mr. paulson took these bad loans, and he sold them to the people who are in 401-k pension, and goldman was behind that, because what happens with these hedge funds is that these people -- they don't use their own money. they use the hedge fund's money. and then there's a rule that means there's a company that

paulson. it's quite clear that mr. john paulson played a very key role in the portfolio selection process. to me that is undeniable. that raises the question whether goldman's decision not to disclose mr. paulson's involvement was a correct judgment or was it a material omission as one lawyer put it to me today? let me make a second point. -- in order to provide higher yield. all right? this troubles me enormously. creating something that's designed to fail. you know what? if it's not legal, it appears to me to be unethical and i must blame goldman sachs for this. why sell it to customers if it's going to fail? why go there in the first place? now, there's nothing wrong with creating a neutral security that will have buyers and sellers. that's free market capitalism, and the buyers and sellers do not have to know who they were. but if in fact these goldman sachs cdos were designed to fail, then there's something very wrong with this whole system and it must be changed. the phrase from this sophisticated investor who had put together -- he put together many, many of these things was that it

mr. paulson was playing a role in this transaction. >> we wonder whether in fact is the s.e.c.asically saying this entire market was not a good market or one transaction in particular. >> i don't think we're going to see any more synthetic cdos for some time and probably not ever. >> okay. >> and i certainly think people are looking at the participants in this market and questioning was this casino somewhat rigged. if it is buyer beware, so be it. but i'm not so sure that's going to answer everyone's questions and certainly not the public. it will fail in the public, in the -- i guess among the public. >> thank you. appreciate it. james frischling, back to you, mark. >> just ahead, another real estate bubble lurking perhaps on the other side of the earth? when it bursts, could it be a whole lot worse than what we saw here? we're going to look into that. >>> that would be if they had mortgages, but they don't. and three ways to protect your money from another goldman sachs-type bombshell. as we head to break, we'll show you a few of the trading highlights. coach is on that list.

mr. paulson and mr. bush's administration walked down the hall that day and said there is a financial meltdown coming and we have to act, what caused the financial meltdown? the rules and regulations that they are tried to put in have nothing to do with what caused a meltdown. i have an article from "the new york times" published september 29, 1999 -- it is about fannie mae using credit for mortgage lending. it says right here at "fannie mae, the nation's biggest underwriter of home mortgages has been under increasing pressure from the clinton administration to expand mortgage loans among low and moderate income people. in moving even tentatively into this new area of lending, fannie mae is taking on significantly more risk which may not pose and the difficulties during flush economic times, but the government-subsidized corporation may run into trouble during an economic downturn, prompting a government rescue." this article is from 1999. host: sandy, let me ask you about the other complicated trading a

mr. paulson and mr.summers, hitting us before it had a chance to strengthen the levees and we haven't strengthen them as i thank you know because powerful players in the financial sector and their allies to not want reform. they see it as contrary to their interests. and it is, i think to the people who run the biggest banks. is not contrary to our interests and the interests of society. secretary tim geithner also says in this regard we won't lose much money. on the rescue package. we may actually make money on the top which is the program at injecting capital into the biggest banks as you recall. it will lose money on that it will be because of the car companies and aig. well, that's not the right math. right way to think about the cost of the crisis, one is a million jobs lost since december 2007, as dramatic, completely unnecessary and we're struggling with high unemployment going forward. you can also worry what the federal reserve has had to do and what that's done to the credibility of the federal

mr. paulson are mr. bernanke? >> i met with mr. paulson on a couple of occasions because i was a member of the thrift industry advisory council which means actually three times a year with the federal reserve. i did not meet personally with mr. paulson. i did talk to mr. paulson on the phone. >> let me ask you some other questions. i am kind of new at this. >> to think we heard this morning stated income loans or loans to which information is put on application, where a customer tells us what their income is then than it is not verified. >> how did it develop? >> again, that product or that feature has been around for many many years. i think what we are all dealing with is the housing crisis, excuse me, the housing boom grew and as the competition grew, the use of limited documentation and no documentation on loans certainly expanded and as we were commenting earlier, as we became more concerned that the housing market had increased in risk, i think that is one of the elements we all started to take a look at so in our case we star

mr. paulson made money and everybody else got duped. that's just a short description and probably not even very good description, but is close enough to understand why it's been going on in this country. betting, not investing, betting on credit defaults swaps that have no and treble interest in anything. no value on either side. he put together a contract and say i will bet you that this issue happens, the stock goes up, this bond goes down. we don't have to own anything, let's just have a bet. that's not an investment, that's just a flat out wager. we have places where you should do that, if you want to do than go to las vegas and they say what goes on their stays there. who knows? you can go to atlantic city, we have places where you can do that but those places are not places where you do activities that are equivalent to what we now see having been done in the middle of some of the investment banks and financial institutions of this country. i've spoken on the floor about this and i'm going to repeat just because as i talk about wh

mr. paulson's warnings? >> i read his book, i'm embarrassed to say, but i read his book. >> do you recall mr. geithner's concerns and urging that lehman move to a more conservative place with this balance sheet? >> president geithner and i had a number of conversations regarding liquidity, potential capital raised. i do not recall a warning from him. >> ok. do you recall a warning from the office of supervisors that with the arch done deal, that you were maturely overexposed? >> i do not. >> do you recall the concerns of madeleine or michael gillman or matthew lee with respect to the risk management of -- risk levels of lehman or offbalance sheet accounting? >> start backwards. i saw matthew lee today, he reminded me that he and i had met at a social event, so i was not familiar with him. michael gelvan, longtime member of the firm. i will only tell you that the day after mr. gelvan left the firm, the senior officer that took his place, came to see me, told me that we were overexposed in leverage loans, i sa

mr. paulson, who was the hedge fund manager, cited but not named in the s.e.c.'s case. but for the banks themselves, to take on big negative bets. this was how they did it. this type of security. >> were they invent the security, they find a sucker, which is usually a pension manager or somebody who represents a large pool of assets. dumb money, you look for the marks, whether it's a municipality, somebody who manages teachers' money and you try to jam something down their throat, and you buy yourself a steak, high five. how do you deal with two big to fail? >> too big to fail is you're dead right, the crucial part of what we need to do that's not addressed in this bill. and it is so frustrating to me to hear arguments like -- we won't be competitive internationally if we don't have large, these large megainstitutions. i think that is so wrong. how many times have you heard the argument about how we'll lose competition, we'll lose the competition overseas if we don't, if we regulate too strongly or if we don't allow banks to become you know, the behemoths that they are.

mr. paulson may not have wanted to tell anybody their position, but not everybody is so afraid. we'll have the trades next. >> and a quick reminder, all the recommendations expressed by jim cramer are solely his and not the opinions of cnbc. and may have been previously disseminated by him. before acting on a recommendation, consider its suitability for your circumstances and consider seeking advice from your own financial adviser. geico's been saving people money and who doesn't want value for their dollar? been true since the day i made my first dollar. where is that dollar? i got it out to show you... uhh... was it rather old and wrinkly? yeah, you saw it? umm fancy a crisp? geico. fifteen minutes could save you fifteen percent or more on car insurance. national car rental? that's my choice. because with national, i roll past the counter... and choose any car in the aisle. choosing your own car? now, that's a good call. go national. go like a pro. >>> welcome back to "street signs." with your daily reality check. first-time home buyers accounted for nearly 50% of home sales i

mr. paulson betting against another hedge fund, there's not a systemic issue.here's a systemic issue if major banks are engaging in pure speculative activity. the way to do that is tax it. >> the entry point should be to whom do we give guarantees? when the government is intervening by giving guarantees to institutions, we can prescribe what they do and how they do it. >> let me ask you about the politics about this. you weres whether also an elec governor. the obama administration proposes financial reform. the s.e.c. has to testify, suddenly on that day that the s.e.c. is testifying in a 3-2 verdict which is very rare for the s.e.c. to proceed with an indictment t comes out with this. it seems fishy. >> i don't believe in coincidences. i think they wanted to get this out there during that discussion that don't mean it's wrong. and it can be both -- >> the s.e.c. is supposed to be independent. >> they are independent and are trying to show the world they enforce the law and they are entitled to use cases that have a general more prophylactic impact to say to t

mr. paulson, but he was just a speculator. there are people who speculate in corn and all sorts of things that allow the professional users of those markets to complete their hedges. that is a socially acceptable -- >> there is a big difference between fine in the opposite side of and -- above a certain day and the commodity edge for a former the need certainty or the airline that needs to find out what fuel is going to cost and to side of a deal where there is just betting. there is not any certainty other than somebody takes one side of the deal and someone else takes the other side of the deal. that is what a cdo is. >> you could characterize it as a bet, but not the underlying commodity. some of these things do not take physical form, but they provide the opportunity and the liquidity for people who want to hedge themselves. >> and we cannot take this too far? you do not think there is a point where we make up things to bet on and you guys are securitized in it and to launching it -- to traunching it, and you have one side

mr. paulson the? >> to read his book. -- i read his book. >> the recall the warnings to move to a more conservative place regarding the balance sheet of? >> tim geithner and i had a number of conversations regarding liquidity, potential capital raise. i do not recall a warning from him. >> do you recall a warning from the office of thrift supervisors that you were materially over-exposed? >> i do not. >> do you recall the concerns of matalin or michael or matthew with respect to the risk management, or risk levels of lehman, or off-balance sheet accounting? >> let's begin backcourts. i saw on matthew lee today. he reminded me that he and i had met at a social event. so, i was not familiar with him. michael, a longtime member of the firm -- i will only tell you that the day after he left the firm, the senior officer that took his place came to see me, told me we were overexpose, in leveraged loans. i asked how bad it was. he took me through it. i asked for his recommendation, and he told me to bring it

mr. paulson. now, that is the basis of the f.c.c. complaint filed against goldman sachs for civil fraud. so what is civil fraud you might ask? civil fraud is, it shall be unlawful for any person in the offer or sale of any securities to obtain money or property by means of any untrue statements of a material fact or any omission to state a material fact necessary. so the question is, was it a material fact that they were made up of these mortgage-backed securities, 90% of which were considered no dock mortgages -- mortgages? that mines there was no documentation that the people that got those mortgages could pay for them. there was no documentation of income, no documentation of debt. those were no doc loans and there were history of no doc loans going back. so it was fixed from the very beginning. they were arranged by john paulson, a material fact that was not disclosed to the other buyers. and it was not disclosed to the other buyers that john paulson created this because he wanted to short them. because he wanted to bet against t

mr. paulson and mr. diamond and mr. sellars hitting us before we have had a chance to strengthen the levees and we haven't strengthened the levees as i think you know because the powerful place in the financial sector and the allies do not want reform. they see it as contrary to their interests. and it is letting contrary to the interest of the people that run the biggest banks. it is not contrary to our interest or to the interest of the society. now psychiatry geithner also says in this regard but we will not lose very much money. on the rescue package. we might actually make money on the t.a.r.p. that injected money into the banks as you recall. if we lose money it'll be because of the car companies and because of aig. that isn't the right math. the way to think about the cost of the crisis, there's a couple ways to think about it. one is 8 million jobs lost since 2007. that is dramatic and unnecessary and while we see struggling going forward you could worry about with the federal reserve has had to do and what that

mr. paulson didn't have any role? >> nose nose, i'm not. >> paulson had a role in picking these securities, and you don't see anything wrong with that. in fact the credit rating agencies say it would have fundamentally changed the way, you can't associate yourself with those comments, because you don't think they're right? >> well, goldman sachs provided the short risk to that transaction. a very specific set of names. whatever goldman did with those names, how that affects what a rating agency rates that, that to me doesn't make any sense. >> okay. we've got a -- well, we've got a -- i don't know what you call it, a faultline, whatever it might be. maybe a wrong term. i want to go back to a previous question, and you all kind of skirted it except for mr. birnbaum, but it's been brought up several times by the ranks member also, and that is who do you consider yourself working for? the client or the firm? i don't want to go back and forth and go through the same questions that were asked before, but the question is, yo

mr. paulson is liquidating any of his gold positions, they'll absolutely run him up. just a thought.i don't think gold's performance today is that inspiring. see how it closes today. >>. >>> let us now move on. the market's one bright spot, a lot of restaurant stocks are higher along with a lot of the retailers. karen, what do you make of this? there is a lot of interesting data points but nothing necessarily that would say, you know what? 2% higher in jcpenney or 2% higher on some of the other names out there. >> i don't know if it is just rotation out some of the names. the medical device space getting hit hard today. maybe that has investors turning to consumer stocks. but across the board, restaurant space is amazing to me. just just mcdonald's. they put up very good earnings but cheesecake which we talked about. it was a bad trade, been up a lot higher since then. they all seem to be levitating. cake reports tonight. i wouldn't be shocked if they can -- the expectations are so high, i wouldn't be surprised if it came in a little but i got to get out of the way of that one. >> pr

undermined the past 30 to 40 years and we should worry about the more regular sharks identified barras paulson, mr. diamond and mr. summers hitting us before we had a chance to strengthen the levees and we have that strengthened the levees as i think you know because it plays in the financial sector and the allies do not want reform. they see it as contrary to their interest and is contrary to the people who run the bank's. secretaries geithner also says we will not lose very much money on the rescue package. we might actually make money on the program that injected capital the biggest banks if you recall. if we lose money on that it will be because of the car companies and because of aig. that's not the right one way to think it is 8 million jobs lost since december, 2007. that's dramatic, and necessary and we are going to struggle with high unemployment going forward. you can also worry that the federal reserve had to do and what that has gone to the credibility of the federal reserve going forward that is an interesting and very important discussion but i would focus on the fiscal costs on the

mr. john paulson of goldman sachs fame and cdo fame has had a conference call and he's trying to be on the offensive to reassure his investors that he is not going to take a negative consequences from this whole blow-up of the goldman sachs abacus fund and the s.e.c. fraud civil lawsuit. so paulson had a conference call late monday with about 100 of his investors. we are just learning the details. he's trying to persuade them that his actions in 2007 were fine and he would not be indicted tonight. he's probably saying we are not going to be indicted civilly or criminally. i don't know how he knows but his investors are asking the question. anyway, paulson trying to do some hand holding with his investors. the more i think about the s.e.c. lawsuit against goldman sachs, this thing is going to unravel in ways that none of us can possibly predict now. that's the point that i want to make. now, let's go to today's stock market headlines. apple had a blowout, 90% profit rise. mcintosh and the iphone sales. the s&p 500 climbed for the eighth time in nine days. it was up about 1%. the dow was up

mr. paulson and goldman. guest: that is surprising but funny because most homeowners have no idea what happened to their mortgage after they sign the paperwork. i give them credit for not being better about the experience, but i am sure that there are others who do not share that in view. host: jo said on the democrat's line. conn. -- joseph on the democrat's line. connecticut. caller: what key to financial firms from simply creating a different financial tool to get around the new regulations? the second part of the question is, risk is part of investment. by limiting risk, do you limit investment and the potential for financial gain? host: louise story? guest: one of the things that people are focusing on are the accounting rules. there have already been a number of changes their including bringing a off-balance sheet from vehicles that banks originally hit, back on to the balance sheets. the question is, will they get around these rules? part of the question is if accounting rules stay up to speed. a lot o

mr. paulson pacific to the abacas cdo. >> when goldman reported results that first quarter where we got ana of how they fared after everyone else was devastated by holding onto the longs, we said, doesn't it make sense? goldman is smart. at that point we were still in an environment where you could give kudos to having anticipated the housing bubble bursting. but in the benefit of hindsight now, everyone seems to think it was a slam dunk. that goldman nev maman knew it to collapse. they had a conveyor belt of securities to ram down clients' those as they shorted the housing market. that's what you're going to hear today. i wonder if blankfein is in a position to vehemently defend the firm or he's going to take -- as people apologize, we'll do better next time. >> reporter: that's a very interesting question. i was here at beginning of the year for the first hearings of the financial inquiry, the commission on the financial crisis. where blankfein was particularly aggressive and feisty took on the chairman of that committee, strongly in terms of challenging some of thinhis assumptions. i'm

mr. paulson and goldman.guest: that is surprising but funny because most homeowners have no idea what happened to their mortgage after they sign the paperwork. i give them credit for not being better about the experience, but i am sure that there are others who do not share that in view. host: jo said on the democrat's line. conn. -- joseph on the democrat's line. connecticut. caller: what key to financial firms from simply creating a different financial tool to get around the new regulations? the second part of the question is, risk is part of investment. by limiting risk, do you limit investment and the potential for financial gain? host: louise story? guest: one of the things that people are focusing on are the accounting rules. there have already been a number of changes their including bringing a off-balance sheet from vehicles that banks originally hit, back on to the balance sheets. the question is, will they get around these rules? part of the question is if accounting rules stay up to speed. a lot of

mr. paulson, why don't we be back participants? we are going to go long, but temporarily. at the same time, to cover our own hides -- goldman sachs speaking -- we will buy insurance on our long position, which is going short through aig. what happens there is you have goldman in a position, both servicing client that is betting on something going down and that the same time being in a position, making a security that it needs to sell to other clients. like being a middle man. this is what goldman was hammering on the past few days. we are a market maker. the question is, what the sec thing hinges on, it is fine to be a market maker but were you actually allowing one side of the trade, the short side, to help you structure in effect a self-fulfilling prophecy, making it as best possible, cram it with so much junk that it was doomed to fail and it was not a disclosure yet adequately made to the investors on the other side who were buying it. >> a senior writer from bloomberg business week -- thank you for joining us. we appreciate it. guest: always a pleasure. host: let us g

mr. paulson took these bad loans, and he sold them to the people who are in 401-k pension, and goldman wasbehind that, because what happens with these hedge funds is that these people -- they don't use their own money. they use the hedge fund's money. and then there's a rule that means there's a company that you're trading with, you're supposed to be able to buy the next trade once there's a move up. but instead you're allowed to buy a trade at any amount, and that makes the company go bankrupt. host: so jane, are you saying that it's the democrats' fault that paulson and goldman sachs got themselves into this predicament? caller: absolutely, sir. you know why? because they demanded -- and this is backed by bill clinton had attorney general reno go after these banks. if they did not adhere to helping what they call redlining in these years was the poor people in the neighborhoods who couldn't get loans, and they float the loans, the banks were forced to write these loans for these poor people, indicating that they had income when they didn't without any down payment. and therefore, they to

." >> i don't think anybody was ever in the room but paulson, were there, mr. tourre, really? let's be honest here. that was a paulson deal and you put in there as some kind of fig leaf so you could do what you're doing now. why didn't you use aca on the other deals? you know what the interesting thing is on timber wolf? you know who gray wolf is, your alum alumni. they're all goldman sachs people. if gambling, pure and simple, raw gambling. you are the bookie, you are the house. you have less oversight and regulation as you all began this wild, wild west, you had less oversight than a pit boss in las vegas. >> ron, also, david brooks in today's "new york times," an op-ed where he says -- >> i won't agree on that. with respect to senator mccaskill, i think the interesting portion as -- i am shocked to find out that gambling is going on here. with respect to congress, when senator mccaskill says that they are, goldman and others are the least regulated entities around, even less than pit bosses at casinos, remember who took winnings, and that was washington. when they were askin

mr. paulson, and the chairman of the federal reserve, mr. bernanke, looked us in the eye and said if we don't put put $85 billion in a.i.g. today, it will fail and the american economy will fail with it. it takes your breath away. we do a lot of important things here, but nothing like that. then it wasn't two weeks later that they came in and said not enough. we need up to $800 billion to buy toxic assets in something called tarp. well, let me tell you, i'm a liberal arts lawyer. spent a lifetime in politics. i can't really start quibbling and arguing over puts and calls and derivatives and c.d.o.'s and all the rest of it. at some point you take the word of the person in charge, and i voted for it. the alternative was unthinkable. where are we today? sadly, some of the same firms we rescued with taxpayers' dollars sent us a thank you card that had a postscript that said incidentally, we have just declared that we're going to give one another $10 million bonuses for our wisdom. how do you buy that? how do you sell it to the american people? w

mr. ken paulson. he seems very knowledgeable. -- all of our interviewees were great. >> what are the risks associated with the first amendment? >> it protect everybody's rights. if somebody is expressing something i do not like, they can still express that. i am not able to block them off. so sometimes it can make people feel uncomfortable. sometimes you have somebody sharing an opinion you might not agree with. because of thathose rights, we e become a successful nation. we have all these ideas coming together, and we form solutions with these multiple ideas. and so freedom of speech protects everyone's rights, regardless of how you feel about other people's opinion. >> how does freedom of speech played out in your daily life? >> freedom of speech and the first amendment, it is not just me saying something you might not agree with. it could be the clothes you wear. a could be expressing something that you believe in. that sure it is protected by the first amendment. in a lot of ways, everyone is able

mr. levin, do you have any recollection of that intervention? >> i don't. >> ok. let me try to go back to capital briefly. secretary paulson's the gse's capital as flimsy capital. would you agree with that characterization? mr. levin? >> we had regulatory capital requirements, and then we also did our own internal analysis on appropriate levels of capital. on the regulatory side, there were what we called the minimum capital levels, which were leverage ratios, and there was also a risk-based regulatory standard, that was set by stressing our business from a credit perspective and an interest rate perspective, and from that developing an amount of capital to absorb you know, any losses. and we have -- my recollection is when i left the company, we were in compliance with both numbers, of the leverage ratio, but also the risk-based capital ratio, which attempted to establish the correct capital levels based on exact product that we had, and then stressing the markets. >> yeah. but it wasn't stressed adequately in retrospect, would that be fair to say? >> i think one of the -- i think one of the lessons from the experience is t

secretary paulson's accounts, of the published accounts say that you assumed until the end of the weekend that you would be rescued and mralukas, what he said about what could have been done earlier that would have made the collapse less catastrophic to the entire economy and there was an opportunity to sell part of lehman to a korean firm, sell half of it to a chinese bank. there were discussions about asset management units that never happened. mr. fuld and mr. cruikshank, what do we have to do to impress upon ceos and boards of directors that they will be allowed to fail and they will not be rescued? >> let me go first because you mentioned the first. we got to that fateful weekend looking at asset valuations. we had strong capital. we have lost $30 billion of liquidity in two days. we had no collateral. we get plenty of collateralized evidence by the fact that i met monday, we put up $50 billion of collateral to get a loan from the federal reserve bank all of which was paid back 100% so we had collateral. we had capital. we did not need a capital bailout. we needed a liquidity bridge so that we could consummate the s

the mortgage markets, and, of course, people like paulson, you know, maybe $50 million betting against the subprime market on the hedge fund side. but mr. rubin, i'm trying to focus on you, you had a whole history at goldman sachs. and yet, careening into '07, if you will, citi made a number of other bats that seems to me to have been in retrospect further putting you in jeopardy in this regard. i mean, you bought argent, ameriquest platform in february of '07. and were continuing essentially to advance your exposure in this regard. and let me just point out one other. in july of '07 you actually start to buy back, having to exercise the liquidity puts to bring the cdo back onto your balance sheet your balance sheet where they had been off-balance sheet. and both of you testified that it wasn't until something like october of '07 that it came to your attention. well, that seems awfully late. and maybe had given any position a position to note earlier, you might have taken some action to protect the balance sheet of the citi in the meantime. so, mr. rubin, could you respond to that? >> if i may come you are correct commissioner, there

the mortgage markets, and, of course, people like paulson, you know, maybe $50 million betting against the subprime market on the hedge fund side. but mr. rubin, i'm trying to focus on you, you had a whole history at goldman sachs. and yet, careening into '07, if you will, citi made a number of other bats that seems to me to have been in retrospect further putting you in jeopardy in this regard. i mean, you bought argent, ameriquest platform in february of '07. and were continuing essentially to advance your exposure in this regard. and let me just point out one other. in july of '07 you actually start to buy back, having to exercise the liquidity puts to bring the cdo back onto your balance sheet your balance sheet where they had been off-balance sheet. and both of you testified that it wasn't until something like october of '07 that it came to your attention. well, that seems awfully late. and maybe had given any position a position to note earlier, you might have taken some action to protect the balance sheet of the citi in the meantime. so, mr. rubin, could you respond to that? >> if i may come you are correct commissioner, there

of course, people like henry paulson made $15 billion betting against the subprime market. mr.in, you have a whole history in at the subprime market, yet careening into 2007, citi made a slew of a bet that put you into further jeopardy in this regard. you were continuing, essentially, to advance your exposure. let me just point out one other thing. in july of 2007, you started to buy back cdo's to put them back on your balance sheet they had been off your balance sheet. it seems like you might have taken some action to protect the balance sheet of citi. >> there were some hedge fund managers, henry paulson was one, who really did see the big picture spiri. if you look at the various activities major firms were engaged in, i don't think any of them really saw the potential for the kind of crisis that we had. in terms of the purchase back, i was not aware of this $43 billion exposure until september. that was taking place at the level you would not see if you were just on the board. my understanding is that they were basically frozen. >> but you could not sell them. >> well, they

republican treasury secretary, hank paulson, looked me in the eye and all my colleagues and said, capitalism was on the brink of collapse and i -- and i will tell you, mr. president, i asked him a number of questions that day about the role that credit default swaps played in this and derivatives. an to be totally candid with you, he just -- he just didn't have an answer. he just was so concerned about saving off this -- staving off this collapse. now, it was too late -- it was too late to stop wall street's crisis from impacting our -- the rest of our economy. business lending plummeted. now, i know that you know this, mr. president. businesses -- small businesses have created 64% of all the new jobs in the last 15 years. and when those good, strong businesses couldn't get credit, some of them just couldn't keep the doors open. and i can tell you none of them expanded. they couldn't. they didn't have the capital. retail spending fell by 14% driven by historic declines in consumer confidence. and because consumer spending accounts for 70% of our economy, this was another disaster on another disaster on another disaster. as the recession fueled by the f

mr. black is referring to. host: so when you ask the question, is anybody buying it? you have hank paulson, pond by george w. bush, the treasury secretary, former head of goldman sachs, involved in all of this. we've been watching the testimony of robert rubin with citigroup, earned $100 million over the last eight or nine years, former treasury secretary. and you have people outside of wall street saying, what is going on here? guest: yes, and you have bob rubin proteges now running the treasury support, larry srms in the white house as the chairman of the national economic council, so it allows people to believe that goldman sachs had friends in high places, that the bailout was arranged because they wanted it, and that's what -- that's a conspiracy theory, though. you can't prove that, and goldman doesn't want people to believe that, so this was part of their attempt to convince people that they had some kind of fix in with government officials. their point of view is that they actually did not need a bailout, that they were completely hedged, that their exposures were covered. when a.i.g. failed, or when

that was true in the bush administration under secretary paulson, carried over to the new administration. but in terms of as mr. hawke said about interference, directing, we have very strict rules, statutory firewalls that prevent interference with the regulator with the comptroller on regulatory matters. that have been observed in every case in both administrations. >> you describe the financial crisis as the result of the worse underwritten mortgages in our history. we've had a lot of focus on citi here. and i'm going to ignore citi for the moment. there have been a lot of questions about that. there will probably be more. there are about 200 banks, small banks, smaller than citi that are failing or have failed already. there are 700 or so as possible failures. i suppose that all of these are not national banks that some of these are national banks. >> sadly, yes. >> sadly, yes. >> now it seems to me that if there's one thing that a regulator ought to be able to do, it is to make sure that a bank has complete files on loans, and that it is only making prudent mortgage loans. but we hear, at least, that most

mr. barofsky, most of people who would look at t.a.r.p. would say it was necessary to save the economy from complete collapse and i was in the room, when chairman ben bernanke and hank paulson, president bush's treasury secretary told members of congress, some of you, how serious the situation was. they told us if we failed to enact the t.a.r.p., we risked another great depression. we were staring into the abyss, when we heard it i think there was a collective gulp in the room. ben bernanke talked about it. in his very professorial, nonexaggerated, nonhyper bollic tones and you now how serious it was, and republicans and democrats did the right thing and the bush administration which proposed it signed it into law. so, it is important to emphasize the current financial reform proposal also contains multiple safeguards. to make sure that taxpayers are never again on the hook for rescuing the financial system. i think that is very important. any costs incurred in winding down financial institution, would be covered by the industry, sort of the way it is in the banking industry with the fdic. we certainly can and should work to prevent any more taxpayer bailouts. but we also n

mr. speaker, when you look at the beginning of this is at the end of the bush administration, henry paulson, secretary of the treasury, came here to the capitol september 19, 2008, and asked for $700 billion in bailout money that he would deal out the way he saw fit in an attempt to stop what he believed was a potential or maybe an impending meltdown of the world's credit that he thought could occur, come all crashing down, he couldn't guarantee if it was a fix. he said if he give me new ideas it won't be as good as my own. in about october of 2008, and then another $350 billion that was approved by a congress that was elected later and by a president who was elected later and that was president barack obama who supported and approved all of the tarp funding, all of the nationalization beginnings that he followed through on the balance of that of the takeovers of three large investment banks. a.i.g., the large insurance company, to the tune of $180 billion. fannie mae, freddie mac, culminated by executive order right before christmas of last year and hardly made the news. you know, if we we

debate over the legislation, secretary paulson says something to the effect of, you know, i want to have a bazooka coo, although i'll never use it. i believe you mrckhart with ohfeo issued a letter saying they were well capitalized. >> i think they were legally, adequately, and they were. >> why did you send out that letter? >> i'm not sure if this was a letter or public statement. when we capitalize and grade them, we send off a letter what we're going to grade them at. and the numbers were that they were adequately capitalized. i also said in that letter, and this was a primarily letter that we had the right to downgrade them so that we put them on notice on that letter that we might downgrade them. >> just for the -- >> and this was always 22. and that is a fair characterization of the letter in the works. my -- thank you. my question then is now shortly thereafter on september 6, it is apparent that they are failing and they are a danger. when was this recognized? were you the first? >> we were work all through august through that period. and we were particularly looking at the reserves. but we were also looking at the issue of the

mr. sherman for your political bravery during the t.a.r.p. hearings. love seeing you going to the floor and tell us about the behind the scenes fear mongering that was going on from paulson and the fit and such to get the t.a.r.p. past. >> guest: that was a politically difficult time. thank you for remembering it. >> caller: i commend you for that. and i was wondering, there's one thing i haven't seen rod of in the regulation reform acts that are going on right now. and that's something to control the front running going on with computers and the trading that is going on. and i was wondering what you thought about the small miniscule tax in order to try and stop that sort of thing? >> guest: the answer is i haven't studied it enough to have an opinion, and i do think that it doesn't do society a whole lot of good to have trillions of dollars invested in, all in the same our by people trying to gain the markets. and if there was a small tax on that, that discouraged or at least gave the u.s. treasury some benefit, some social benefit from the activity, i think that might be a step in the right direction. but right now i'm speaking without the level of knowledge that i wou

debate over the legislation, secretary paulson says something to the effect of, you know, i want to have a bazooka coo, although i'll never use it. i believe you mr. lockhart with ohfeo issued a letter saying they were well capitalized. >> i think they were legally, adequately, and they were. >> why did you send out that letter? >> i'm not sure if this was a letter or public statement. when we capitalize and grade them, we send off a letter what we're going to grade them at. and the numbers were that they were adequately capitalized. i also said in that letter, and this was a primarily letter that we had the right to downgrade them so that we put them on notice on that letter that we might downgrade them. >> just for the -- >> and this was always 22. and that is a fair characterization of the letter in the works. my -- thank you. my question then is now shortly thereafter on september 6, it is apparent that they are failing and they are a danger. when was this recognized? were you the first? >> we were work all through august through that period. and we were particularly looking at the reserves. but we were also looking at the issue of the deferr