more of these sorts of fraud cases filed against other banks? >> yes. we've already started to see this start to come out. last week we learned about magnatar in chicago. we've seen more of this coming, and that's what's going on. if we're going to say that the selection of these loans was fraudulent, that will be the game changer, because everybody used some kind of bias in selecting these loans. were all those biases disclosed?

probably not in most of the cases. if the s.e.c. is going to say that's what happened, then all these 2007 deals would have to be revealed. >> we believe in hindsight that paulson was the greatest thing since sliced bread. i was the victim of a letter-writing campaign six months after this piece of paper was filed, because i said it would go down dramatically. there are two sides to every single piece of paper. why couldn't the german bank short this piece of paper? was there someone who was running that bank from within goldman? we have to be careful about what goldman did and didn't. yes, i worked there. yes, i am not proud of the way they handled this particular period, but this may be a situation where goldman is being overrun, and i think will ultimately win. the s.e.c. does not win every case it brings. they do not win every case. >> jim, i want to give you a chance to disagree, but you said to me you think goldman will not

win this case. >> yes -- you're right, jim, bt this is a new division not s.e.c., a new thing. if they're going to come out with the first high-profile case and lose, it will -- >> the justice department brought its first case again bear, and they lost so bad. they get gun-shy just like everybody else. >> we need to get straight to this tape. this is robert khuzami. he is the s.e.c. director of enforcement, and we finally spoke. here it is. >> -- the kind of proper disclose that securities laws require. >> bus the investors were perfectly capable if they chose to to look at what the underlying collateral wahle was. they could see what it was. wouldn't this have been in a position to at least make a decision to whether they wanted

to participate. >> in this case, as you see from our complaint, one of the investors specifically asked for an independent third-party it it manager to assist in the selection of the portfolio. they were a foreign institution that wanted somebody here in the united states to be looking at this portfolio. so that was a condition of the deal for them. goldman represented that that's what they were -- that that's what they would get, and that is in fact not what happened. >> you said that investors weren't told that but it's been reported that this has happened with the construction of other cdos that shorts were intimately involved. will the s.e.c. look at other deals that were packaged like banks, that may have been put together in a similar fashion? >> like i said, we have a

structured product, a new product enforcement unit in the s.e.c. that's looking at these as well as other products, transactions and practices across the markets arising out of the financial crisis, and we will look at deals with similar profiles, or any deal where disclosures were not properly made. >> tell me the process here on out. how will this proceed? what's the next step? >> well, the case was assigned to a judge today, and the case will proceed according to the ordinary course of litigation. >> investors weren't -- -- final arbiter of the -- the criteria that went into cdos and they were in fact in talks with paulson to decide which

securities went into that, because they say they were involved in that final decision, is it still safe to assume that they weren't -- that they would -- that investors were really misled? that it wasn't actually -- the investors were not told that somebody with an opposite economic interest was involved in selecting the portfolio. >> didn't they know that all right by virtue that they were investing in a synthetic cdo, which by nature cannot exist? >> there's a fundamental difference between somebody being short on a synthetic cdo, or taking a view that the assets will perform poorly, but there's a world of difference between that and let that person be involved in the selection process of the portfolio. >> so is it just purely a matter of disclosure then? were you saying that people were active leading investors -- disclosure and active misleading

things like, one goes a bit further? >> i'm not sure the distinction is that great. the fact is certain representations were made to the investors, and those representations were not accurate. >> so why wasn't -- you said paulson wasn't charged, because they had no role in the disclosure, but were they at all aware of the representations or the failure to represent this information that goldman was making to aca? in other words, did they have any idea that goldman wasn't being as truthful as you alleged they should have been? >> as we want -- we stated earlier, goldman made the representations, paulson did not, and i wouldn't sort of respond beyond that statement. >> you're not charging aca, because they don't exist anylonger? >> like i said, we charged based

on our view of the law and the facts, and the result of that is what you see? today's complaint. >> goldman sachs said the s.e.c.'s charges are completely unfounded in law and fact, and we will vigorously contest them and defend them. do you have any response to their response? >> no. the matter will be handled in court. >> what sort of damages or other penalty are you seeking? >> the securities laws provide for disgorgement of ilgotten gains as well as penalties and other remedies. >> is there any risk of -- after what happened with the bank of america, the case didn't go as well as you thought here, this is obviously high profile. if goldman is ability to prevail, is there any risk that the s.e.c. will -- enforcement reputation will be irreparably damaged? >> i think in the enforcement division or job is to investigate cases and filed

charges where appropriate, and that's what we'll continue to do. >> there are those who would say you're a little late? >> i'm not sure who it is -- >> well, i don't know, it's 2007. >> but the point is we're bringing the case today. >> the market is way down today on this news. any idea why or in the thoughts what that's signaling? >> i wouldn't be particularly appropriate nor insightful for me to comment on how the market moves. >> thank you all. >> any goldman subtlement talks? >> thank you. all right you've been listening to robert khuzami answering some questions, some of which were from our own david faber. and as he was finishing the comments, a commentary from paulson in response to the suit. i want to make sure everyone knows paulson & company was not

named in this complaint. however, they say they are not subject to the complaint and made for misrepresentations. this is what paulson said. paulson purchased credit protection from goldman sachs issued under the abacus, but we were not involved in any marketing of the abacus products to any third parties. they had sewed authority over all collaterals within the cdo. that seems to be a bit different from the impression, but no one said they were involved in the marketing, but said they were involved in giving goldman the names to go into the cdo. i want to go around the horn to get commentary. jim, anything that makes you think they were -- >> i think theyunder scored the whole idea that the selection of collateral is going to be the issue here, and whether or not that was fraudulent. that's what we're going to have to look at. goldman loses its case, we'll have to relook at all the cdos in 2007. >> that would mean many other firms as well.

jim cramer, in this statement, though, paulson and company saying the collateral manager had sole authority. this may be nuance and rhetoric, but obviously the s.e.c. is saying something different that paulson and goldman together came to aca with a list? >> my understanding is i learned that the collateral manager also had a position in abacus. i understand what jim bianno says, what tranche? but frankly everything was wiped out. i understand that a krflt a and goldman had a position in this piece of paper, and i also think that aca didn't hide -- these are not washing machines, these are not vacuum cleaners, there's no right to a guarantee. it did not mean the germans had to go long, they could have got short. does the government have a good case? frankly i don't know. i know the government is frankly desperate to bring cases. if i was part of the government, i have no choice, i have to bring what sounds good, because people are angry.

we need a cliff, a good kangaroo court, a little star chamber, don't we? we're going to talk more about the political angle, the firm is ikb, commercial bank located in dusseldorf. >> geniuses. >> your point for the market, which, by the way has recovered quite a bit. if it become also bigger, it could be a damper at the whole market, or a headline that matters, but just an excuse to sell? >> erin, from the mind of a portfolio manager, there's sort of complex issues raised here, the potential to kind of envelope a bunch of other companies, and then you have to explain why you sort of stayed in your position. i think this will be an excuse for investors to de-risk. the market has had such a big move, i think from a tactical perspective, i don't think i would be buying the dips right

now, i would be making a shopping list, knowing that the economy is strong, there's a lot of pent-up demand, but there has been to be some selling down. hedge funds are going to be worried about each other, so i think this will cause people to want to de-risk for a couple weeks. >> tom, when you say derisk, obviously you're talking about risks, we've seen the dallas gotten down, oil, gold, pretty much everything has gone down. >> it's a reflection of the risk trade itself. when investors are buying risk, they're helping to push up commodities, equities, causing spreads to tighten. so when you derisk, i think you'll see it widen. >> thank you very much. a brief break. when we come back, we're going to talk about how widespread the problem is, who were the buyers, and with this revelation that goldman itself was an investor in the cdo, is that normal? is that something they do? how big was their stake? could this save them or not?

at tonight at 7:00, a special report "fraud on the street." simon hobbs and i will look at the charges against goldman, the fallout and future. no small part of this politically. we'll be back. ♪ as you can see, this isn't your typical midwestern farm. the reason lies six thousand miles away... in japan, where a producer of specialty eggs needed corn for feed... grown to precise standards. cargill identified the producer's needs, then introduced an illinois farmer to grow the exact corn needed... and developed a system to ship it separately, connecting the farmer with a japanese customer... who was very appreciative. this is how cargill works with customers.

you were watching breaking news coverage on the case against goldman sachs.

as the securities and exchange commission basks in this major charge against goldman sachs is quietly releasing something else. a 159-page report that details how the s.e.c. missed the giant al al al al alan stanceford scheme. the s.e.c. sued alan stanceford and his companies in 2009 alleging a ponzi scheme. how did they get away with it so long? the snopor general says it was due to institutional influences within, that there was a predilection toward the slam dunk case. in addition, the report says the s.e.c. regional enforcement official left the commission and sought to represent alan stanford three times, and at one point actually did represent hipped. marianne shapiro has come out

with a statement that says much has changed at the s.e.c., detailing the many efforts since this new administration has taken over. mary shahho had this report in hand at least since april 1st. why was it released the afternoon of the goldman sachs filing? you draw your own conclusions, but clearly the s.e.c. is also dealing with its own reputational issues. >> interesting question when it comes down to the role of politics of the situation which may be everything, but certainly are not nothing. so how widespread is the issue of what goldman sachs is alleged to have done. joining us, sylvan rains at r & r consulting, and author of an upcoming book due out in may. david, let me go to you first. we all heard you asking a few of the questions there to mr.

khuzami. what did you make of his responses or some of your questions, frankly, lack of response? >> reporter: listen, i'm just trying to understand specifically where the s.e.c. believes the fraud was, and i think you got at least some answer there how it happened differently. we've got to railroad this market. we've said this a number of times, the markets in many ways should never have existed. a $12 trillion physical market, why did you need to create a synthetic market? nonetheless, it did exist. there were a lot of questionable practices that went on in late 2006, early 2007, or all of 2006. we'll see what comes from here. interesting that the s.e.c. chose goldman at what i believe will be the first of probably a number of cases, but let's wait

and see what ultimately hatches here. a lot of questions that i don't believe were answered in that brief conversation. >> jim, let me follow up with you, he said he had found that goldman sachs was. and they were an investor betting it would go up. do you have any idea of the size of this investment? obviously both important questions to see whether this could help them in their defense. >> i have no idea on how they were positioned. again, i have to ask you, why do they feel so confident? not smug, but confident. i think they obviously have some facts on their side. if they had an investment in abacus, and i made it clear if my information was wrong, i just blew their cover immediately, but i have to believe -- let's

not forget there's no requirement to disclose who was on the other side of a trade. i have often bought pieces of paper that were clearly meant to be on the other side, a bet against me. such is life. i'm a big institution. since when did they institutions have a guarantee? they're not little guys who can come into the equation blindsided. this is a caveat emptor situation. >> you know that the bank setting it up knows there's another side. in fact, is setting it up. >> yes, thank you, erin, i'm pleased to be on this show since most of your previous guests were public relations officers for goldman. is it okay if i'm not critical? >> i don't need to hear that nonsense. i'm blasted goldman many times. >> the word is abacus.

>> yes, but please don't make any personal allegations. >> that implies that i take money from goldman sachs. i resent that. >> mr. cramer, please let me answer. you had your chance. >> take bake user charge that i took money, and i will. >> okay. make your case and jim will respond. >> it's quite possible that goldman had an equity position, they probably wrote it off on the closing date, so they chose to lose a few million and make a hundred million. these deals were very complicated. i don't do politics, so i can't comment on the politics of this deal. goldman sachs was clearly in the know. they knew what they were doing. in fact if they were defending themselves, they would have to make a case that they didn't know, which i think too highly of goldman sachs to think that they didn't know what they were doing. if that's the defense they will

undertake, then so be it. these deals were made to be shorted. we don't have times to go into details. i want to remain shallow in deference to mr. cramer. >> i asked you to please not make personal -- >> what is this nonsense. >> the details were completely difficult to understand. it's clear the bank did not understand them. mr. cramer is correct on this. they should have done their own research. but they did invest in them. so in some sense they are also complicit in this entire keep. it takes two to tango, and goldman sachs probably is just like everybody else, trying to make an honest buck on wall street. >> all right. we're going to take a brief break there. we'll be back in just a second. sylvan will not be with us. sylvan, you've got more more

polite than that. back in a moment. great claims service and a 97% customer satisfaction rate. show people really trust us. gecko: yeah right, that makes sense. boss: trust is key when talking about geico. you gotta feel it. why don't you and i practice that with a little exercise where i fall backwards and you catch me. gecko: uh no sir, honestly... uh...i don't think...uh... boss: no, no. we can do this. gecko: oh dear. vo: geico. fifteen minutes could save you 15% or more on car insurance.

and joining us now, jimmy or i don't, and our own rick san telle to talk about what tom lee was references, it is flight from risk. let's start with you, mr. santelli. you've been seeing it all morning. >> i've been trying to call as many traders and people in the business, much more experienced cdo traders and see what their thoughts are. actually i'm getting it might be too early, given the amount of details to make any qualified judgments, but one thing seems to be for sure -- i know jim brought up one comments that goldman seems to be come president reagan a solid standpoint. they feel confident, but i can remember bear stearns confident, and remember drexler guys looking confident. i don't know that that gives you a clue, but what i do feel pretty certain about is this is opening up a can of worms, whether for good or for bad. we all want fraud pursued, but we want to look at people

innocent until proven guilty, but i think a process has begun, and i do think the fact that pause are not and goldman were the first ones, just means they aimed really high for the first case. >> what's your view? you were talking about gold and today's trade, but also don paulson's link to gold? >> no question about it. when we saul gold cascading the way it was, first we thought it was an exit to the risk trade, but we thought there was more to that. because they have sold gold exposure, i guess someone was making the chain down the line perhaps he was being indicted, some stupid connection like that, and all of a sudden it became fashionable to punish gold disproportionately, but the markets have recovered a bit the exact moment that jim said that goldman possibly had a position in these things. to me then that kind of makes

this almost open and shut, and not really news. the other charges are kind of ridiculous to. . to suggest that they were supposed to disclose to some clients what other clients' positions were in a specific security? i have a ton of clients' business, if i did that, one, i would have no clients, and two, i i'm pretty sure i would be in jail. whether or not you have to disclose who influenced what was put into it, i don't know that. my guess is you don't. to me, everything seems ridiculous. it just so happens in a political period where, you know, kind of the bad guys with the health care thinks it's nice and easy to replace or so the in the villain seat. >> cramer? >> good to get back off the ad hominem track here. there's obviously two sides to the case, but i would point out to the people at home, these are big institutional securities, something that david farber harkened back to.

this is not coke and this is not pepsi, and this is not merck and caterpillar, widely traded stocks with a lot of information. it's a very closed world. i'm glad to see the doors blown off. i always thought it should be reported on the new york stock exchange or chicago merck, but we have to remember for the people at home, you were never involved in this business. this was big boy to big boy. it's not a great look at the business, a little look at how sausage is made, but it's good that the s.e.c. brought it to our attention, but if goldman invested in the piece of paper, it will be a much tougher case. >> we still don't know whether it was standard for goldman to do that or whether they were doing it as part of another trade. it's unclear. >> if paulson knew that each mortgage was written by a firm that i won't mention, but they had a notorious record of doing no research or the mortgages were completely fraudulent, but you can look at the mortgage and

decide, i think florida, i think california, where a lot of them were from, i think the markets are collapsing. i want to go in the way back machine, if you look back at 2007 there were a lot of people buying hospitals? were they chumps and idiots? i don't know. i thought maybe they thought the prices would appreciate. i had a poignant conversation three monthsal. and they said so we want to know why everyone is making this bet? as rick santelli said, were they confident? yes, but what i'm saying is that goldman sachs would typically fold. they would say, let's make a deal, you know what? we screwed up, but let's just take a hit. that's what you do when the s.e.c. calls you, unless you have conviction. maybe that's the world i'm talking about. they have conviction. >> jim, let's switch gears one minute real quickly. now, politics, everybody seems

to be afraid to talk about this. do you think the timing of this is an absolute, without a doubt coincident, the timeline of the s.e.c. and reform legislation? >> yeah, total coincidence, you're absolutely right. thank you, rick. you know what? i thought i'm sick and tired of the media attacking me for something that seems to obvious. >> david faber, you wanted to say something? >> there's just so many different things spinning around. a few points, to jim's important point that goldman was an investor in this cdo, it is important to point out that a lot of firms actually bought the ecity, or at least their allegations, in order to allow them to be created, and/or you're in a position if you're a hedge fund, able to buy the equity to short the entire stack of collateral, which you would make a lot more money on. this is going to go on for

years. >> very good point. >> i want to make sure what you're saying, david, is this could explain why goldman had the long position? >> reporter: yes. >> i wanted to make sure it was clear. >> they insured the $90 million piece with a $2 million piece. it just makes the case tougher, which is all i'm saying. >> i don't know if they were doing that, to david's point, if it necessarily does, jim. >> these are not open-and-shut cases. if it was open-and-shut, counsel would say let's bite the bullet and move on. you don't fight the government. they're smarter than that. >> i'm going to disagree nicer than the last guy you said they don't bring up case that are unfounded. i'm not at all convinced of that. >> i'm throwing them the bone. >> good. i wanted to get that on the record. >> i know you had one other

point you wanted to make. >> the synthetic cdo market as it existed is one that would no regulation. they were unregistered securities being sold to a essentially sophisticated investors. we'll see what follows. my expectation would be that the lawyers they've hired, there may be more charges to come, but we'll see. as you well know, erin, this will play out over the next year or two years. you'll hear about it two years from now that we're focused on today and perhaps monday. >> quick question, david. how sophisticated was the icelandic school district. >> wasn't it norwegian? >> oh, i have the volcano in my head. >> reporter: they didn't know. nobody knew. the greatest fraud was of course the actual mortgages underlying all of this. that's where the true fraud was, and nobody went after that. >> rating agencies. >> let's not forget the gses

that were warehouse instrumental. >> fannie, freddie. we'll take a brief break. it's a hydra of a problem. when we come back, reaction from capitol hill, as our guests have alluded to, there is a political aspect.

jeff klein is the strategist for lpl, and jim cramer is back with us. jim paulson, for those who don't follow this every single second, you are not john paulson, not the person who was involved in providing collateral -- >> i'm the lower pay grade paulson. >> now we have that out of the

way, put your cards on the table. do you think this is something that's going to move the market more broadly beyond a day? >> well, it certainly could, but if it does, i guess, erin, i think it will be more, because the market was sort of at a point that was prepared for a correction. it had made a big run in the last 45 days. it broke through some big round numbers. there were people looking for a correction. i think this is an excuse to do it, but i don't think fundamentally much as changed as far as the central driving force behind what's been driving the market higher. jobs will still be created, profits will still be made. real gdp will still grow, and that stuff hasn't ended as far as where this issue goes. there is two things i like about this for a stock investor. one is that it certainly gave a

positive sentiment and reduced it a little bit and reenstated a wall of worry which is a powerful force for upward movement. a couple of weeks ago, we were dealing with the prospect of the 10-year treasury yield to blow up, and this has taken off the competitive interest rate and dropped it back down. longer term, this is a positive for the bull market continuing and not ending. >> good for that and uncle sam. jeff, we have a report out here from ubs which just crossed and they are going through and the bottom line, while they believe it is broader impacts and unclear and they don't believe fundamentally goldman sachs changes the money it makes and they are keeping the 12-month price target at $210 and unchanged at a buy. would you buy goldman sachs? >> you know, i think that you have to look at the whole financial sector when you talk about goldman sachs. what these issues bring sup the

whole financial reform issues and the backlash to the financial crisis, and clearly the legislation is not headed in a favorable way for banks and not terribly onerous, and when you talk at the volcker rule, and others, it is going to shift the interest to the left, and the profitability of the sector as you look out over the next several quarters. >> well, jim cramer, regardless of whatps in the case of how structuring these sorts of things and other structured products have become a big part of profitability for the banks and if that does fundamentally change over a period of time, is that priced into the names? >> well, it is a great point, and by the way, when i am off camera, i am preparing my game plan to buy monday and i have the show coming up and i like to be prepped, but here is the deal. from the beginning this business has been under a cloud and only a matter of time and you can talk to duncan from the new york

stock exchange who bought 17,000 shares of his company last week, and anybody in derivatives seeing the writing on the wall in that it is a much more exposed business. not unlike the nasdaq because you could hide the ticket, hide the commission is what we used to call it, so this business is not as lucrative, but it is still going to happen, and these firms adjust over time. and it is also one of the reasons that the p.e. multiples are six and seven, because a lot of the people feel like these businesses will go away and it is not like paying top dog because you feel that the derivatives business is growing, but if anything, it is given a haircut. >> jim paulsen, what would you do with this as we talked with tom leaf from jpmorgan, the dow is down and the utilities are down, and the transports are down and the drugs are down and retailers are down and the semi-conductors are down -- you get the point. everything is down. what goes up first? >> well, think that what i would do, erin, is that i would take

an opportunity to ask myself the question, am i as exposed to an economic recovery as i wanted to be? if i'm not, this is a great opportunity to look across the investment playground here and to try to take advantage of this short-term panic by being able to being able to buy exposure to commodities today at a more favorable price or looking to enter some of the industrial stocks today, you know, when they are getting beat down. i think it is an opportunity to re-evaluate how much of your portfolio should be defensive versus cyclical, and if you have been more defensive, this is a opportunity now to take advantage and to increase your cyclicality or sensitivity to the economic growth. because i think that in a week from now, this is going to calm down. i kind of believe with david faber, it is an ongoing issue for the next couple of years, but what will remain is ongoing positive economic momentum, and i think that it is going to bring funds flowing back into the stocks again.

>> what happens, jeff, when one other thing that david faber was referencing happening that this is the first, but there are others and people stop caring or does this become a big problem like the all of the issues with wall street research or solomon brothers with the case against them in the early '90s or arthur anderson? >> well, there are lingering concerns and you can liken it to the european debt crisis and first dubai and then ireland and then greece and maybe portugal next. they don't go away and get wrapped up in a bow and set aside, because they linger in the background, so we believe it is too early to get back into the market. late last week we went 10% underweight to the markets after being bullish for a long timings because we believe we will see a pullback here of 5% to 10% and not just goldman sachs, but the last two earning seasonings we have seen sell-offs and concern about what the fed will tell us, and it is not quite yet to buy in this pullback. >> thank you to all three of

you. we appreciate it. don't miss more of jim tonight. jim, thanks for being with us for the hour and he will continue to coverage of the fallout of the goldman sachs and give us the game plan tonight at 6:00 p.m.

don't nisz special report the night with simon hobbs and myself at 7:00, "fraud on the street, the case against goldman

sachs" join us then and then the final hour of trading on the goldman news. meanwhile we hand it off to the "closing bell."

. >> goldman sachs under fire, and the s.e.c. taking aim for the financial giant, and they are facing fraud for financial securities. straight ahead, the financial and political implications, and what does it mean for your money? who stands to win and lose? how will the markets react in the critical final hour? we have investors and wall street players sounding off as we enter the final and most important hour of the trading day right now. >> welcome to the "closing bell." i'm trish regan at the new york stock exchange in for maria bartiromo. washington's war on wall street is heating up though right here in the critical final hour where we are seeing signs of resilience among investors.

the stock market selling off sharply today on the heels of the major announcement that is sending shock waves across wall street and main street. the securities and exchange commission hitting goldman sachs with fraud charges related to subprime mortgages and we will have the latest in a moment, but first, take a look at the major averages. look at what we are seeing right now. we are seeing the equities definitely under pressure, but way off of the worst levels of the day. the dow right now up 116 points and loss of 1% point as you can see, and a bit of recovery off of the lows of the session. the same story over on the nasdaq, 2482 to the level, and the s&p 500 again similar story here off of the lows of the session, down 18 points, a loss of 1.5% right now. in the meantime, we want to look at the goldman shares down sharply, but they are also off of the worst levels of the day. ahead this hour, we will look at how the news will impact investors and your money. will those goldman scandal or this goldman scand