have been john paulson. it shouldn't have been these investors that i write about who made the billions and figured it out and anticipated this collapse. the investors who should have been the ones i was writing about the included people like george, bet against the british pound at a time. that had been the greatest that ever until john paulson and the investors i write about. they should have got to stay, he didn't warren buffett odyssey, greatest investor of our century, the passenger or so. he could have done and didn't do. mike is an expert in mortgage-backed securities and that's what john paulson threw himself into learning about and analyzing and betting against. am gym is the most famous short sell out their, and this trade is a short sell, a betting against. david tepper was someone i wrote about more recently who made $7 billion last year, and he is known for his deep traits, big bets. he doesn't care if they go up or down. very volatile. he didn't do anything. he was told about this trade. includ

john paulson and others. but behind it all what propels it all is a conundrum that it shouldn't have been john paulson. it shouldn't have been these investors that i write about. who made the billions and figured it out and anticipated this collapse. the investors who should have been the ones i was writing about included people george soros who bet against the british pound and at the time was the greatest trade ever until john paulson and the other investors i wrote about. warren buffett, you know, the greatest investor of the century, of the past century or so. he could have done it. he didn't do it. mike veranos is an expert on securities and that's what john paulson threw himself in analyzing and betting against and mike didn't do this trade. and jim chanos is the most famous short seller out here. this trade is a short seller and jim didn't do this trade. david tepper who's someone i wrote about more recently he made $7 billion last year and he's known for his big trades, big bets. he doesn't care if th

the aca e-mails paulson, toure and others on which paulson and aca concurred, plus 21 others. so at this point they are in agreement in i on 82, but insert 21 others. finally i think we have the clincher on this. s. >> then deleting 8 of the mortgage-backed securities recommended by aca and leaves the rest alone. i think that's the end of the time did not line -- there's one more. february 26th, '07. after further discussion, paulson and aca agree on a reference portfolio of 90 rmbss for abacus to 07-ac 1. what i gather is aca management was most definitely the portfolio selector, no question about it. that's goldman's single biggest defense in not mentioning hedge fund manager john paulson's name. however, i'm looking at this and saying with all the these negotiations and backing and forthing, they got rid of happen of them and worked with 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

scott cohn reporting this morning on john paulson's first comments since charges were filed against his trade with goldman sachs. he obviously was not a part of the charges, but he's going on the offense. and steve liesman just broke a big story on the charges against goldman. so, let's start with you, steve. >> erin, thanks very much. cnbc has learned that the government has testimony from a former top paulson official appearing to contradict a part of its own case, specifically, cnbc has reviewed documents that questions the government's contention in its case against goldman sachs that the wall street firm misled the insurance company aca about paulson & company's intentions to short the deal. the government's complaint reads "unbeknownst to aca at the time, paulson intended to effectively short the rmbs portfolio it helped select." however, cnbc has learned that a top paulson official, paolo pellegrini, told executives that they intended to short the portfolio. they asked him about a meeting with laura schwartz -- "did you tell her that you were

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 lo

at those meetings they discussed paulson's retirement or intengs of paulson to short.he testimony contradict a part of the government's own case. the government's complaint unbeknownst to aca at the time it helped to short. however, cnbc -- at least one of the meetings was placed at a ski lodge to shorten the portfolio. government officials asked about that meeting with schwartz, "did tuiole her that you were interested in taking a short position in abacus? pellegrini, yes, that was the purpose of the meeting. and how did you explain that to her? the government does not mention this information in its complaint and john nestor in a statement says "our case is built on a thorough record with testimony documents e-mails presented in court at the appropriate time." it's possible the government has other evidence contradicting this testimony that they did not know of paulson's short positions. pelgreeny said that he shared the outlines on how it selected the portfolios it wanted. goldman has denied wrongdoing. pelligrini denies comment to cnbc. the deal was structured in s

in '07, when paulson -- when the deal went down, paulson pulled in nearly $68 million.n paulson, let's talk about him. he picked the toxic mortgages then bet against them. here's the lowdown on him. according to the "wall street journal," his firm paulson and company made $15 billion betting against the housing market in 2007, of which paulson personally got $4 billion. he made slightly more than $1 billion on the goldman deal. but despite being named in the lawsuit neither he nor his fund are defendants. officials say there's simply no basis for any charges. so tonight, what really happened at goldman? is the scandal real? or is the real scandal, like so many others in washington and wall street, perfectly legal? is this an exception or par for the course? is there something fishy about the timing of the lawsuit? just as the white house is pushing for greater regulation on wall street. joining us now, michael lewis, he's got three books on the "new york times" best seller list. including number one, "the big short." which lays out how the economy crashed. who was respo

says that goldman did not disclose that paulson not only had picked the mortgages, but that he was betting against those mortgages in 2007 as the housing market was about to come undone. goldman sachs today says it will vigorously fight the charges and work to restore its reputation, a reputation that today is very much under fire. here is the s.e.c. chief of enforcement speaking today in new orleans. >> there is a fundamental difference between somebody being short on a synthetic cdings o or taking a view that the assets will perform poorly and a world of difference between thoo and letting that person being involved in the selection process of the portfolio. >> that person being john paulson of john paulson and company, the big hedge fund company and more to the point, the concern is that investors were not made aware of that and it is a disclosure issue. it is securities fraud. also charged here in this case is fabres teuri is quoted in an e-mail saying that the building meaning the market is about to come crumbling down. trish? >> well, right now it is time for the closing bell on the

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, y

. >> we can't leave the goldman discussion without talking about john paulson. john paulson had a role allegedly in this whole thing by selecting the basket of securities at goldman sachs then marketed. so you've got to wonder about his own investments and sort of his ancillary impact in terms of his funds. and what we saw in the gold pits, we didn't see a flight to safety. you'd think with the market turning lower you'd see a flight to safety into gold. we did not see that action today. and in fact, if we take a look at some of these holdings, some of those individual gold stocks were down much more sharply than some of the broader measures. >> you wonder that if people now that have money with paulson say, you know what, we don't want to have any association -- >> just reputational. >> just reputational. you just wonder if that's the case. and you wonder if he has to liquidate positions. he is the largest holder of the gld out there. so you wonder what's going to happen with those. >> hedge fund investors have never been more gun-shy or jumpy and more risk ave

paulson, frankly, didn't care. the other thing is i would point out, imagine if paulson went short and jim cerberus went long and cerberus lost $1 million, there wouldn't be an article in the fup about it, a criminal investigation about it. i think the bigger issue is should taxpayer faxed institutions, should regulated banks be allowed to take the risks they were taking. i think they shouldn't be be allowed to take those risks because i think it was a dumb risk but i don't think that's goldman's fault. in fact, that was driven by regulation. another fascinating thing here is what drove the ikbs of the world to take on these kind of ribs, it was the basel chords which said triple obligations you don't need to hold any capital against them. >> and the rating agencies. >> they played a major role. if the rating agencies didn't exist, this trade could have never taken place. >> you are in favor of limiting or outlawing proprietary trading when investment banks doing the trading? >> the answer is, i think differently a

bet against paulson and lost $90 million doing that. michael says i don't think that happened. but it does seem to me that's the most material fact to learn. because it just would be hard to believe that goldman sachs would intentionally defraud itself. >> for me, the layman lesson is don't give yourself a dumb nickname in an e-mail. you know? this guy torre, what did he call himself? the fabulous -- >> yes, yes. look, he's -- you know, one of

did paulson? no. paulson was looking for a way to get short.onestly, i was looking for a way to get short at the time. i wish i had had the wisdom and the ta mayorty to go to goldman and say, look, will you put together a product for me. >> you did it. you're coming out of it now and we're looking at what was 2007, of course, with paulson wasn't paulson at the. how does gold man get in front of this? >> i think managing their reputation or recovering it will be like pushing water back up hill. i think, quite frankly, they're not going anywhere soon. they're not going to die. i do think, though, that they -- and i'm not saying they need to -- i know pierce mentioned before, they don't need to expose any trade veets, but they need to talk about how their operate their business from an ethics and value perspective and thou how they do things the right way. >> and pierce was mentioning in our last segment -- yeah, go ahead. >> yeah. i think there was an interesting comment earlier on that goldman is out there lawyering up too much when they should

financial crisis who profited the most, john paulson, made millions of dollars by betting against subprime before anyone else realized or was smart enough to do it. he went to goldman sachs and created subprime mortgages. what goldman helped him do was go out and find other side to that. that's what goldman sachs and other investment banks do, find buyers and sellers. what happened and was wrong was that goldman not only disclose to the buyers, but they were working with john paulson. he helped pick what mortgages were going in, but also led the b buyer to believe that he thought the mortgages would go up, not down. that is where the real issue is and where this complaint comes from. it was a billion dollars. a german bank that lost a billion. there was a guy listed,

allowing john paulson to select securities.hey're denying it, i'm saying even if he did that, isn't the whole point i have this bet, find somebody to get against me. >> those on one side of the bet knows the other side of the betebet disagrees them. but goldman misrepresented how they put together the product, and that is the predicate for finding them libel. >> that's the crux of the issue. >> the crux is is it material that goldman, when it pretended to neutrality in creating product, which is how it presented itself to its clients, was designing something designed to fail. you're correct that one can imagine a situation where i know you think it's going to go south, i think it will go north. we sell at an agree eagreed-upo, no problem. but if it changes, that's a problem. >> in 2007 if you knew that john paulson was on the other side of a bet from you, you would quiver, john paulson was a mid level hedge fund manager who had been wrong before. >> goldman's defense was people taking the long side of this thought the other sid

s assertion that paulson was secretly pulling the strings. by the way, back in early 2007 when this deal was done, mortgages were viewed as among the safest investments possible. the fact that paulson was betting the other way didn't seem to dissuade people back then, suggesting his testimony wasn't as material in 2007 as the s.e.c. claims it is today with hindsight. still, they say goldman sachs didn't disclose it and the question remains does that constitute fraud? also the question, erin and mark, ikb, the german bank that was ultimately bailed out by the taxpayers, they didn't know paulson was involved and the s.e.c. says that was fraud. >> also, scott cohn, i guess it's interested, on the goldman side of this this morning with the relatively junior banker involved in this is losing his securities licenses, is now on leave of absence. so, it's possible that they could be clearly setting up to say, well, if he did something wrong, it wasn't with our approval, and we'll let him take the fall. >> and yet, they haven't. they haven't cast him

manager is trying to figure out why paulson is in the room. and goldman, according to the complaint, is told that paul son is in the room because he wants to own some of this stuff. in fact, what he wants to do is bet against it. but the c.d.o. manager, the person who's actually supposedly the expert in all of this is anxious to know why paulson is there tells you everything, that they themselves didn't feel they had the capacity to do the evaluation. and they were at the mercy of someone who knew more. and that you have this whole subprime lend magazine in which the only people who were doing any real analysis are the pete who are betting against the loans. i mean, it's just comically upside down. >> rose: if they did what they said, is it wrong? >> just the fact of packaging sufficient together and even getting input from somebody who think it is stuff is going to go down is not in my... >> rose: and not disclosing it to anybody. >> it's a question of whether there is affirmative misrepresentation. >> rose: the doing of that is wrong or not?

as the complaint says, paulson initially proposed 123 deals and aca threw out 55. paulson then expanded the time frame for when the mortgages were written to find more deals and aca threw a bunch of those out. the process was repeated until the deal got enough size to satisfy rating agency requirements. a person close to pellegrini argues this -- he believes, in fact, the deal was stacked against paulson based on aca's ability to throw out any deal they did not like. aca ended up taking $840 million of the $1 billion deal and failed soon afterwards. so, they were the long making the selections from paulson's suggested securities. pellegrini was one of a number of sources in the case for the s.e.c. which had thousands of pages of documents there. was no allegation that paulson or pellegrini did anything wrong, and mark, goldman sachs, as you know, is denying any wrongdoing in the case. mark? >> sure. okay. you know what, steve? i mean, the football draft is coming up this week, and that logic that you just explained, then you would not find it objectionable if, say,

henry paulson talks about his memoir on the brink with warren buffet at 7:30 p.m. eastern. at 8:30 p.m. eastern, race and reconciliation. >> in a few moments a forum on nuclear security and the middle east and the head of the internal revenue service, commissioner schulman, speaks at the national press club. a couple of live events to tell you about today on c-span2. a preview of next week's nuclear security summit with 40 leaders who are gathering to discuss securing nuclear material worldwide. that is at noon eastern. on c-span at 8:00 p.m. eastern we will take your calls and questions on federal oversight of car safety standards two former leaders of a national highway traffic safety administration and the president of the alliance of automobile manufacturers and to follow up on monday's announcement, a $16 million fine on toyota. that is live online at c-span.org and on c-span radio. up next, washington institute forum on nuclear security and the middle east. it is an hour and a half. >> good afternoon and welcome to the washington institute for middle east policy. i am

paulson. this is headline number one. fighting on the run for his fund. should actually say fighting the run on his fund. for the second time this week john paulson holding a conference call with investors over his involvement in the goldman sachs case in an effort to prevent investors from leaving. is this run on paul sons funds justified or is he just an innocent sfwander in all of this mess? here to answer that question, let's go back to anthony scaramucci, who's a managing partner at skybridge capital. anthony, first of all, i've got to ask you, of course, skybridge, fund of funds, is there any exposure to a paulson fund? >> no, we don't have any exposure. >> all right. what do you make of this? it does seem like he's trying to fend off redemptions. >> listen, i give the guy a lot of credit. this is sort of what goldman sachs should be doing. he's getting in front of his investors, open communication. he's trying to allay fears and suspicions. i think it's a brilliant strategy by him. and i do think it will stem some of the redemptions. people are fea

and john paulson-- run bay john paulson, a very prominent person in the hedge fund business on wall street? >> that's right. he made builds and billions of dollars personally by creating exotic techniques to bet against the housing market when everybody else was beting it would continue to rides. goldlman sachs helped him to do that. allegations on behalf of him they created the security that they then sold to investors who believed the housing market would continue to go up. and he benefited from this, although, the s.e.c. has clearly said today he didn't play a role in any kind of fraud leapt actions. so he thought-- he is not being charged or facing allegations of wrongdoing. it's goldlman sachs that is facing those allegations. >> lehrer: and the word there, of course, is that paulson saw the collapse coming and went with that bet on his own, and goldlman sachs just simply bought into that bet , correct, without tell telling people they were doing it? >> right. goldman was paid $15 to create this exotic financial instrument-- it's very complicated-- that paulson was able to use to bet

martha: how did paulson, this paulson, and, goldman sachs, make their money on this deal?porting on that? >> reporter: both paulson and goldman bought something called credit default swaps which were essentially bets that the fund that goldman set up would go bust and when it did go bust, both paulson and goldman made billions and the sec says that goldman should have also told investors that it was betting against its own fund. goldman says that that one have had any impact because the investors believed that u.s. housing prices would continue to rise, so fast, that the subprime mortgage defaults wouldn't have any impact. the sec believes that other investment companies may have had -- done the same kind of thing, and is looking into similar deals and democrats believe that the goldman case makes their case for financial regulatory reform, the president will travel to wall street on thursday, to deliver a speech about regulatory reform. >> and some are questioning the timing of all of that, in any event it works quite well. to help make their argument, as he heads to wall

as i understand this, billionaire john paulson, okay? who basically gets in bed with goldman sachs and says i'm going to go out and find the worst mortgages i can find. you're going to help me put this product together. i'm going to bet against it. ha ha. by the way other guys at goldman sachs go out and sell it to your customers while i'm shorting it. how do they explain that as anything other than fraud? the fact that paulson was putting this product together? >> i don't think he possibly can. >> aren't they saying every institution bets on both sides? >> in other words you've got a situation where people that were investing in pension funds, i mean, main street america gets hurt by this. if you had a pension fund invested in one of these vehicles you get hurt as a result. and at the end of the day, it's just not a fair playing field. i mean, if they're misrepresenting what they're selling, how can that be considered fair? and i'm capitalist. you're a capitalist, right? you need the system to work and you need rules and if they did wha

did they know that paulson was that side of the trade?> long pause, long pause, long pause. >> i have no idea. >> you mean you, as a person, or goldman sachs itself has no idea? because you were the broker, right? you brought the parties together. >> long pause. >> me as a person, no, i'm speaking on behalf of goldman sachs now. what i'm saying is -- >> right, right, so how could you not know the -- you know, you were the -- you brought the parties together. >> okay. that was edited down. we took out a chunk in the middle. that gives you a sense of the kind of questions that they were getting, so not so much focused on the numbers, though people did ask questions about the bottom line numbers, but in the end, very focused on the s.e.c. complaint. back to you. >> thank you, michelle. >>> two dow components out this morning, coke and j&j, both beat the street. coke's revenue fell short. tracking both stock moves, as the day goes along, mike holland, chairman of holland companies on j&j, david katz. michael, we'll start -- >> i can hear you

john paulson paying them a fee? aca, another party involved.e center of this. financial institutions are doing so much for so many different people. they're too complicated, too complex and there's no clarity about who they owe that duty to. >> let me ask you this, as a politician, a former politician, at least, you mentioned chairman chris dodd, banking committee chairman saying today -- and here are his exact words -- that failure to enact his financial overhaul bill would leave the american public vulnerable to shenanigans in goldman sachs and other large firm? if you google this -- politico did story on this. what pops up? barackobama.com. democrats are using this to raise money. does it bother you they're using this to make political hay -- >> everything you do is going to be for political purposes. i spent years pursuing wall street, taking some real hits for people who disagreed with us. people always imputed you would tier carry motives. you just have to disregard that. i'm not worried about the motives. people will impute them to every

explained. >> there is no question in my mind that at the time secretary paulson and president bush said we are in real distress and we could have a financial calamity that it was essential to do something to provide the confidence to the people around the world that america was not going to have all of the bank's go under. i think there was a very real risk to have a cascade of bank failures throughout the country and ultimately have virtually every bank in the nation go out of business and people savings gone and the dollar worth less, we could have had a true financial system calamity and t.a.r.p kept that from happening but it was not implemented terribly well i don't mean to say that secretary paulson did it perfectly and by near did it entirely terribly they both made mistakes and did things well but undersecretary gartner who has been the champion or the master of this for a long period of time, over a year, the process has been a relatively opaque as to which banks got money and why and who and what the provisions would be i think if you put money in a bank that saves said that t

was betting dwanst the buyers, that paulson was the seller?hat is hogwash. you and i both know government, that it's strictly forbidden to ever give up the client's name on the other side of the trade. it's forbidden. how could the government not know that? how could that be part of the case? oh, by the way, paulson was a nobody back then. so who cared? but let's put it in terms that aren't as abstruse as collateralized debt obligations or credit default swaps. let's go back. let's say it's 1999. remember? near the top of the tech bubble. and let's say a helen fund comes in and that hedge fund was negative on tech stocks in 1999. let's say the best way to play that short, to bet again those funds that owned tech, was to create a basket like this that was made up of actual tech mutual funds, and the funds endorsed it, they didn't fight it. was there fraud in putting that basket together? oh, i don't think so. in fact, the bet against tech would have actually gone bad two months later, as incredibly, when i know very few people thought the nasda

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,

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

in the book you praise secretary paulson and the bush administration for helping to bail out the banks, the t.a.r.p. money and the bank but you are highly critical of tim geithner for continuing what looks to me like the same policies. explain. >> guest: there is no question in my mind but at the time secretary paulson and president bush said look, we are in real distress and we could have a financial calamity. that was essentials to do something to provide confidence to the people around the world that a miracle was not going to have all of its banks go under and there was a very real risk we would have a cascade of bank failures first with the big ones than through the country and we could ultimately have virtually every bank in the nation go out of business and peoples savings bond, the dollar worth less. we could have had a true financial system calamity, and t.a.r.p. kept that from happening but it wasn't implemented terribly well and i don't mean to say secretary paulson did it terribly with, i'm sure they both did mistakes and did things well but undersecretary geithner who's be

they're to blame and you don't blame paulson for what happened back then. >> i am not going to comment on the case, but i think that, look, we're going to see, we're going to see more cases. i've been openly talking about the lack of criminal cases. i mean, we passed sarbanes oxley post-enron to go after this kind of malfesance. signed financial statements and they can't rely on the defense and i can't rely on what is going on any more. that seems to me to be a pretty natural approach. with the lehman brothers report you have a road map and with what happened at aig, the civil case and it will stand or fall on its own merits, but there was a lot of criminality, in my view, that was going on at other institutions. >> but let me follow up on carl's question. a column in "the washington post" the other day that said this is a nonscandal. that the creation of these market baskets is done all the time and anybody buying them, anyone selling those are a buyer and vice versa and only people

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

and remember paulson wasn't paulson before the last few months. he was just sort of another hedge fund manager out there. granted one of the larger ones. but his star has definitely been on the rise over the last six months or so. a lot of it after this whole thing happened. again, i don't share the outrage. goldman sachs just is being goldman sachs. >> for the people that want to try the political side to this whole deal and what's coming down the pike in washington, people are also talking about mary schapiro, head of the s.e.c., this is the second time she's been -- the independent's cast the deciding vote on the settlement on the back of the america, merrill lynch settlement too. people are worried this is part of an attack on the entire sector and there's other names to follow, still feel nervous. and if you look at what the s.e.c.'s doing here, it's hard to separate that from what the administration -- although they are absolutely independent. but the timing is uncanny. >> i can tell you this. the read from the options market speshlth, when

paulson's firm made about a billion. the government says if goldman had told the banks about paulson's involvement, they might have thought twice. >> the key was misrepresentation that would have called the buyer not buy security or considered it an important factor whether or not to purchase it. >> now some charge the administration weft after goldman in part for political reasons, to help win passage of the financial regulation reform bill in the senate, where some republicans threatened to filibuster the bill. the white house denies that. >> the s.e.c. is by law an independent agency. what it does, it does not coordinate with the white house. we receive no advance notice of any enforcement act. >> reporter: goldman denies the government charges and said it did not need to disclose paulson's role and it itself lost $75 million on the deal. bret? >> bret: peter, thank you. well, stocks were mixed today. the dow gained 73 1/3. s&p 500 up 5 1/3. nasdaq lost one and change. it's all your money. in this segment, the white h

did they know that paulson was that side of the trade? >> long pause, long pause, long pause. >> i have no idea. >> you mean you, as a person or goldman sachs itself has no idea? you were the broker, right? you brought the parties together. >> another pause. >> me as a person? i'm speaking on behalf of goldman sachs right now. >> how could you not know -- you know, you brought the parties together. >> all right. that's part of the call, just to give you a sense of exchanges going on. that was maybe part of a four-minute conversation. we just played you a part of it. you saw the stock hit today, larry. we are maybe starting to see what some people were worried about. are we going to see clients walking away from goldman sachs? definitely a lot of european governments came out and said they should stop doing it. they should consider not doing business with goldman sachs. goldman sachs has been a big adviser to european governments. perhaps they will lose revenue there. back to you. >> michelle, it's a wonderful report. thank you for playing

. >> why did ken -- not ken but henry paulson. >> henry paulson. >> and ben bernanke why did the two of them want to -- i mean -- >> why did they want to pay the gambling debts of aig? >> yes, exactly. what was it about it? i mean they said that the whole country would collapse. >> because all of the wall street firms were on the other side of those bets. and if aig didn't pay off the bets the firms would have experienced the loss. think of it this way. goldman sachs had lost on its bet to michael burry but they really -- they weren't -- it wasn't that they thought they were just brokering the debt between michael burry and aig. so they paid off michael burry in their out of pocket. they want to get paid off by aig and if they aren't paid off they've got a $13 billion loss. this was -- i don't defend this. i'm just saying what they're thinking. paulson and bernanke and tim geithner are thinking if we don't make the wall street firms whole the wall street firms are going to be believed -- are going to collapse. the market's not going to believe they're going to survive. >> a couple of

john paulson doesn't get bailed out by the government when he fames.s the difference. >> i was going to say. we don't give $4 trillion to a guy who bets on the diamondbacks to beat the dodgers. that's not the way it works. the problem, these guys have been massively subsidized by the taxpayer and doing completely socially non-beneficial trades. that's why people have to pay attention to this stuff. >> all right. thank you so much. fascinating conversation. this is not the end of the golden story by any sort of the imagination. we'll talk about it next week. we'll meet fabulous fab, the trader at the heart of it aunchts the moral of the story, don't send e-mails, and if you do, don't call yourself fabulous fab. >> oh, man. a total financial meltdown leaving millions struggling for jobs trying to repair destroyed nest eggs. next what must be done to assure another crisis is averted before it's too late. [ sneezes ] ♪ music plays ♪ [ sneezing ] ♪ ♪ [ male announcer ] what are you gonna miss when you have an allergy attack? benadryl® is more effective than

guest: this guy john paulson -- let me note, he has no relation to hank paulson, former treasury secretary, he's unrelated to him -- john paulson has had a really interesting creemplet he's been in banking a long time, but he was kind of unheard of by most people until he figured out how that there were cracks in the housing market and he mounted a huge short position against the mortgage market n. 2007, that position fielded him $3.7 billion personally in a personal profit. so he really scored big on this. he was a big client of goldman, and he went to goldman, as well as to other banks, and asked them if he could help design mortgage securities that he could bet against, because he wanted to bet against more and more of them because he was so sure of his bet and he wanted to do it bigger size so that he would make more money when housing collapsed. host: this sounds like going a horse track and convincing the horseracing establishment to set up a race. you're going to help set up the race, and then you're going to control the gambling on the horses. >> so, you know, every day people come

, for example, hank paulson, the former treasury secretary, knew that this was taking place? >> the s echec has been very targeted, they named one very specific goldman trader who was involved in that. >> 31-year-old guy working in london, yes? >> who was involved in instructing these products. so again i think we have to be very careful about speculating on how high in goldman this might go. but the fact that goldman is being accused of this, it's a really big deal and i think it also will have a great impact on the financial reform debate. we have seen a real tough thing of the position there and actually they're talking now about saying firms should be banned from trading credit derivatives if they want to have government backing. that would be huge. that would be revolutionary. >> and what do you think is the likelihood of that taking place, that financial firms will be much harshly regulated in the future? >> well, i think now that there has been a lot of momentum behind the financial reform bill and i think that that momentumo the charges will give the democrats who wan

s fraud case against goldman sachs, kolchinsky said he didn't know hedge fund manager john paulson was betting against it. >> that's something i personally would have wanted to know. it changes the incentives in the structure. >> reporter: the ratings agencies' own incentives came under sharp criticism today. since wall street bankers pay for credit ratings, they often shop for a favorable opinion. former moody's executive richard michalek says analysts got the message quickly: being too tough would put year-end bonuses in doubt. >> clearly, if for any reason you were stopping a deal or delaying a deal or creating an issue with the relationship with the banker and moody's, that was a problem. moody's c.e.o. raymond mcdaniel says investment bankers never want a tough rating that hurts a deal. but while he pays attention to market share, mcdaniel says he always puts ratings quality first. >> those are risks and they must be managed properly so the ratings system is not compromised in any way. >> reporter: the credit rating agencies are supposed to be the referee on the field and senator

the seller, paulson, agreed to pay a stream of payments. pay payments to the buyer and the buyer yauz going to get a yield based on his view of the market. everybody saw the underlying as elts that were referenced and set up at the time and i think that because the markets went down there is an impetus to look for scapegoats and i'm aware of that as a short seller, but i think we have to be aware, we can't throw the baby out with the bath water. derivatives in and of themselves are important for hedger and for every hedger there is a speculator. you need both in the marketplace and you need transparency and fairness. as long as you have that, the american people don't have a problem. >> blank fifein was inside and was cohn, did they have to be there? >> i think there were a lot of bankers in attendance today that weren't there last september and i think, you know, that's a good thing. it's a good thing. again, a good speech and everybody left the hall thinking better of the president and foreign package and its chances and that there were a

the hedge fund, the company, paulson and company, no relation to the former treasury secretary. let's replace goldman sachs and these bonds. let's treat goldman sachs as if it were an antique, october car dealer and they're selling '57 chevys. these got these two '57 chevys in the shop on the left and right. they have a few dings. some of the parts are really good, some are not. let's just say that this paulson and company, this hedge fund company we're talking about walks into that dealership and says, i will take this car as long as you take all the bad parts out of it, put it in the other car and take all the good parts out of the other car and put it in this one. so now what happens is you've got one of these two '57 chevys that's got great parts in it. it's all shiny and new. the other one's battered up and it's got bad parts in it. let's move forward. now the dealership, goldman sachs, this is all what's alleged. nothing's been proven. this is what the sec says. the dealership has sold the one shiny new car. the car with all the bad parts, they shine it up. they make it lo

former german paulson says four to six years, jimmy dimond had jpmorgan chase says every five to seven years, larry summers of four to eight years, you get the picture. something happens in the financial system with regularity. how big will it be next time that's the key question. geithner says there are rare but that assumes we are looking at random occurrences and we haven't changed the structure. i would say that the levees that protect against the flood have been 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

we like banks that wouldn't know john paulson from pat paulsen or ikb from the kgb. we are enamored of financial institutions that think derivatives are about whether the words derive from anglo-saxon or latin roots. we like bankers who when they hear the term "synthetic" wonder if that means the shirt's 50% poly and 50% cotton and how it will hold up under many washings. that's why we're not going to be looking back like lot's wife did and risk turning ourselves into a pillar of salt and instead we're going to rake in the benjamins. by finding the next huntington banc shares, which just today reported a fabulous -- yes indeed, to use the cliche term -- blue out manster quarter. sure we still like citigroup very much. we liked it at $3.15. and i'm going to see him at the white house correspondents dinner. but i'll just give him a little heads up now. memo to treasury secretary tim geithner let me trade this one to citigroup cramerican style. i think you should hold the 30% stake in citi until the stock hits $6.15, one of my preliminary targets, then at 6.15 what you

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

and by the way, peter, i have the john paulson of goldman sachs, aca hedge fund, s.e.c. fame, john paulson told his customers last night on their conference call that he sees a v-shaped recovery. he's probably watching the kudlow report. i don't know whether that's good orred ba. >> why would you ever believe anything john paulson said after the show that he played with goldman sachs. >> he looks smart. so what if he doesn't have any ethics? nonetheless, he made the right call on the mortgage bonds. howard ludnick says rates are going to hold these levels. do you agree? >> i do, but howard's missing something really big here, larry. he basically got lucky. it's the whole greece thing. it's the whole euro thing. you know the kudlow boom was pushing up the long end and everything like that. but what's happened now in this interval here is this great lack of confidence for the euro of flight to quality. here's dollars going up. the whole u.s. dollars to reserve currency is boosted, and basically it's been a boom for the bond market, and that's what's going on. i'm not sure