>> do you think if your people think something is a piece of crap and go about and sell that and then your company bets against it, do you think that that deserves your trust? >> senator, i want to make one thing clear. when you say we sell something and then our customer bets against it... >> no, you bet against it. >> we bet against it. we are principals. the act of selling something is what gives us the opposite position of what the client has. >> tom: lawmakers say goldman sachs bet against its clients, but c.e.o. lloyd blankfein says that's not the case. >> susie: today's hearing into the role of investment banks in the financial crisis lasted for hours, with goldman taking it on the chin for wall street. you're watching "nightly business report" for tuesday, april 27.

this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by: this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> tom: fireworks on capitol hill today as senate lawmakers gave goldman sachs executives a drubbing over their role in the financial crisis. >> susie: from the trader at the heart of the s.e.c.'s case

against goldman, fabrice tourre, to the company's c.e.o., lloyd blankfein, senate lawmakers took hours with the testimony. we're over eight hours in, and the hearing is still going on. >> the biggest surprise came a short while ago after c.e.o. lloyd blankfein was sworn in. committee chairman levin dove right in. >> my question is, is there not a conflict when you sell something to somebody and then are determined to bet against that same security and you don't disclose that to the person you're selling it to? >> in the context of market-making, that is not a conflict. what clients are buying or customers are buying is they're buying an exposure. the thing that we are selling to them is supposed to give them the risk they want. they are not coming to us to

represent what our views are. they probably -- the institutional clients we have wouldn't care what our views are. they shouldn't care. >> susie: blankfein's testimony came after senators had grilled half a dozen goldman executives about what the firm did or didn't do. as darren gersh reports, it was a dramatic day that went to the very heart of how wall street does or doesn't work. >> reporter: goldman sachs executives were at the witness table, but senators put the way wall street does business on trial. committee chairman carl levin charged goldman treated clients like objects to move around for its own profit, not telling those clients it was actively betting against their success. here levin grills david viniar, goldman's chief financial officer, on why the firm was pushing a deal it described in graphic terms. >> i want you to understand what's in the customers' minds, that you don't think it's junk, you don't think it's crap, you don't think it's [no audio]. >> it depends on how you mean it. >> how i mean it? these are your employees who mean it!

>> can i explain? if we sell a security to a customer... let's say we sell it at 20 cents on the dollar. they buy it at 20 cents. that doesn't mean we think it's a terrific piece of paper. >> reporter: levin also tried to pin viniar down on whether goldman was placing big bets against the housing market and the securities it was selling to clients. >> you made billions going short. you can talk about risk management. i call that making lots of money. >> reporter: on balance viniar said goldman made half a billion dollars when taking into account its losses on mortgage assets on its books. >> it was the big short offsetting the big long, which very much helped us get through the crisis. >> reporter: for six hours, senators grilled the lower level executives who packaged and sold the mortgage securities that senator levin argued poisoned financial markets. asked if he did anything wrong, daniel sparks, the former head of goldman's mortgage department, replied:

>> "wrong" has connotation we did something inappropriate. we did deals that didn't turn out the way we hoped. >> reporter: one of those deals is at the heart of the securities and exchange commissions fraud charges against goldman. the government named this man, fabrice tourre, in its fraud suit. tourre's response was emphatic. >> i deny categorically the s.e.c.'s allegation, and i will defend myself in court against this false claim. >> reporter: the key issue in the case is whether tourre should have told a company called a.c.a. and other investors that hedge fund manager john paulson was preparing to bet against their deal, and that paulson would have a hand in shaping the security he was shorting. tourre denied the charge. >> i did mention to a.c.a. that paulson's expectation was that they were buying credit protection on senior tranches of that portfolio. >> that is the same thing as saying they are going to buy a short position, yes.

>> reporter: in e-mails, tourre described himself as the fabulous fab standing in the middle of these "exotic trades." today he was more humble. >> i regret these e-mails, and they reflect bad on the firm and myself. i wish i hadn't sent those. >> other goldman executives also had a chance to regret the emails they sent or were forced to explain today. >> reporter: the role that the investment banks played in the financial crisis. has the hearing so far provided any answers to that? >> reporter: it confirmed a lot of what we know, first that this is a rough game and that investment banks play it to win. i think it also confirmed in some -- and some executive said this today -- that the instruments that wall street created were overly complicated, pumped too much money into housing and contributed to the

financial crisis. whether or not the banks had an inherent conflict of interest and profited when their clients bought securities they were putting together, goldman denies that, but the senate investigators and senators were pressing that very hard. >> reporter: and continuing to come after that. is that practice addressed in the financial-reform legislation? >> reporter: senator carl levin, who held the hearing today and has been looking into this for 18 months -- he wants to have an amendment and offer an amendment that will address that directly and address those conflicts of interest. the legislation as it stands right now does address it indirectly through requiring the banks to have what's called more skin in the game -- in other words, to own more of what they put out there and to hold the stuff on their books. >> reporter: speaking of the legislation today, another failed vote to move the debate forward on the reform.

what's the status? we're hearing about a republican alternative. >> reporter: the republicans are putting together their alternative. it would be tougher on the mortgage giants fannie mae and freddie mac which republicans argue have been at the heart of this crisis, pumping up the housing bubble. tell take a different approach on consumer financial protection. we're going to hear more. we're going to have another test vote perhaps as soon as tomorrow. they're going to keep at this until they come to some kind of deal. >> darren, thanks so much for the coverage. darren gersh tonight, our washington bureau chief. >> there are lots of other stories in tonight's n.b.r. newswheel. stocks tumble on concerns about goldman sachs and debt downgrades in europe. the dow tumbled 213 points, the nasdaq fell 51 1/2, and the s&p 500 lost 28. the selloff came on heavy volume. almost 1.7 billion shares traded hands on the big board and 2.7 billion shares on the nasdaq. stocks fell as standard and poor's slashed its ratings on

greece's debt to junk status. the ratings agency says greece's debt burden is on a "sustained downward trajectory." s&p also knocked portugal's debt rating down a couple of notches. it sees the country struggling with a high debt ratio for the next three years. while portugal remains in investment-grade territory, the cost of insuring its debt and greece's debt soared today. still ahead, ford motor reports a better than expected quarterly profit, $2 billion. we ask c.e.o. alan mulally what's driving those strong earnings. >> tom: the president's bipartisan debt commission met for the first time today. their task: finding ways to reduce the nation's red ink. president obama has said all options for cost-cutting are on the table, including tax hikes and restraining entitlement spending. the panel is made up of former and current democratic and republican lawmakers, and is charged with sending its proposals to the white house by december 1.

federal reserve chairman ben bernanke opened the meeting this morning by cautioning that failure to reduce the deficit will endanger the prosperity of the nation. >> the path forward contains many difficult tradeoffs and choices, but postponing those choices and failing to put the nation's finances on a sustainable long-run trajectory would ultimately do great damage to our economy. >> tom: later in the afternoon, chairman bernanke began a two- day federal reserve open market committee meeting. its decision on interest rates comes tomorrow afternoon. we'll have details and analysis right here tomorrow night. >> susie: ford motor posted a big quarterly profit today, reversing big losses a year ago. the strong results stood out, because ford is the only u.s. automaker that did not take bailout loans from the government. ford earned 46 cents a share, 15 cents more than analysts estimates. going forward, the company warned it might not be able to match those numbers because of higher prices on raw materials. in dearborn, michigan, today,

diane esterbrook asked ford c.e.o. alanmulally. >> what was driving profits for ford in that last quarter? >> the main drivers were the strengths of our products themselves, especially sales. on the sales side, we were up 37% year over year. we increased our market share by 2.7 percentage points which is incredible. then also, our revenue was up 37%. that combined with our continuing focus on quality and productivity allowed us to turn in that great operating profit. >> reporter: the market share was very noticeable. up a couple of points. do you think you can continue those kind of gains throughout the rest of the year? >> i don't know about the exact amount of the gains, but in our guidance we said we would improve from our market share last year so clearly we're on a positive track to be able to deliver on that commitment. >> reporter: obviously, you're a company that's gotten good will

from the public because it did not take any money. now g.m. has paid the loan back, do you think you might of that goodwill and lose customers to g.m.? >> i don't think so, and in g.m.'s case they paid back a small fraction of what they owe the u.s. government, and in our case, from the day the people figured out that we not only made great cars but we were creating a very strong business, that really has been a very positive thing for us because people want to know that they're buying a vehicle from a company that is creating a strong business and is going to be there for them for the long-term, so i wouldn't trade our places with anybody else. i think if we just stay on this plan of making the best cars and trucks, people will appreciate that. >> reporter: on the same line, do you think you benefitted from problems we saw this quarter at toyota? >> well, we have been getting new customers from the japanese -- our japanese competitors as well as domestic competitors but again, i would go back to the strength of the product line because as you know when it

comes to customer satisfaction and quality and all the third-party endorsements, j.d. power and consumer reports, many believe we have the finest car lineup of small, medium and large cars, utility trucks ever. it's the strength of the products. >> reporter: you're talking about production in the second quarter being up about 40%. are you looking to bring people back to your plants, start hiring again? >> absolutely. one of the neatest things we're all very excited about is that clearly now with the industry coming back and us coming back even faster because of the increasing market share that we're going to have a chance to increase production as we mentioned in the second quarter that we're going to do and now we're going to have a chance to offer great cars and careers at ford again. >> reporter: i was listening to your call this morning with analysts and you talked about some headwinds out there, some challenges. what are those headwinds? would they be commodity prices? still a tough credit market? housing? >> i think probably the clearest are the firming up of the raw

materials and the commodities worldwide because clearly we have more demand than capacity in raw materials, especially as asia-pacific continues to grow, we're going to always be faced with firming up of the material, but on the other hand we have great plans in place with our product and our productivity to offset those increases. i think another key thing that you mentioned is just the fundamental economy, and we're very pleased with a slower recovery than we've had in the past but a good recovery trajectory in the united states and europe and, of course, asia-pacific is really growing, so i think everybody is focused on the economy and continuing the growth in the economy is the most important thing for all of us. >> reporter: you've got the fiesta coming out in another couple months. who is the buyer? are you looking at people that are now looking at those smaller japanese vehicles? >> it's interesting, because the market segment for smaller vehicles is very substantial, and if you look at the small,

the medium and the large, it's about equally split. in the past, because we couldn't make money on smaller vehicles in the united states, we focused on our attention on smaller vehicles outside the united states and the fiesta with the improvements we've made, we can make cars in the united states and do it profitably so now we're going to be able to offer the u.s. customers all of these fabulous vehicles, small, medium and large and now they're going to have great choices against the best vehicles in the world. >> reporter: and you are loading some of these smaller vehicles with content. are people willing to pay for that extra content? >> they are, and it's very interesting. as fuel prices have gradually increased and people care about quality and fuel efficiency and safety, really smart design just like my ford, hands on the wheel and ice on the road seamlessly connected to the internet, people absolutely, yes, will pay for great quality, fuel efficiency and safety and we're seeing that no matter what the vehicle side size.

>> reporter: mr. mulally, my guest alan mulally, c.e.o. of ford. >> reporter: meanwhile, general motors is spending almost $900 million to upgrade production at five factories that build fuel efficient engines. the investment will let g.m. bring back some laid-off workers and in some cases hire new ones. about 1,600 jobs will be kept or created. the upgrades will also help the automaker meet new government fuel economy standards that take effect in six years.

>> tom: goldman, greece, and earnings drove the markets lower, fueling a big spike in fear. let's begin with the fear gauge, the chicago board options exchange volatility index. when stock prices go down, this tends to go up, as it clearly did today. the jump in volatility brings it to its highest level since february, when stocks began on this latest rally. financial stocks, like a.i.g., helped fuel the move down today, with a.i.g. seeing big sell volume. shares fell more than 16% as an analyst at keefe, bruyette, and woods sees "little long-term value in the common shares." the analyst put a $6 price target on the stock. bank stocks generally were weaker as goldman sachs

executives defended themselves to congress and capitol hill continues work on financial regulation. still, goldman stock bucked the weak market, ending higher. citi shares continued to see profit taking, and the financial i-shares exchange traded fund hit a one-month low on twice normal volume. continued worries about the government debt situation in greece weighed on global banking stocks. we mentioned earlier s&p now calls greek "debt junk." that hurt big european stocks, such as those included in this euro stoxx 50 e.t.f. it includes several european banks, so watch european-focused mutual funds. and the national bank of greece continues sinking to new lows on huge volume. while the dow industrials saw their biggest drop in more than two months, 3-m helped limit the losses. it was the best-performing stock inside the dow. it was the only dow component that was able to trade higher. in fact, 3-m was able to hit a new 52-week high. and as a sign of just how bullish the market feels about

3-m, it hit the new high on almost three times average volume. here's what helped: a big earnings upside surprise, as well as an increase to its predicted sales and profits for the rest of the year. new products, emerging markets, and growing demand from the auto industry and consumer electronics fueled the optimism. basic material stocks were among the biggest losers as the sector reacted to some earnings calls, including one from u.s. steel. steel stocks had been rallying as automotive and global demand has been picking up. still, u.s. steel turned in a first quarter loss, but it wasn't as bad as feared. steel shipments were up even as selling prices were lower. that combination didn't go over too well with investors. u.s. steel is close to a two- month low with the selloff today. nucor also got caught up in the selling, as did a.k. steel, which is at a five-month low. also hanging over a.k. steel is that it had been planning on getting a quarter of its coal used for steelmaking from the same massey energy coal mine that was the scene of a deadly explosion earlier this month. a different kind of miner-- gold miner newmont-- capitalized on digging more gold out of the ground to sell it at higher prices.

here are the first quarter results for the world's second- biggest miner. remember that gold has been over $1,000 an ounce since october, helping profits. the stock was up seven cents. cummins engine was up 3% after a huge earnings beat. profits were better than twice what was expected. printer maker lexmark also had a big earnings beat, with the stock hitting a new two-and-a- half-year high. and avery dennison stock jumped to a new high after better than expected first quarter earnings, beating by 18 cents. tomorrow, earnings from defense contractors general dynamics and northop grumman. that's tonight's market focus.

>> susie: the u.s. supreme court said today investors who suffered big losses when merck pulled its painkiller vioxx off the market can go ahead with a lawsuit. investors claim merck misrepresented the drug's safety, and they want billions of dollars in damages. merck says it's disappointed in the ruling, and will continue to defend itself. >> tom: here's what we're watching for tomorrow. as we mentioned, federal reserve policymakers announce their decision on interest rates. we'll see quarterly results from comcast, dow chemical, and wellpoint. also, our street critique guest hilary kramer tells us why she's bullish on goldman sachs, even though she sees a short-term drop for the stock. >> susie: that big oil spill in the gulf of mexico is now just 20 miles off the louisiana coast.

the sunken b.p. and transocean oil rig is spewing 42,000 gallons of crude a day. the coast guard may do a controlled burn to keep it off the coast. crews are using underwater robots to cap the well, but so far they haven't been successful. b.p. is spending $6 million a day on the cleanup. next week a senate committee will hold hearings on what caused the explosion that sank the rig. >> tom: southwest airlines has been fined $200,000 for not following federal rules when bumping passengers off oversold flights. airlines can sell more seats than they have, but they have to follow guidelines asking for volunteers to give up seats in exchange for cash and travel. if no one agrees, passengers can be kicked off and given cash. the government says southwest denied boarding on overbooked flights without telling passengers their rights.

>> susie: back to our top story, the goldman sachs hearing. tonight's commentator has some thoughts on how goldman does bu. he's justin fox, editorial director at the "harvard business review." >> at a nice restaurant, the local who comes in every week, knows her food and wine, and tips well is going to be treated better than the tourist who orders a well-done steak and a diet coke. that's business. the regular customer generates more profit, and is better able to tell when the food or service falls short.

still, the tourist can reasonably expect that his steak won't be poisoned, that he won't be served leftovers off the regular customers' plates, and that the waiter won't steal his wallet. wall street is different. the number one business principle of one of its leading firms, goldman sachs, is that "our clients interests always come first." you may not believe that, but even if its true there's the question of which clients. a sophisticated, frequently trading hedge fund is obviously going to be treated differently from your run of the mill pension fund or local bank, let alone you and me. and unlike at the restaurant, on wall street the less favored customers are sometimes sold toxic products, handed rejects from the in crowd, and pickpocketed by those who serve them. that's because financial bets, if they are to have winners, generally have to have losers, too. so when wall street firms give extra special service to their best clients-- or extra special bonuses to their employees-- it often means that some less- favored customer is getting a raw deal. this is what the s.e.c.'s fraud case against goldman sachs is

about. it's also a perennial problem for our financial system. it's why we have regulations and disclosure requirements, and it's never going to entirely go away. i'm justin fox. >> that's nightly business report for tuesday, april 27. i'm susie gharib. good night, everyone, and good night to you, too, tom. >> tom: good night susie. we hope to see all of you again tomorrow night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you.

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