and from a cdo, how you make a cdo squared. and at that moment, the audience understands the incredible scam of making these things that were packed with, in some cases, you know, a 1-1/2 million subprime loans rated triple-a and sold off to -- as he describes -- at korean bankers. but the ratings agencies -- there is this inherent conflict of interest here. the ratings agencies, the big three, you have the government saying everybody has to. you know, they have this kind of quasi government -- it's the stamp of approva so they're acting as our regulators, and yet they're paid by the investment banks. and, you know, the guys in korea or in germany, they're not going to buy anything, nor is the california pension fund going to buy anything that doesn't have a triple-a rating when you think that that would be the first thing that would have been changed since this whole thing. you know, frank raiter, the ratings executive said, if only what he had been doing, if it had been tightened up, this whole thing wouldn't have happened. b

. >> i was requested by the head of the cdo group to put some ratings on some bonds, but we did not have any information. we had not read the illegals. we rode back and said that higour criteria requires that we have the tape and we have illegals. they wrote back and said that we need to just guests and put a rating on it. that was clearly a violation of our ethics. i told them i would not do it. >> what is the importance of this? >> the ratings agencies -- he was in charge of all mortgage backed securities . they were crucial to the whole system and to the disaster because they were the ones that said that this investment could be rated aaa which means it is super safe and will never go broke or aa or double be. -- or bb. from what frank is saying in the anonymous banker was saying, there is essential function was to take -- their essential function was to take subprime mortgages which are not so creditworthy and basically, through the magic of securitization, they would say that they were aaa. they basically took garbage and spray paint and it -- spray- painted it with gold paint. it w

were they cdos? >> they were -- >> mortgage-backed securities?>> again, i think they were a lot of assets, and some of the business with aig was with other parts of aig and included another thing. but to the point, i think the main part of it were cdo-like pools of securities. >> okay. so you were holding such as investments. these were not -- >> actually, we had and, again, i don't want to get too far over the tech technicality -- >> but you'll answer these in writing afterwards? >> yes. but they were, i believe we had given protection to the another counterparty and acquired that protection from aig. so in effect we had no real kind of equity risk, but we did have a credit risk to aig because we were required to perform on one side -- >> sure. >> and we needed them to -- >> so you hedged yourself with aig, is that what you're saying? >> correct. >> okay. the -- since goldman was regulated by the sec which, i think, began in about 2004, your leverage increased substantially from 2004 until about 2008. why would leverage increase after you became

whether you owned $5 billion or $50 billion of supposedly no risk sumer senior debt -- that in a cdo,likelihood of loss rates would appear to be the same. but the consequences of a miscalculation were obviously much bigger if you had $50 billion of exposure. you get a $50 billion exposure. risk monitoring it failed to capture the risk inherent in off-balance sheet activities such as siv's. financial institutions did not appreciate the full magnitude of the risks they were exposed to. their counterparties were unaware of the full extent of those vehicles and could not accurately assess the risk of doing business. fourth, assets at certain institutions were not valued at their fair market value. one consequence was that losses were not seen it early enough so weeks -- risks were not curtailed. çt(a second consequence was tht bank balance sheets became suspect. as a result, lending between counterparties froze. fifth, financial institutions simply did not have enough capital to meet the extraordinary market and are meant that arose after a long period of benign conditions. lastly, the r

growth and private label mortgage backed securities was enhanced by the development of the cdo and cdsmarkets. the size and complexity of the capital market activities that fueled the credit boom meant that only the largest financial firms could package and sell these securities. compensation schemes fueled the growth. many compensation systems were not sufficient to risk management. they allowed high, short-term profits to be translated into generous payments without regard to any long-term risks. mortgages and many derivative products created long risk, while compensation was weighted toward short-term results, creating perverse incentives toward riskier behavior. more than cause of the crisis was the lack of non- -- increasingly, complex financial products, combined with owe peak marketing and disclosure practices proved toxic. as a result, foreclosures are nearing 3 million per year, and more than 15 municipal households are saddled with underwater mortgages. finally, many financial firms grew to such size, complexity, and interconnectedness, that the market implicitly assumed that

growth and private label mortgage backed securities was enhanced by the development of the cdo and cdsmarkets. the size and complexity of the capital market activities that fueled the credit boom meant that only the largest financial firms could package and sell these securities. compensation schemes fueled the growth. many compensation systems were not sufficient to risk management. they allowed high, short-term profits to be translated into generous payments without regard to any long-term risks. mortgages and many derivative products created long risk, while compensation was weighted toward short-term results, creating perverse incentives toward riskier behavior. more than cause of the crisis was the lack of non- -- increasingly, complex financial products, combined with owe peak marketing and disclosure practices proved toxic. as a result, foreclosures are nearing 3 million per year, and more than 15 municipal households are saddled with underwater mortgages. finally, many financial firms grew to such size, complexity, and interconnectedness, that the market implicitly assumed that

growth in private label the market to back securities was enhanced by this -- development of cdo and cds market. the size and complexity of capital markets activities that fueled the boom meant on the largest financial firms could package and sell the securities. compensation schemes fuelled growth. many compensation systems when next this -- sufficiently link to risk management. the about high short-term profits to be translated to generous payments without regard of long-term risks. mortgages and many derivative products committed long dated risk while compensated toward short-term results creating perverse. another important cause of the crisis was a lack of strong consumer protection, especially in the nonbanks sector appeared increasingly complex financial products combined with opaque marketing and disclosure practices prove toxic. as a result, foreclosures are nearly 3 million a year and more than 15 million household saddled with underwater mortgages. finally, many financial firms grew to such size, complexity, and interconnectedness' that the market implicitly assume bigger

ççdo you believexd that roe vs for sq%ei+ republican party advocates in its platform?ion, federal funding for abortion, parental consent restraintççç on abortion witt parental consent. çiq have promoted adoption. if i am governor of texas, i will do everything it( can to limit -- lower the number of abortions in this state and promote adoption. we do not want the unwanted pregnancy. that is not good for anyone. talking about the supreme court of the land, we have had restrictions on abortion that have become the law of the land. i think that is good. i do not want abortion havens. i do not want to have freedom so that some states would allow partial birth abortion and there are states that have had referendums that have said they would want to have partial birth abortion. that scares me. >> your position on abortion is giving some discomfort to republican advocates to take a t(çççpretty strong position n reversing roe versus wade. do you think it should stay in effect? >> what concerns me about this is that we would have some states that would allow abortion as