and the ins and outs of an pellegrini as well.the thing about credit default swaps is they cost money as i said. they are like an insurance contract that they were dirt cheap. in 2005 they were dirt cheap. in 2006 also. and yet, no one else was behind too much. but john paulson came from this other world. here he is, big words about housing and pellegrini tells them about the credit default swaps and he says wait a second, my downside is like 7% of them might upside is hundreds of% a year. that's how they work out the tree. why isn't every doing this trade? sort of the question i get asking, one of the reasons is negative carry. negative kerry is sort of competition but basically just means you are paying out. the beginning of the year and would start focus on themselves and other competitors. and to pay out, by this insurance, i don't want to be behind my computer. we will be a behind by more than half a percentage point, even by a lot of credit default swaps. but no one wanted to buy, be happy% would either competitor. is a fasc

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

pellegrini says "yes, that was the purpose of the meeting." they said we look forward to presenting a complete and accurate evidentiary record in court. it is possible that the government has other evidence contradicting this testimony in which the aca claims it did not know of paulson's short position. and pellegrini walks away from the testimony, saying he doesn't remember specifically telling her, however, adds "it would have been a little difficult to sort the miss the fact that we were trying to short this stuff." pellegrini also told investigators that he shared with aca the out lines in how it selected the subprime securities that did was looking for mortgages with low fica scores and high loan-to-value ratios. the government's case is substantially about goldman's failure to disclose the role of paulson in shorting the portfolios that made up the collateralized debt obligations. however, aca became a major investor in the deal and appears to have firsthand knowledge in paulson's role of selecting the portfolio and its investment intent

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, every time the giants were going to pick a player, the players that would be available in the pool would be chosen by somebody else. >> well -- >> i mean, basically, that's what we're talking about. that's the rationale i'm hearing, is that since aca could veto -- >> right. >> -- then paulson didn't have an advantage. but if paulson decides which players are in the pool -- >> right. >> -- and which are not -- >> right. >> -- that's an advantage! >> i agree, mark, but if it's your team and you're the one that's going to field them and you're the coach and your contract is on the line for the selection of these players

pellegrini, yes, that was the purpose of the meeting. and how did you explain that to her?he 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 such a way to provide upside of $900 million for paulson, the downside of only $20 million to the hedge fund. trish? >> steve, let's back up here. the government saying, of course, the aca had no idea that paulson was going to short here. this testimony, obviously, seems to contradict that. so, might the government be looking at something else that, that would -- i would have to assume that would give them pause to think that aca had no idea. >> i think that's a goo