Greenpeace News Conference / Kmart / PVC Mini-blinds (1996)
Greenpeace holds newser discussing Kmart's continued sale of PVC miniblinds made with lead additives, which they say poses health hazard to children.
8 p.m.: [September 22, 2008 program]
Goldman Sachs Hearing - Switched 1400-1500
The Permanent Investigations Subcommittee of Senate Homeland Security Committee, chaired by Senator Carl Levin holds hearing on Goldman Sachs with Lloyd Blankfein, chairman and CEO of the Goldman Sachs group and former Goldman Sachs officials including Fabrice Tourre. 14:00:00 THING. HUDSON, PETER OSTREM WHO IS THE 14:00:04 HEAD OF GOLDMAN'S ASSET BASED SECURITY CDO DESK TO THE GOLDMAN 14:00:09 TEAM ANNOUNCING A NEW CDO. WHAT'S THIS NEW CDO? 14:00:12 IT'S HUDSON. WE'VE BEEN ASKED TO DO A CDO OF 14:00:18 $2 BILLION. FOR THE TRADING DESK. 14:00:24 THAT'S THE GOLDMAN TRADING DESK. AND THAT'S OBVIOUSLY IMPORTANT 14:00:27 TO THE STRUCTURED PRODUCT FOLKS. AND THEN THEY SAY IN 86, THAT'S 14:00:34 WHAT THE STATEMENT IS. WE'VE BEEN ASKED TO PUT TOGETHER 14:00:39 A CDO THAT CONTAINS OUR STUFF FROM OUR INVENTORY. 14:00:46 YOUR INVENTORY'S TOO LONG. THIS IS NOW THE END OF 2006. 14:00:53 NOW TAKE A LOOK AT EXHIBIT NUMBER 90. 14:00:58 WHO DO YOU THINK IS BETTING AGAINST THE STUFF THAT YOU'RE 14:01:02 REFERENCING IN THIS SYNTHETIC CDO? 14:01:05 YOU'RE REFERENCING YOUR OWN STUFF. 14:01:06 AND IT'S JUNK. THAT'S YOUR OWN EMPLOYEE'S 14:01:11 ASSESSMENT. AND YOU'RE TRYING TO GET OUT OF 14:01:13 THIS. AND SO YOU CREATE A SYNTHETIC 14:01:15 CDO SO YOU CAN TRANSFER THAT RISK TO YOUR CUSTOMERS. 14:01:18 OKAY? WHO DO YOU THINK IS GOING TO 14:01:25 BENEFIT WHEN YOU TRANSFER THAT RISK ON THE SHORT SIDE? 14:01:28 SO-CALLED PROTECTION BUYER. TAKE A LOOK AT EXHIBIT 90. 14:01:32 GOLDMAN WAS THE SOLE BUYER OF PROTECTION ON THE ENTIRE $2 14:01:35 BILLION OF ASSETS. IF YOU CAN SELL YOUR JUNK AND 14:01:41 SHIFT THE RISK ON THAT ON A SYNTHETIC CDO, GOLDMAN PUTS $2 14:01:46 BILLION IN ITS POCKET. NOW, YOU GOT A MARKETING 14:01:51 BOOKLET. THAT'S EXHIBIT 87. 14:01:54 SENATOR, I MISSED THE EXHIBIT BEFORE THE 87 ONE. 14:01:57 I APOLOGIZE, COULD YOU TELL ME? I'M NOT GOING TO WASTE ANY 14:02:04 MORE TIME. I'M TRYING TO UNDERSTAND 14:02:06 EXACTLY -- THERE WERE A NUMBER OF HUDSON DEALS. 14:02:10 ALL RIGHT. MAYBE WE CAN GET AN ANSWER TO 14:02:11 THIS. ARE WE READY? 14:02:17 WHICH ONE DIDN'T YOU UNDERSTAND? DID YOU UNDERSTAND THE ONE ABOUT 14:02:21 JUNK? I READ THE ONE WHERE AIB 14:02:25 CALLED IT JUNK AND DECIDED NOT TO INVEST. 14:02:28 AND YOUR OWN PERSON SAID THEY'RE TOO SMART TO BUY THIS 14:02:32 KIND OF JUNK. I THOUGHT THEY SAID THEY WERE 14:02:35 TOO SMART TO BUY IT. I'LL LOOK AT IT AGAIN. 14:02:37 I WAS TRYING TO GO FAST. NO, TAKE YOUR TIME. 14:02:41 EXHIBIT 170-C. GOLDMAN SACHS PERSON IN CHICAGO, 14:02:59 YOU MAY WANT TO ASK SARAH ABOUT THIS WHEN SHE'S THERE TOMORROW. 14:03:01 SHE SAID, "AIB ARE TOO SMART TO BUY THIS KIND OF JUNK." 14:03:08 I SAW THAT NOW, SENATOR. OKAY. 14:03:11 NOW LET'S TALK ABOUT WHAT YOU'RE SELLING. 14:03:13 YOU ARE ON -- 86 -- 14:03:15 YOU'RE ON THE SHORT SIDE OF THIS, RIGHT? 14:03:16 YOU'RE GOING TO MAKE MONEY IF THIS SYNTHETIC CDO IS SOLD, IS 14:03:21 THAT CORRECT? YOU'RE GETTING RID -- 14:03:23 SENATOR, AT THIS PARTICULAR TIME BECAUSE I BELIEVE THIS 14:03:27 E-MAIL WAS SEPTEMBER OF '06, I BELIEVE AT THE TIME THE FIRM WAS 14:03:33 POSITIONED VERY LONG WITH RESPECT TO THE MARKET AT THAT 14:03:35 TIME. AND YOU'RE TRYING TO BE LESS 14:03:36 LONG. SO I -- YOU SAID THE FIRM GOT 14:03:42 SHORT. I DON'T BELIEVE -- 14:03:43 NO, IT'S NOT -- YOU'RE CREATING A SYNTHETIC CDO AND 14:03:46 THERE'S A BET GOING ON AGAINST STUFF THAT'S IN YOUR INVENTORY. 14:03:50 AND YOU'RE BETTING AGAINST THAT STUFF AND SOMEONE ELSE IS 14:03:52 BETTING FOR IT. WE WERE LONG RISK, AND WE'RE 14:03:55 REDUCING RISK. THAT'S EXACTLY WHAT I SAID. 14:03:57 YOU'RE TRYING TO SHIFT THAT RISK TO SOMEBODY ELSE. 14:04:00 THAT JUNK, THE RISK OF THAT JUNK TO SOMEBODY ELSE. 14:04:02 THIS IS WHAT'S GOING ON. THE SYNTHETIC CDO, OKAY, THE 14:04:10 WHOLE POINT OF THE SYNTHETIC CDO, IF YOU'LL TAKE A LOOK AT 14:04:13 THAT EXHIBIT THAT I JUST REFERRED YOU TO, GOLDMAN IS THE 14:04:16 SOLE BUYER OF PROTECTION. OKAY. 14:04:19 DO YOU GOT THAT? THAT'S THE ONE I WAS LOOKING 14:04:21 FOR. EXHIBIT 90. 14:04:23 THANK YOU. SEE IT THERE? 14:04:33 MIDDLE OF THE PAGE? OCTOBER 30th, 2006. 14:04:39 YOU GOT IT? GOLDMAN WAS THE SOLE BUYER OF 14:04:46 THE ENTIRE $2 BILLION OF ASSETS. YOU'RE TRYING TO SHIFT THE RISK 14:04:51 AS YOU SAID. AND YOU DID IT. 14:04:58 YOU'RE BENEFITTING NOW FROM SELLING STUFF FROM YOUR 14:05:00 INVENTORY. YOU WANT TO GO LESS LONG AND 14:05:04 YOU'RE BETTING AGAINST THAT. WE'RE TOGETHER. 14:05:06 MR. CHAIRMAN, ANY TIME WE SELL SOMETHING TO SOMEBODY, WE 14:05:10 TRANSFER THE RISK. I AGREE WITH THAT. 14:05:11 RIGHT. THAT'S ALL I'M SAYING. 14:05:14 IN THIS CASE, IT'S JUNK. FROM YOUR INVENTORY AND YOU'RE 14:05:17 TRYING TO GO LESS LONG -- AT THE TIME, MR. CHAIRMAN, I 14:05:22 DIDN'T BELIEVE IT WAS JUNK, AND WE DIDN'T BELIEVE IT WAS JUNK. 14:05:24 A SALESPERSON SAID THAT -- RIGHT. 14:05:27 I THINK THAT'S A SALESPERSON WHO HAD AN OPINION AND AS I 14:05:30 MENTIONED, A LOT OF PEOPLE HAD DIFFERENT OPINIONS. 14:05:32 YES, THAT'S TRUE. YOUR SALESPERSON BELIEVED IT WAS 14:05:36 JUNK. THAT'S WHO WAS SELLING YOUR 14:05:37 STUFF. NOW IN EXHIBIT -- LET'S TAKE A 14:05:40 LOOK AT EXHIBIT CALLED EXHIBIT 87. 14:05:51 THIS IS AN EXECUTIVE SUMMARY. NOW, THIS IS YOUR SALES PITCH. 14:05:55 GOLDMAN SACHS IS ALIGNED IN CENTERS WITH THE HUDSON PROGRAM 14:05:59 WITH INVESTING IN A PORTION OF EQUITY AND PLAYING THE ONGOING 14:06:03 ROLE OF LIQUIDATION AGENT. SO NOW YOU'RE TELLING PEOPLE 14:06:05 THAT YOU'RE ON THE LONG SIDE. THAT'S YOUR EXECUTIVE SUMMARY? 14:06:14 YOU TELL THEM IN SOME FINE PRINT SOMEWHERE THAT YOU'RE SHIFTING 14:06:19 THE RISK. BUT THIS IS WHAT THE EXECUTIVE 14:06:20 SUMMARY IS. OKAY? 14:06:24 WHY -- YOU FOCUS ON THE HUDSON. YOU'VE GOT INCENTIVES ALIGNED 14:06:32 WITH THE PROGRAM. NO, YOU DON'T. 14:06:35 NO, YOU DON'T. YOUR INCENTIVES ARE ALIGNED 14:06:37 AGAINST THIS THING. YOUR INCENTIVES ARE TO SELL $2 14:06:39 BILLION AND SHIFT THE RISK. AND SO YOU'RE TELLING YOUR 14:06:45 PEOPLE THAT YOU'RE SELLING THIS TO THAT GOLDMAN SACHS IS ALIGNED 14:06:49 INCENTIVES WITH THE HUDSON PROGRAM BY INVESTING IN A 14:06:52 PORTION OF EQUITY. THAT MEANS YOU'RE ON THE LONG 14:06:54 SIDE. YOU'RE INVESTING A LITTLE BIT ON 14:06:57 THE LONG SIDE. $2 BILLION OF RISK YOU'RE 14:07:01 SHIFTING AND YOU'RE TELLING PEOPLE AN EXECUTIVE SUMMARY THAT 14:07:04 THE INCENTIVES ARE ALIGNED. THEY'RE NOT ALIGNED, THEY'RE THE 14:07:10 OPPOSITE. YOU'RE SHIFTING RISK, YOU'RE NOT 14:07:11 TAKING ON RISK. THIS IS ONE OF YOUR STRUCTURED 14:07:18 PRODUCTS THAT YOU'RE SELLING THESE SYNTHETIC CDOs THAT NOBODY 14:07:21 CAN FIGURE OUT. TAKE A LOOK AT EXHIBIT NUMBER 14:07:28 91, MR. SPARKS. THERE'S ANOTHER SYNTHETIC CDO 14:07:48 THAT YOU GUYS ARE PEDDLING. SHIFT AND RISK, MAKING MONEY 14:07:53 WHEN YOU GO SHORT. YOU TELL MR. MONTAG. 14:07:58 NEED YOU TO SEND MESSAGE TO PETER AND DARRELL WHAT A GREAT 14:08:03 JOB THEY DID. THEY STRUCTURED LIKE MAD. 14:08:05 THEY STRUCTURED LIKE MAD, TRAVELED THE WORLD, AND WORK LD 14:08:09 THEIR TAILS OFF TO MAKE SOME LEMONADE FROM SOME BIG OLD 14:08:14 LEMONS. MAKING LEMONADE FROM SOME BIG 14:08:20 OLD LEMONS. YOU SAY THAT, BY THE WAY, GOING 14:08:27 BACK TO HUDSON. IS THAT IN 91? 14:08:33 L LEMONADE? 14:08:34 NO, EXHIBIT 91. LOOK RIGHT IN THE MIDDLE. 14:08:36 NEED YOU TO SEND MESSAGE. GOT THOSE WORDS? 14:08:39 NEED YOU TO SEND MESSAGE. TO PETER OSTREM AND DARRELL 14:08:52 HARRAK. DARRELL WAS PART OF PETER'S 14:08:53 GROUP. AND TELL THEM WHAT A GREAT 14:08:56 JOB THEY DID. THEY STRUCTURED LIKE MAD. 14:08:58 WHAT DID THEY DO? THEY MADE SOME LEMONADE FROM BIG 14:09:02 OLD GOLDMAN SACHS LEMONS. YOU'VE GOT NO REGRETS? 14:09:08 YOU OUGHT TO HAVE PLENTY OF REGRETS. 14:09:12 I DON'T THINK THAT YOU'RE WILLING TO ACKNOWLEDGE THEM. 14:09:14 YOU OUGHT TO HAVE THEM. I DON'T THINK YOU WILL 14:09:17 ACKNOWLEDGE THEM. THAT'S WHY WE'VE GOT TO DO SOME 14:09:21 REGULATION AND REREGULATION. TAKE A LOOK, IF YOU WOULD AT 14:09:25 YOUR OWN -- YOUR OWN ASSESSMENT OF WHAT YOU DID IN 2007. 14:09:31 YOU HAD A GREAT YEAR. OKAY. 14:09:33 55-C. YOU MADE A DECISION TO SHIFT THE 14:10:03 POSITION. TO GO FROM A LONG POSITION TO A 14:10:05 SHORT POSITION. AND HERE'S WHAT YOU SAID. 14:10:16 DO YOU SEE WHERE I'M AT? I'M CATCHING UP TO YOU. 14:10:20 I WON'T MAKE YOU CATCH UP, I WANT YOU TO READ EVERY WORD WITH 14:10:22 ME. I'LL WAIT UNTIL YOUR EYES ARE 14:10:30 WHERE I'M AT. WHICH PAGE? 14:10:33 PAGE 2. I'M WITH YOU. 14:10:35 IT SAYS VISION, RISK-TAKING, MARKET CALLS. 14:10:38 WHEREAS THE EXECUTION OF STRATEGIES HAS BEEN A CONCERTED 14:10:41 TEAM EFFORT, I CONSIDER MYSELF THE INITIAL OR PRIMARY DRIVER OF 14:10:45 THE MACRO TRADING DIRECTION FOR THE BUSINESS. 14:10:51 GOT IT? HERE'S WHAT YOU SAY. 14:10:57 YOU MADE THREE MAJOR CALLS, DECEMBER TO FEBRUARY. 14:11:00 DECEMBER '06 TO FEBRUARY '07 WITH THE DESK QUITE LONG AND ABX 14:11:05 TRADING DOWN FROM PAR, WE HAD A ROUGH START TO THE YEAR. 14:11:08 BY THE WAY, THAT YEAR STARTED IN DECEMBER. 14:11:11 THE PREVAILING OPINION WITHIN THE DEPARTMENT WAS THAT WE 14:11:14 SHOULD JUST GET CLOSE TO HOME AND PARE DOWN OUR LONG. 14:11:20 THERE'S DIFFERENCES IN THE DEPARTMENT. 14:11:21 EVERYONE DOESN'T AGREE. THERE'S DIFFERENCE OF OPINION. 14:11:24 I'M GOING TO KEEP GOING. SO THERE IS SOME OPINION THAT WE 14:11:29 SHOULD JUST GET CLOSE TO HOME AND PARE DOWN OUR LONG. 14:11:32 BUT YOU -- AND THEN READING AT THE BOTTOM OF THE PAGE, YOU HAD 14:11:36 FIVE REASONS THERE WHY YOU SHOULDN'T JUST PARE DOWN. 14:11:39 YOU OUGHT TO MAKE A BIG BET GOING SHORT. 14:11:41 AND THEN YOU SAID I CONCLUDED WE SHOULD NOT ONLY GET FLAT, BUT 14:11:48 GET VERY CAPITALIZED SHORT. THAT'S NOT MINE, THAT'S YOURS. 14:12:01 YOU WANTED TO AVOID GROUP THINK, SO INDEPENDENTLY WENT TO A BUNCH 14:12:03 OF FOLKS TO SEE IF ANYBODY COULD POKE HOLES IN THE PLAN. 14:12:08 ALTHOUGH OPINIONS VARIED ON EXECUTION PROBABILITY, PRIMARILY 14:12:12 ON THE BACK END, WE ALL AGREED THE PLAN MADE SENSE. 14:12:16 WE ALL AGREED THE PLAN MADE SENSE. 14:12:19 THEN YOU SOCIALIZE WITH SPARKS. AND WHAT DID YOU DO? 14:12:23 YOU IMPLEMENTED THE PLAN BY HITTING ON ALMOST EVERY SINGLE 14:12:29 NAME, CDO PROTECTION BUYING. THAT MEANS YOU'RE HEADING IN THE 14:12:32 SHORT DIRECTION. IN A TWO-MONTH PERIOD. 14:12:37 MUCH OF THE PLAN BEGAN WORKING BY FEBRUARY, OUR VERY PROFITABLE 14:12:42 YEAR WAS UNDERWAY. THERE'S A VERY PROFITABLE YEAR 14:12:45 WHERE YOU WERE WORKING, YOU'RE BETTING AGAINST THE MARKET. 14:12:47 YOU WERE GOING SHORT. THEN DOWN AT THE BOTTOM OF THAT 14:12:51 PARAGRAPH. AGAIN WHEN THE PREVAILING 14:12:53 OPINION IN THE DEPARTMENT WAS TO REMAIN CLOSE TO HOME, I PUSHED 14:12:56 EVERYONE ON THE DESK TO SELL AGGRESSIVELY AND QUICKLY. 14:13:01 OKAY? YOU MADE A LOT OF MONEY 14:13:02 MONETIZING THAT. WE SOLD BILLIONS OF INDEX AND 14:13:07 SINGLE-NAME RISK. YOU SOLD THEM AND YOU CASHED IN. 14:13:10 HERE'S WHAT YOU SAID. AND WHEN THE INDEX DROPPED 25 14:13:13 POINTS IN JULY, WE HAD A BLOWOUT PROFIT AND LOSS MONTH MAKING 14:13:19 OVER $1 BILLION THAT MONTH. NOW, WHAT YOU SAID IN THAT 14:13:28 REPORT IS WHAT HAPPENED. THAT'S WHAT YOU FOLKS REPORTED 14:13:30 TO THE S.E.C. OCTOBER 4th, 2007, THIS IS 14:13:45 EXHIBIT 46. THIS IS A LETTER FROM GOLDMAN TO 14:13:51 THE S.E.C. TAKE A LOOK AT THE BOTTOM OF 14:13:53 PAGE THREE. IT IS IMPORTANT TO KNOW THAT WE 14:14:01 ARE ACTIVE TRADERS OF MORTGAGE SECURITIES AND LOANS. 14:14:05 AND IS WITH ANY OF THE FINANCIAL INSTRUMENTS WE TRADE AT ANY 14:14:08 POINT IN TIME WE MAY CHOOSE TO TAKE A DIRECTIONAL VIEW AT YOUR 14:14:14 WORDS, GOLDMAN SACHS. YOU MAY CHOOSE TO TAKE A 14:14:15 DIRECTIONAL VIEW. THIS IS EXHIBIT 46? 14:14:21 I'M JUST ASKING. EXHIBIT 46, BOTTOM OF PAGE 3. 14:14:31 I'M NOT ASKING YOU THIS QUESTION, I'M ASKING MR. SPARKS 14:14:34 THIS QUESTION OR ANY OF YOU BASICALLY MAKE A STATEMENT AND 14:14:38 THEN ASKING IF YOU WANT TO RESPOND TO IT. 14:14:40 THIS IS A STATEMENT OF GOLDMAN SACHS TO THE S.E.C. 14:14:43 I'M NOT SURE YOU WANT TO QUIBBLE ON THIS ONE. 14:14:46 BUT IN ANY EVENT. OCTOBER 4th, 2007. 14:14:50 SO AT ANY POINT IN TIME, WE MAY CHOOSE TO TAKE A DIRECTIONAL 14:14:54 VIEW OF THE MARKET. AND YOU WILL -- WE WILL EXPRESS 14:14:57 THAT VIEW THROUGH THE USE OF MORTGAGE SECURITIES, LOANS AND 14:15:01 DERIVATIVES. THEREFORE, ALTHOUGH WE DID NOT 14:15:03 HAVE LONG BALANCE SHEET EXPOSURE TO SUBPRIME SECURITIES IN THE 14:15:07 PAST THREE YEARS, ALBEIT SMALL EXPOSURE. 14:15:20 SO YOUR RISK POSITION WAS DEPENDENT ON YOUR CHANGING VIEW 14:15:22 OF THE MARKET. BUT NOW COMES THE LINE WHICH WE 14:15:25 MIGHT AS WELL ALL AGREE UPON BEFORE THE NEXT TWO PANELS 14:15:31 START. THIS IS WHAT YOU REPRESENTED TO 14:15:32 THE S.E.C. AND WHAT THE FACTS CLEARLY SHOW. 14:15:37 FOR EXAMPLE, PRESUMABLY OF YOUR VIEWS. 14:15:43 THROUGH MOST OF 2007, WE MAINTAINED A NET SHORT SUBPRIME 14:15:48 POSITION. AND THEREFORE STOOD THE BENEFIT 14:15:50 FROM DECLINING PRICES IN THE MORTGAGE MARKET. 14:15:52 OKAY? IS THERE ANY DOUBT IN YOUR 14:15:58 MIND THAT THAT WAS TRUE? IS THERE ANY DOUBT IN YOUR MIND 14:16:04 THAT WHAT MR. VINEYARD SAID LATER ON THAT YEAR WAS ALSO 14:16:08 TRUE? THIS IS WHAT MR. VINEYARD SAID 14:16:17 AT THE END OF THE THIRD QUARTER. HE'S THE CHIEF FINANCIAL 14:16:19 OFFICER. THIS IS EXHIBIT 45, BY THE WAY, 14:16:22 IF YOU WANT TO TRACK IT. LET ME ALSO ADDRESS MORTGAGES 14:16:30 SPECIFICALLY. THIS IS THE END OF THE THIRD 14:16:32 QUARTER AT THE END OF SEPTEMBER. THE MORTGAGE SECTOR CONTINUES TO 14:16:35 BE CHALLENGED. AND THERE IS A BROAD DECLINE IN 14:16:39 THE VALUE OF MORTGAGE INVENTORY DURING THE THIRD QUARTER. 14:16:42 AS A RESULT, WE TOOK SIGNIFICANT MARKDOWNS ON OUR LONG INVENTORY 14:16:49 POSITIONS DURING THE QUARTER AS WE HAD IN THE PREVIOUS TWO 14:16:52 QUARTERS. THAT'S THE LONG GETTING OUT OF 14:16:56 THE LONG POSITION. AND THEN HE SAID THE FOLLOWING. 14:17:01 HOWEVER OUR RISK BIAS IN THAT MARKET WAS TO BE SHORT. 14:17:06 AND THAT NET SHORT POSITION WAS PROFITABLE. 14:17:11 YOU'D DISAGREE WITH THAT, MR. SPARKS? 14:17:13 DO YOU DISAGREE WITH THAT ONE STATEMENT? 14:17:16 DURING THE THIRD QUARTER THAT WE HAD A NET SHORT BIAS. 14:17:21 I DON'T DISAGREE WITH THAT STATEMENT? 14:17:24 YOU DISAGREE WITH THE STATEMENT -- 14:17:25 I DON'T DISAGREE, I'M SORRY. DO YOU DISAGREE WITH THE 14:17:28 STATEMENT THAT WAS MADE TO THE S.E.C.? 14:17:31 BOTTOM OF EXHIBIT 46, PAGE 3, LAST LINE. 14:17:43 THAT DURING MOST OF 2007 WE MAINTAINED A NET, SHORT SUBPRIME 14:17:50 POSITION AND THEREFORE STOOD THE BENEFIT FROM DECLINING PRICES IN 14:17:53 THE MORTGAGE MARKET. THAT WAS STATED TO THE S.E.C. 14:17:58 WAS GOLDMAN SACHS TELLING THE TRUTH TO THE S.E.C.? 14:18:00 I UNDERSTAND. I DIDN'T WRITE THIS. 14:18:06 I'M NOT GOING TO GET AN ANSWER FROM YOU. 14:18:09 DO YOU KNOW IF THAT WAS A TRUE STATEMENT OR NOT? 14:18:12 I MEAN, AGAIN, THESE AREN'T MY WORDS -- 14:18:15 I'M JUST ASKING IF THE DARN STATEMENT IS TRUE THAT GOLDMAN 14:18:16 SACHS MADE TO THE S.E.C. THAT'S ALL I'M ASKING YOU. 14:18:21 WELL, THIS IS A LONG DOCUMENT. 14:18:23 I'M ASKING YOU IF THAT STATEMENT AT THE BOTTOM OF PAGE 14:18:26 3 THAT DURING MOST OF 2007 WE MAINTAINED THE NET SUBPRIME 14:18:31 POSITION AND THEREFORE STOOD THE BENEFIT FROM DECLINING PRICES IN 14:18:34 THE MORTGAGE MARKET. THERE'S ONLY ONE THING I CAN 14:18:36 COMMENT ON, AND THAT'S MY POSITION. 14:18:38 AND YOU READ MY SELF-REVIEW. AND I STAND PAT WITH WHAT I 14:18:42 WROTE THERE. AND IS THAT REVIEW TOTALLY 14:18:44 CONSISTENT WITH THIS? JUST TO BE CLEAR, MY VIEW 14:18:48 PERTAINS TO MY BUSINESS -- YOUR REVIEW -- 14:18:51 ONLY A SMALL PART OF THE FIRM. 14:18:53 IS YOUR REVIEW CONSISTENT WITH WHAT I JUST READ? 14:18:55 MY REVIEW ONLY -- MR. SWENSON -- 14:18:58 MY REVIEW ONLY RELATES -- I UNDERSTAND. 14:19:00 IS THIS SOMETHING THAT YOU AGREE WAS AN ACCURATE STATEMENT WHEN 14:19:02 GOLDMAN SACHS MADE IT TO THE SECURITIES AND EXCHANGE 14:19:07 COMMISSION IN OCTOBER OF 2007? YES. 14:19:09 THANK YOU. AND I WOULD LIKE TO ADD THE 14:19:13 NATURE -- I WAS JUST HOPING FOR A YES. 14:19:15 YES, BUT THE NATURE OF OUR RISK CHANGED OVER THE COURSE OF 14:19:18 THAT YEAR. WE UNDERSTAND. 14:19:21 AS I MENTIONED IN MY OPENING STATEMENT. 14:19:23 WE UNDERSTAND. THANK YOU VERY MUCH. 14:19:25 MR. CHAIRMAN, I HAVE A QUESTION FOR EACH OF YOU THAT 14:19:28 I'D LIKE JUST A YES OR NO ANSWER. 14:19:30 IS THERE A POLICY WITHIN GOLDMAN SACHS THAT IF YOU FEEL SOMETHING 14:19:37 IS OUT OF THE ORDINARY OR UNETHICAL THAT YOU ARE TO NOT 14:19:41 COMMUNICATE THAT IN AN E-MAIL. AND HAVE YOU EVER BEEN 14:19:45 INSTRUCTED ON WHAT YOU WILL OR WILL NOT COMMUNICATE ON E-MAILS? 14:19:48 IN OTHER WORDS ARE THERE THINGS YOU ARE NOT TO COMMUNICATE IN 14:19:50 E-MAILS? MR. SPARKS? 14:19:57 IF THERE'S SOMETHING YOU HAVE AN ETHICAL QUESTION ABOUT, 14:20:00 YOU'RE SUPPOSED TO RAISE IT TO YOUR SUPERIOR. 14:20:03 HAVE YOU EVER BEEN INSTRUCTED NOT TO RAISE THAT IN AN E-MAIL? 14:20:07 NO. THERE'S NEVER BEEN ANYTHING 14:20:11 ON ETHICS THAT YOU CAN'T RAISE THOSE QUESTIONS IN E-MAILS? 14:20:14 NOT THAT I'M AWARE OF. I'M NOT AWARE OF A POLICY 14:20:17 LIKE THAT. MR. SWENSON? 14:20:19 I'M NOT AWARE OF A POLICY. I'M NOT AWARE OF A POLICY. 14:20:23 ARE YOU AWARE OF ANY POLICY THAT WOULD RESTRICT YOUR 14:20:25 COMMUNICATION ON E-MAILS ABOUT ANYTHING RELATED TO YOUR 14:20:27 BUSINESS WITHIN GOLDMAN? AND I WOULD, AGAIN, YOU ALL HAVE 14:20:35 BEEN UNDER OATH. ALL I WANT IS A YES OR NO. 14:20:37 HAVE YOU BEEN INSTRUCTED ON CERTAIN THINGS YOU WILL NOT 14:20:40 COMMUNICATE IN E-MAILS? RELATING TO THE BUSINESS. 14:20:43 I'M NOT TALKING ABOUT PERSONAL. WITHIN THE FIRM, NO, PERSONAL 14:20:45 STUFF, THE FIRM PREFERS YOU NOT TO. 14:20:49 AND THEN I'D SAY THERE ARE THINGS ABOUT WHAT CAN GO OUTSIDE 14:20:54 OF GOLDMAN THAT THERE ARE POLICIES ABOUT. 14:20:55 OKAY. IT'S BEEN A LITTLE WHILE 14:21:02 SINCE I'VE WORKED THERE. I DON'T REMEMBER ALL THE 14:21:04 POLICIES. WE HAD A LOT OF POLICY UPDATES. 14:21:07 YOU'D KNOW THIS POLICY IF IT WAS THERE. 14:21:09 I DON'T REMEMBER ALL THE POLICIES. 14:21:11 SO YOUR ANSWER IS YOU DON'T KNOW? 14:21:14 MY ANSWER IS I DON'T REMEMBER ALL THE POLICIES. 14:21:16 THAT'S A VERY UNSATISFACTORY ANSWER. 14:21:20 MR. SWENSON? THERE'S NO POLICY. 14:21:22 THANK YOU. THERE'S NO POLICY. 14:21:23 THANK YOU. I WANT TO JUST A LITTLE FURTHER 14:21:32 ON E-MAIL. IF YOU ALL WILL LOOK AT NUMBER 14:21:47 26. THIS IS AN E-MAIL DATED FROM 14:21:51 2007, OF THE EXECUTIVE VP AND CHIEF FINANCIAL OFFICER. 14:21:55 AND IT WAS NOT NECESSARILY COMMUNICATED TO YOU. 14:22:19 THIS IS A SUMMARY OF REVENUES AND ESTIMATES. 14:22:25 YEAR-TO-DATE. AND THIS WOULD BE THE ESTIMATE 14:22:27 FOR REVENUES AND ESTIMATE FOR PRETAX PROFIT. 14:22:33 AND THIS GOES TO MR. COEN AND COPIED TO SEVERAL OTHERS. 14:22:41 WHAT MIGHT BE -- TELLS YOU WHAT MIGHT BE HAPPENING TO PEOPLE WHO 14:22:43 DON'T HAVE THE BIG SHORT. IT'S NOT REALLY FAIR TO ASK YOU 14:22:50 TO COMMENT ON THAT. BUT THERE WERE DISCUSSIONS ABOUT 14:22:53 CHANGING YOUR POSITIONS. AND IN RELATIONSHIP TO THE 14:22:57 MORTGAGE MARKET, THE DERIVATIVES, AND THE PACKAGE 14:23:00 SECURITIES. THERE'S NO QUESTION ABOUT THAT, 14:23:02 RIGHT? YOU ALL HAVE TESTIFIED YOU WERE 14:23:03 CHANGING POSITION, CORRECT? YES, SIR. 14:23:08 ALL RIGHT. EVERYBODY AGREES WITH THAT? 14:23:11 YOU WERE CHANGING POSITIONS? YOU SAW A MARKET THAT WAS 14:23:16 TANKING, YOU WERE TRYING TO LIMIT YOUR LOSSES, GOOD MY 14:23:22 DISH R 14:23:24 -- IS THAT CORRECT? I THOUGHT YOU WERE SAYING WE 14:23:27 WERE CHANGING OUR POSITIONS. WE WERE OFTEN TIMES CHANGING OUR 14:23:31 POSITIONS. I UNDERSTAND, BUT THERE'S 14:23:33 NEVER BEEN A POSITION CHANGE THAT TOOK PLACE IN THE LAST FOUR 14:23:36 YEARS IN THIS COUNTRY. THERE'S NEVER BEEN ANYTHING LIKE 14:23:38 THAT. MAYBE WHEN WE SHUT OFF EXPORTS 14:23:39 OF COMMODITIES TO THE RUSSIANS DURING AFGHANISTAN INVASION. 14:23:44 BUT THERE'S NEVER BEEN A CHANGE LIKE THAT BEFORE IN THIS 14:23:46 COUNTRY. SO I UNDERSTAND YOU CHANGE 14:23:48 POSITIONS ALL THE TIME. BUT THERE'S NEVER BEEN ANYTHING 14:23:49 TO COMPARE TO WHAT HAPPENED IN TERMS OF THE COLLATERALIZED DEBT 14:23:54 OBLIGATIONS AND THE RESIDENTIAL-BACKED MORTGAGE 14:23:59 SECURITIES IN THIS COUNTRY. DO YOU AGREE WITH THAT? 14:24:02 I'M 62 YEARS OLD, I'VE NEVER SEEN ANYTHING LIKE IT. 14:24:04 IT WAS DEFINITELY UNIQUE. BUT YOU ALL AS A STRATEGIC -- 14:24:09 I'M NOT CRITICAL OF IT. IT'S SMART, IF YOU SEE A MARKET 14:24:13 TAKING, GET OUT OF THE MARKET. YOU'RE PROP TRADERS. 14:24:16 NOT ONLY HEMMED TO MAKE A MARKET WHICH WILL PUT YOU ON EXPOSURE 14:24:19 FOR LOSSES, BUT YOU ALSO HAVE PROPRIETARY TRADING. 14:24:23 YOU MAKE MORE OF YOUR MONEY NOW PROPRIETARY TRADING THAN YOU DO 14:24:27 ANY OTHER WAY, AT LEAST THE LAST FEW QUARTERS YOU HAVE. 14:24:30 SO IT IS A FACT THAT YOU WERE CHANGING POSITIONS AS A FIRM IN 14:24:33 THE MORTGAGE-BACKED INDUSTRY. AND THE DERIVATIVES ASSOCIATED 14:24:36 WITH THAT, CORRECT? ANYBODY DISAGREE WITH THAT? 14:24:43 I'M TAKING HAT MEANS NOBODY DISAGREES. 14:24:47 I WOULD SECOND WHAT MR. SPARKS SAID. 14:24:50 WE WERE CHANGING POSITIONS ALL THE TIME. 14:24:53 YOU DIDN'T HEAR WHAT I JUST SAID. 14:24:55 EVERYBODY CHANGED POSITIONS. AS A MATTER OF FACT, THEY'VE GOT 14:24:58 SO MUCH CHANGE IN THEIR POSITION, THEY LOST HALF OF 14:25:00 EVERYTHING THEY OWN. THE VAST MAJORITY OF PEOPLE WHO 14:25:03 DIDN'T HAVE ACCESS TO THE SAME DATA YOU DID. 14:25:05 OR WEREN'T SMART ENOUGH TO TAKE CARE OF IT. 14:25:07 SO YOU CANNOT COMPARE THIS CHANGE IN POSITION, THIS WAS A 14:25:11 DRASTIC CHANGE IN POSITION WHERE YOU WENT SIGNIFICANTLY SHORT ON 14:25:14 THE BASIS OF SMART, KNOWLEDGE OF WHAT WAS GOING ON IN THE MARKET. 14:25:19 YOU DON'T HAVE TO APOLOGIZE FOR IT. 14:25:21 BUT DON'T COMPARE IT FOR A CHANGE IN WHAT THE CPI MIGHT BE 14:25:25 ONE MONTH OVER THE NEXT TO CHANGE POSITIONS. 14:25:27 IT'S INAPPROPRIATE AND DISCOURTEOUS TO US. 14:25:30 WE'RE NOT THAT STUPID. NOW, I'M GOING TO PASS OUT FOR 14:25:34 EACH OF YOU COPIES OF SOME THINGS THAT ARE NOT IN THE 14:25:37 REFERENCE BINDER FOR YOU. BUT THEY ARE COPIES OF E-MAILS 14:25:39 COLLECTED FROM YOUR FIRM. AND I THINK HAVE THEY BEEN 14:25:44 PASSED DOWN? SO EVERYBODY HAS THAT. 14:25:46 AND I THINK OUR PANEL MEMBERS HAVE IT, AS WELL. 14:25:50 THE FIRST IS RELATED TO A -- AND I WANT YOU TO GO ALONG WITH THIS 14:25:57 AND TRY AND ANSWER SOME OF THESE QUESTIONS FOR ME IF YOU WOULD. 14:26:02 TELL ME IN YOUR MIND WHAT IS AN EQUITY INVESTOR. 14:26:09 IT'S A PARTY WHO BUYS AN EQUITY POSITION IN A 14:26:14 TRANSACTION. AND DESCRIBE AN EQUITY 14:26:15 POSITION. IT'S -- 14:26:18 WHAT ARE THEY BUYING IN YOUR MIND? 14:26:20 THEY'RE BUYING THE PIECE OF A TRANSACTION. 14:26:24 AND IT MAY BE LONG, MAY BE SHORT, MAY BE A DERIVATIVE, OR 14:26:29 MAY BE A PURE EQUITY, RIGHT? A STOCK? 14:26:31 IT COULD BE A STOCK. RIGHT. 14:26:32 OKAY. DID YOU EVER TELL ACA PAULSON 14:26:39 WOULD BE AN EQUITY INVESTOR? NO. 14:26:41 AT NO TIME DID YOU INFER THAT, TELL THEM THAT, OR STATE 14:26:44 THAT AT ANY TIME WITH ACA? NO, SIR. 14:26:47 OKAY. DID YOU TELL ACA THAT PAULSON 14:26:50 WAS SHORT? ON THE DEAL. 14:26:56 I'M TALKING ABOUT THE ADVOCATE DEAL. 14:26:59 I DON'T SPECIFICALLY REMEMBER THE WORDS I USED, BUT I DID 14:27:01 MENTION TO ACA THAT PAULSON'S EXPECTATION WAS THAT THEY WERE 14:27:07 BUYING PROTECTION ON THAT PORTFOLIO. 14:27:09 OKAY. BUT THAT'S THE SAME THING AS 14:27:11 SAYING THEY'RE GOING TO BUY A SHORT POSITION. 14:27:15 WAS THERE EVER ANY INFERENCE THAT THEY WERE ALSO TAKING A 14:27:18 LONG POSITION. THAT THEY WERE TAKING A LONG 14:27:20 POSITION AND SURE OF THEIR LONG POSITION BY BUYING ON THE SHORT 14:27:22 SIDE. FOR ME BUYING PROTECTION ON 14:27:27 THE RISK MEANS BEING SHORT. SOMEBODY WOULD NOT 14:27:30 NECESSARILY BUY LONG AND THEN ON A THE HIGHER TRAUNCH AND SELL ON 14:27:36 THE LOWER QUALITY TRAUNCH? CORRECT. 14:27:39 NOBODY WOULD DO THAT. CORRECT. 14:27:42 WHY WOULD THEY? IF THE DIFFERENT TRAUNCHES 14:27:46 HAVE DIFFERENT VALUES, EVEN THOUGH THE WHOLE THING IS AAA 14:27:50 RATED, WHY WOULD THEY NOT BUY PROTECTION ON THE HIGHEST RISK 14:27:55 PORTION OF THE DEAL? CAN YOU REPEAT THE QUESTION, 14:27:58 SENATOR? WHY WOULD SOMEBODY NOT BUY 14:27:59 PROTECTION ON THE LOWEST POTENTIAL PERFORMING COMPONENT 14:28:05 OF THE DEAL AND BUY LONG ON THE TOP END OF THE DEAL? 14:28:10 IF SOMEBODY HAS AN INTERESTING BUYING PROTECTION ON 14:28:15 A PORTFOLIO, DEPENDING ON THE OBJECTIVES FROM A CARRYING 14:28:18 PERSPECTIVE, THAT PARTY MAY DECIDE TO BUY PROTECTION ON THE 14:28:23 FIRST LOSS, THE MEZZINE. I THINK IT'S AN INVESTMENT 14:28:30 DECISION THAT HAS TO DO WITH CARRY. 14:28:32 SO THEY MIGHT STRADDLE THAT FOR THEIR OWN INTEREST, BUT 14:28:35 THAT'S IT? AND ULTIMATE LOSSES ON THE 14:28:38 REFERENCE PORTFOLIO. RIGHT. 14:28:39 OKAY. MR. TORRE TO YOUR KNOWLEDGE OF 14:28:51 THE SECURITIES KICKED OUT BY THE ACA, DO YOU HAVE ANY KNOWLEDGE 14:28:55 THAT ANYWHERE IN GOLDMAN THAT THEY ONCE THEY WERE KICKED OUT 14:28:59 THAT THEY BOUGHT A SHORT POSITION IN THE SECURITIES THAT 14:29:01 WERE KICKED OUT. WHO BOUGHT A SHORT POSITION? 14:29:05 GOLDMAN, OF THE SECURITIES THAT WERE KICKED OUT OF THE 14:29:11 DEAL, DO YOU HAVE ANY KNOWLEDGE ANYWHERE AVAILABLE TO YOU THAT 14:29:14 ANYBODY IN GOLDMAN CREATED A SHORT POSITION ON THOSE 14:29:17 SECURITIES THAT WERE KICKED OUT? WHEN YOU SAY KICKED OUT -- 14:29:23 THEY WEREN'T PART OF THE DEAL. 14:29:24 IN OTHER WORDS, ACA SAID NO, WE'RE NOT TAKING THESE. 14:29:27 DID ANYBODY WITHIN GOLDMAN TAKE A SHORT POSITION ON THE ONES 14:29:31 THEY WEREN'T INCLUDING IN THE TRAUNCHES? 14:29:34 I DON'T KNOW. DOES ANYBODY ELSE HAVE AN 14:29:35 ANSWER FOR THAT QUESTION? IS THERE ANY KNOWLEDGE ANYWHERE 14:29:39 ABOUT ANYBODY KNOWING WHETHER OR NOT YOU SPECIFICALLY TOOK SHORT 14:29:42 POSITIONS ON PORTFOLIOS THAT WERE REJECTED FROM THE ADVOCATES 14:29:45 DEAL? I DON'T KNOW. 14:29:51 OKAY. AS I MENTIONED EARLIER, I 14:29:53 DIDN'T WORK ON THOSE TRANSACTIONS. 14:29:56 THANK YOU. NOW TO THE DOCUMENTS. 14:29:59 THE FIRST ONE IS AN E-MAIL ABOUT A LOCATION -- CANCELED MEET WITH 14:30:09 PAULSON EQUITY INVESTOR. AND THIS ACTUALLY COMES FROM 14:30:13 LAURA SCHWARTZ -- WHICH IS ON JANUARY 8th, 2007, 7:05 P.M. 14:30:27 LAURA'S COMMUNICATING TO A G.KRITEMAN. 14:30:36 I HAVE NO IDEA HOW IT WENT, I WOULD SAY IT WENT POORLY. 14:30:39 I WOULDN'T SAY IT WENT POORLY, NOT AT ALL. 14:30:42 BUT I THINK IT DIDN'T HELP THAT WE DIDN'T KNOW EXACTLY HOW THEY 14:30:45 WANT TO PARTICIPATE IN THE SPACE. 14:30:47 CAN YOU GIVE ME SOME FEEDBACK? SHE'S TALKING ABOUT PAULSON, 14:30:52 RIGHT? YOU HAVE THESE IN FRONT OF YOU, 14:30:54 CORRECT? YES, SIR. PAULSON GROUP? 14:30:57 I BELIEVE SHE'S TALKING ABOUT THE PAULSON GROUP, YES. 14:30:58 OKAY. AND THEN A PHONE CALL ON 14:31:05 JANUARY 10th, 2007. DID YOU HAVE THAT PHONE CALL? 14:31:12 I DON'T REMEMBER, SENATOR. YOU DON'T REMEMBER. 14:31:14 BUT IT'S IN THE RECORD THAT IT HAPPENED? 14:31:16 YOU WOULD AGREE TO THIS? THIS IS YOUR OLD RECORDS? 14:31:20 WHEN YOU SAY THIS IS MINE -- THESE ARE NOT YOUR RECORDS, 14:31:25 THEY'RE ACA RECORDS. ON JANUARY 28th, 2007, YOU HAVE 14:31:31 AN E-MAIL FROM LAURA SCHWARTZ TO ALLEN ROSEMAN. 14:31:37 SUBJECT "NOT A BOONDOGGLE." AND AGAIN, THE ADVOCATES DEAL 14:31:41 COMES UP AT A PERCHANCE MEETING IN COLORADO, NO IN WYOMING. 14:31:52 SHE WENT TO A CONFERENCE HAMMERED OUT COLLATERAL AND 14:31:55 STRUCTURAL DEALS WITH BOTH THE PAULSON P.M., DOES IT REFER TO 14:32:02 PRIME MOVER, PRINCIPAL MAKER? TRADITIONALLY IT'S -- I MEAN 14:32:05 IT'S PORTFOLIO MANAGER. PORTFOLIO MANAGER, OKAY, THAT 14:32:12 FITS. AND THE MORGAN STANLEY HIT. 14:32:15 THE PORTFOLIO MANAGER WASN'T AT THE CONFERENCE, BUT CAME OVER TO 14:32:18 ME IN THE CAFETERIA AND ASKED TO GET TOGETHER. 14:32:21 SO HERE'S A MEETING BETWEEN ACA AND PAULSON'S PORTFOLIO MANAGER, 14:32:24 CORRECT? WOULD THAT -- YOU WOULD AGREE 14:32:27 WITH THAT'S WHAT THIS IMPLIES? READING THIS E-MAIL RIGHT 14:32:31 NOW, IT LOOKS LIKE IT, SIR. OKAY. 14:32:32 THANK YOU. SO THEN BACK FROM MR. GORMAN TO 14:32:39 LAURA SCHWARTZ, LOOKS GOOD TO ME. 14:32:41 DID THEY GIVE A REASON WHY THEY KICKED OUT ALL THE WELLS DEALS? 14:32:46 AND THEN AT THE BOTTOM OF THIS E-MAIL IS ATTACHED IS A REVISED 14:32:51 PORTFOLIO THAT PAULSON WOULD LIKE US TO COMMIT TO. 14:32:53 ALL NAMES ARE AT THE BAA 2 LEVEL, THE FINAL PORTFOLIO WILL 14:32:59 HAVE BETWEEN 80 AND 92 OF THESE NAMES. 14:33:01 ARE WE OKAY TO SAY YES TO THIS PORTFOLIO? 14:33:06 AND THIS IS INSIDE ACA DOCUMENTS. 14:33:09 YOU PROBABLY HAVE NOT BEEN AWARE OF THIS. 14:33:15 AND THEN, MR. PELIGRINI SAYS TO LAURA SCHWARTZ ON FEBRUARY 13th, 14:33:22 IN ANSWER TO YOUR QUESTIONS, THE REASON WE DECIDED TO GO AHEAD 14:33:26 WITH ACA ARE THAT ON THE ONE HAND YOU HAVE AN IMPRESSIVE 14:33:29 TRACK RECORD, AND ON THE OTHER HAND, YOU'RE WILLING TO EXECUTE 14:33:32 A RELATIVELY LESS LUCRATIVE ASSIGNMENT WITH THE SAME LEVEL 14:33:35 OF DILIGENCE AND ENERGY THAT YOU APPLY TO ALL OF YOUR DEALS. 14:33:38 I ALSO APPRECIATED YOUR DIRECT PERSONAL INVOLVEMENT IN 14:33:42 SELECTING THE DEALS PORTFOLIO OF REFERENCE OBLIGATIONS. 14:33:47 MR. TOURRE, WHAT DOES THAT SAY TO YOU? 14:33:50 I HAVE NEVER SEEN THIS E-MAIL BEFORE -- 14:33:52 WHAT WOULD YOU INFER FROM THE FACT THAT SOMEONE AT PAULSON IS 14:33:58 SAYING IT WAS MS. SCHWARTZ WHO WAS DIRECTLY PERSONALLY INVOLVED 14:34:01 IN SELECTING THE REFERENCE OBLIGATIONS? 14:34:10 THE WAY I READ THIS E-MAIL TODAY IS THANKING LAURA SCHWARTZ 14:34:14 FOR WORKING ON THIS TRANSACTION. WELL, YOU DON'T THINK IT'S 14:34:22 SIGNIFICANT IN LIGHT OF THE ACCUSATIONS MADE THAT PAULSON'S 14:34:30 REPRESENTATIVE WOULD IMPLY IN THIS E-MAIL THAT SHE SELECTED 14:34:32 THE DEAL PORTFOLIO OF REFERENCE OBLIGATIONS RATHER THAN THEM? 14:34:37 DR. KROGER AND I WENT THROUGH THIS BEFORE. 14:34:40 GOLDMAN SACHS, PAULSON, NIKB ALL MADE SUGGESTIONS. 14:34:45 YOU KNOW, I APOLOGIZE BECAUSE YOU WEREN'T HERE WHEN I MADE MY 14:34:50 STATEMENT, BUT OUT OF THE, YOU KNOW, INITIAL LIST OF 14:34:53 OBLIGATIONS THAT GOLDMAN SACHS AND PAULSON HAD IDENTIFIED, ACA 14:34:57 REMOVED MORE THAN HALF OF THEM. SO ULTIMATELY THERE IS NOT A 14:35:04 SINGLE OBLIGATION IN THE TRANSACTION. 14:35:06 THERE'S NOT ONE SINGLE ONE THAT WASN'T SELECTED BY ACA. 14:35:10 OKAY. THANK YOU. 14:35:11 THAT'S HELPFUL. ALL RIGHT, MR. CHAIRMAN, I'LL 14:35:14 YIELD BACK. SENATOR PRYOR. 14:35:20 OKAY. MR. TOURRE. 14:35:21 LET ME GO BACK TO WHERE DR. COBURN LEFT OFF. 14:35:27 WHEN WE TALKED TO YOU AND MY STAFF TALKED TO YOU, DID WE ASK 14:35:32 YOU WHETHER OR NOT PAULSON HAD ESTABLISHED THE PORTFOLIO 14:35:34 SELECTION CRITERIA SUCH AS FICO SCORES, LOAN TO VALUE RATIOS, ET 14:35:39 CETERA. WAS THAT TRUE? 14:35:40 AND DID YOU ANSWER THAT WAS TRUE, IN FACT? 14:35:43 I THINK WHAT I REMEMBER DISCUSSING WITH YOUR STAFF, MR. 14:35:45 CHAIRMAN, IS THE FACT THAT THE VERY ORIGINAL PORTFOLIO THAT 14:35:51 PAULSON AND GOLDMAN DISCUSSED HAD BEEN SELECTED FROM A 14:35:56 UNIVERSAL 2006 VINTAGE SUBPRIME OBLIGATIONS REMOVING, YOU KNOW, 14:36:03 SEVERAL OBLIGATIONS. AND THOSE OBLIGATIONS WERE 14:36:07 REMOVED BASED ON CERTAIN CRITERIA. 14:36:08 AND THOSE CRITERIA WERE SELECTED BY PAULSON? 14:36:12 AS FAR AS I CAN REMEMBER, YES. 14:36:14 AND THIS PORTFOLIO ENDED UP WITH HALF THE PORTFOLIO WAS 14:36:18 SELECTED BY PAULSON, IS THAT CORRECT? 14:36:21 WHICH PORTFOLIO ARE YOU REFERRING TO? 14:36:24 THE ADVOCATES. THE PORTFOLIO FOR ADVOCATES 14:36:29 WAS SELECTED BY ACA BASED ON SUGGESTION -- 14:36:31 HALF OF THOSE ITEMS IN THE PORTFOLIO WERE SUGGESTIONS THAT 14:36:36 CAME FROM PAULSON, IS THAT CORRECT? 14:36:40 I DON'T REMEMBER THE EXACT -- YOU SAID THEY ONLY USED HALF 14:36:42 OF THE SUGGESTIONS. I'M ASKING YOU, THEY DIDN'T 14:36:46 USE -- OR THEY DID USE HALF. SO EITHER WAY, HALF OF HIS 14:36:51 SUGGESTIONS WERE INCORPORATED IN THE PORTFOLIO, IS THAT CORRECT? 14:36:54 MR. CHAIRMAN, I DIDN'T SAY HALF -- MORE THAN HALF THE 14:36:57 SECURITIES WERE KICKED OUT -- KICKED OUT. 14:37:00 OKAY. ABOUT WHAT PERCENTAGE OF THE 14:37:01 SECURITIES WERE NOT KICKED OUT? SMALL PERCENTAGE. 14:37:05 A SMALL PERCENTAGE? NO -- 14:37:10 CAN YOU REPEAT THE QUESTION? SAID MORE THAN HALF THE 14:37:15 SUGGESTIONS OF PAULSON AND COMPANY WERE NOT ACCEPTED BY 14:37:17 ACA. MY QUESTION, WHAT PERCENTAGE OF 14:37:22 THEIR SUGGESTIONS WERE ACCEPTED BY ACA? 14:37:26 I DON'T REMEMBER THE EXACT PERCENTAGE, MR. CHAIRMAN. 14:37:28 WAS IT NEARLY HALF? I DON'T REMEMBER. 14:37:36 WAS IT MORE THAN A FEW? YES. 14:37:39 AND THIS CAME TO YOU AS A REVERSE INQUIRY, IS THAT 14:37:43 CORRECT? YOU KNOW WHAT A REVERSE INQUIRY 14:37:46 IS? REVERSE INQUIRY IS A VERY 14:37:49 LOOSELY DEFINED TERM. WITH RESPECT TO HOW I USE IT AND 14:37:51 HOW SOME OF MY COLLEAGUES USE IT, IT'S BASICALLY A PARTY THAT 14:37:57 COMES IN WITH A TRANSACTION IDEA. 14:38:00 AND THE PARTY THAT BASICALLY DRIVES A TRANSACTION. 14:38:02 AND THAT PARTY WITH A REVERSE INQUIRY IS SOMEBODY WHO WANTS TO 14:38:07 SELL SHORT, IS THAT CORRECT? GO SHORT? 14:38:10 MR. CHAIRMAN, IT DEPENDS ON THE CIRCUMSTANCES. 14:38:12 IS THAT WHAT YOU MEAN BY REVERSE? 14:38:15 THE PERSON THAT COMES IN? IS THAT WHAT WAS MEANT BY THAT 14:38:19 TERM? NO, MR. CHAIRMAN. 14:38:22 DID MR. PAULSON OR PAULSON AND COMPANY COME IN WANTING TO 14:38:25 GO SHORT? THEY CAME IN SHOWING AN 14:38:28 INTEREST IN BUYING PROTECTION. WHICH MEANS GOING SHORT, 14:38:31 RIGHT? YES. 14:38:32 AND DID THOSE CRITERIA, WHICH PAULSON GAVE TO YOU, WERE THEY 14:38:36 PLUGGED IN TO YOUR MODEL? DID THEY THEN GENERATE A LIST OF 14:38:41 POSSIBLE REFERENCE SECURITIES FOR THAT PORTFOLIO? 14:38:45 YES. THEY TRIMMED DOWN THE UNIVERSE 14:38:50 OF -- USING HIS CRITERIA? 14:38:55 NOW, TAKE A LOOK AT EXHIBIT 132, IF YOU WOULD, MR. TOURRE. 14:39:32 YOU SEE THAT? 152. 14:39:34 IS THIS THE E-MAIL FROM MICHAEL SWENSON TO MYSELF? 14:39:37 IT'S FROM MICHAEL SWENSON -- NO, IT'S FROM YOU TO MR. SPARKS. 14:39:45 THE FIRST E-MAIL -- NO, I'M TALKING ABOUT THE 14:39:49 ORIGINAL MESSAGE, THE BOTTOM. UNDERSTAND. 14:39:55 YOU SEE WHERE THE SECOND PARAGRAPH SAYS AT THE END OF THE 14:39:57 MEETING, THE PAULSON TEAM -- THIS IS YOU SPEAKING, THE 14:40:00 PAULSON TEAM TOLD US THAT THEY WERE HAPPY TO HAVE MET. 14:40:03 AND THAT'S -- WE DON'T PUT THE NAME OF THE PERSON AS OBVIOUSLY 14:40:07 AND ASSUMING THAT ALL COULD GET COMFORTABLE WITH A SPECIFIC 14:40:13 NUMBER OF OBLIGATIONS THAT PAULSON IS LOOKING TO BUY 14:40:16 PROTECTION IN THE ADVOCATES -- YOU SEE THAT? 14:40:19 HE'S LOOKING TO BUY PROTECTION. THAT MEANS TO GO SHORT, RIGHT? 14:40:22 YES. AND THOSE ARE YOUR WORDS, 14:40:24 RIGHT? YES, MR. CHAIRMAN. 14:40:36 THEN, TAKE A LOOK AT EXHIBIT NUMBER 107. 14:40:40 TOP OF PAGE TWO. THIS IS NOW THE QUESTION OF WHAT 14:40:52 MANAGERS ARE YOU GOING TO WORK WITH. 14:40:54 AND YOU SEE AT THE TOP OF PAGE TWO. 14:41:00 ONE MOMENT. OKAY. 14:41:01 107? 107, YEAH. 14:41:12 I'M WITH YOU. FIRST, LOOK ON PAGE ONE. 14:41:18 YOU'RE LOOKING FOR SELECTION, FOR PORTFOLIO SELECTION AGENCY 14:41:21 AGENTS. AND THIS IS ONE OF YOUR CRITERIA 14:41:29 WHO QUOTE WILL BE FLEXIBLE WITH REGARD TO PORTFOLIO SUGGESTION. 14:41:32 IDEALLY, WE WILL SEND THEM A LIST OF THOSE BONDS THAT FITS 14:41:40 CERTAIN CRITERIA IN THE PORTFOLIO SELECTION AGENT WILL 14:41:43 SELECT 100 OUT OF THE 200 BONDS THAT YOU SEND TO THEM. 14:41:47 YOU SEE YOUR WORDS THERE? I SEE MY WORDS, MR. CHAIRMAN. 14:41:51 IS THAT ACCURATE? DID THAT REFLECT THE FACTS AT 14:41:54 THE TIME? THIS REFLECTS THE FACT THAT 14:41:58 WE WERE -- WAS THAT ACCURATE WHEN YOU 14:42:01 SAID IT? IS THAT WHAT YOU WERE LOOKING 14:42:05 FOR? THE INTENTION WAS TO SEND A 14:42:06 RANGE OF SECURITIES, YOU KNOW, TO GIVE SOME GUIDANCE TO THE 14:42:12 PORTFOLIO AGENT. AND YOU'RE LOOKING FOR AN 14:42:14 AGENT THAT WOULD BE FLEXIBLE, IS THAT CORRECT? 14:42:16 THAT'S YOUR WORD? THAT'S MY WORD. 14:42:20 OKAY. KEEP GOING. 14:42:24 NOW, ON PAGE TWO, BY THE WAY, AND THIS IS FROM JEFFREY 14:42:31 WILLIAMS TO YOU. HE SAID THERE ARE MORE MANAGERS 14:42:34 THAN JUST SO AND SO. THE WAY I LOOK AT IT, HE SAID, 14:42:39 PAGE TWO AT THE TOP, THE EASIEST MANAGERS TO LOOK AT SHOULD BE 14:42:46 USED FOR OUR OWN ACCESS. I GUESS THAT MEANS FOR GOLDMAN'S 14:42:48 OWN GOALS INSTEAD OF YOUR CLIENTS. 14:42:58 THERE ARE MORE MANAGERS THAN SO AND SO. 14:43:01 THE EASIEST MANAGERS TO WORK WITH SHOULD BE USED OUR OWN 14:43:10 AXIS. MANAGERS THAT ARE A BIT MORE 14:43:13 DIFFICULT SHOULD BE USED FOR TRADES LIKE PAULSON GIVEN HOW 14:43:18 PAULSON SEEMS TO BE. I.E., I'M BETTING THEY CAN GIVE 14:43:22 ON CERTAIN TERMS AN OVERALL PORTFOLIO INCREASE. 14:43:25 YOU THINK, HEY, GIVE THE LESS FLEXIBLE FOLKS TO OUR CUSTOMERS. 14:43:31 WE'LL SAVE THE MORE FLEXIBLE FOR OURSELVES. 14:43:32 THEN YOU KEEP GOING ON PAGE EXHIBIT -- TAKE A LOOK AT 112. 14:43:40 MR. CHAIRMAN? YEAH. 14:43:42 CAN I INTERRUPT YOU ONE SECOND? 14:43:44 YEAH. WITH RESPECT TO YOUR POINT 14:43:48 ABOUT OUR OWN AXES, SORT OF, YOU KNOW, USE IF YOU WILL. 14:43:57 AGAIN, YOU KNOW, I DON'T REMEMBER THE SPECIFIC E-MAIL, 14:43:59 BUT THE WAY I READ IT TODAY IS THERE WERE TRANSACTIONS FOR 14:44:02 WHICH THE BEST WAY TO RISK MANAGE THOSE TRANSACTIONS WAS TO 14:44:07 REOFFER THE PROTECTION WE WERE BUYING FROM THE MARKET DIRECTLY 14:44:10 IN TRAUNCH FORMAT TO CERTAIN INVESTORS. 14:44:12 I UNDERSTAND. AND THERE WERE OTHER WAYS TO 14:44:19 RISK MANAGE OUR RISK WAS BY WRITING PROTECTION ON THESE 14:44:22 OBLIGATIONS AND WHAT I MEANT BY, YOU KNOW, OUR OWN AXES WAS I'D 14:44:29 RATHER RISK MANAGE A TRAUNCH SHORTS WITH A BASKET OF SWAP 14:44:36 CONTRACTS. OKAY. TAKE A LOOK AT -- I SAID 112, 14:44:41 BUT I MEANT 109. THIS IS FROM -- TO GAIL 14:44:56 KRITEMAN, WHO IS SHE? A SALESPERSON WHO USED TO 14:44:58 COVER ACA. FOR GOLDMAN? 14:45:00 YES. NOW ACA'S WRITING GOLDMAN. 14:45:04 I CERTAINLY HOPE I DIDN'T COME ACROSS TOO ANTAGONISTIC LAST 14:45:09 WEEK, BUT THE STRUCTURE LOOKS DIFFICULT FROM A DEAD INVESTOR 14:45:13 PROSPECT. WHERE DO THEY GET THAT FROM? 14:45:19 I DON'T KNOW, MR. CHAIRMAN. WELL, BUT GAIL SURE WAS TOLD 14:45:27 THAT SOMEHOW OR OTHER PAULSON HAD AN EQUITY PERSPECTIVE. 14:45:34 THEN SAID BUT FOR US TO PUT OUR NAME ON SOMETHING, WE HAVE TO BE 14:45:37 SURE IT ENHANCES OUR REPUTATION. SO YOU DON'T KNOW WHERE ACA GOT 14:45:45 THE IMPRESSION THAT PAULSON WAS ON THE LONG SIDE, RIGHT? 14:45:47 YOU DON'T KNOW WHERE THEY GOT THAT. 14:45:49 I DON'T KNOW, MR. CHAIRMAN, BUT AGAIN -- 14:45:53 DO YOU KNOW WHERE THEY GOT THAT IMPRESSION? 14:45:56 NO, I DON'T KNOW, MR. CHAIRMAN. 14:45:58 NOW, TAKE A LOOK AT 108 -- WE'LL SKIP THAT ONE. 14:46:03 IT'S TOO LONG. 118 -- THIS IS NOW YOUR CAPITAL 14:46:28 COMMITTEE. THIS IS THE BIG FORMAL MEMO THAT 14:46:34 WENT TO THE CAPITAL COMMITTEE FROM YOU AND AMONG -- AND A 14:46:37 NUMBER OF OTHER PEOPLE. THIS IS WHAT YOU SAID ON PAGE -- 14:46:52 THREE, SIXTH LINE FROM THE BOTTOM. 14:47:00 SEE WHERE IT SAYS THE REFERENCE PORTFOLIO HAS BEEN SELECTED AND 14:47:04 MUTUALLY AGREED UPON BY ACA AND GOLDMAN. 14:47:06 YOU SEE THAT? YES, I SEE THAT. 14:47:08 WAS THAT TRUE? WELL, AS I MENTIONED TO YOUR 14:47:12 STAFF LAST WEEK -- NO, NOT STAFF. 14:47:14 I'M ASKING YOU RIGHT NOW, WAS THAT TRUE THAT STATEMENT THAT 14:47:17 YOU SENT TO YOUR OWN COMMITTEE? WAS THAT ACCURATE? 14:47:19 IT'S NOT VERY ACCURATE. IT COULD HAVE BEEN MORE 14:47:23 ACCURATE, MR. CHARL. IT COULD HAVE BEEN WHAT? 14:47:26 IT COULD HAVE BEEN MORE ACCURATE. 14:47:28 I'M NOT SURE IT COULD HAVE BEEN. 14:47:30 YOU'RE SAYING IT COULD HAVE BEEN MORE ACCURATE. 14:47:32 WHERE WAS IT INACCURATE? MR. CHAIRMAN, BEFORE I ANSWER 14:47:35 THAT QUESTION, THIS WAS MERELY A COPY, PASTE FROM PREVIOUS 14:47:44 TRANSACTIONS WHERE THERE WAS A PORTFOLIO MANAGER INVOLVED. 14:47:47 WHERE IS IT INACCURATE? WELL, AGAIN, THIS COULD HAVE 14:47:50 BEEN MORE ACCURATE -- I'M SAYING, WHERE WAS IT 14:47:52 INACCURATE? MR. CHAIRMAN, I DIDN'T SAY IT 14:47:56 WAS COMPLETELY INACCURATE. THE REFERENCE TO GOLDMAN? 14:48:01 HAD I BEEN -- NO, WAS IT INACCURATE, ARE 14:48:04 YOU CLAIMING THAT WAS INACCURATE NOW IN REFERENCE TO GOLDMAN? 14:48:07 I'M CLAIMING IT'S INACCURATE IN REFERENCE TO THE FACT THAT IT 14:48:12 DOESN'T SAY EXACTLY THE, YOU KNOW -- 14:48:13 WAS THERE PORTFOLIO MUTUALLY GREED UPON BY ACA AND GOLDMAN? 14:48:22 YES OR NO? IT WAS MUTUALLY AGREED BY 14:48:24 GOLDMAN, ACA, AND PAULSON. YOU SAY BY ACA AND GOLDMAN, 14:48:30 YOU'RE SAYING THAT OTHERS WERE LEFT OUT? 14:48:33 WELL -- AND PAULSON WAS LEFT OUT, WAS 14:48:35 THAT CORRECT? OKAY. 14:48:41 I THINK YOU'VE NOT ANSWERED THE QUESTION THE BEST YOU CAN. 14:48:43 SO LET'S GO ON. TAKE A LOOK AT 123. 14:49:36 YOU GOT IT? YES. 14:49:39 SEE NEAR THE BOTTOM THERE, IT'S A MEMO OR E-MAIL TO YOU 14:49:46 FROM JOSH. SEE THAT? 14:49:48 ON PAGE -- NEAR THE BOTTOM. 14:49:51 YES, I SEE THAT E-MAIL. IT SAYS HERE THAT 100% OF THE 14:49:58 BAA RBSs WERE SELECTED -- SELECTED BY ACA/PAULSON.ACA/PAU. 14:50:06 NOW YOU ARE SAYING HERE THAT PAULSON WAS ONE OF THE TWO 14:50:12 PEOPLE THAT SELECTED THIS AND THE OTHER WAS ACA? 14:50:15 WAS THAT AN ACCURATE STATEMENT? MR. CHAIRMAN, I WAS 14:50:20 RESPONDING TO SPECIFIC QUESTION FROM JOSH BERNBAUM. 14:50:23 AND, YOU KNOW -- I KNOW. 14:50:26 I'M JUST SAYING WAS IT ACCURATE? WITH A VIEW TO TYPE FAST. 14:50:32 WHAT I SHOULD HAVE WRITTEN WAS THAT THIS WAS A PORTFOLIO 14:50:35 SELECTED BY ACA WITH SUGGESTIONS FROM PAULSON FROM GOLDMAN SACHS 14:50:38 AND FROM IKB. THAT WOULD HAVE BEEN A FACTUALLY 14:50:42 CORRECT STATEMENT HERE. MY OBJECTIVE WAS TO WRITE 14:50:45 SOMETHING QUICK TO ANSWER JOSH, WHICH WAS TO ANSWER A QUESTION 14:50:47 THAT WAS MORE RELATED TO RISK AND RISK MANAGEMENT. 14:50:50 RIGHT. BUT WHAT YOU SAID THEN WAS THAT 14:50:52 IT WAS SELECTED BY ACA/PAULSON, RIGHT? 14:50:56 THAT'S WHAT YOU SAID AT THE TIME. 14:50:57 IS THAT -- AM I READING THIS ACCURATE? 14:50:59 THAT'S WHAT I WROTE IN THIS E-MAIL, MR. CHAIRMAN. 14:51:02 YOU NOW DENY THAT IT WAS ACCURATE IS THAT RIGHT? 14:51:05 I'M JUST SAYING THAT IT COULD BE MORE ACCURATE. 14:51:07 WAS IT ACCURATE OR NOT? IT COULD HAVE BEEN MORE 14:51:09 ACCURATE, MR. CHAIRMAN. LET ME JUST SUMMARIZE THIS. 14:51:20 YOU KNEW PAULSON WAS ON THE SHORT SIDE OF THE TRADE IS THAT 14:51:24 CORRECT? YES. 14:51:26 YOU KNEW PAULSON HAD HELPED SELECT THE MORTGAGES TO BE 14:51:29 REFERENCED IS THAT CORRECT? THEY MADE SUGGESTIONS, YES. 14:51:33 AND THAT A SIGNIFICANT NUMBER OF THOSE SUGGESTIONS WERE PUT 14:51:37 INTO THE DOCUMENT IS THAT CORRECT? 14:51:39 I DON'T REMEMBER THE EXACT NUMBER. 14:51:43 BUT YOU KNOW THAT IT'S MORE THAN A FEW? 14:51:46 YES. YOU DID NOT DISCLOSE TO ACA 14:51:49 THAT PAULSON WAS ON THE SHORT SIDE OF THIS DEAL IS THAT 14:51:51 CORRECT? I DID MENTION TO ACA THAT THE 14:51:54 EXPECTATION WAS THAT PAULSON WAS GOING TO BUY PROTECTION ON 14:51:57 SENIOR LAYERS OF RISK IN THE TRANSACTION. 14:52:00 THAT THEY WERE GOING TO BE ONLY ON THE SHORT SIDE? 14:52:04 YES. SO YOU DID SAY TO ACA THAT 14:52:07 PAULSON WAS GOING TO BE ON THE SHORT SIDE OF THIS TRANSACTION? 14:52:10 YES, I DON'T REMEMBER THE WORDS, BUT I DID MENTION THAT TO 14:52:16 ACA. AND WAS IT REFLECTED IN THE 14:52:20 GOLDMAN SACHS SECURITY OFFERING TO INVESTORS THAT PAULSON HAD 14:52:26 BEEN PART OF THE SELECTION PROCESS? 14:52:31 WAS THAT REPRESENTED IN THAT DOCUMENT? 14:52:37 PAULSON WAS NOT DISCLOSING THE -- TRANSACTION, SIR. 14:52:40 IT WAS NOT? NO, IT WAS NOT. 14:52:43 DID GOLDMAN INTEND TO KEEP A LONG STAKE IN THAT TRANSACTION 14:52:47 WHEN THE DEAL WAS STRUCTURED? I KNOW IT ENDED UP WITH A PIECE. 14:52:51 WAS IT INTENDED THAT IT END UP WITH A PIECE OF THAT DEAL? 14:52:55 WE TRIED TO HEDGE OUR RISK BY SIGNING THAT PIECE AS WELL, BUT 14:53:00 WEREN'T SUCCESSFUL IN DOING SO. SO IT WAS INTENDED TO SELL 14:53:04 THAT PIECE? FOR PRUDENT RISK MANAGEMENT 14:53:07 REASONS -- I'M SURE FOR ALL THE RIGHT 14:53:08 REASONS, BUT IT WAS INTENDED THAT GOLDMAN NOT HAVE ANY LONG 14:53:12 STAKE ON THAT PIECE. IS THAT CORRECT? 14:53:16 YES. I JUST HAVE A COUPLE OTHER 14:53:22 QUESTIONS. MR. BURNBAUM IF YOU'D TURN TO 14:53:24 EXHIBIT 55, YOUR SELF-REVIEW. 55C, PAGE 3 OF YOUR 2007 REVIEW. 14:53:34 I HAVE BEEN THE PRIMARY PROPONENT OF TRADING RELATED 14:53:38 EQUITY NAMES ON THE A.B.S. DESK. CAN YOU TELL ME WHAT THAT MEANS? 14:53:48 JUST A SECOND. LET ME GET THE EXHIBIT FIRST. 14:54:13 YOU'RE ON WHICH PAGE OF THE REVIEW? 14:54:16 PAGE 3. OKAY. 14:54:22 YOU STATE THERE I HAVE BEEN THE PRIMARY PROPONENT OF TRADING 14:54:26 RELATED EQUITY NAMES ON THE A.B.S. DESK. 14:54:28 IN PLAIN ENGLISH, WHAT DOES THAT MEAN? 14:54:32 THAT REFERS TO TRADING EQUITIES AS PART OF OUR HEDGING 14:54:36 STRATEGY. OKAY. 14:54:38 WERE YOU INVOLVED IN OR DID YOU DIRECT GOLDMAN TAKING SHORT 14:54:41 POSITION ON COMPANIES WITH EXPOSURES IN THE MORTGAGE 14:54:47 MELTDOWN? I DON'T REMEMBER THE NAMES 14:54:49 THAT WE USED AS -- SPECIFIC NAMES AS PART OF OUR HEDGING 14:54:52 STRATEGY, BUT AS PART OF OUR MACRO HEDGING STRATEGY, WE DID 14:54:56 USE PRIMARILY PUT OPTIONS ON EQUITIES AS COMPONENT OF WHAT WE 14:55:01 DID. YOU BOUGHT PUTS? 14:55:03 WE BOUGHT PUTS. AND YOU DON'T REMEMBER ANY OF 14:55:07 THE NAMES OF THE COMPANIES THAT YOU BOUGHT PUTS IN? 14:55:09 IT WAS AWHILE AGO. I DON'T REMEMBER THE SPECIFICS. 14:55:12 OKAY. EXHIBIT 156 IS A REPORT IN AN 14:55:19 E-MAIL ADDRESSED TO YOU DATED MARCH 28th, 2007. 14:55:23 IT IS A REPORT ON GOLDMAN SACHS' RISK EXPOSURE TO VARIOUS 14:55:30 C COMPANIES. 14:55:47 OKAY. DO YOU EVER RECALL RECEIVING 14:55:50 SOMETHING LIKE THIS? I DON'T REMEMBER SEEING THIS. 14:55:54 BUT IT WAS AN E-MAIL ADDRESSED TO YOU? 14:55:56 YOU -- I CAN CONFIRM THAT JUST 14:55:58 LOOKING AT IT HERE. THE E-MAIL TO ME REFLECTS 14:56:03 GOLDMAN TOOK A SHORT ACTION ON BEAR STEARNS AND MERRILL LYNCH, 14:56:07 YOUR FORMER COMPETITORS. IS THAT WHAT IT WOULD INDICATE? 14:56:11 THERE'S A LOT OF INFORMATION ON THIS E-MAIL. 14:56:14 IT LOOKS -- I'LL WAIT FOR YOU TO ASSESS 14:56:15 IT. I MEAN, I SEE THOSE NAMES ON 14:56:22 THIS E-MAIL. WERE YOU RESPONSIBLE FOR 14:56:24 THOSE POSITIONS SINCE YOU WERE THE DIRECTOR OF THAT? 14:56:27 WELL, I DON'T KNOW IF THESE NAMES WERE AS A RESULT OF MY 14:56:31 TRADING OR SOMEONE ELSE'S TRADING WITHIN THE FIRM. 14:56:35 WELL, IT WOULD CERTAINLY LOOK LIKE IT WOULD BE, SINCE THE 14:56:38 E-MAIL IS DIRECTED TO YOU. GO TO EXHIBIT 155 IF YOU WOULD. 14:56:45 THERE'S A LOT OF OTHER PEOPLE ON THIS E-MAIL. 14:56:48 I UNDERSTAND, BUT YOU ARE THE ONE WHO TOOK CREDIT IN YOUR OWN 14:56:52 SELF-EVALUATION THAT YOU ARE THE ONE WHO IS RESPONSIBLE FOR THAT 14:56:54 STRATEGY. WHICH I THINK THERE'S, YOU 14:56:56 KNOW, JUST TO GIVE YOU SOME BACKGROUND. 14:56:59 THAT'S A PERFECTLY -- I'M NOT SAYING THERE'S 14:57:01 ANYTHING WRONG WITH THE STRATEGY. 14:57:02 I DIDN'T SAY THAT. 155? 14:57:03 YES. OKAY. 14:57:07 THIS IS A DOCUMENT THAT REFLECTS THAT THE BIGGEST PIECE 14:57:09 OF TIMBERWOLF WAS PURCHASED BY A DIVISION OF WHAT WAS FORMERLY 14:57:14 BEAR STEARNS. $300 MILLION WORTH. 14:57:18 DOES THIS DOCUMENT SHOW THAT GOLDMAN TOOK A SHORT POSITION ON 14:57:22 BEAR STEARNS? DOCUMENT 155? 14:57:24 YES. I THINK DOCUMENT 155, WHICH, 14:57:28 IS THIS AN E-MAIL OR -- WHAT IS THIS? 14:57:31 WELL, IT'S IN FRONT OF YOU. IT'S NOT AN E-MAIL. 14:57:35 I DIDN'T SEE THIS REPORT BEFORE. I DIDN'T SAY IT WAS AN 14:57:39 E-MAIL. IT'S A DOCUMENT. 14:57:40 I'VE NEVER SEEN THIS DOCUMENT BEFORE. 14:57:41 DO YOU HAVE ANY RECOLLECTION AT ALL OF RECOMMENDING A SHORT 14:57:45 ON BEAR STEARNS OR RECOMMENDING A PUT. 14:57:47 I DO RECALL, YES. OKAY. 14:57:51 SO HERE'S THE QUESTION I HAVE FOR YOU, AND I AM NOT SAYING 14:57:55 IT'S NOT FAIR, BUT I WANT TO GET YOUR ASSESSMENT. 14:57:57 YOU ARE LOOKING AT WHAT YOU SEE IS A CHANGE IN THE RESIDENTIAL 14:58:04 SECURITY -- RESIDENTIAL-BACKED MORTGAGE SECURITIES. 14:58:08 YOU ARE CHANGING POSITIONS WITHIN GOLDMAN. 14:58:12 AT THE SAME TIME, YOU ARE SELLING THEM TIMBERWOLF, WHICH 14:58:15 YOU ARE NOW SEEING AND YOU ARE BUYING STUFF ON THE OTHER SIDE 14:58:18 OF, WHICH WAS USED WITH A FAIRLY HUMOROUS DESCRIPTION BY SOME IN 14:58:24 YOUR SALES DEPARTMENT, AND NOW YOU ARE CARRYING THAT EVEN 14:58:27 FURTHER BY SHORTING A COMPANY THAT BOUGHT YOUR PRODUCT BECAUSE 14:58:32 IS THE THINKING IS IT'S A SMART WAY TO HEDGE BECAUSE YOU'RE 14:58:35 ALREADY BETTING AGAINST IT INSIDE ON A CDO PRODUCT AND 14:58:38 THEY'VE GOT $300 MILLION OF IT AND YOU DON'T THINK IT'S GOING 14:58:42 TO BE WORTH MUCH SO IT MIGHT MEAN THAT THEIR STOCK IS GOING 14:58:44 TO DECLINE. IS THAT AN ACCURATE ASSESSMENT 14:58:47 OF THE TRADING STRATEGY? ABSOLUTELY NOT. 14:58:48 WHAT WAS THE INDICATION FOR THE TRADING? 14:58:50 WHY WOULD YOU SHORT BEAR STEARNS AFTER THEY JUST GOTT BOUGHT $300 14:58:54 MILLION WORTH OF TIMBERWOLF FROM YOU? 14:58:57 TIMBERWOLF TRANSACTIONS WERE NOT PART OF MY JOB FUNCTION. 14:59:00 WERE YOU AWARE OF
HOLLYWOOD MINUTE: FIRST LOOK AT "JOHN WICK 3"
Stations Please Note: This package contains third party material. Unless otherwise noted, this material may only be used within this package and within ten days of its initial delivery or such shorter time as designated by CNN.\n\nNOTE: We send our packages with discrete, separate audio. Our reporter's track can be removed by deleting the audio on channel one.\n\nAFFILIATE MARKET NOTES: "John Wick: Chapter 3 - Parabellum" shooting locations included Morocco and New York, New York. Sarah Paulson was born in Tampa, Florida, and grew up in New York and Maine. Tessa Thompson is from Los Angeles.\n\n --SUPERS--\n\n:00-:32\n"John Wick: Chapter 3 - Parabellum"\nCourtesy Summit Entertainment\n\n:32-:47\n"Glass"\nCourtesy Universal Pictures\n\n:47-:57\nSarah Paulson\n\n:57-1:20\nCNN\n\n --LEAD IN--\n\nTODAY IN ENTERTAINMENT NEWS: KEANU REEVES IS BACK IN ACTION, SARAH PAULSON IS IN YET ANOTHER SCARY MOVIE, AND TESSA THOMPSON IS HEADED FOR... JURY DUTY? DAVID DANIEL EXPLAINS IN THE HOLLYWOOD MINUTE.\n\n --REPORTER PKG-AS FOLLOWS--\n\n"John Wick, excommunicado in effect in three..."\n"Two..."\n"One." (nat)\n"And away we go."\n\nHERE'S YOUR FIRST LOOK AT "JOHN WICK: CHAPTER THREE - PARABELLUM." KEANU REEVES RETURNS AS THE SUPER-ASSASSIN, THIS TIME WITH A 14-MILLION-DOLLAR BOUNTY ON HIS HEAD AND AN ARMADA OF KILLERS ON HIS TAIL. HALLE BERRY CO-STARS IN THE ACTION THRILLER, WHICH OPENS MAY 17TH.\n\n"I have to get out of here before he gets out."\n"They are contained." (nat-siren)\n\n"GLASS" IS THE LATEST FRIGHTENING FILM FEATURING SARAH PAULSON. THE "AMERICAN HORROR STORY" VETERAN SAYS SHE NEVER THOUGHT SHE'D STAR IN SO MANY SCARY MOVIES AND T-V SHOWS.\n\n"The irony of it is not lost on me, because I am the biggest scaredy-cat you ever met, and so it is strange that I should find myself making a living reenacting moments of terror."\n\n(nat)\n\nTESSA THOMPSON IS REPORTING FOR JURY DUTY! THE "SORRY TO BOTHER YOU" AND "THOR: RAGNAROK" ACTRESS HAS BEEN NAMED TO THIS YEAR'S SUNDANCE FILM FESTIVAL JURY. SHE'LL HELP DECIDE THE WINNING FILMS IN THE U-S DRAMATIC COMPETITION. ALSO ON THE JURY: DIRECTOR DAMIEN CHAZELLE, WHOSE "WHIPLASH" DEBUTED AT SUNDANCE FIVE YEARS AGO. IN HOLLYWOOD, I'M DAVID DANIEL.\n\n -----END-----CNN.SCRIPT-----\n\n --KEYWORD TAGS--\n\n
HOLLYWOOD MINUTE: FIRST LOOK AT "JOHN WICK 3" (SPANISH)
** ESTA NOTA ES PARA AVISAR A LAS AFILIADAS QUE ESTE PAQUETE CONTIENE MATERIAL DE TERCEROS **\n Atención Afiliadas: Este informe contiene material de terceros y, a menos de que se indique lo contrario, este material sólo puede ser utilizado dentro del mismo informe. Además, este material no debe ser usado después de 10 días de su publicación inicial por CNN o, en ciertos casos, por un periodo más corto cuando así se indica.\n\n --SUPERS--\n:00-:32\n"John Wick: Chapter 3 - Parabellum"\nDe Summit Entertainment\n\n:32-:47\n"Glass"\nDe Universal Pictures\n\n:47-:57\nSarah Paulson\nActriz\n\n --LEAD IN--\nHOY EN EL MUNDO DEL ENTRETENIMIENTO: KEANU REEVES ESTÁ EN ACCIÓN, SARAH PAULSON PROTAGONIZA OTRA PELÍCULA DE TERROR Y TESSA THOMPSON SIRVE DE JURADO. LO EXPLICA LYNN FRANCO EN EL MINUTO HOLLYWOOD. \n\n --REPORTER PKG-AS FOLLOWS--\n"John Wick, excommunicado in effect in three..."\n"Two..."\n"One." (nat)\n"And away we go."\nESTE ES UN ADELANTO DE "JOHN WICK: CAPÍTULO TRES - PARABELLUM". KEANU REEVES REGRESA COMO EL SUPERASESINO, ESTA VEZ CON UNA RECOMPENSA POR SU CABEZA DE 14 MILLONES DE DÓLARES Y UNA ARMADA DE ASESINOS DETRÁS DE ÉL. HALLE BERRY COPROTAGONIZA LA PELÍCULA DE ACCIÓN, QUE LLEGA A LOS CINES EL 17 DE MAYO. \n\n"I have to get out of here before he gets out."\n"They are contained." (nat-siren)\n"GLASS" ES LA ÚLTIMA PELÍCULA DE TERROR DE SARAH PAULSON. LA VETERANA DE "AMERICAN HORROR STORY" DICE QUE NUNCA HABRÍA PENSADO QUE IBA A PROTAGONIZAR TANTAS PELÍCULAS Y SERIES DE TELEVISIÓN DE TERROR. \n"No se me pierde la ironía, porque soy la gata más miedosa que has conocido, así que es tan extraño encontrarme recreando momentos de terror para vivir". \n\n(nat)\nTESSA THOMPSON, REPORTÁNDOSE PARA EL JURADO! LA ACTRIZ DE "SORRY TO BOTHER YOU" Y "THOR: RAGNAROK" HA SIDO NOMBRADA COMO PARTE DEL GRUPO DE JUECES DEL FESTIVAL DE SUNDANCE ESTE AÑO. ELLA TOMARÁ PARTE EN El PROCESO DE DECIDIR LAS CINTAS GANADORAS DE LA COMPETENCIA DOMÉSTICA DE DRAMA. TAMBIÉN ESTARÁ EN EL JURADO EL DIRECTOR DAMIEN CHAZELLE, CUYA PELÍCULA "WHIPLASH" DEBUTÓ EN SUNDACE HACE CINCO AÑOS.\nPARA EL MINUTO HOLLYWOOD, SOY LYNN FRANCO. \n -----END-----CNN.SCRIPT-----\n\n --KEYWORD TAGS--\n\n
Goldman Sachs Hearing Witness 1400-1500
The Permanent Investigations Subcommittee of Senate Homeland Security Committee, chaired by Senator Carl Levin holds hearing on Goldman Sachs with Lloyd Blankfein, chairman and CEO of the Goldman Sachs group and former Goldman Sachs officials including Fabrice Tourre. 14:00:00 THING. HUDSON, PETER OSTREM WHO IS THE 14:00:04 HEAD OF GOLDMAN'S ASSET BASED SECURITY CDO DESK TO THE GOLDMAN 14:00:09 TEAM ANNOUNCING A NEW CDO. WHAT'S THIS NEW CDO? 14:00:12 IT'S HUDSON. WE'VE BEEN ASKED TO DO A CDO OF 14:00:18 $2 BILLION. FOR THE TRADING DESK. 14:00:24 THAT'S THE GOLDMAN TRADING DESK. AND THAT'S OBVIOUSLY IMPORTANT 14:00:27 TO THE STRUCTURED PRODUCT FOLKS. AND THEN THEY SAY IN 86, THAT'S 14:00:34 WHAT THE STATEMENT IS. WE'VE BEEN ASKED TO PUT TOGETHER 14:00:39 A CDO THAT CONTAINS OUR STUFF FROM OUR INVENTORY. 14:00:46 YOUR INVENTORY'S TOO LONG. THIS IS NOW THE END OF 2006. 14:00:53 NOW TAKE A LOOK AT EXHIBIT NUMBER 90. 14:00:58 WHO DO YOU THINK IS BETTING AGAINST THE STUFF THAT YOU'RE 14:01:02 REFERENCING IN THIS SYNTHETIC CDO? 14:01:05 YOU'RE REFERENCING YOUR OWN STUFF. 14:01:06 AND IT'S JUNK. THAT'S YOUR OWN EMPLOYEE'S 14:01:11 ASSESSMENT. AND YOU'RE TRYING TO GET OUT OF 14:01:13 THIS. AND SO YOU CREATE A SYNTHETIC 14:01:15 CDO SO YOU CAN TRANSFER THAT RISK TO YOUR CUSTOMERS. 14:01:18 OKAY? WHO DO YOU THINK IS GOING TO 14:01:25 BENEFIT WHEN YOU TRANSFER THAT RISK ON THE SHORT SIDE? 14:01:28 SO-CALLED PROTECTION BUYER. TAKE A LOOK AT EXHIBIT 90. 14:01:32 GOLDMAN WAS THE SOLE BUYER OF PROTECTION ON THE ENTIRE $2 14:01:35 BILLION OF ASSETS. IF YOU CAN SELL YOUR JUNK AND 14:01:41 SHIFT THE RISK ON THAT ON A SYNTHETIC CDO, GOLDMAN PUTS $2 14:01:46 BILLION IN ITS POCKET. NOW, YOU GOT A MARKETING 14:01:51 BOOKLET. THAT'S EXHIBIT 87. 14:01:54 SENATOR, I MISSED THE EXHIBIT BEFORE THE 87 ONE. 14:01:57 I APOLOGIZE, COULD YOU TELL ME? I'M NOT GOING TO WASTE ANY 14:02:04 MORE TIME. I'M TRYING TO UNDERSTAND 14:02:06 EXACTLY -- THERE WERE A NUMBER OF HUDSON DEALS. 14:02:10 ALL RIGHT. MAYBE WE CAN GET AN ANSWER TO 14:02:11 THIS. ARE WE READY? 14:02:17 WHICH ONE DIDN'T YOU UNDERSTAND? DID YOU UNDERSTAND THE ONE ABOUT 14:02:21 JUNK? I READ THE ONE WHERE AIB 14:02:25 CALLED IT JUNK AND DECIDED NOT TO INVEST. 14:02:28 AND YOUR OWN PERSON SAID THEY'RE TOO SMART TO BUY THIS 14:02:32 KIND OF JUNK. I THOUGHT THEY SAID THEY WERE 14:02:35 TOO SMART TO BUY IT. I'LL LOOK AT IT AGAIN. 14:02:37 I WAS TRYING TO GO FAST. NO, TAKE YOUR TIME. 14:02:41 EXHIBIT 170-C. GOLDMAN SACHS PERSON IN CHICAGO, 14:02:59 YOU MAY WANT TO ASK SARAH ABOUT THIS WHEN SHE'S THERE TOMORROW. 14:03:01 SHE SAID, "AIB ARE TOO SMART TO BUY THIS KIND OF JUNK." 14:03:08 I SAW THAT NOW, SENATOR. OKAY. 14:03:11 NOW LET'S TALK ABOUT WHAT YOU'RE SELLING. 14:03:13 YOU ARE ON -- 86 -- 14:03:15 YOU'RE ON THE SHORT SIDE OF THIS, RIGHT? 14:03:16 YOU'RE GOING TO MAKE MONEY IF THIS SYNTHETIC CDO IS SOLD, IS 14:03:21 THAT CORRECT? YOU'RE GETTING RID -- 14:03:23 SENATOR, AT THIS PARTICULAR TIME BECAUSE I BELIEVE THIS 14:03:27 E-MAIL WAS SEPTEMBER OF '06, I BELIEVE AT THE TIME THE FIRM WAS 14:03:33 POSITIONED VERY LONG WITH RESPECT TO THE MARKET AT THAT 14:03:35 TIME. AND YOU'RE TRYING TO BE LESS 14:03:36 LONG. SO I -- YOU SAID THE FIRM GOT 14:03:42 SHORT. I DON'T BELIEVE -- 14:03:43 NO, IT'S NOT -- YOU'RE CREATING A SYNTHETIC CDO AND 14:03:46 THERE'S A BET GOING ON AGAINST STUFF THAT'S IN YOUR INVENTORY. 14:03:50 AND YOU'RE BETTING AGAINST THAT STUFF AND SOMEONE ELSE IS 14:03:52 BETTING FOR IT. WE WERE LONG RISK, AND WE'RE 14:03:55 REDUCING RISK. THAT'S EXACTLY WHAT I SAID. 14:03:57 YOU'RE TRYING TO SHIFT THAT RISK TO SOMEBODY ELSE. 14:04:00 THAT JUNK, THE RISK OF THAT JUNK TO SOMEBODY ELSE. 14:04:02 THIS IS WHAT'S GOING ON. THE SYNTHETIC CDO, OKAY, THE 14:04:10 WHOLE POINT OF THE SYNTHETIC CDO, IF YOU'LL TAKE A LOOK AT 14:04:13 THAT EXHIBIT THAT I JUST REFERRED YOU TO, GOLDMAN IS THE 14:04:16 SOLE BUYER OF PROTECTION. OKAY. 14:04:19 DO YOU GOT THAT? THAT'S THE ONE I WAS LOOKING 14:04:21 FOR. EXHIBIT 90. 14:04:23 THANK YOU. SEE IT THERE? 14:04:33 MIDDLE OF THE PAGE? OCTOBER 30th, 2006. 14:04:39 YOU GOT IT? GOLDMAN WAS THE SOLE BUYER OF 14:04:46 THE ENTIRE $2 BILLION OF ASSETS. YOU'RE TRYING TO SHIFT THE RISK 14:04:51 AS YOU SAID. AND YOU DID IT. 14:04:58 YOU'RE BENEFITTING NOW FROM SELLING STUFF FROM YOUR 14:05:00 INVENTORY. YOU WANT TO GO LESS LONG AND 14:05:04 YOU'RE BETTING AGAINST THAT. WE'RE TOGETHER. 14:05:06 MR. CHAIRMAN, ANY TIME WE SELL SOMETHING TO SOMEBODY, WE 14:05:10 TRANSFER THE RISK. I AGREE WITH THAT. 14:05:11 RIGHT. THAT'S ALL I'M SAYING. 14:05:14 IN THIS CASE, IT'S JUNK. FROM YOUR INVENTORY AND YOU'RE 14:05:17 TRYING TO GO LESS LONG -- AT THE TIME, MR. CHAIRMAN, I 14:05:22 DIDN'T BELIEVE IT WAS JUNK, AND WE DIDN'T BELIEVE IT WAS JUNK. 14:05:24 A SALESPERSON SAID THAT -- RIGHT. 14:05:27 I THINK THAT'S A SALESPERSON WHO HAD AN OPINION AND AS I 14:05:30 MENTIONED, A LOT OF PEOPLE HAD DIFFERENT OPINIONS. 14:05:32 YES, THAT'S TRUE. YOUR SALESPERSON BELIEVED IT WAS 14:05:36 JUNK. THAT'S WHO WAS SELLING YOUR 14:05:37 STUFF. NOW IN EXHIBIT -- LET'S TAKE A 14:05:40 LOOK AT EXHIBIT CALLED EXHIBIT 87. 14:05:51 THIS IS AN EXECUTIVE SUMMARY. NOW, THIS IS YOUR SALES PITCH. 14:05:55 GOLDMAN SACHS IS ALIGNED IN CENTERS WITH THE HUDSON PROGRAM 14:05:59 WITH INVESTING IN A PORTION OF EQUITY AND PLAYING THE ONGOING 14:06:03 ROLE OF LIQUIDATION AGENT. SO NOW YOU'RE TELLING PEOPLE 14:06:05 THAT YOU'RE ON THE LONG SIDE. THAT'S YOUR EXECUTIVE SUMMARY? 14:06:14 YOU TELL THEM IN SOME FINE PRINT SOMEWHERE THAT YOU'RE SHIFTING 14:06:19 THE RISK. BUT THIS IS WHAT THE EXECUTIVE 14:06:20 SUMMARY IS. OKAY? 14:06:24 WHY -- YOU FOCUS ON THE HUDSON. YOU'VE GOT INCENTIVES ALIGNED 14:06:32 WITH THE PROGRAM. NO, YOU DON'T. 14:06:35 NO, YOU DON'T. YOUR INCENTIVES ARE ALIGNED 14:06:37 AGAINST THIS THING. YOUR INCENTIVES ARE TO SELL $2 14:06:39 BILLION AND SHIFT THE RISK. AND SO YOU'RE TELLING YOUR 14:06:45 PEOPLE THAT YOU'RE SELLING THIS TO THAT GOLDMAN SACHS IS ALIGNED 14:06:49 INCENTIVES WITH THE HUDSON PROGRAM BY INVESTING IN A 14:06:52 PORTION OF EQUITY. THAT MEANS YOU'RE ON THE LONG 14:06:54 SIDE. YOU'RE INVESTING A LITTLE BIT ON 14:06:57 THE LONG SIDE. $2 BILLION OF RISK YOU'RE 14:07:01 SHIFTING AND YOU'RE TELLING PEOPLE AN EXECUTIVE SUMMARY THAT 14:07:04 THE INCENTIVES ARE ALIGNED. THEY'RE NOT ALIGNED, THEY'RE THE 14:07:10 OPPOSITE. YOU'RE SHIFTING RISK, YOU'RE NOT 14:07:11 TAKING ON RISK. THIS IS ONE OF YOUR STRUCTURED 14:07:18 PRODUCTS THAT YOU'RE SELLING THESE SYNTHETIC CDOs THAT NOBODY 14:07:21 CAN FIGURE OUT. TAKE A LOOK AT EXHIBIT NUMBER 14:07:28 91, MR. SPARKS. THERE'S ANOTHER SYNTHETIC CDO 14:07:48 THAT YOU GUYS ARE PEDDLING. SHIFT AND RISK, MAKING MONEY 14:07:53 WHEN YOU GO SHORT. YOU TELL MR. MONTAG. 14:07:58 NEED YOU TO SEND MESSAGE TO PETER AND DARRELL WHAT A GREAT 14:08:03 JOB THEY DID. THEY STRUCTURED LIKE MAD. 14:08:05 THEY STRUCTURED LIKE MAD, TRAVELED THE WORLD, AND WORK LD 14:08:09 THEIR TAILS OFF TO MAKE SOME LEMONADE FROM SOME BIG OLD 14:08:14 LEMONS. MAKING LEMONADE FROM SOME BIG 14:08:20 OLD LEMONS. YOU SAY THAT, BY THE WAY, GOING 14:08:27 BACK TO HUDSON. IS THAT IN 91? 14:08:33 L LEMONADE? 14:08:34 NO, EXHIBIT 91. LOOK RIGHT IN THE MIDDLE. 14:08:36 NEED YOU TO SEND MESSAGE. GOT THOSE WORDS? 14:08:39 NEED YOU TO SEND MESSAGE. TO PETER OSTREM AND DARRELL 14:08:52 HARRAK. DARRELL WAS PART OF PETER'S 14:08:53 GROUP. AND TELL THEM WHAT A GREAT 14:08:56 JOB THEY DID. THEY STRUCTURED LIKE MAD. 14:08:58 WHAT DID THEY DO? THEY MADE SOME LEMONADE FROM BIG 14:09:02 OLD GOLDMAN SACHS LEMONS. YOU'VE GOT NO REGRETS? 14:09:08 YOU OUGHT TO HAVE PLENTY OF REGRETS. 14:09:12 I DON'T THINK THAT YOU'RE WILLING TO ACKNOWLEDGE THEM. 14:09:14 YOU OUGHT TO HAVE THEM. I DON'T THINK YOU WILL 14:09:17 ACKNOWLEDGE THEM. THAT'S WHY WE'VE GOT TO DO SOME 14:09:21 REGULATION AND REREGULATION. TAKE A LOOK, IF YOU WOULD AT 14:09:25 YOUR OWN -- YOUR OWN ASSESSMENT OF WHAT YOU DID IN 2007. 14:09:31 YOU HAD A GREAT YEAR. OKAY. 14:09:33 55-C. YOU MADE A DECISION TO SHIFT THE 14:10:03 POSITION. TO GO FROM A LONG POSITION TO A 14:10:05 SHORT POSITION. AND HERE'S WHAT YOU SAID. 14:10:16 DO YOU SEE WHERE I'M AT? I'M CATCHING UP TO YOU. 14:10:20 I WON'T MAKE YOU CATCH UP, I WANT YOU TO READ EVERY WORD WITH 14:10:22 ME. I'LL WAIT UNTIL YOUR EYES ARE 14:10:30 WHERE I'M AT. WHICH PAGE? 14:10:33 PAGE 2. I'M WITH YOU. 14:10:35 IT SAYS VISION, RISK-TAKING, MARKET CALLS. 14:10:38 WHEREAS THE EXECUTION OF STRATEGIES HAS BEEN A CONCERTED 14:10:41 TEAM EFFORT, I CONSIDER MYSELF THE INITIAL OR PRIMARY DRIVER OF 14:10:45 THE MACRO TRADING DIRECTION FOR THE BUSINESS. 14:10:51 GOT IT? HERE'S WHAT YOU SAY. 14:10:57 YOU MADE THREE MAJOR CALLS, DECEMBER TO FEBRUARY. 14:11:00 DECEMBER '06 TO FEBRUARY '07 WITH THE DESK QUITE LONG AND ABX 14:11:05 TRADING DOWN FROM PAR, WE HAD A ROUGH START TO THE YEAR. 14:11:08 BY THE WAY, THAT YEAR STARTED IN DECEMBER. 14:11:11 THE PREVAILING OPINION WITHIN THE DEPARTMENT WAS THAT WE 14:11:14 SHOULD JUST GET CLOSE TO HOME AND PARE DOWN OUR LONG. 14:11:20 THERE'S DIFFERENCES IN THE DEPARTMENT. 14:11:21 EVERYONE DOESN'T AGREE. THERE'S DIFFERENCE OF OPINION. 14:11:24 I'M GOING TO KEEP GOING. SO THERE IS SOME OPINION THAT WE 14:11:29 SHOULD JUST GET CLOSE TO HOME AND PARE DOWN OUR LONG. 14:11:32 BUT YOU -- AND THEN READING AT THE BOTTOM OF THE PAGE, YOU HAD 14:11:36 FIVE REASONS THERE WHY YOU SHOULDN'T JUST PARE DOWN. 14:11:39 YOU OUGHT TO MAKE A BIG BET GOING SHORT. 14:11:41 AND THEN YOU SAID I CONCLUDED WE SHOULD NOT ONLY GET FLAT, BUT 14:11:48 GET VERY CAPITALIZED SHORT. THAT'S NOT MINE, THAT'S YOURS. 14:12:01 YOU WANTED TO AVOID GROUP THINK, SO INDEPENDENTLY WENT TO A BUNCH 14:12:03 OF FOLKS TO SEE IF ANYBODY COULD POKE HOLES IN THE PLAN. 14:12:08 ALTHOUGH OPINIONS VARIED ON EXECUTION PROBABILITY, PRIMARILY 14:12:12 ON THE BACK END, WE ALL AGREED THE PLAN MADE SENSE. 14:12:16 WE ALL AGREED THE PLAN MADE SENSE. 14:12:19 THEN YOU SOCIALIZE WITH SPARKS. AND WHAT DID YOU DO? 14:12:23 YOU IMPLEMENTED THE PLAN BY HITTING ON ALMOST EVERY SINGLE 14:12:29 NAME, CDO PROTECTION BUYING. THAT MEANS YOU'RE HEADING IN THE 14:12:32 SHORT DIRECTION. IN A TWO-MONTH PERIOD. 14:12:37 MUCH OF THE PLAN BEGAN WORKING BY FEBRUARY, OUR VERY PROFITABLE 14:12:42 YEAR WAS UNDERWAY. THERE'S A VERY PROFITABLE YEAR 14:12:45 WHERE YOU WERE WORKING, YOU'RE BETTING AGAINST THE MARKET. 14:12:47 YOU WERE GOING SHORT. THEN DOWN AT THE BOTTOM OF THAT 14:12:51 PARAGRAPH. AGAIN WHEN THE PREVAILING 14:12:53 OPINION IN THE DEPARTMENT WAS TO REMAIN CLOSE TO HOME, I PUSHED 14:12:56 EVERYONE ON THE DESK TO SELL AGGRESSIVELY AND QUICKLY. 14:13:01 OKAY? YOU MADE A LOT OF MONEY 14:13:02 MONETIZING THAT. WE SOLD BILLIONS OF INDEX AND 14:13:07 SINGLE-NAME RISK. YOU SOLD THEM AND YOU CASHED IN. 14:13:10 HERE'S WHAT YOU SAID. AND WHEN THE INDEX DROPPED 25 14:13:13 POINTS IN JULY, WE HAD A BLOWOUT PROFIT AND LOSS MONTH MAKING 14:13:19 OVER $1 BILLION THAT MONTH. NOW, WHAT YOU SAID IN THAT 14:13:28 REPORT IS WHAT HAPPENED. THAT'S WHAT YOU FOLKS REPORTED 14:13:30 TO THE S.E.C. OCTOBER 4th, 2007, THIS IS 14:13:45 EXHIBIT 46. THIS IS A LETTER FROM GOLDMAN TO 14:13:51 THE S.E.C. TAKE A LOOK AT THE BOTTOM OF 14:13:53 PAGE THREE. IT IS IMPORTANT TO KNOW THAT WE 14:14:01 ARE ACTIVE TRADERS OF MORTGAGE SECURITIES AND LOANS. 14:14:05 AND IS WITH ANY OF THE FINANCIAL INSTRUMENTS WE TRADE AT ANY 14:14:08 POINT IN TIME WE MAY CHOOSE TO TAKE A DIRECTIONAL VIEW AT YOUR 14:14:14 WORDS, GOLDMAN SACHS. YOU MAY CHOOSE TO TAKE A 14:14:15 DIRECTIONAL VIEW. THIS IS EXHIBIT 46? 14:14:21 I'M JUST ASKING. EXHIBIT 46, BOTTOM OF PAGE 3. 14:14:31 I'M NOT ASKING YOU THIS QUESTION, I'M ASKING MR. SPARKS 14:14:34 THIS QUESTION OR ANY OF YOU BASICALLY MAKE A STATEMENT AND 14:14:38 THEN ASKING IF YOU WANT TO RESPOND TO IT. 14:14:40 THIS IS A STATEMENT OF GOLDMAN SACHS TO THE S.E.C. 14:14:43 I'M NOT SURE YOU WANT TO QUIBBLE ON THIS ONE. 14:14:46 BUT IN ANY EVENT. OCTOBER 4th, 2007. 14:14:50 SO AT ANY POINT IN TIME, WE MAY CHOOSE TO TAKE A DIRECTIONAL 14:14:54 VIEW OF THE MARKET. AND YOU WILL -- WE WILL EXPRESS 14:14:57 THAT VIEW THROUGH THE USE OF MORTGAGE SECURITIES, LOANS AND 14:15:01 DERIVATIVES. THEREFORE, ALTHOUGH WE DID NOT 14:15:03 HAVE LONG BALANCE SHEET EXPOSURE TO SUBPRIME SECURITIES IN THE 14:15:07 PAST THREE YEARS, ALBEIT SMALL EXPOSURE. 14:15:20 SO YOUR RISK POSITION WAS DEPENDENT ON YOUR CHANGING VIEW 14:15:22 OF THE MARKET. BUT NOW COMES THE LINE WHICH WE 14:15:25 MIGHT AS WELL ALL AGREE UPON BEFORE THE NEXT TWO PANELS 14:15:31 START. THIS IS WHAT YOU REPRESENTED TO 14:15:32 THE S.E.C. AND WHAT THE FACTS CLEARLY SHOW. 14:15:37 FOR EXAMPLE, PRESUMABLY OF YOUR VIEWS. 14:15:43 THROUGH MOST OF 2007, WE MAINTAINED A NET SHORT SUBPRIME 14:15:48 POSITION. AND THEREFORE STOOD THE BENEFIT 14:15:50 FROM DECLINING PRICES IN THE MORTGAGE MARKET. 14:15:52 OKAY? IS THERE ANY DOUBT IN YOUR 14:15:58 MIND THAT THAT WAS TRUE? IS THERE ANY DOUBT IN YOUR MIND 14:16:04 THAT WHAT MR. VINEYARD SAID LATER ON THAT YEAR WAS ALSO 14:16:08 TRUE? THIS IS WHAT MR. VINEYARD SAID 14:16:17 AT THE END OF THE THIRD QUARTER. HE'S THE CHIEF FINANCIAL 14:16:19 OFFICER. THIS IS EXHIBIT 45, BY THE WAY, 14:16:22 IF YOU WANT TO TRACK IT. LET ME ALSO ADDRESS MORTGAGES 14:16:30 SPECIFICALLY. THIS IS THE END OF THE THIRD 14:16:32 QUARTER AT THE END OF SEPTEMBER. THE MORTGAGE SECTOR CONTINUES TO 14:16:35 BE CHALLENGED. AND THERE IS A BROAD DECLINE IN 14:16:39 THE VALUE OF MORTGAGE INVENTORY DURING THE THIRD QUARTER. 14:16:42 AS A RESULT, WE TOOK SIGNIFICANT MARKDOWNS ON OUR LONG INVENTORY 14:16:49 POSITIONS DURING THE QUARTER AS WE HAD IN THE PREVIOUS TWO 14:16:52 QUARTERS. THAT'S THE LONG GETTING OUT OF 14:16:56 THE LONG POSITION. AND THEN HE SAID THE FOLLOWING. 14:17:01 HOWEVER OUR RISK BIAS IN THAT MARKET WAS TO BE SHORT. 14:17:06 AND THAT NET SHORT POSITION WAS PROFITABLE. 14:17:11 YOU'D DISAGREE WITH THAT, MR. SPARKS? 14:17:13 DO YOU DISAGREE WITH THAT ONE STATEMENT? 14:17:16 DURING THE THIRD QUARTER THAT WE HAD A NET SHORT BIAS. 14:17:21 I DON'T DISAGREE WITH THAT STATEMENT? 14:17:24 YOU DISAGREE WITH THE STATEMENT -- 14:17:25 I DON'T DISAGREE, I'M SORRY. DO YOU DISAGREE WITH THE 14:17:28 STATEMENT THAT WAS MADE TO THE S.E.C.? 14:17:31 BOTTOM OF EXHIBIT 46, PAGE 3, LAST LINE. 14:17:43 THAT DURING MOST OF 2007 WE MAINTAINED A NET, SHORT SUBPRIME 14:17:50 POSITION AND THEREFORE STOOD THE BENEFIT FROM DECLINING PRICES IN 14:17:53 THE MORTGAGE MARKET. THAT WAS STATED TO THE S.E.C. 14:17:58 WAS GOLDMAN SACHS TELLING THE TRUTH TO THE S.E.C.? 14:18:00 I UNDERSTAND. I DIDN'T WRITE THIS. 14:18:06 I'M NOT GOING TO GET AN ANSWER FROM YOU. 14:18:09 DO YOU KNOW IF THAT WAS A TRUE STATEMENT OR NOT? 14:18:12 I MEAN, AGAIN, THESE AREN'T MY WORDS -- 14:18:15 I'M JUST ASKING IF THE DARN STATEMENT IS TRUE THAT GOLDMAN 14:18:16 SACHS MADE TO THE S.E.C. THAT'S ALL I'M ASKING YOU. 14:18:21 WELL, THIS IS A LONG DOCUMENT. 14:18:23 I'M ASKING YOU IF THAT STATEMENT AT THE BOTTOM OF PAGE 14:18:26 3 THAT DURING MOST OF 2007 WE MAINTAINED THE NET SUBPRIME 14:18:31 POSITION AND THEREFORE STOOD THE BENEFIT FROM DECLINING PRICES IN 14:18:34 THE MORTGAGE MARKET. THERE'S ONLY ONE THING I CAN 14:18:36 COMMENT ON, AND THAT'S MY POSITION. 14:18:38 AND YOU READ MY SELF-REVIEW. AND I STAND PAT WITH WHAT I 14:18:42 WROTE THERE. AND IS THAT REVIEW TOTALLY 14:18:44 CONSISTENT WITH THIS? JUST TO BE CLEAR, MY VIEW 14:18:48 PERTAINS TO MY BUSINESS -- YOUR REVIEW -- 14:18:51 ONLY A SMALL PART OF THE FIRM. 14:18:53 IS YOUR REVIEW CONSISTENT WITH WHAT I JUST READ? 14:18:55 MY REVIEW ONLY -- MR. SWENSON -- 14:18:58 MY REVIEW ONLY RELATES -- I UNDERSTAND. 14:19:00 IS THIS SOMETHING THAT YOU AGREE WAS AN ACCURATE STATEMENT WHEN 14:19:02 GOLDMAN SACHS MADE IT TO THE SECURITIES AND EXCHANGE 14:19:07 COMMISSION IN OCTOBER OF 2007? YES. 14:19:09 THANK YOU. AND I WOULD LIKE TO ADD THE 14:19:13 NATURE -- I WAS JUST HOPING FOR A YES. 14:19:15 YES, BUT THE NATURE OF OUR RISK CHANGED OVER THE COURSE OF 14:19:18 THAT YEAR. WE UNDERSTAND. 14:19:21 AS I MENTIONED IN MY OPENING STATEMENT. 14:19:23 WE UNDERSTAND. THANK YOU VERY MUCH. 14:19:25 MR. CHAIRMAN, I HAVE A QUESTION FOR EACH OF YOU THAT 14:19:28 I'D LIKE JUST A YES OR NO ANSWER. 14:19:30 IS THERE A POLICY WITHIN GOLDMAN SACHS THAT IF YOU FEEL SOMETHING 14:19:37 IS OUT OF THE ORDINARY OR UNETHICAL THAT YOU ARE TO NOT 14:19:41 COMMUNICATE THAT IN AN E-MAIL. AND HAVE YOU EVER BEEN 14:19:45 INSTRUCTED ON WHAT YOU WILL OR WILL NOT COMMUNICATE ON E-MAILS? 14:19:48 IN OTHER WORDS ARE THERE THINGS YOU ARE NOT TO COMMUNICATE IN 14:19:50 E-MAILS? MR. SPARKS? 14:19:57 IF THERE'S SOMETHING YOU HAVE AN ETHICAL QUESTION ABOUT, 14:20:00 YOU'RE SUPPOSED TO RAISE IT TO YOUR SUPERIOR. 14:20:03 HAVE YOU EVER BEEN INSTRUCTED NOT TO RAISE THAT IN AN E-MAIL? 14:20:07 NO. THERE'S NEVER BEEN ANYTHING 14:20:11 ON ETHICS THAT YOU CAN'T RAISE THOSE QUESTIONS IN E-MAILS? 14:20:14 NOT THAT I'M AWARE OF. I'M NOT AWARE OF A POLICY 14:20:17 LIKE THAT. MR. SWENSON? 14:20:19 I'M NOT AWARE OF A POLICY. I'M NOT AWARE OF A POLICY. 14:20:23 ARE YOU AWARE OF ANY POLICY THAT WOULD RESTRICT YOUR 14:20:25 COMMUNICATION ON E-MAILS ABOUT ANYTHING RELATED TO YOUR 14:20:27 BUSINESS WITHIN GOLDMAN? AND I WOULD, AGAIN, YOU ALL HAVE 14:20:35 BEEN UNDER OATH. ALL I WANT IS A YES OR NO. 14:20:37 HAVE YOU BEEN INSTRUCTED ON CERTAIN THINGS YOU WILL NOT 14:20:40 COMMUNICATE IN E-MAILS? RELATING TO THE BUSINESS. 14:20:43 I'M NOT TALKING ABOUT PERSONAL. WITHIN THE FIRM, NO, PERSONAL 14:20:45 STUFF, THE FIRM PREFERS YOU NOT TO. 14:20:49 AND THEN I'D SAY THERE ARE THINGS ABOUT WHAT CAN GO OUTSIDE 14:20:54 OF GOLDMAN THAT THERE ARE POLICIES ABOUT. 14:20:55 OKAY. IT'S BEEN A LITTLE WHILE 14:21:02 SINCE I'VE WORKED THERE. I DON'T REMEMBER ALL THE 14:21:04 POLICIES. WE HAD A LOT OF POLICY UPDATES. 14:21:07 YOU'D KNOW THIS POLICY IF IT WAS THERE. 14:21:09 I DON'T REMEMBER ALL THE POLICIES. 14:21:11 SO YOUR ANSWER IS YOU DON'T KNOW? 14:21:14 MY ANSWER IS I DON'T REMEMBER ALL THE POLICIES. 14:21:16 THAT'S A VERY UNSATISFACTORY ANSWER. 14:21:20 MR. SWENSON? THERE'S NO POLICY. 14:21:22 THANK YOU. THERE'S NO POLICY. 14:21:23 THANK YOU. I WANT TO JUST A LITTLE FURTHER 14:21:32 ON E-MAIL. IF YOU ALL WILL LOOK AT NUMBER 14:21:47 26. THIS IS AN E-MAIL DATED FROM 14:21:51 2007, OF THE EXECUTIVE VP AND CHIEF FINANCIAL OFFICER. 14:21:55 AND IT WAS NOT NECESSARILY COMMUNICATED TO YOU. 14:22:19 THIS IS A SUMMARY OF REVENUES AND ESTIMATES. 14:22:25 YEAR-TO-DATE. AND THIS WOULD BE THE ESTIMATE 14:22:27 FOR REVENUES AND ESTIMATE FOR PRETAX PROFIT. 14:22:33 AND THIS GOES TO MR. COEN AND COPIED TO SEVERAL OTHERS. 14:22:41 WHAT MIGHT BE -- TELLS YOU WHAT MIGHT BE HAPPENING TO PEOPLE WHO 14:22:43 DON'T HAVE THE BIG SHORT. IT'S NOT REALLY FAIR TO ASK YOU 14:22:50 TO COMMENT ON THAT. BUT THERE WERE DISCUSSIONS ABOUT 14:22:53 CHANGING YOUR POSITIONS. AND IN RELATIONSHIP TO THE 14:22:57 MORTGAGE MARKET, THE DERIVATIVES, AND THE PACKAGE 14:23:00 SECURITIES. THERE'S NO QUESTION ABOUT THAT, 14:23:02 RIGHT? YOU ALL HAVE TESTIFIED YOU WERE 14:23:03 CHANGING POSITION, CORRECT? YES, SIR. 14:23:08 ALL RIGHT. EVERYBODY AGREES WITH THAT? 14:23:11 YOU WERE CHANGING POSITIONS? YOU SAW A MARKET THAT WAS 14:23:16 TANKING, YOU WERE TRYING TO LIMIT YOUR LOSSES, GOOD MY 14:23:22 DISH R 14:23:24 -- IS THAT CORRECT? I THOUGHT YOU WERE SAYING WE 14:23:27 WERE CHANGING OUR POSITIONS. WE WERE OFTEN TIMES CHANGING OUR 14:23:31 POSITIONS. I UNDERSTAND, BUT THERE'S 14:23:33 NEVER BEEN A POSITION CHANGE THAT TOOK PLACE IN THE LAST FOUR 14:23:36 YEARS IN THIS COUNTRY. THERE'S NEVER BEEN ANYTHING LIKE 14:23:38 THAT. MAYBE WHEN WE SHUT OFF EXPORTS 14:23:39 OF COMMODITIES TO THE RUSSIANS DURING AFGHANISTAN INVASION. 14:23:44 BUT THERE'S NEVER BEEN A CHANGE LIKE THAT BEFORE IN THIS 14:23:46 COUNTRY. SO I UNDERSTAND YOU CHANGE 14:23:48 POSITIONS ALL THE TIME. BUT THERE'S NEVER BEEN ANYTHING 14:23:49 TO COMPARE TO WHAT HAPPENED IN TERMS OF THE COLLATERALIZED DEBT 14:23:54 OBLIGATIONS AND THE RESIDENTIAL-BACKED MORTGAGE 14:23:59 SECURITIES IN THIS COUNTRY. DO YOU AGREE WITH THAT? 14:24:02 I'M 62 YEARS OLD, I'VE NEVER SEEN ANYTHING LIKE IT. 14:24:04 IT WAS DEFINITELY UNIQUE. BUT YOU ALL AS A STRATEGIC -- 14:24:09 I'M NOT CRITICAL OF IT. IT'S SMART, IF YOU SEE A MARKET 14:24:13 TAKING, GET OUT OF THE MARKET. YOU'RE PROP TRADERS. 14:24:16 NOT ONLY HEMMED TO MAKE A MARKET WHICH WILL PUT YOU ON EXPOSURE 14:24:19 FOR LOSSES, BUT YOU ALSO HAVE PROPRIETARY TRADING. 14:24:23 YOU MAKE MORE OF YOUR MONEY NOW PROPRIETARY TRADING THAN YOU DO 14:24:27 ANY OTHER WAY, AT LEAST THE LAST FEW QUARTERS YOU HAVE. 14:24:30 SO IT IS A FACT THAT YOU WERE CHANGING POSITIONS AS A FIRM IN 14:24:33 THE MORTGAGE-BACKED INDUSTRY. AND THE DERIVATIVES ASSOCIATED 14:24:36 WITH THAT, CORRECT? ANYBODY DISAGREE WITH THAT? 14:24:43 I'M TAKING HAT MEANS NOBODY DISAGREES. 14:24:47 I WOULD SECOND WHAT MR. SPARKS SAID. 14:24:50 WE WERE CHANGING POSITIONS ALL THE TIME. 14:24:53 YOU DIDN'T HEAR WHAT I JUST SAID. 14:24:55 EVERYBODY CHANGED POSITIONS. AS A MATTER OF FACT, THEY'VE GOT 14:24:58 SO MUCH CHANGE IN THEIR POSITION, THEY LOST HALF OF 14:25:00 EVERYTHING THEY OWN. THE VAST MAJORITY OF PEOPLE WHO 14:25:03 DIDN'T HAVE ACCESS TO THE SAME DATA YOU DID. 14:25:05 OR WEREN'T SMART ENOUGH TO TAKE CARE OF IT. 14:25:07 SO YOU CANNOT COMPARE THIS CHANGE IN POSITION, THIS WAS A 14:25:11 DRASTIC CHANGE IN POSITION WHERE YOU WENT SIGNIFICANTLY SHORT ON 14:25:14 THE BASIS OF SMART, KNOWLEDGE OF WHAT WAS GOING ON IN THE MARKET. 14:25:19 YOU DON'T HAVE TO APOLOGIZE FOR IT. 14:25:21 BUT DON'T COMPARE IT FOR A CHANGE IN WHAT THE CPI MIGHT BE 14:25:25 ONE MONTH OVER THE NEXT TO CHANGE POSITIONS. 14:25:27 IT'S INAPPROPRIATE AND DISCOURTEOUS TO US. 14:25:30 WE'RE NOT THAT STUPID. NOW, I'M GOING TO PASS OUT FOR 14:25:34 EACH OF YOU COPIES OF SOME THINGS THAT ARE NOT IN THE 14:25:37 REFERENCE BINDER FOR YOU. BUT THEY ARE COPIES OF E-MAILS 14:25:39 COLLECTED FROM YOUR FIRM. AND I THINK HAVE THEY BEEN 14:25:44 PASSED DOWN? SO EVERYBODY HAS THAT. 14:25:46 AND I THINK OUR PANEL MEMBERS HAVE IT, AS WELL. 14:25:50 THE FIRST IS RELATED TO A -- AND I WANT YOU TO GO ALONG WITH THIS 14:25:57 AND TRY AND ANSWER SOME OF THESE QUESTIONS FOR ME IF YOU WOULD. 14:26:02 TELL ME IN YOUR MIND WHAT IS AN EQUITY INVESTOR. 14:26:09 IT'S A PARTY WHO BUYS AN EQUITY POSITION IN A 14:26:14 TRANSACTION. AND DESCRIBE AN EQUITY 14:26:15 POSITION. IT'S -- 14:26:18 WHAT ARE THEY BUYING IN YOUR MIND? 14:26:20 THEY'RE BUYING THE PIECE OF A TRANSACTION. 14:26:24 AND IT MAY BE LONG, MAY BE SHORT, MAY BE A DERIVATIVE, OR 14:26:29 MAY BE A PURE EQUITY, RIGHT? A STOCK? 14:26:31 IT COULD BE A STOCK. RIGHT. 14:26:32 OKAY. DID YOU EVER TELL ACA PAULSON 14:26:39 WOULD BE AN EQUITY INVESTOR? NO. 14:26:41 AT NO TIME DID YOU INFER THAT, TELL THEM THAT, OR STATE 14:26:44 THAT AT ANY TIME WITH ACA? NO, SIR. 14:26:47 OKAY. DID YOU TELL ACA THAT PAULSON 14:26:50 WAS SHORT? ON THE DEAL. 14:26:56 I'M TALKING ABOUT THE ADVOCATE DEAL. 14:26:59 I DON'T SPECIFICALLY REMEMBER THE WORDS I USED, BUT I DID 14:27:01 MENTION TO ACA THAT PAULSON'S EXPECTATION WAS THAT THEY WERE 14:27:07 BUYING PROTECTION ON THAT PORTFOLIO. 14:27:09 OKAY. BUT THAT'S THE SAME THING AS 14:27:11 SAYING THEY'RE GOING TO BUY A SHORT POSITION. 14:27:15 WAS THERE EVER ANY INFERENCE THAT THEY WERE ALSO TAKING A 14:27:18 LONG POSITION. THAT THEY WERE TAKING A LONG 14:27:20 POSITION AND SURE OF THEIR LONG POSITION BY BUYING ON THE SHORT 14:27:22 SIDE. FOR ME BUYING PROTECTION ON 14:27:27 THE RISK MEANS BEING SHORT. SOMEBODY WOULD NOT 14:27:30 NECESSARILY BUY LONG AND THEN ON A THE HIGHER TRAUNCH AND SELL ON 14:27:36 THE LOWER QUALITY TRAUNCH? CORRECT. 14:27:39 NOBODY WOULD DO THAT. CORRECT. 14:27:42 WHY WOULD THEY? IF THE DIFFERENT TRAUNCHES 14:27:46 HAVE DIFFERENT VALUES, EVEN THOUGH THE WHOLE THING IS AAA 14:27:50 RATED, WHY WOULD THEY NOT BUY PROTECTION ON THE HIGHEST RISK 14:27:55 PORTION OF THE DEAL? CAN YOU REPEAT THE QUESTION, 14:27:58 SENATOR? WHY WOULD SOMEBODY NOT BUY 14:27:59 PROTECTION ON THE LOWEST POTENTIAL PERFORMING COMPONENT 14:28:05 OF THE DEAL AND BUY LONG ON THE TOP END OF THE DEAL? 14:28:10 IF SOMEBODY HAS AN INTERESTING BUYING PROTECTION ON 14:28:15 A PORTFOLIO, DEPENDING ON THE OBJECTIVES FROM A CARRYING 14:28:18 PERSPECTIVE, THAT PARTY MAY DECIDE TO BUY PROTECTION ON THE 14:28:23 FIRST LOSS, THE MEZZINE. I THINK IT'S AN INVESTMENT 14:28:30 DECISION THAT HAS TO DO WITH CARRY. 14:28:32 SO THEY MIGHT STRADDLE THAT FOR THEIR OWN INTEREST, BUT 14:28:35 THAT'S IT? AND ULTIMATE LOSSES ON THE 14:28:38 REFERENCE PORTFOLIO. RIGHT. 14:28:39 OKAY. MR. TORRE TO YOUR KNOWLEDGE OF 14:28:51 THE SECURITIES KICKED OUT BY THE ACA, DO YOU HAVE ANY KNOWLEDGE 14:28:55 THAT ANYWHERE IN GOLDMAN THAT THEY ONCE THEY WERE KICKED OUT 14:28:59 THAT THEY BOUGHT A SHORT POSITION IN THE SECURITIES THAT 14:29:01 WERE KICKED OUT. WHO BOUGHT A SHORT POSITION? 14:29:05 GOLDMAN, OF THE SECURITIES THAT WERE KICKED OUT OF THE 14:29:11 DEAL, DO YOU HAVE ANY KNOWLEDGE ANYWHERE AVAILABLE TO YOU THAT 14:29:14 ANYBODY IN GOLDMAN CREATED A SHORT POSITION ON THOSE 14:29:17 SECURITIES THAT WERE KICKED OUT? WHEN YOU SAY KICKED OUT -- 14:29:23 THEY WEREN'T PART OF THE DEAL. 14:29:24 IN OTHER WORDS, ACA SAID NO, WE'RE NOT TAKING THESE. 14:29:27 DID ANYBODY WITHIN GOLDMAN TAKE A SHORT POSITION ON THE ONES 14:29:31 THEY WEREN'T INCLUDING IN THE TRAUNCHES? 14:29:34 I DON'T KNOW. DOES ANYBODY ELSE HAVE AN 14:29:35 ANSWER FOR THAT QUESTION? IS THERE ANY KNOWLEDGE ANYWHERE 14:29:39 ABOUT ANYBODY KNOWING WHETHER OR NOT YOU SPECIFICALLY TOOK SHORT 14:29:42 POSITIONS ON PORTFOLIOS THAT WERE REJECTED FROM THE ADVOCATES 14:29:45 DEAL? I DON'T KNOW. 14:29:51 OKAY. AS I MENTIONED EARLIER, I 14:29:53 DIDN'T WORK ON THOSE TRANSACTIONS. 14:29:56 THANK YOU. NOW TO THE DOCUMENTS. 14:29:59 THE FIRST ONE IS AN E-MAIL ABOUT A LOCATION -- CANCELED MEET WITH 14:30:09 PAULSON EQUITY INVESTOR. AND THIS ACTUALLY COMES FROM 14:30:13 LAURA SCHWARTZ -- WHICH IS ON JANUARY 8th, 2007, 7:05 P.M. 14:30:27 LAURA'S COMMUNICATING TO A G.KRITEMAN. 14:30:36 I HAVE NO IDEA HOW IT WENT, I WOULD SAY IT WENT POORLY. 14:30:39 I WOULDN'T SAY IT WENT POORLY, NOT AT ALL. 14:30:42 BUT I THINK IT DIDN'T HELP THAT WE DIDN'T KNOW EXACTLY HOW THEY 14:30:45 WANT TO PARTICIPATE IN THE SPACE. 14:30:47 CAN YOU GIVE ME SOME FEEDBACK? SHE'S TALKING ABOUT PAULSON, 14:30:52 RIGHT? YOU HAVE THESE IN FRONT OF YOU, 14:30:54 CORRECT? YES, SIR. PAULSON GROUP? 14:30:57 I BELIEVE SHE'S TALKING ABOUT THE PAULSON GROUP, YES. 14:30:58 OKAY. AND THEN A PHONE CALL ON 14:31:05 JANUARY 10th, 2007. DID YOU HAVE THAT PHONE CALL? 14:31:12 I DON'T REMEMBER, SENATOR. YOU DON'T REMEMBER. 14:31:14 BUT IT'S IN THE RECORD THAT IT HAPPENED? 14:31:16 YOU WOULD AGREE TO THIS? THIS IS YOUR OLD RECORDS? 14:31:20 WHEN YOU SAY THIS IS MINE -- THESE ARE NOT YOUR RECORDS, 14:31:25 THEY'RE ACA RECORDS. ON JANUARY 28th, 2007, YOU HAVE 14:31:31 AN E-MAIL FROM LAURA SCHWARTZ TO ALLEN ROSEMAN. 14:31:37 SUBJECT "NOT A BOONDOGGLE." AND AGAIN, THE ADVOCATES DEAL 14:31:41 COMES UP AT A PERCHANCE MEETING IN COLORADO, NO IN WYOMING. 14:31:52 SHE WENT TO A CONFERENCE HAMMERED OUT COLLATERAL AND 14:31:55 STRUCTURAL DEALS WITH BOTH THE PAULSON P.M., DOES IT REFER TO 14:32:02 PRIME MOVER, PRINCIPAL MAKER? TRADITIONALLY IT'S -- I MEAN 14:32:05 IT'S PORTFOLIO MANAGER. PORTFOLIO MANAGER, OKAY, THAT 14:32:12 FITS. AND THE MORGAN STANLEY HIT. 14:32:15 THE PORTFOLIO MANAGER WASN'T AT THE CONFERENCE, BUT CAME OVER TO 14:32:18 ME IN THE CAFETERIA AND ASKED TO GET TOGETHER. 14:32:21 SO HERE'S A MEETING BETWEEN ACA AND PAULSON'S PORTFOLIO MANAGER, 14:32:24 CORRECT? WOULD THAT -- YOU WOULD AGREE 14:32:27 WITH THAT'S WHAT THIS IMPLIES? READING THIS E-MAIL RIGHT 14:32:31 NOW, IT LOOKS LIKE IT, SIR. OKAY. 14:32:32 THANK YOU. SO THEN BACK FROM MR. GORMAN TO 14:32:39 LAURA SCHWARTZ, LOOKS GOOD TO ME. 14:32:41 DID THEY GIVE A REASON WHY THEY KICKED OUT ALL THE WELLS DEALS? 14:32:46 AND THEN AT THE BOTTOM OF THIS E-MAIL IS ATTACHED IS A REVISED 14:32:51 PORTFOLIO THAT PAULSON WOULD LIKE US TO COMMIT TO. 14:32:53 ALL NAMES ARE AT THE BAA 2 LEVEL, THE FINAL PORTFOLIO WILL 14:32:59 HAVE BETWEEN 80 AND 92 OF THESE NAMES. 14:33:01 ARE WE OKAY TO SAY YES TO THIS PORTFOLIO? 14:33:06 AND THIS IS INSIDE ACA DOCUMENTS. 14:33:09 YOU PROBABLY HAVE NOT BEEN AWARE OF THIS. 14:33:15 AND THEN, MR. PELIGRINI SAYS TO LAURA SCHWARTZ ON FEBRUARY 13th, 14:33:22 IN ANSWER TO YOUR QUESTIONS, THE REASON WE DECIDED TO GO AHEAD 14:33:26 WITH ACA ARE THAT ON THE ONE HAND YOU HAVE AN IMPRESSIVE 14:33:29 TRACK RECORD, AND ON THE OTHER HAND, YOU'RE WILLING TO EXECUTE 14:33:32 A RELATIVELY LESS LUCRATIVE ASSIGNMENT WITH THE SAME LEVEL 14:33:35 OF DILIGENCE AND ENERGY THAT YOU APPLY TO ALL OF YOUR DEALS. 14:33:38 I ALSO APPRECIATED YOUR DIRECT PERSONAL INVOLVEMENT IN 14:33:42 SELECTING THE DEALS PORTFOLIO OF REFERENCE OBLIGATIONS. 14:33:47 MR. TOURRE, WHAT DOES THAT SAY TO YOU? 14:33:50 I HAVE NEVER SEEN THIS E-MAIL BEFORE -- 14:33:52 WHAT WOULD YOU INFER FROM THE FACT THAT SOMEONE AT PAULSON IS 14:33:58 SAYING IT WAS MS. SCHWARTZ WHO WAS DIRECTLY PERSONALLY INVOLVED 14:34:01 IN SELECTING THE REFERENCE OBLIGATIONS? 14:34:10 THE WAY I READ THIS E-MAIL TODAY IS THANKING LAURA SCHWARTZ 14:34:14 FOR WORKING ON THIS TRANSACTION. WELL, YOU DON'T THINK IT'S 14:34:22 SIGNIFICANT IN LIGHT OF THE ACCUSATIONS MADE THAT PAULSON'S 14:34:30 REPRESENTATIVE WOULD IMPLY IN THIS E-MAIL THAT SHE SELECTED 14:34:32 THE DEAL PORTFOLIO OF REFERENCE OBLIGATIONS RATHER THAN THEM? 14:34:37 DR. KROGER AND I WENT THROUGH THIS BEFORE. 14:34:40 GOLDMAN SACHS, PAULSON, NIKB ALL MADE SUGGESTIONS. 14:34:45 YOU KNOW, I APOLOGIZE BECAUSE YOU WEREN'T HERE WHEN I MADE MY 14:34:50 STATEMENT, BUT OUT OF THE, YOU KNOW, INITIAL LIST OF 14:34:53 OBLIGATIONS THAT GOLDMAN SACHS AND PAULSON HAD IDENTIFIED, ACA 14:34:57 REMOVED MORE THAN HALF OF THEM. SO ULTIMATELY THERE IS NOT A 14:35:04 SINGLE OBLIGATION IN THE TRANSACTION. 14:35:06 THERE'S NOT ONE SINGLE ONE THAT WASN'T SELECTED BY ACA. 14:35:10 OKAY. THANK YOU. 14:35:11 THAT'S HELPFUL. ALL RIGHT, MR. CHAIRMAN, I'LL 14:35:14 YIELD BACK. SENATOR PRYOR. 14:35:20 OKAY. MR. TOURRE. 14:35:21 LET ME GO BACK TO WHERE DR. COBURN LEFT OFF. 14:35:27 WHEN WE TALKED TO YOU AND MY STAFF TALKED TO YOU, DID WE ASK 14:35:32 YOU WHETHER OR NOT PAULSON HAD ESTABLISHED THE PORTFOLIO 14:35:34 SELECTION CRITERIA SUCH AS FICO SCORES, LOAN TO VALUE RATIOS, ET 14:35:39 CETERA. WAS THAT TRUE? 14:35:40 AND DID YOU ANSWER THAT WAS TRUE, IN FACT? 14:35:43 I THINK WHAT I REMEMBER DISCUSSING WITH YOUR STAFF, MR. 14:35:45 CHAIRMAN, IS THE FACT THAT THE VERY ORIGINAL PORTFOLIO THAT 14:35:51 PAULSON AND GOLDMAN DISCUSSED HAD BEEN SELECTED FROM A 14:35:56 UNIVERSAL 2006 VINTAGE SUBPRIME OBLIGATIONS REMOVING, YOU KNOW, 14:36:03 SEVERAL OBLIGATIONS. AND THOSE OBLIGATIONS WERE 14:36:07 REMOVED BASED ON CERTAIN CRITERIA. 14:36:08 AND THOSE CRITERIA WERE SELECTED BY PAULSON? 14:36:12 AS FAR AS I CAN REMEMBER, YES. 14:36:14 AND THIS PORTFOLIO ENDED UP WITH HALF THE PORTFOLIO WAS 14:36:18 SELECTED BY PAULSON, IS THAT CORRECT? 14:36:21 WHICH PORTFOLIO ARE YOU REFERRING TO? 14:36:24 THE ADVOCATES. THE PORTFOLIO FOR ADVOCATES 14:36:29 WAS SELECTED BY ACA BASED ON SUGGESTION -- 14:36:31 HALF OF THOSE ITEMS IN THE PORTFOLIO WERE SUGGESTIONS THAT 14:36:36 CAME FROM PAULSON, IS THAT CORRECT? 14:36:40 I DON'T REMEMBER THE EXACT -- YOU SAID THEY ONLY USED HALF 14:36:42 OF THE SUGGESTIONS. I'M ASKING YOU, THEY DIDN'T 14:36:46 USE -- OR THEY DID USE HALF. SO EITHER WAY, HALF OF HIS 14:36:51 SUGGESTIONS WERE INCORPORATED IN THE PORTFOLIO, IS THAT CORRECT? 14:36:54 MR. CHAIRMAN, I DIDN'T SAY HALF -- MORE THAN HALF THE 14:36:57 SECURITIES WERE KICKED OUT -- KICKED OUT. 14:37:00 OKAY. ABOUT WHAT PERCENTAGE OF THE 14:37:01 SECURITIES WERE NOT KICKED OUT? SMALL PERCENTAGE. 14:37:05 A SMALL PERCENTAGE? NO -- 14:37:10 CAN YOU REPEAT THE QUESTION? SAID MORE THAN HALF THE 14:37:15 SUGGESTIONS OF PAULSON AND COMPANY WERE NOT ACCEPTED BY 14:37:17 ACA. MY QUESTION, WHAT PERCENTAGE OF 14:37:22 THEIR SUGGESTIONS WERE ACCEPTED BY ACA? 14:37:26 I DON'T REMEMBER THE EXACT PERCENTAGE, MR. CHAIRMAN. 14:37:28 WAS IT NEARLY HALF? I DON'T REMEMBER. 14:37:36 WAS IT MORE THAN A FEW? YES. 14:37:39 AND THIS CAME TO YOU AS A REVERSE INQUIRY, IS THAT 14:37:43 CORRECT? YOU KNOW WHAT A REVERSE INQUIRY 14:37:46 IS? REVERSE INQUIRY IS A VERY 14:37:49 LOOSELY DEFINED TERM. WITH RESPECT TO HOW I USE IT AND 14:37:51 HOW SOME OF MY COLLEAGUES USE IT, IT'S BASICALLY A PARTY THAT 14:37:57 COMES IN WITH A TRANSACTION IDEA. 14:38:00 AND THE PARTY THAT BASICALLY DRIVES A TRANSACTION. 14:38:02 AND THAT PARTY WITH A REVERSE INQUIRY IS SOMEBODY WHO WANTS TO 14:38:07 SELL SHORT, IS THAT CORRECT? GO SHORT? 14:38:10 MR. CHAIRMAN, IT DEPENDS ON THE CIRCUMSTANCES. 14:38:12 IS THAT WHAT YOU MEAN BY REVERSE? 14:38:15 THE PERSON THAT COMES IN? IS THAT WHAT WAS MEANT BY THAT 14:38:19 TERM? NO, MR. CHAIRMAN. 14:38:22 DID MR. PAULSON OR PAULSON AND COMPANY COME IN WANTING TO 14:38:25 GO SHORT? THEY CAME IN SHOWING AN 14:38:28 INTEREST IN BUYING PROTECTION. WHICH MEANS GOING SHORT, 14:38:31 RIGHT? YES. 14:38:32 AND DID THOSE CRITERIA, WHICH PAULSON GAVE TO YOU, WERE THEY 14:38:36 PLUGGED IN TO YOUR MODEL? DID THEY THEN GENERATE A LIST OF 14:38:41 POSSIBLE REFERENCE SECURITIES FOR THAT PORTFOLIO? 14:38:45 YES. THEY TRIMMED DOWN THE UNIVERSE 14:38:50 OF -- USING HIS CRITERIA? 14:38:55 NOW, TAKE A LOOK AT EXHIBIT 132, IF YOU WOULD, MR. TOURRE. 14:39:32 YOU SEE THAT? 152. 14:39:34 IS THIS THE E-MAIL FROM MICHAEL SWENSON TO MYSELF? 14:39:37 IT'S FROM MICHAEL SWENSON -- NO, IT'S FROM YOU TO MR. SPARKS. 14:39:45 THE FIRST E-MAIL -- NO, I'M TALKING ABOUT THE 14:39:49 ORIGINAL MESSAGE, THE BOTTOM. UNDERSTAND. 14:39:55 YOU SEE WHERE THE SECOND PARAGRAPH SAYS AT THE END OF THE 14:39:57 MEETING, THE PAULSON TEAM -- THIS IS YOU SPEAKING, THE 14:40:00 PAULSON TEAM TOLD US THAT THEY WERE HAPPY TO HAVE MET. 14:40:03 AND THAT'S -- WE DON'T PUT THE NAME OF THE PERSON AS OBVIOUSLY 14:40:07 AND ASSUMING THAT ALL COULD GET COMFORTABLE WITH A SPECIFIC 14:40:13 NUMBER OF OBLIGATIONS THAT PAULSON IS LOOKING TO BUY 14:40:16 PROTECTION IN THE ADVOCATES -- YOU SEE THAT? 14:40:19 HE'S LOOKING TO BUY PROTECTION. THAT MEANS TO GO SHORT, RIGHT? 14:40:22 YES. AND THOSE ARE YOUR WORDS, 14:40:24 RIGHT? YES, MR. CHAIRMAN. 14:40:36 THEN, TAKE A LOOK AT EXHIBIT NUMBER 107. 14:40:40 TOP OF PAGE TWO. THIS IS NOW THE QUESTION OF WHAT 14:40:52 MANAGERS ARE YOU GOING TO WORK WITH. 14:40:54 AND YOU SEE AT THE TOP OF PAGE TWO. 14:41:00 ONE MOMENT. OKAY. 14:41:01 107? 107, YEAH. 14:41:12 I'M WITH YOU. FIRST, LOOK ON PAGE ONE. 14:41:18 YOU'RE LOOKING FOR SELECTION, FOR PORTFOLIO SELECTION AGENCY 14:41:21 AGENTS. AND THIS IS ONE OF YOUR CRITERIA 14:41:29 WHO QUOTE WILL BE FLEXIBLE WITH REGARD TO PORTFOLIO SUGGESTION. 14:41:32 IDEALLY, WE WILL SEND THEM A LIST OF THOSE BONDS THAT FITS 14:41:40 CERTAIN CRITERIA IN THE PORTFOLIO SELECTION AGENT WILL 14:41:43 SELECT 100 OUT OF THE 200 BONDS THAT YOU SEND TO THEM. 14:41:47 YOU SEE YOUR WORDS THERE? I SEE MY WORDS, MR. CHAIRMAN. 14:41:51 IS THAT ACCURATE? DID THAT REFLECT THE FACTS AT 14:41:54 THE TIME? THIS REFLECTS THE FACT THAT 14:41:58 WE WERE -- WAS THAT ACCURATE WHEN YOU 14:42:01 SAID IT? IS THAT WHAT YOU WERE LOOKING 14:42:05 FOR? THE INTENTION WAS TO SEND A 14:42:06 RANGE OF SECURITIES, YOU KNOW, TO GIVE SOME GUIDANCE TO THE 14:42:12 PORTFOLIO AGENT. AND YOU'RE LOOKING FOR AN 14:42:14 AGENT THAT WOULD BE FLEXIBLE, IS THAT CORRECT? 14:42:16 THAT'S YOUR WORD? THAT'S MY WORD. 14:42:20 OKAY. KEEP GOING. 14:42:24 NOW, ON PAGE TWO, BY THE WAY, AND THIS IS FROM JEFFREY 14:42:31 WILLIAMS TO YOU. HE SAID THERE ARE MORE MANAGERS 14:42:34 THAN JUST SO AND SO. THE WAY I LOOK AT IT, HE SAID, 14:42:39 PAGE TWO AT THE TOP, THE EASIEST MANAGERS TO LOOK AT SHOULD BE 14:42:46 USED FOR OUR OWN ACCESS. I GUESS THAT MEANS FOR GOLDMAN'S 14:42:48 OWN GOALS INSTEAD OF YOUR CLIENTS. 14:42:58 THERE ARE MORE MANAGERS THAN SO AND SO. 14:43:01 THE EASIEST MANAGERS TO WORK WITH SHOULD BE USED OUR OWN 14:43:10 AXIS. MANAGERS THAT ARE A BIT MORE 14:43:13 DIFFICULT SHOULD BE USED FOR TRADES LIKE PAULSON GIVEN HOW 14:43:18 PAULSON SEEMS TO BE. I.E., I'M BETTING THEY CAN GIVE 14:43:22 ON CERTAIN TERMS AN OVERALL PORTFOLIO INCREASE. 14:43:25 YOU THINK, HEY, GIVE THE LESS FLEXIBLE FOLKS TO OUR CUSTOMERS. 14:43:31 WE'LL SAVE THE MORE FLEXIBLE FOR OURSELVES. 14:43:32 THEN YOU KEEP GOING ON PAGE EXHIBIT -- TAKE A LOOK AT 112. 14:43:40 MR. CHAIRMAN? YEAH. 14:43:42 CAN I INTERRUPT YOU ONE SECOND? 14:43:44 YEAH. WITH RESPECT TO YOUR POINT 14:43:48 ABOUT OUR OWN AXES, SORT OF, YOU KNOW, USE IF YOU WILL. 14:43:57 AGAIN, YOU KNOW, I DON'T REMEMBER THE SPECIFIC E-MAIL, 14:43:59 BUT THE WAY I READ IT TODAY IS THERE WERE TRANSACTIONS FOR 14:44:02 WHICH THE BEST WAY TO RISK MANAGE THOSE TRANSACTIONS WAS TO 14:44:07 REOFFER THE PROTECTION WE WERE BUYING FROM THE MARKET DIRECTLY 14:44:10 IN TRAUNCH FORMAT TO CERTAIN INVESTORS. 14:44:12 I UNDERSTAND. AND THERE WERE OTHER WAYS TO 14:44:19 RISK MANAGE OUR RISK WAS BY WRITING PROTECTION ON THESE 14:44:22 OBLIGATIONS AND WHAT I MEANT BY, YOU KNOW, OUR OWN AXES WAS I'D 14:44:29 RATHER RISK MANAGE A TRAUNCH SHORTS WITH A BASKET OF SWAP 14:44:36 CONTRACTS. OKAY. TAKE A LOOK AT -- I SAID 112, 14:44:41 BUT I MEANT 109. THIS IS FROM -- TO GAIL 14:44:56 KRITEMAN, WHO IS SHE? A SALESPERSON WHO USED TO 14:44:58 COVER ACA. FOR GOLDMAN? 14:45:00 YES. NOW ACA'S WRITING GOLDMAN. 14:45:04 I CERTAINLY HOPE I DIDN'T COME ACROSS TOO ANTAGONISTIC LAST 14:45:09 WEEK, BUT THE STRUCTURE LOOKS DIFFICULT FROM A DEAD INVESTOR 14:45:13 PROSPECT. WHERE DO THEY GET THAT FROM? 14:45:19 I DON'T KNOW, MR. CHAIRMAN. WELL, BUT GAIL SURE WAS TOLD 14:45:27 THAT SOMEHOW OR OTHER PAULSON HAD AN EQUITY PERSPECTIVE. 14:45:34 THEN SAID BUT FOR US TO PUT OUR NAME ON SOMETHING, WE HAVE TO BE 14:45:37 SURE IT ENHANCES OUR REPUTATION. SO YOU DON'T KNOW WHERE ACA GOT 14:45:45 THE IMPRESSION THAT PAULSON WAS ON THE LONG SIDE, RIGHT? 14:45:47 YOU DON'T KNOW WHERE THEY GOT THAT. 14:45:49 I DON'T KNOW, MR. CHAIRMAN, BUT AGAIN -- 14:45:53 DO YOU KNOW WHERE THEY GOT THAT IMPRESSION? 14:45:56 NO, I DON'T KNOW, MR. CHAIRMAN. 14:45:58 NOW, TAKE A LOOK AT 108 -- WE'LL SKIP THAT ONE. 14:46:03 IT'S TOO LONG. 118 -- THIS IS NOW YOUR CAPITAL 14:46:28 COMMITTEE. THIS IS THE BIG FORMAL MEMO THAT 14:46:34 WENT TO THE CAPITAL COMMITTEE FROM YOU AND AMONG -- AND A 14:46:37 NUMBER OF OTHER PEOPLE. THIS IS WHAT YOU SAID ON PAGE -- 14:46:52 THREE, SIXTH LINE FROM THE BOTTOM. 14:47:00 SEE WHERE IT SAYS THE REFERENCE PORTFOLIO HAS BEEN SELECTED AND 14:47:04 MUTUALLY AGREED UPON BY ACA AND GOLDMAN. 14:47:06 YOU SEE THAT? YES, I SEE THAT. 14:47:08 WAS THAT TRUE? WELL, AS I MENTIONED TO YOUR 14:47:12 STAFF LAST WEEK -- NO, NOT STAFF. 14:47:14 I'M ASKING YOU RIGHT NOW, WAS THAT TRUE THAT STATEMENT THAT 14:47:17 YOU SENT TO YOUR OWN COMMITTEE? WAS THAT ACCURATE? 14:47:19 IT'S NOT VERY ACCURATE. IT COULD HAVE BEEN MORE 14:47:23 ACCURATE, MR. CHARL. IT COULD HAVE BEEN WHAT? 14:47:26 IT COULD HAVE BEEN MORE ACCURATE. 14:47:28 I'M NOT SURE IT COULD HAVE BEEN. 14:47:30 YOU'RE SAYING IT COULD HAVE BEEN MORE ACCURATE. 14:47:32 WHERE WAS IT INACCURATE? MR. CHAIRMAN, BEFORE I ANSWER 14:47:35 THAT QUESTION, THIS WAS MERELY A COPY, PASTE FROM PREVIOUS 14:47:44 TRANSACTIONS WHERE THERE WAS A PORTFOLIO MANAGER INVOLVED. 14:47:47 WHERE IS IT INACCURATE? WELL, AGAIN, THIS COULD HAVE 14:47:50 BEEN MORE ACCURATE -- I'M SAYING, WHERE WAS IT 14:47:52 INACCURATE? MR. CHAIRMAN, I DIDN'T SAY IT 14:47:56 WAS COMPLETELY INACCURATE. THE REFERENCE TO GOLDMAN? 14:48:01 HAD I BEEN -- NO, WAS IT INACCURATE, ARE 14:48:04 YOU CLAIMING THAT WAS INACCURATE NOW IN REFERENCE TO GOLDMAN? 14:48:07 I'M CLAIMING IT'S INACCURATE IN REFERENCE TO THE FACT THAT IT 14:48:12 DOESN'T SAY EXACTLY THE, YOU KNOW -- 14:48:13 WAS THERE PORTFOLIO MUTUALLY GREED UPON BY ACA AND GOLDMAN? 14:48:22 YES OR NO? IT WAS MUTUALLY AGREED BY 14:48:24 GOLDMAN, ACA, AND PAULSON. YOU SAY BY ACA AND GOLDMAN, 14:48:30 YOU'RE SAYING THAT OTHERS WERE LEFT OUT? 14:48:33 WELL -- AND PAULSON WAS LEFT OUT, WAS 14:48:35 THAT CORRECT? OKAY. 14:48:41 I THINK YOU'VE NOT ANSWERED THE QUESTION THE BEST YOU CAN. 14:48:43 SO LET'S GO ON. TAKE A LOOK AT 123. 14:49:36 YOU GOT IT? YES. 14:49:39 SEE NEAR THE BOTTOM THERE, IT'S A MEMO OR E-MAIL TO YOU 14:49:46 FROM JOSH. SEE THAT? 14:49:48 ON PAGE -- NEAR THE BOTTOM. 14:49:51 YES, I SEE THAT E-MAIL. IT SAYS HERE THAT 100% OF THE 14:49:58 BAA RBSs WERE SELECTED -- SELECTED BY ACA/PAULSON.ACA/PAU. 14:50:06 NOW YOU ARE SAYING HERE THAT PAULSON WAS ONE OF THE TWO 14:50:12 PEOPLE THAT SELECTED THIS AND THE OTHER WAS ACA? 14:50:15 WAS THAT AN ACCURATE STATEMENT? MR. CHAIRMAN, I WAS 14:50:20 RESPONDING TO SPECIFIC QUESTION FROM JOSH BERNBAUM. 14:50:23 AND, YOU KNOW -- I KNOW. 14:50:26 I'M JUST SAYING WAS IT ACCURATE? WITH A VIEW TO TYPE FAST. 14:50:32 WHAT I SHOULD HAVE WRITTEN WAS THAT THIS WAS A PORTFOLIO 14:50:35 SELECTED BY ACA WITH SUGGESTIONS FROM PAULSON FROM GOLDMAN SACHS 14:50:38 AND FROM IKB. THAT WOULD HAVE BEEN A FACTUALLY 14:50:42 CORRECT STATEMENT HERE. MY OBJECTIVE WAS TO WRITE 14:50:45 SOMETHING QUICK TO ANSWER JOSH, WHICH WAS TO ANSWER A QUESTION 14:50:47 THAT WAS MORE RELATED TO RISK AND RISK MANAGEMENT. 14:50:50 RIGHT. BUT WHAT YOU SAID THEN WAS THAT 14:50:52 IT WAS SELECTED BY ACA/PAULSON, RIGHT? 14:50:56 THAT'S WHAT YOU SAID AT THE TIME. 14:50:57 IS THAT -- AM I READING THIS ACCURATE? 14:50:59 THAT'S WHAT I WROTE IN THIS E-MAIL, MR. CHAIRMAN. 14:51:02 YOU NOW DENY THAT IT WAS ACCURATE IS THAT RIGHT? 14:51:05 I'M JUST SAYING THAT IT COULD BE MORE ACCURATE. 14:51:07 WAS IT ACCURATE OR NOT? IT COULD HAVE BEEN MORE 14:51:09 ACCURATE, MR. CHAIRMAN. LET ME JUST SUMMARIZE THIS. 14:51:20 YOU KNEW PAULSON WAS ON THE SHORT SIDE OF THE TRADE IS THAT 14:51:24 CORRECT? YES. 14:51:26 YOU KNEW PAULSON HAD HELPED SELECT THE MORTGAGES TO BE 14:51:29 REFERENCED IS THAT CORRECT? THEY MADE SUGGESTIONS, YES. 14:51:33 AND THAT A SIGNIFICANT NUMBER OF THOSE SUGGESTIONS WERE PUT 14:51:37 INTO THE DOCUMENT IS THAT CORRECT? 14:51:39 I DON'T REMEMBER THE EXACT NUMBER. 14:51:43 BUT YOU KNOW THAT IT'S MORE THAN A FEW? 14:51:46 YES. YOU DID NOT DISCLOSE TO ACA 14:51:49 THAT PAULSON WAS ON THE SHORT SIDE OF THIS DEAL IS THAT 14:51:51 CORRECT? I DID MENTION TO ACA THAT THE 14:51:54 EXPECTATION WAS THAT PAULSON WAS GOING TO BUY PROTECTION ON 14:51:57 SENIOR LAYERS OF RISK IN THE TRANSACTION. 14:52:00 THAT THEY WERE GOING TO BE ONLY ON THE SHORT SIDE? 14:52:04 YES. SO YOU DID SAY TO ACA THAT 14:52:07 PAULSON WAS GOING TO BE ON THE SHORT SIDE OF THIS TRANSACTION? 14:52:10 YES, I DON'T REMEMBER THE WORDS, BUT I DID MENTION THAT TO 14:52:16 ACA. AND WAS IT REFLECTED IN THE 14:52:20 GOLDMAN SACHS SECURITY OFFERING TO INVESTORS THAT PAULSON HAD 14:52:26 BEEN PART OF THE SELECTION PROCESS? 14:52:31 WAS THAT REPRESENTED IN THAT DOCUMENT? 14:52:37 PAULSON WAS NOT DISCLOSING THE -- TRANSACTION, SIR. 14:52:40 IT WAS NOT? NO, IT WAS NOT. 14:52:43 DID GOLDMAN INTEND TO KEEP A LONG STAKE IN THAT TRANSACTION 14:52:47 WHEN THE DEAL WAS STRUCTURED? I KNOW IT ENDED UP WITH A PIECE. 14:52:51 WAS IT INTENDED THAT IT END UP WITH A PIECE OF THAT DEAL? 14:52:55 WE TRIED TO HEDGE OUR RISK BY SIGNING THAT PIECE AS WELL, BUT 14:53:00 WEREN'T SUCCESSFUL IN DOING SO. SO IT WAS INTENDED TO SELL 14:53:04 THAT PIECE? FOR PRUDENT RISK MANAGEMENT 14:53:07 REASONS -- I'M SURE FOR ALL THE RIGHT 14:53:08 REASONS, BUT IT WAS INTENDED THAT GOLDMAN NOT HAVE ANY LONG 14:53:12 STAKE ON THAT PIECE. IS THAT CORRECT? 14:53:16 YES. I JUST HAVE A COUPLE OTHER 14:53:22 QUESTIONS. MR. BURNBAUM IF YOU'D TURN TO 14:53:24 EXHIBIT 55, YOUR SELF-REVIEW. 55C, PAGE 3 OF YOUR 2007 REVIEW. 14:53:34 I HAVE BEEN THE PRIMARY PROPONENT OF TRADING RELATED 14:53:38 EQUITY NAMES ON THE A.B.S. DESK. CAN YOU TELL ME WHAT THAT MEANS? 14:53:48 JUST A SECOND. LET ME GET THE EXHIBIT FIRST. 14:54:13 YOU'RE ON WHICH PAGE OF THE REVIEW? 14:54:16 PAGE 3. OKAY. 14:54:22 YOU STATE THERE I HAVE BEEN THE PRIMARY PROPONENT OF TRADING 14:54:26 RELATED EQUITY NAMES ON THE A.B.S. DESK. 14:54:28 IN PLAIN ENGLISH, WHAT DOES THAT MEAN? 14:54:32 THAT REFERS TO TRADING EQUITIES AS PART OF OUR HEDGING 14:54:36 STRATEGY. OKAY. 14:54:38 WERE YOU INVOLVED IN OR DID YOU DIRECT GOLDMAN TAKING SHORT 14:54:41 POSITION ON COMPANIES WITH EXPOSURES IN THE MORTGAGE 14:54:47 MELTDOWN? I DON'T REMEMBER THE NAMES 14:54:49 THAT WE USED AS -- SPECIFIC NAMES AS PART OF OUR HEDGING 14:54:52 STRATEGY, BUT AS PART OF OUR MACRO HEDGING STRATEGY, WE DID 14:54:56 USE PRIMARILY PUT OPTIONS ON EQUITIES AS COMPONENT OF WHAT WE 14:55:01 DID. YOU BOUGHT PUTS? 14:55:03 WE BOUGHT PUTS. AND YOU DON'T REMEMBER ANY OF 14:55:07 THE NAMES OF THE COMPANIES THAT YOU BOUGHT PUTS IN? 14:55:09 IT WAS AWHILE AGO. I DON'T REMEMBER THE SPECIFICS. 14:55:12 OKAY. EXHIBIT 156 IS A REPORT IN AN 14:55:19 E-MAIL ADDRESSED TO YOU DATED MARCH 28th, 2007. 14:55:23 IT IS A REPORT ON GOLDMAN SACHS' RISK EXPOSURE TO VARIOUS 14:55:30 C COMPANIES. 14:55:47 OKAY. DO YOU EVER RECALL RECEIVING 14:55:50 SOMETHING LIKE THIS? I DON'T REMEMBER SEEING THIS. 14:55:54 BUT IT WAS AN E-MAIL ADDRESSED TO YOU? 14:55:56 YOU -- I CAN CONFIRM THAT JUST 14:55:58 LOOKING AT IT HERE. THE E-MAIL TO ME REFLECTS 14:56:03 GOLDMAN TOOK A SHORT ACTION ON BEAR STEARNS AND MERRILL LYNCH, 14:56:07 YOUR FORMER COMPETITORS. IS THAT WHAT IT WOULD INDICATE? 14:56:11 THERE'S A LOT OF INFORMATION ON THIS E-MAIL. 14:56:14 IT LOOKS -- I'LL WAIT FOR YOU TO ASSESS 14:56:15 IT. I MEAN, I SEE THOSE NAMES ON 14:56:22 THIS E-MAIL. WERE YOU RESPONSIBLE FOR 14:56:24 THOSE POSITIONS SINCE YOU WERE THE DIRECTOR OF THAT? 14:56:27 WELL, I DON'T KNOW IF THESE NAMES WERE AS A RESULT OF MY 14:56:31 TRADING OR SOMEONE ELSE'S TRADING WITHIN THE FIRM. 14:56:35 WELL, IT WOULD CERTAINLY LOOK LIKE IT WOULD BE, SINCE THE 14:56:38 E-MAIL IS DIRECTED TO YOU. GO TO EXHIBIT 155 IF YOU WOULD. 14:56:45 THERE'S A LOT OF OTHER PEOPLE ON THIS E-MAIL. 14:56:48 I UNDERSTAND, BUT YOU ARE THE ONE WHO TOOK CREDIT IN YOUR OWN 14:56:52 SELF-EVALUATION THAT YOU ARE THE ONE WHO IS RESPONSIBLE FOR THAT 14:56:54 STRATEGY. WHICH I THINK THERE'S, YOU 14:56:56 KNOW, JUST TO GIVE YOU SOME BACKGROUND. 14:56:59 THAT'S A PERFECTLY -- I'M NOT SAYING THERE'S 14:57:01 ANYTHING WRONG WITH THE STRATEGY. 14:57:02 I DIDN'T SAY THAT. 155? 14:57:03 YES. OKAY. 14:57:07 THIS IS A DOCUMENT THAT REFLECTS THAT THE BIGGEST PIECE 14:57:09 OF TIMBERWOLF WAS PURCHASED BY A DIVISION OF WHAT WAS FORMERLY 14:57:14 BEAR STEARNS. $300 MILLION WORTH. 14:57:18 DOES THIS DOCUMENT SHOW THAT GOLDMAN TOOK A SHORT POSITION ON 14:57:22 BEAR STEARNS? DOCUMENT 155? 14:57:24 YES. I THINK DOCUMENT 155, WHICH, 14:57:28 IS THIS AN E-MAIL OR -- WHAT IS THIS? 14:57:31 WELL, IT'S IN FRONT OF YOU. IT'S NOT AN E-MAIL. 14:57:35 I DIDN'T SEE THIS REPORT BEFORE. I DIDN'T SAY IT WAS AN 14:57:39 E-MAIL. IT'S A DOCUMENT. 14:57:40 I'VE NEVER SEEN THIS DOCUMENT BEFORE. 14:57:41 DO YOU HAVE ANY RECOLLECTION AT ALL OF RECOMMENDING A SHORT 14:57:45 ON BEAR STEARNS OR RECOMMENDING A PUT. 14:57:47 I DO RECALL, YES. OKAY. 14:57:51 SO HERE'S THE QUESTION I HAVE FOR YOU, AND I AM NOT SAYING 14:57:55 IT'S NOT FAIR, BUT I WANT TO GET YOUR ASSESSMENT. 14:57:57 YOU ARE LOOKING AT WHAT YOU SEE IS A CHANGE IN THE RESIDENTIAL 14:58:04 SECURITY -- RESIDENTIAL-BACKED MORTGAGE SECURITIES. 14:58:08 YOU ARE CHANGING POSITIONS WITHIN GOLDMAN. 14:58:12 AT THE SAME TIME, YOU ARE SELLING THEM TIMBERWOLF, WHICH 14:58:15 YOU ARE NOW SEEING AND YOU ARE BUYING STUFF ON THE OTHER SIDE 14:58:18 OF, WHICH WAS USED WITH A FAIRLY HUMOROUS DESCRIPTION BY SOME IN 14:58:24 YOUR SALES DEPARTMENT, AND NOW YOU ARE CARRYING THAT EVEN 14:58:27 FURTHER BY SHORTING A COMPANY THAT BOUGHT YOUR PRODUCT BECAUSE 14:58:32 IS THE THINKING IS IT'S A SMART WAY TO HEDGE BECAUSE YOU'RE 14:58:35 ALREADY BETTING AGAINST IT INSIDE ON A CDO PRODUCT AND 14:58:38 THEY'VE GOT $300 MILLION OF IT AND YOU DON'T THINK IT'S GOING 14:58:42 TO BE WORTH MUCH SO IT MIGHT MEAN THAT THEIR STOCK IS GOING 14:58:44 TO DECLINE. IS THAT AN ACCURATE ASSESSMENT 14:58:47 OF THE TRADING STRATEGY? ABSOLUTELY NOT. 14:58:48 WHAT WAS THE INDICATION FOR THE TRADING? 14:58:50 WHY WOULD YOU SHORT BEAR STEARNS AFTER THEY JUST GOTT BOUGHT $300 14:58:54 MILLION WORTH OF TIMBERWOLF FROM YOU? 14:58:57 TIMBERWOLF TRANSACTIONS WERE NOT PART OF MY JOB FUNCTION. 14:59:00 WERE YOU AWARE OF
HOLLYWOOD MINUTE: "DRAGON" THREEQUEL ALREADY HUGE
Stations Please Note: This package contains third party material. Unless otherwise noted, this material may only be used within this package and within ten days of its initial delivery or such shorter time as designated by CNN.\n\nNOTE: We send our packages with discrete, separate audio. Our reporter's track can be removed by deleting the audio on channel one.\n\nAFFILIATE MARKET NOTES: Sarah Paulson was born in Tampa, Florida, and grew up in New York and Maine. Anya Taylor-Joy was born in Miami, Florida, and grew up in Argentina and England.\n\n --SUPERS--\n\n:00-:26\n"How To Train Your Dragon: The Hidden World"\nCourtesy Universal Pictures\n\n:26-:38\n"Glass"\nCourtesy Universal Pictures\n\n:38-:53\nSarah Paulson\n\n:53-1:02\n"Glass"\nCourtesy Universal Pictures\n\n1:02-1:19\nCNN\n\n --LEAD IN--\n\nFOR THE LATEST IN ENTERTAINMENT NEWS, HERE'S DAVID DANIEL WITH THE HOLLYWOOD MINUTE.\n\n --REPORTER PKG-AS FOLLOWS--\n\n(nat-music) "He's not the only one!"\n\n"HOW TO TRAIN YOUR DRAGON: THE HIDDEN WORLD" DOESN'T REACH U-S THEATERS UNTIL FEBRUARY 22ND, BUT IT'S ALREADY A HUGE HIT! THE ANIMATED ADVENTURE TOPPED THE INTERNATIONAL BOX OFFICE LAST WEEKEND, GROSSING MORE THAN 40-MILLION DOLLARS AS IT DEBUTED IN 23 MARKETS. OVERALL, IT'S MADE MORE THAN 85-MILLION IN 41 INTERNATIONAL MARKETS.\n\n"Your friends and family members have lost their perspective."\n\nSARAH PAULSON HAS A CENTRAL ROLE IN THE U-S BOX OFFICE CHAMP, "GLASS." SHE SAYS SHE LEAPED AT THE CHANCE TO WORK WITH WRITER-DIRECTOR M-NIGHT SHYAMALAN.\n\n"I remember where I was when I saw 'Sixth Sense,' and 'Unbreakable,' and 'Signs,' and what I did after, and my best friend, like, when I went to see 'Signs,' not wanting to go home alone, and, like, you know, I just remember so many points in my own personal history that are associated with seeing movies of his."\n\n"Did you know the first Superman couldn't even fly?"\n\nPAULSON'S "GLASS" CO-STAR, ANYA TAYLOR-JOY, IS HEADED TO THE U-K! VARIETY REPORTS, SHE'S SET TO PLAY ONE OF THE LEADS IN "LAST NIGHT IN SOHO," FROM "BABY DRIVER" WRITER-DIRECTOR EDGAR WRIGHT. IT'S DESCRIBED AS A PSYCHOLOGICAL HORROR-THRILLER SET IN LONDON'S SOHO DISTRICT. FILMING IN LONDON IS EXPECTED TO START THIS SUMMER. IN HOLLYWOOD, I'M DAVID DANIEL.\n\n -----END-----CNN.SCRIPT-----\n\n --KEYWORD TAGS--\n ENTERTAINMENT SHOWBIZ HOLLYWOOD MOVIES BOX OFFICE HOW TO TRAIN YOUR DRAGON GLASS SHYAMALAN\n\n
Senato Carl Levin News Conference on Goldman Sachs -
Senator Carl Levin Press Conference A press briefing in advance of Tuesday's Committee hearing on "Wall Street and the Financial Crisis." NOTE: This briefing will begin with an appearance by Subcommittee Chair Senator Carl Levin. These comments will be open, and cameras and microphones will be accommodated. Following these comments by the Chairman, the briefing will continue with Committee staff in a for-background-only format with no cameras or microphones permitted. CARL LEVIN REMARKS EMBARGOED UNTIL 5PM TODAY SLUG: RS23 1230 LEVIN 80 DISC#: 817 AR: 16X9 *** EMBARGOED UNTIL 5 PM TODAY *** 12:37:16 Walk out 12:37:54 tomorrow the tomorrow the subcommittee ... of the financial crisis to hit this country in 2008. The third hearing will be held on radiation. the two largest credit radiators. 12:39:15 to agree with the conclusion. From quote the results. Were enormous. That conclusion came in 1934 as the senate looked into the reasons. Goldman Sachs. our employees our communities. Repeatedly put ahead of the interest of the 12:40:01 helped run the conveyer belt by selling mortgage related securities Goldman provided from those lenders and keep the origination machine running to turn those high risk mortgage.selling them to pension funds insurance co spreading the poison throughout the system. *** 12:40:53 placed heavy bets against mortgage backed securities and then cashed in large short positions.short positions that represented wagers and some of the same securities that they were designed to succeed 12:41:31 in December of 2006 that began as a hedge of the firms large exposure to that market that . that's the way to start it was a hedge the edict from top management was to quote get closer to home. Meaning get to a more neutral balanced position on risk. 12:42:14 and began betting heavily on its decline, in 2007 were consistent and they were big these short positions at one point represented 56% of the firms risk. Of value at risk or VAR 12:42:48 these short positions did more than.they generated large profit..Reasonable hedge against loss.they have been saying it before 12:43:14 they said it just on Saturday. Goldman Sachs did not take a large directional. the firm was not net short on market in 2007 and 2008 well yes it was. Its own documents show that it engaged in what one top executative not hedging but betting heavily against the market. 12:44:02 said to his superiors from his colleagues in the mortgage area. That Goldman Sachs should not get flat.he wrote that much of that plan began working by February.in our very profitable year was under weighted. Goldman profited while the market dropped not to mention the damage that was done to the U.S. economy. *** 12:46:10 started putting on big short positions and did so enough quantity that we were net short and made money substantial money just to pick a couple other ones on page 2 third quote down second quarter 07 position business tactically shorten synthetics.shorted CDO's and RMBDs's which is also a bet on the shorts 12:47:04 now that's what I just read that's the presentation to the Goldman board. Position businesses tactically, short, short, short. **** that is the tactical decision 12:47:43 we were over all net short and thus had very strong results despite what they have been trying to say now was it a direction l change. 12:48:15 this was the mortgage presentation to the board. Getting short on the super senior bd and triple bd index getting short on the triple. 12:49:32 and they made a big profit a profit I have already read to.these facts will end the pretense that Goldman ended as a mere market maker. 12:50:28 they represented major bets. was in for a major decline. that made extraordinary profits. Now why does the firm continue to deny. And getting out of its long position in 2007. Why that denial? The firm cannot continue to portray itself as working on behalf of its clients.that it is selling those securities to those clients. 12:51:31 of two mortgage related securities WAMU. and these were mortgages that Goldman had helped to assemble. That is on the doc you have called excerpt from doc related to Goldman 12:52:21 we own ten million dollars protection marked with 50 dollars conclusion we make 5 million dollars they went short on securities. 12:53:22 AC1 Goldman violated. The SEC and the courts will resolve the legal question of whether Goldman's actions broke the law the question for us is Goldman's actions appropriate 12:53:58 one thing is clear Goldman knew that the hedge fund was betting against and that it was going to.Goldman knew that Paulson was going to . another thing Goldman facilitated Goldman's selection. Now these two quotes. 12:55:06 this is an email exchange between.are finishing up engagement letters with ACA and Paulson that will help Paulson short senior tranches.still reputational risk *** in their own doc they knew that Paulson was going short. 12:55:54 this is an email from the same fabric story. One hundred percent. no remember what Goldman was saying. that's inside 12:58:31 support that program and that's what Swenson said he was saying no to clients that were depending on Goldman Sachs. 12:58:56 made half hundreds of millions of dollars by doing that. The evidence shows that. in doing so that it clearly no long believed them 12:59:38 the ultimate harm here was not just to the clients that were not well served. The harm here is to all of us the toxins that Goldman has done.to people who have never heard of a synthetic.can cause.. 13:00:14 as we speak there are lobbyists aimed at reforming these abuses **** 13:00:31 but this market is not free until it is free of self dealing and free of conflict of interest. It is not free until it ends the gambling operation that the public ends up paying whether wall street ends up.and are causing to these bankers fellow citizens I don't know that they will. I hope that congress will follow the example of another congress back on Wall Street 13:01:27 before I turn it over to my staff who has a lot more details. Q/A 13:02:07 number one they say for reasons I am not sure of that they did not change direction and bet against this market they went heavily short in 2007 and they are denying it for reasons that they think are clear 13:02:35 secondly they participated in the mortgages that contained bad mortgages 13:04:01 they decided to go gangbusters.that it was very clear by then contained these bad mortgages *** 13:04:22 they did not say that they were shorting the . publicly that they had made a significant shift. 13:04:42 when they had made that significant directional change. I don't think we have evidence about specific transactions that major shift that they took to go gangbusters they presented that to the board their own board in march 13:06:50 that's a pretty direction word there, reverses because it was presented as to what they did in march first quarter 2007 they are now summarizing what they did they reduced long positions they increased protection they took significant 13:07:57 position business tactically now this is what they are saying they did they shorted synthetics they shorted CEO's 13:08:27 all of those are betting against the market. 13:09:27 do what we have done at each of the four hearings we will produce a huge number of documents 13:09:40 MS of Levin holding documents 13:12:12 that is not a decision that will be made 13:12:26 to the subcommittee. I think they have been misleading to the country. I mean they have made statements. They make those kinds of statements I think they are misleading 13:12:48 they've mislead the country and they were not fair to their customers. **** 13:13:07 we had to focus on one. We decided that Goldman was a major bank we believe this was not uncommon in terms of the type of effort to sell to customers we think that is not uncommon we think that ought to end. 13:14:06 they obviously insured those bets on behalf of Goldman and behalf of Paulson. We cannot have this type of gambling house like Goldman.which are nothing but bets they are not asset backed. Or the risk is not to 13:14:43 these are bets and we cannot allow this to continue *** 13:15:32 taking the losses from something that was previously done and deducting those losses from the money they made on shorts the money they made on betting against the market. 13:16:06 and u so they made a heck of a lot of money on shorts 13:17:35 but if they blow up the copany, the tax payer is going to have to foot the bill which is essential that is one thing. Stop these naked credit defaults that do not have any asset we ought to put an end to those as well. 13:20:37 in a number of ways they contributed to the collapse of this economy ***** 13:23:32 they knew it was in the public media. there was a lot of fraud and a lot of misrepresentation. 13:24:04 they did know about the weakness in the subprime market.
HOLLYWOOD MINUTE: "HOLD YOUR BREATH" FIRST LOOK
<p>Stations Please Note: This package/segment contains third party material. Unless otherwise noted, this material may only be used within this package/segment.</p>\n<p></p>\n<p>NOTE: We send our packages with discrete, separate audio. Our reporter's track can be removed by deleting the audio on channel one.</p>\n<p></p>\n<p>AFFILIATE MARKET NOTES: "Hold Your Breath" was filmed in Stanley, Santa Fe, and Gallisteo, New Mexico. Sarah Paulson was born in Tampa, Florida. Donald Glover was born in Edwards, California. "Saturday Night" was filmed in Atlanta and Fayetteville, Georgia.</p>\n<p></p>\n<p><b>--SUPERS</b>--</p>\n<p></p>\n<p>:00 - :19</p>\n<p>"Hold Your Breath"</p>\n<p>Courtesy Searchlight Pictures</p>\n<p></p>\n<p>:20 - :34</p>\n<p>CNN</p>\n<p></p>\n<p>:35 - 1:02</p>\n<p>"Saturday Night"</p>\n<p>Courtesy Sony Pictures Releasing</p>\n<p></p>\n<p><b>--LEAD IN</b>--</p>\n<p></p>\n<p>YOUR FIRST LOOK AT A NEW DUST BOWL-ERA THRILLER AND DONALD GLOVER POSTPONES THE REST OF HIS NORTH AMERICAN TOUR.</p>\n<p>HERE'S RICK DAMIGELLA WITH THE HOLLYWOOD MINUTE.</p>\n<p></p>\n<p><b>--REPORTER PKG-AS FOLLOWS</b>--</p>\n<p></p>\n<p>"The Grey Man is everywhere. You can't keep him out."</p>\n<p>SARAH PAULSON TAKES ON THE HORRORS HIDING IN THE DUST.</p>\n<p>THIS IS YOUR FIRST LOOK AT THE DEPRESSION-ERA THRILLER "HOLD YOUR BREATH," WHICH SEES THE ACTRESS PROTECTING HER FAMILY FROM A SINISTER PRESENCE. </p>\n<p>THE FILM ARRIVES ON HULU ON OCTOBER 3RD.</p>\n<p>*nat-red carpet cheering*</p>\n<p>DONALD GLOVER POSTPONES THE REMAINING DATES OF HIS FINAL TOUR AS CHILDISH GAMBINO. </p>\n<p>THE MUSICIAN ANNOUNCED ON SOCIAL MEDIA THAT HE IS GOING TO TAKE TIME TO FOCUS ON HIS PHYSICAL HEALTH AND THAT ALL DATES WILL EVENTUALLY BE RESCHEDULED.</p>\n<p>"Okay, let's see if we can get through one of these skits."</p>\n<p>"Sketches, Davey, please."</p>\n<p>"And-"</p>\n<p>"Okay, ready camera one-"</p>\n<p>*nat-crash sound and shouts*</p>\n<p>"S-N-L"S ROUGH START IS REVEALED. </p>\n<p>THE UPCOMING COMEDY "SATURDAY NIGHT" FOLLOWS THE HURDLES THE LEGENDARY SKETCH COMEDY SERIES FACED GETTING READY FOR ITS PREMIERE BROADCAST IN 19-75.</p>\n<p>FANS WILL SEE HOW IT ALL CAME TOGETHER WHEN THE MOVIE OPENS WIDE ON OCTOBER 11TH.</p>\n<p>IN HOLLYWOOD, I'M RICK DAMIGELLA.</p>\n<p></p>\n<p><b>-----END-----CNN.SCRIPT-----</b></p>\n<p></p>\n<p><b>--KEYWORD TAGS--</b></p>\n<p>ENTERTAINMENT HOLLYWOOD SHOWBIZ FILMS MOVIES THRILLER HOLD YOUR BREATH SARAH PAULSON MUSIC TOUR DONALD GLOVER CHILDISH GAMBINO CANCELLATION COMEDY SATURDAY NIGHT LIVE BIOPIC</p>\n<p></p>
Financial Crisis Inquiry Hearing 0900-1000
TRANSCRIPT: ANGELIDES: Good morning. Welcome to the second day of hearings by the Financial Crisis Inquiry Commission. As the members know and as the public know who has been watching us, we have been exploring the shadow banking system in this country and its effect on the financial and economic crisis which has gripped this nation. We have been focusing on the growth, development of this system and the risks posed by it. As we've said before, while there's significant interest, obviously, in what was done to rescue various financial institutions in the midst of a financial crisis, the charge of this commission is to examine the causes of the crisis and to explore how risks to the system developed in the first place, what could have been done, what should have been done to prevent those risks from coming into being. We have a full day of hearing again today. We are joined, first of all, this morning by former Secretary of the Treasury Henry Paulson. And, really, with no further ado, we will begin this hearing, unless, Mr. Vice Chairman, you'd like to make an opening remark, also. THOMAS: No, I would just like to say that yesterday was useful. Today has a real opportunity to be useful. I cannot recall -- in my four decades -- in which we have two witnesses, both of whom were former secretaries of the treasury, one who had a background on Wall Street in one of the major firms, and the other secretary having a position in the Federal Reserve in New York so that we get a full understanding, based upon our ability to ask questions, of both sides of the street from two different perspectives over a period of time which is obviously, as we now know in retrospect, very significant in the history of the United States. And so I look forward to the testimony. Thank you, Mr. Chairman. ANGELIDES: Thank you, Mr. Vice Chairman. And as the vice chairman indicated, we will start today hearing from former Secretary Paulson. We will then hear from secretary of the treasury, Mr. Geithner. And then we will have a panel later in the afternoon with participants in the shadow banking system from GE Capital to PIMCO to State Street Bank. With no further ado, Mr. Paulson, thank you for being here this morning. I'd like to ask you to stand for what is a customary oath of office that we administer to everyone who appears before us. If you would please raise your hand as I administer the oath. Do you solemnly swear or affirm under penalty of perjury that the testimony you're about to provide the commission will be the truth, the whole truth, and nothing but the truth, to the best of your knowledge? PAULSON: I do. ANGELIDES: Thank you very much. Mr. Paulson, we have received your written testimony, and we appreciate it very much, and we'd like to ask you now to -- we'd like to give you the opportunity -- and we'd like to obviously hear -- an oral presentation by you. We've asked, in consideration of the time, that you keep that presentation to no more than 10 minutes. I know you're familiar with testifying up here on the Hill, so you probably know there's a light on that box that goes to yellow with one minute, to red at -- when time is up. And if you'd make sure your mike is on, you may commence. PAULSON: Chairman Angelides, Vice Chairman Thomas, and members of the commission, thank you for the opportunity to testify today. I served as secretary of the treasury during the recent financial crisis. I am proud of the work we in government did to save our nation's financial system from collapse and chaos and our economy from disaster. Even so, the crisis caused human suffering that simply cannot be measured. The American people deserve and policymakers will benefit from an understanding of the broad and diverse causes of the crisis. The job of providing that explanation falls to this commission, and it is an awesome responsibility. Many mistakes were made by all market participants, including financial institutions, investors, regulators, and the rating agencies, as well as by policymakers. Most of these are well understood and, importantly, policymakers are currently addressing some major regulatory structure and authority issues that allowed the pre-2007 regulatory structure and authority issues that either -- excuse me, policymakers are currently addressing these regulatory structures that either allowed the pre-2007 excesses in our system or made it difficult to address the crisis. Nevertheless, a number of the root causes are not being addressed and remain sources of danger to our country. I fully support your important mission, and I hope that my testimony today can assist it. The roots of the financial crisis trace back to several factors, including housing policy, global capital flows, overleveraged financial institutions, poor consumer protection, and an archaic and outmoded financial regulatory system, among many other causes. Underlying the crisis was a housing bubble, and it is clear that several policy decisions shaped the home mortgage market. Excesses in that market eventually led to a significant decline in home prices and a surge of loan defaults which caused tremendous losses in the financial system, triggered a contraction of credit, and put many Americans quite literally out on the street. These excesses were driven in large part by housing policy. From 1994 to 2006, homeownership soared from an already spectacular 64 percent of U.S. households to a staggering 69 percent, due to the combined weight of a number of government policies and programs. Fannie Mae and Freddie Mac, the government-sponsored enterprises, comprised a central part of the U.S. housing policy. The GSEs operated under an inherently flawed model of private profit backed by public support, which encouraged risky revenue seeking and ultimately led to significant taxpayer losses. The United States has always encouraged homeownership, and rightfully so. Homeownership builds wealth, stabilizes neighborhoods, creates jobs, and promotes economic growth, but it must be pursued responsibly. The right person must be matched to the right house, and consequently the right home loan, and in the years before the crisis, we lost that discipline. The over-stimulation of the housing market caused by government policy was exacerbated by other problems in that market. Subprime mortgages went from accounting for 5 percent of total mortgages in 1994 to 20 percent by 2006. Consumer protection, including state regulation of mortgage origination, was spotty, inconsistent, and in some cases non-existent. Speculation on rising home prices led to increasingly risky loans, including far too many home loans made with no money down. Securitization separated originators from the risk of the products they originated. Mortgage fraud increased, and predatory lenders and unscrupulous brokers pushed increasingly complex mortgages onto unsuspecting borrowers. The result was a housing bubble that eventually burst in a far more spectacular fashion than most previous bubbles. Global forces also played a significant role in causing the crisis. Imbalances in the world's economies led to massive and destabilizing cross-border capital flows. While other nations save, Americans spend. Consumption in this country is a norm, spurred on by low interest rates, aided by capital flowing from countries, notably China and Japan, which have high savings and low shares of domestic consumption, and further encouraged by U.S. tax laws that discourage saving. We are living beyond our means on borrowed money and borrowed time. Consumers, businesses, and financial institutions all overextended and overleveraged themselves with inevitably disastrous results, while our federal and state governments continue to borrow heavily, jeopardizing their long-term fiscal flexibility. Our financial institutions, including commercial and investment banks, were notable examples of this overleveraging. In general, these institutions did not maintain sufficient high-quality capital, which left them unable to absorb the significant losses they incurred as the housing bubble burst. Many of them did not understand their liquidity positions fully. They held insufficient cash and cash equivalents and instead relied overly on short-term funding sources that ran dry as the credit markets contracted. These leverage problems were further exacerbated by a lack of transparency, which caused problems in subprime to affect other classes of assets. Like a tainted food scare, a relatively small batch of deadly products -- securitized subprime mortgages -- led to fear and panic in the markets for many mortgage securitizations, driving down the price of assets, which triggered huge losses and severe liquidity problems. Derivative contracts, including excessively complex financial products, exacerbated the problems. These instruments embedded leverage in the institutions' balance sheets, along with risks which were so obscured that at times they were not fully understood by investors, creditors, rating agency regulators, or the managements themselves. Very importantly, a number of financial institutions had woefully inadequate risk management and liquidity management practices that allowed these problems to grow and intensify, in a number of cases leading to failure of the institution. Compounding the problems at these financial institutions was a financial regulatory system that was archaic and outmoded. Our regulatory framework was built at a different time for a different system, and it has not kept pace with the rapid changes in the financial industry. I noted during my time at Treasury the enormous gaps in this authority, duplication of responsibility, and unhealthy jurisdictional competition. No single regulator had responsibility for overseeing the stability of the system. The result was that regulators were often unable to supervise their firms they oversaw adequately. They did not see the impending systemic problems that progressed towards the crisis. And they did not have the tools to contain all the harms that unfolded as institutions began to collapse. In March of 2008, this led me to recommend a blueprint for the major reform of our financial regulatory system after a year-long comprehensive review. I will turn now to the specific topics of today's hearing, the shadow banking system, a term that refers to the large capital and credit markets outside the traditional banking system that provide credit for municipal governments, corporations, and individuals for short-, intermediate-, and long-term funding needs. Before the crisis, these markets satisfied at least half of the consumer and business credit needs and are one of the hallmarks of our advanced and highly developed capital markets. They have greatly benefited our nation, spurred growth and prosperity at all levels of our economy, and they have enabled more people to receive higher education, more people to purchase homes, more people to start new businesses, and more people to plan effectively for their children's future. They have -- they have increased consumer choice, stimulated job creation, and allowed our system to diversify away from the large concentrated banks found in other capital markets. PAULSON: But like all activities in the financial sector, these markers were fueled by the global excesses and regulatory flaws I've already discussed. When the crisis hit, the stress it placed on these markets exposed to many of these flaws, and these flaws in turn extended and exasperated some of the effects of the crisis. These problems must be addressed. Our financial system cannot move forward without fortifying the weak parts of this infrastructure. In my written testimony I have addressed some specific areas of concern and my suggestions for reform. My list is not exhaustive, and there are certainly other problem areas in need of scrutiny. In addressing these problems, however, we must make sure we retain the benefits of the underlying financial innovations. In our haste to deal with the flaws in the non-bank financial system, we should not move ourselves track to assistant of consolidated, monolithic commercial banks. I'm confident that a thoughtful process can achieve this. Thank you, and I'd be pleased to answer any questions. ANGELIDES: Thank you very much, Mr. Secretary. We will now commence for questioning by members, and we will start with me and then the vice chair and then the balance of the members. And I might say just one thing I noted yesterday, and that is Commissioner Born and Commissioner Holtz-Eakin have served as lead commissioners for this series of hearings and have done an excellent job, and I wanted to note that. Mr. Secretary, I have a number of questions for you. What I'd like to -- and they -- they really focus on the run-up to the crisis. There's been, as I said in my opening remarks, a lot of fascination with the bailout, how the financial system was stabilized. But for me -- and, I suspect, some other commissioners -- the real question is how did we come to the point where the only options were either allow the financial system to collapse or to commit trillions of dollars of taxpayers' dollars. What I'd like to do to start, though, this morning is ask you just a couple of questions with respect to your role at Goldman before you became treasury secretary, and then move on to your role as treasury secretary. During that time you were the CEO of Goldman from January 1st, 2004, through June 1st, 2006, at Goldman issued 19 synthetic subprime CEOs totaling about $8.4 billion. Let me first ask you, because this goes to the shadow banking system, it goes to the system as a whole, what's your sense, if any, of the -- what's your sense of the value, if any, of synthetic CEOs in our financial system? Do they provide any real capital or benefit to the system or are they merely a device for betting in terms of results on the system? Are they bets or are they actually devices that provide capital and liquidity of benefit to the real economy? PAULSON: Mr. Chairman, a number of times I have said that I believe that we had access to complexity in financial products and that as I -- as I think about it, it's very hard to regulate against innovation. I think one -- one of the things that I've recommended for a number of years now is that when we look at some of these complex derivative products, some of these products, that regulators make sure that we have -- have real substantial capital charges against these products. Now, in terms of the -- of the deals that you're talking about, I don't remember the particulars of -- of those -- of those particular products. ANGELIDES: Do you think that they provide -- just the core issue -- do you believe they provide real benefit to the financial system and to the economy, the real economy as a whole? Or are they just side bets that... PAULSON: I would say -- well, I would say this. To get that market making, because I think there's been a lot of -- of discussion about market making, and one -- one of the things that I saw -- and again, I haven't been in the -- I haven't been in the business for -- for four years, but one of the things I saw was that clients increasingly were asking Goldman Sachs and other banks to -- to provide capital and to help them manage risk. And there are just many examples of -- of that. And, you know, that business, I think, is a very legitimate business, a very beneficial business. And it -- it needs to be done with very high standards, great integrity, and in a way in which you're working for your clients' interests. And I was, you know, thinking this morning and -- about this hearing -- and thinking of all the situations where a client, you know, a major sovereign nation that was worried about the prices of oil rising would come to an investment bank and -- and look for a way of -- of protecting themselves against that -- that risk, or an airline that was worried about the -- the, you know, the -- the prices, the oil prices going up. The sovereign nation would be more concerned about oil prices going down. So there -- there are many situations where -- where customers want their investment banks to help them manage risk, and I think that's a -- a very legitimate function. ANGELIDES: Do you think it's -- do you think it's legitimate if there's no underlying interest? Like, you mentioned the underlying interest, obviously, airline company with oil fuel, other entities that may have a, you know, a commodity against which they may hedge, because they utilize it. PAULSON: Well, what I would say -- I'd say this. I -- I think of all of the times when I was in the business where we employed hedges. I actually think best practice in terms of prudent risk management is -- is firms hedging securities that they have -- that they have on -- on their balance sheet. I -- I think of underwriting of securities, where the investment bankers or bankers needed to take a short position, which is part of the offering process to make sure that there is a stable market. You know, there are -- and there's, you know, in the housing, there's -- there's no reason why that someone, who wants to put in a hedge in terms of protecting themselves against housing prices going one way or another, shouldn't be able to do so. That's -- to me that's a very important function of a market maker. So I think what we want to do is we want to separate the function and the market making function, which needs to be done with the very highest standards, the very highest not only in terms of compliance with the laws, but -- but doing it in a way which it inspires and keeps client trust, and separate that from -- from, you know, from activities that -- that is not done properly. And you can -- investment banks or banks can -- can make mistakes, commit fraud in a whole variety of areas. It's -- but let's focus on the legitimate role that market making plays in the capital market. ANGELIDES: All right. Let me ask you a very quick question, because I want to get to the meat of this in terms of your role as treasury secretary, the run-up to the crisis. But I want to ask you one quick question, since you raised the standards of conduct. And I want to ask not so much in the role as the market maker, but obviously -- and I'm not going to refer to a specific case of that's been lodged by the SEC against Goldman -- but do you -- do you think it's appropriate when an entity is underwriting a security, that it would contemporaneously bet against that security on issuance? Is that appropriate and proper? PAULSON: I -- I would just simply say that any -- any transaction that is done and the marketplace has got to be done with the highest standards, fair dealing, and making appropriate disclosures. Now, in -- in terms of when you say betting against or shorting, as -- as I said, I -- I can think of -- of, you know, when I was in the business and we managed, we sold securities in the public market. You sold securities as part of an underwriting process. The syndicate or the underwriter had a short position, OK? Is that betting against a security? That was a legitimate function, and it's done to make sure there's a stable market. Frankly, every one of these market making transactions, where many of them, the client or the customer expects the banker to take the other side of the trade, help them manage risk, commit capital. ANGELIDES: And so complete disclosure in your mind, complete disclosure is what you think is elemental. PAULSON: I -- I said appropriate disclosure is what I... ANGELIDES: All right. Well, I don't want to put words in your mouth. OK. Let's move on. I wanted to just ask you about this. Let me talk about treasury secretary. Obviously, you know, but the Treasury Department, according to the Web site, is responsible for, quote, "ensuring the financial security of the United States." You were ahead of the president's working group on financial markets and in that regard to bring forward the blueprint plan. But one of the things I'm trying to get to is what didn't we know. And looking forward to the risk of future crises, we can have organizational structures, but the real question is are -- are we going to be able to pick up on the warning signs? You -- you note in your book that there is the August 17th meeting, I think, a couple of months after you get appointed, where you indicated in that meeting, August 17th at Camp David, that, quote, "my number one concern was the likelihood of a financial crisis. I was convinced we were due for another disruption." So here's what I want to ask you. Sitting in that position, having come from Wall Street, by the end of 2006, the leverage ratios at, you know, Bear Stearns have hit 32 to 1; Goldman, 31 to 1; Morgan Stanley, 36 to 1; Lehman Brothers, 34 to 1, not counting for balance sheet management. In the spring of '07, which is, obviously, a little later than that date when you were at Camp David, the ratio of Level 3 assets, in liquid assets, assets that are hard to price because there is no discernible market price, at Bear Stearns are 269 percent of tangible common equity; at Lehman, 243; at Goldman, 200; at Morgan Stanley, 266. The investment banks -- and just as a set; they're not necessarily unique -- have been growing like weeds -- at Goldman, 26 percent a year compounded annual growth rate; Morgan Stanley, about 15 percent; Merrill Lynch, 18 percent. And as you point out in your testimony, there are warning signs that abound -- states all over the country trying to fight, in early 2000 before you become treasury secretary, deceptive and unfair lending. They were preempted by the OCC. In 2004 the FBI warns about an epidemic of mortgage fraud. I held this up yesterday. "The Economist" has an article cover called "Housing Prices after the Fall," which is in 2005. The lead of the story says the day of reckoning is closer at hand. It's not going to be pretty. How the current housing boom ends could decide the course of the entire world economy over the next few years. Housing prices are moving up in 2003 at 11 percent; 2004, 15 percent; 2005, 15 percent. You note in your testimony that subprime lending has exploded to be 20 percent of the market. And by 2006 mortgage debt between 2000 and 2006 has doubled in this country. We've borrowed more in those six years in mortgage debt than the whole 225 years in this country's history. There is knowledge of the opaque natures of derivatives. There is knowledge of a lot of instruments in the market. So here's my fundamental question. What do you and other policymakers know? When you came in to office, I guess my question is, what was the missing information that would have allowed both policymakers and corporate leaders to begin to mitigate risk? PAULSON: Well, Mr. Chairman, I think with all due respect I began immediately to work to mitigate risk, that the -- and within the confines of the fact that treasury secretary has no direct responsibility for regulating entities or markets. But what -- as -- as you noted, I saw immediately huge, gaping holes in the regulatory system, and so I took several actions immediately. Number one, regularly quarterly meetings of the president's working group so regulators could immediately begin sharing information, figuring out how to work together to fill in the gaps. Now, there was work done there right away on looking at the margin requirements that -- and -- and the amount of -- of credit between -- extended between, for instance, the regulated entities and hedge funds. I can come back to that more later. Secondly, I immediately started working with Congress to complete regulatory reform legislation for Fannie and Freddie, which had -- which had been stalled -- stalled by politics for years. And then I commenced this review, this regulatory review, and out of this review came -- came the blueprint. It came pressing institutions, pressing market participants to strengthen their infrastructure in areas like OTC derivatives, areas like that. And -- and then, ultimately, we came out with the blueprint. So I think we were -- we were on it. Now, the -- in terms of the excesses you talked about, they're there. You couldn't push a button and -- and have them go away. The bad loans had been made. The -- the -- we -- we had... ANGELIDES: Was the toothpaste out of the tube by the time you arrived, in your estimation... PAULSON: I would say... ANGELIDES: ... to coin a phrase that was used 30-some years ago by someone else? PAULSON: I would say most of the -- most of the toothpaste was out of the tube. And the -- and there was -- there really wasn't the proper regulatory apparatus to deal with it. ANGELIDES: All right, so -- but my essential question -- I understand -- I really had two, and you really got to the second, but was there -- by the time you arrive, is the information that you need and essentially financial industry leaders, it's on the table by 2006? Because, you know, we've heard a lot... PAULSON: Well, I... ANGELIDES: ... in these hearings. Can I say -- we've heard a lot about, "We're shocked. We're surprised. It's a tsunami." But even you -- even when a tsunami comes, you have warnings ahead of time. PAULSON: Yes, but what was -- let me tell you what wasn't clear to me, and I don't think it was clear to very many people, if any, when I arrived, and that was the scale and the degree of the problem. And, for instance, if you -- you know, referring to the book, if you go a little bit further, the president said to me, "What will cause the crisis?" OK? And I said, "I wish I knew. It'll be obvious after the fact that all it is -- no one predicted the Russian crisis." Now, what -- was we -- we could see some of the problems in the -- in, for instance, subprime and -- and housing, but no one -- at least that I was talking to -- predicted this massive decline in housing prices throughout the United States. And when I've asked myself why, why wouldn't people have predicted that, why wouldn't -- why wouldn't experts have predicted that, and I think it was because we were all looking through the paradigm that we'd had in this country since World War II, where residential housing prices had essentially gone up, mortgages were safe investments, and so the economic models didn't project the kind of -- kind of wholesale, you know, significant decline in housing prices. And so that was, I think, the -- that was -- that was the thing that people didn't predict. But having said that, you know, if -- if -- if we'd seen that coming, I'm not sure what we could have done differently. ANGELIDES: Even though -- and this isn't with respect to you -- even though by the time all the write-downs are happening at places like Citigroup and other institutions, at the end of '07, prices had only fallen 5 percent, and they had fallen 2 percent, I think, in the early '90s, but I see your point. But it -- but would this be a fair characterization, that people knew a storm was coming, people were concerned that the levees were weak and hadn't been tested, and that -- is it fair to say there wasn't a plan in place to deal with the crisis that was inevitable? PAULSON: Well, there wasn't a plan in place when I arrived. I think we -- we put a plan in place, because I think -- the only plan that I know how to put in place was to -- to get the regulators together with a very -- taking a different approach to the president's working group, and with regular meetings, where we started working immediately on what we thought the issues were going to be and how to respond to them. And so -- and to get working on, you know, I believe to this day that the most effective thing that anyone has done, either from the time I was there or since I've left, to deal with housing has been the actions taken with Fannie and Freddie. I think that's been the most effective to sort of stem that decline in home prices. And we started working on that right away. ANGELIDES: All right. I'm going to stop right now. I actually -- when I close up, before you leave, I have some very specific questions about Fannie and Freddie, a couple of them, but I want to stop right now to get to other commissioners, all right? Thank you, Mr. Secretary. PAULSON: Thank you. ANGELIDES: Mr. Thomas? THOMAS: Thank you. That presented a whole bunch of questions that I hadn't planned on, in terms of that -- that discussion. But I do want to start, also, with you, Mr. Secretary, at Goldman, not for any specific recollection of product. One of the things I'm trying to better understand, since I don't have any familiarity with the relationships in these institutions on Wall Street -- if you ask me about Congress, I could tell you a whole lot about things that people don't normally appreciate result in decisions, especially small-group dynamics, interpersonal relationships, the old business of who gets what, when and how on accommodations, which are fundamental to any democracy, in terms of quid pro quos and other structures that are simply there that make the system work. What I don't understand is the relationship between institutions, especially in the so-called shadow banking area, because to me it's remarkable that there existed this healthy and growing structure based upon very short-term financing, overnight, a number of institutions doing that, so you were sharing the grazing in the pasture. And yet, as has been indicated in terms of Goldman, with the current CEO and others, that you would take opposite sides in terms of market-making. That was within the institution. I'm trying to understand a relationship between institutions, not so much in an institution, because clearly if you're the largest, you can be on both sides and play various roles by virtue of your size, but if you're smaller, you may have to be more dependent on others. And so it's this business of, to what extent was there a symbiotic relationship with other firms, notwithstanding the fact they're your competitor, or was it pretty much predatory and that's one of the reasons the smaller ones went first? Because going back to the congressional example, I could be fundamentally opposed to someone on one day on an issue, that issue is dispensed with, and the next day, we wind up on the same side. So one of the things you tell folks when they first come is, you can be opposed to somebody, but if you're locked in opposition to that individual, you're going to miss a lot of opportunities to actually advance some of the things that you're interested in. From your perspective, what was the culture predominantly? I mean, it had to be to a degree symbiotic, didn't it? PAULSON: Well, let me -- I think, Mr. Vice Chairman, what you were getting at when you talked about the infrastructure and you talked about secured lending was the repo market and secured lending. And let me just talk a little bit about that, because I think it would -- it might help -- help, that many financial institutions, not just the traditional investment banks, had to rely on wholesale funding for a big part of their funding. It wasn't all -- it wasn't all deposits. And so you have this secured lending or repo market that grows up, which is -- it's a very healthy thing, because you shouldn't -- you wouldn't want everyone having to rely only on the banks for their wholesale funding, and so repo is secured lending, and the lender is at least partly protected during bankruptcy, because their collateral is protected. I think the way you need to think about this -- and then -- and there's a market where two parties could deal with each other. There are many sophisticated institutions -- some sophisticated, some less sophisticated -- that wanted to invest money. You know, these are -- some of them are pension funds, money market funds, governments. They want to invest money. And a safer way to do it would be to do -- enter into a secured lending arrangement with -- with -- with a Wall Street firm. Now, they could do that directly or they could do that through a -- you know, have a custodian administer it and then handle the collateral, sort of be a tri-party repo, but that was the way it was done. Now, what happened -- and here's what I think gets to your question -- what happened was this grew very, very quickly, with no single regulator having a purview of it, no one looking at it and being able to get the information on the whole thing. So it grew like topsy-turvy. There was a -- systems didn't keep up with it. Infrastructure didn't keep up with the procedures. And the participants got sloppy in their credit decisions. So it's one thing if I'm a money market fund and I'm lending to a bank and I'm taking Treasuries as collateral. If I'm taking mortgage securities and I'm -- and I'm asking for no margin, no haircut, I'm -- that's a sloppy kind of provision. So now what happens is this has grown up, there are excesses, and I would say to the chairman, this was something that I was not aware of the extent of the issue. I had seen it through one little lens at Goldman Sachs. And so that this big market had grown up, no regulator looked at it. So now when the crisis comes and investors are afraid, there are -- there were a number of -- and so they're concerned about Bear Stearns. They're -- they lose confidence. Then this is -- when you say it's predatory, these people -- if someone is afraid and they're afraid about their own institutions surviving, then they pull money out and -- or they don't roll over their secured lending. Why? Because there are certain cash investors that don't know what to do with collateral if they got it. They're just really looking at the -- at the underlying credit. So, again, this was a shadow market that is a very valuable market, should continue to be a valuable market, and it needs to be fixed, OK? It just plain needs to be fixed. And so there were mistakes made there by regulators, by a regulatory system, slopping practices by practitioners. And then the biggest sloppy practice of all were the banks and investment banks if they didn't maintain liquidity cushions. Everybody talks about capital, but to me, the biggest lesson I learned out of all of the crisis was the lack of focus by so many market participants and by regulators on the importance of liquidity. And you cannot place huge reliance on any short-term overnight market if you don't ask yourself, "What am I going to do if that market doesn't function as normal? How much of a cushion do I have?" THOMAS: Well, but wouldn't every one of those institutions go to bed that night not only worrying about themselves, but others, because they depend upon this kind of short-term... PAULSON: Only -- see, they didn't worry until they did. It's hard to explain this, but I had... THOMAS: I don't think it's all that hard if you use other examples. For example, obviously, Bear Stearns and all the others thought they were liquid until they tried to put up the assets. The only ones that they felt comfortable, or other people felt comfortable with were Treasuries. But the idea that an economic model, in terms of mortgages, didn't anyone look at how much -- what a mortgage was changed between the '50s, the '60s, '70s, '80s and to now, that there was significant erosion in any comfort level on how long a mortgage could last, given the rules? Let me give you a quick example. I represented a big area -- there was a lot of desert -- and folks would run in the spring, when there was enough grass, out in the desert sheep. We began to see a fairly high loss of desert tortoises. So the BLM wanted to run an experiment. They wanted to put Styrofoam tortoises out in the desert when the sheep were running on the grass to see what kind of an interaction there was. And so I told them that my sheep men would be ready to put their Styrofoam sheep out in the desert when the BLM was ready to put its Styrofoam tortoises, because you didn't get a decent understanding or relationship. When you rely on -- and I'm going to talk about rating agencies in a minute -- someone giving a AAA rating to a package which fundamentally was so much different than earlier packages, and you rely on that AAA rating, at some point, doesn't somebody look at the underlying problems? What happened, frankly, in the desert was the crows, as population encroached on the desert, the crows followed, and they'd go out and flip them over in the morning and have a warm meal in the evening. And until and unless you controlled the crows, you were never going to solve the problem. And here the crow, flipping it over -- everyone argues that we didn't have a model that could tell us what was happening. I just don't understand, given the level at which people were operating. THOMAS: Which brings me to the question, when you became secretary of the treasury, looking at it from not your narrow perspective, but a broader scope, were you shocked at the -- at the amount of weight placed in the portfolios on these risky mortgage packages? PAULSON: I was... THOMAS: Were you surprised? PAULSON: Yes, I'll tell you what surprised me, which is related to your question, that (inaudible) there was the rating, but a number of the firms, you know, I in my testimony -- a number of people have talked about it -- it's important that those who underwrite securitizations have some skin in the game, hold some of the securities they underwrite. I think that's important. But where the big problems were, were a number of institutions, two or three institutions that not only did they have skin in the game, they had half their body in the game, because they had huge positions of these outsized positions that were overweighted, just -- and so even if they were rated AAA. And so I think one of the lessons of this, which gets to your point, is that it is -- it's very hard for experts -- any experts to know anything with certainty. People could have been predicting this -- you know, this crisis for years, and they could have predicted it, hedged themselves, lost a lot of money. But you -- it's just -- it's foolhardy to put -- tie up a lot of any institution's balance sheet on any particular security no matter how high the rating is, unless it's, you know, a U.S. government security. THOMAS: Well, is that what happened, they tied so much up in the mortgage market? Because what I'm trying to figure out is, how could the weight of the securities that were created, supported by the mortgage market, pull down the commercial paper market, the repo market, the auction-rate securities market? Was it that big? PAULSON: Well, that's a different -- I was -- I was just... THOMAS: No, I understand. But how is the... PAULSON: There were several institutions that owned too much of the paper. But to get to your point, what happened, I think the way to think about this is this. And I think this is quite critical. The subprime market by itself was a relatively small, relative to the U.S. economy or to the U.S. capital markets. And the problem was much bigger. There were excesses, as we've talked about, in housing and across the markets more broadly. So one -- you used an analogy of the desert. I'll give you an analogy that's used a lot. There was a lot of dry tinder out there, OK? And the driest tinder was subprime. That's where the fire started. But there is a lot of other excesses. And that's -- that is really what happened. And there are a whole lot of things coming together to -- to create this crisis. THOMAS: In terms of the rating agencies, we have legislation now from both the House and the Senate. Are you familiar enough with that legislation to have any opinion as to whether it's useful directed, effective in dealing with rating agencies? PAULSON: I would say, in terms of the rating agency piece of this, I agree with -- with one part of the legislation, which I think is controversial to certain people. I think it -- no matter how the rating agencies are regulated -- and we need more regulation and we need more disclosure and we -- around the -- the rating agencies -- I do not like the fact that we have several rating agencies that are enshrined in our securities laws, in regulatory manuals, and so on, and that -- and that ratings are referred to. And so I think that's just a crutch and a dangerous crutch, and I think too many investors, too many banks relied overly on a rating. And I'm all for the rating agencies. I think they should be independent rating agencies. They should give their advice, just like -- like equity research houses do, and I think investors should look at those as one tool. But I do not like the fact -- and I support the legislation that would -- would take reference to credit ratings out of our securities laws. THOMAS: All right. The Senate would create an office within the SEC to administer credit rating agencies' rules and practices. Good move? PAULSON: I think it's probably a good move. THOMAS: House creates a seven-member advisory board for credit rating agencies. PAULSON: I haven't -- I haven't really thought about it. THOMAS: Fairly safe (ph), isn't it? I mean... PAULSON: Yes, it's... THOMAS: You could get unanimous. PAULSON: I... THOMAS: Both bills would require a measure of certification that due diligence has been done by someone, but neither one talks about who would pay for it and a structure. So, again, it's going to evolve outside of some regulatory structure. PAULSON: Yes, it will -- I will say this. No matter how you regulate this, and it needs more oversight and regulation, no matter how you regulate, it will not be flawless. It's hard to believe that a -- that anyone at a rating agency is always going to be able to see the issues that others don't see... THOMAS: No, I understand that. PAULSON: And so, therefore, that's what -- I want to get to something which is much more basic than that. I don't want the rating agencies to be held up as the font of all truth and the -- and have the ratings be part of our securities laws. THOMAS: Then my only question left is, just out of curiosity, how come you didn't put more emphasis on the rating agencies in your testimony? I mean, you mentioned it, but... PAULSON: Because I... THOMAS: Do you think you gave it due weight, in terms of... PAULSON: No, I thought that this was -- I -- in terms of shadow banking, yes, I -- I -- I have -- have... THOMAS: Well, but you gave an overview at the beginning of your testimony. PAULSON: Well, I've written about it quite a bit in my book. And so I do think the rating agencies made -- made plenty of mistakes. I think they -- it fell into the same paradigm that -- that so much of the rest of the world did. They used economic models that didn't foresee what -- what -- what happened. THOMAS: But everybody has used that as an excuse in terms of not knowing the true value of what they held and tried -- tried to trade. PAULSON: So clearly the rating agencies, in terms of -- and I made a number of -- of strong recommendations actually even before Bear Stearns went down with the president's working group about the -- the kind of disclosures you need to see from the rating agencies and the kinds of processes they need to run and the regulatory oversight. What I was just trying to get to was something which was more fundamental than that, which is, I don't want to see a situation ever again where a whole lot of sophisticated people can just turn and say, "It's not -- not my fault. It was the rating agencies'." I want -- I want investors and big banks and regulators to be forced to use rating as one tool, but do some of their own work and do some thinking for themselves. THOMAS: Thank you, Mr. Secretary. And could I ask you -- would you be willing to respond in writing to any other questions the commission might have as we go forward? Because, frankly, we're learning as we go. PAULSON: Of course. I just hope you will understand that now my staff consists of one assistant, OK? So I will -- I no longer have these -- but I will respond. THOMAS: We'll try to write questions that can -- that can be answered by one assistant. Thank you. ANGELIDES: Thank you. Ms. Born? BORN: Thank you very much, Chair Angelides. And I want to express my thanks to you, Mr. Secretary, for being willing to meet with us and help us in our investigation. The first area that I wanted to ask you about is over-the-counter derivatives. I fully agree with you that derivatives are extremely important instruments in managing and hedging risk and play an invaluable role in that respect. Nonetheless, the over-the-counter derivatives market had grown to more than $680 trillion in notional amount by the time of the crisis in the summer of 2008, and it was virtually exempt from federal regulation and oversight because of a statute passed in 2000, the Commodities Futures Modernization Act, which had eliminated jurisdiction of the federal agencies over the market. I wanted to ask you whether, in your view, this regulatory gap played any role. You've said in your testimony, "Derivative contracts, including excessively complex financial products, exacerbated the problem during the financial crisis." And I wondered if you would elaborate on that testimony. PAULSON: Well, first of all, I think your point is well taken. And in the chapter that the chairman referred to in my book, when the -- when we had that first conversation with the president about the -- about the potential for credit crisis, and the topic I talked about then was over-the-counter derivatives and how quickly this had grown, citing the same numbers you cited, and just talked about them being outside of the regulatory purview, and it just -- we didn't even have at the time the -- the right protocols for how they would function in a crisis and, you know, the netting agreements, and there were big backlogs of really unbooked trades. So there was a lot of work being done by the -- by -- by the Fed at that time. And I was very supportive in terms of pushing the industry. Now, I think -- I think that these -- first of all, these products, they didn't create the crisis, but they magnified it, and they exacerbated it, and I think not only in the way which has been written about a lot, in terms of -- of the interconnectivity, but just in terms of masking the risk, that just were so opaque and complex and difficult to understand. I had certain regulators when I arrived saying that the -- that the system wasn't that leveraged, because they were looking at just the debt, as opposed to what was embedded in those products. Those products are hard to understand. And so I -- that is why I so strongly believe that you want to press -- standardization is in all of our interests. And so the way you, I think, get towards simplicity -- complexity just in general I think is our enemy. You can't -- it's hard to regulate against complexity and innovation, so I think the way you do this is you press everything that's standardized onto an exchange, and the over-the- counter you put through a central clearinghouse, where you've got great oversight, and then you have -- if it's complex there, you put big capital charges, so you penalize complexity, which will help move toward greater standardization. And I think that's really the right way to deal with it, and I think you're right on in terms of seeing that as a concern, but it's not -- those people that would say it's a fundamental cause, I think, are wrong. It's not. It's just something that needs to be fixed, and I'm hopeful that it looks like some of the -- you know, the legislation is on the way to fixing. BORN: With respect to the remaining over-the-counter market, assuming regulations are applied that would put standardized contracts onto exchange, would you advocate more transparency for that market? PAULSON: Yes. Yes, that is -- in this -- that would solve so much. And, you know, as you well know, regulators had no idea. Industry participants didn't know. You know, just taking General Motors as an example, everyone knew how many General Motors bonds are outstanding. No one had any idea how many
HOLLYWOOD MINUTE: DICAPRIO JOINS TARANTINO MOVIE
Stations Please Note: This package contains third party material. Unless otherwise noted, this material may only be used within this package and within ten days of its initial delivery or such shorter time as designated by CNN.\n\nNOTE: We send our packages with discrete, separate audio. Our reporter's track can be removed by deleting the audio on channel one.\n\nAFFILIATE MARKET NOTES: Leonardo DiCaprio was born in Los Angeles, California. Quentin Tarantino was born in Knoxville, Tennessee. "The Post" was shot in and around New York, New York. Steven Spielberg was born in Cincinnati, Ohio.\n\n --SUPERS--\n\n:00-:26\nCNN\n\n:26-:37\n"The Post"\nCourtesy 20th Century Fox \n\n:37-:42\nCNN\n\n:42-:58\nSarah Paulson / Carrie Coon\n"Tony Bradlee" / "Meg Greenfield"\n\n:58-1:13\n"The Post"\nCourtesy 20th Century Fox \n\n1:13-1:25\nCNN\n\n1:25-1:28\n"The Post"\nCourtesy 20th Century Fox \n\n --LEAD IN--\n\nA PAIR OF OSCAR WINNERS IS TEAMING UP AGAIN! DAVID DANIEL HAS THAT AND MORE IN THE HOLLYWOOD MINUTE.\n\n --REPORTER PKG-AS FOLLOWS--\n\n(nat)\n\nLEO AND QUENTIN, TOGETHER AGAIN? MULTIPLE REPORTS SAY LEONARDO DICAPRIO HAS AGREED TO STAR IN QUENTIN TARANTINO'S NEXT MOVIE, SET AGAINST THE BACKDROP OF THE 19-69 MANSON MURDERS. THEY LAST WORKED TOGETHER ON 20-12'S "DJANGO UNCHAINED." DICAPRIO IS EXPECTED TO PLAY AN AGING ACTOR IN THE NEW FILM, WHICH IS DUE OUT IN AUGUST, 20-19 -- 50 YEARS AFTER THE MURDERS.\n\n"So, can I ask you a hypothetical question?"\n"Oh, dear, I don't like hypothetical questions."\n"Well, I don't think you're gonna like the real one, either."\n\nNEWSPAPER PUBLISHER KATHERINE GRAHAM, PLAYED BY MERYL STREEP, PUTS IT ALL ON THE LINE IN "THE POST." TWO OF STREEP'S CO-STARS SAY THEY HOPE THE FILM INSPIRES VIEWERS TO LEARN MORE ABOUT HER.\n\n"I mean, Katherine Graham was a very successful leader of that newspaper for a number of years, following this particular moment. She became much more confident, and I hope it encourages women to look into her story more deeply, because her biography is astonishing."\n"One of the great things you can read ever in your life, really, it is."\n\n"We're talking about exposing years of government secrets."\n"Is that legal?"\n\nSPEAKING OF "THE POST," IT'S BANNED IN BEIRUT! ACCORDING TO THE HOLLYWOOD REPORTER, THE CENSORSHIP BOARD IN LEBANON, WHICH IS OFFICIALLY AT WAR WITH ISRAEL, NIXED THE MOVIE BECAUSE DIRECTOR STEVEN SPIELBERG SHOT SOME SCENES FOR 19-93'S "SCHINDLER'S LIST" IN JERUSALEM. IT'S A SURPRISING MOVE, AS SPIELBERG'S LAST TWO MOVIES WERE RELEASED IN LEBANON. THE COUNTRY'S INTERIOR MINISTRY COULD OVERTURN THE DECISION. IN HOLLYWOOD, I'M DAVID DANIEL.\n\n -----END-----CNN.SCRIPT-----\n\n --KEYWORD TAGS--\n\n
Australia APEC - Finance ministers from 21 nations discuss world economy
NAME: AUS APEC 20070803I TAPE: EF07/0923 IN_TIME: 10:27:41:19 DURATION: 00:02:34:07 SOURCES: AuBC DATELINE: Coolum - 3 August 2007 RESTRICTIONS: No Access Australia/Internet SHOTLIST: No Access Australia/Internet 1. Wide of APEC finance ministers at final news conference 2. Various of ministers 3. Wide of ministers 4. SOUNDBITE: (English) Peter Costello, Australian Treasurer: "Behind the barrier, restrictions are still inhibiting trade. And we have agreed to give attention to behind the border barriers. And that will involve structural reform for many countries. We agreed fiscal sustainability is essential for economic development. And we highlighted fiscal sustainability principals, the application of which will reduce the fiscal pressures on governments." 5. Pan of ministers 6. SOUNDBITE: (English) Robert Kimmitt, United States Deputy Treasury Secretary: "We continue to monitor closely both the sub-prime market in particular, and the credit markets more broadly. What we see now is a reassessment and repricing of risk at which we believe is proceeding in an orderly fashion and therefore the effects on the overall US economy appear to be contained based on the fact that we have a very healthy, diverse economy operating within a strong global economy. (US Treasury) Secretary (Henry) Paulson said again in China this week, that it is the strongest global economy that he has seen in his 32 years of working in the business both in the private and public sectors. We think that, that is the underline fundamentals both of the global economy and the US economy are what are permitting this current set of adjustments not to have an effect more broadly." 7. Wide of ministers in group photo opportunity 8. Pan of ministers STORYLINE: The orderly reduction of global economic imbalances remains a priority, finance chiefs from across the Asia-Pacific region said on Friday, as a top treasury official warned that volatility in United States markets could persist for some time. Finance ministers from the 21 member nations of the Asia Pacific Economic Cooperation (APEC) forum, which accounts for roughly half the world's trade, met this week at the eastern Australian resort of Coolum. Finding a solution to climate change without disrupting energy supplies and boosting investment in Asia's emerging markets were high on the ministers' agenda when the meeting began on Thursday. But in a brief communique issued on Friday, the ministers underscored only their commitment to correcting worldwide financial imbalances. Australian Treasurer Peter Costello said the ministers "agreed fiscal sustainability is essential for economic development. And we highlighted fiscal sustainability principals, the application of which will reduce the fiscal pressures on governments." This week's conference came at a time of increased volatility in global financial markets, triggered by defaults in the US sub-prime mortgage market. US Deputy Treasury Secretary Robert Kimmitt warned the instability could persist for some time. "What we see now is a reassessment and repricing of risk at which we believe is proceeding in an orderly fashion and therefore the effects on the overall US economy appear to be contained based on the fact that we have a very healthy, diverse economy operating within a strong global economy," Kimmitt told the forum. He said the effects were contained largely because of the health of the US financial system and economy. Japan's Finance Minister Koji Omi said the general consensus at the APEC meeting was that the US mortgage loan problem would not become a "big issue" for the global economy. Australia will also host the annual APEC leaders summit in Sydney next month.
Financial Crisis Inquiry Hearing 1200-1300
FCIC HEARING Second of 2 days of Financial Crisis Inquiry Commission hearing with Former Treasury Henry Paulson; Treasury Secretary Geithner; others 12:05:04 PM Hearing resumes 12:05:07 PM Geithner oath 12:05:26 PM Start Geithner Chairman Angelides, Vice Chairman Thomas, members of the Commission, thank you for the opportunity to testify. 12:05:38 PM You're engaged in a very important job of sifting through the crisis 12:05:48 PM Senate took a very important step yesterday in passing reforms to prevent future bailouts. This is a necessary not sufficient step 12:06:17 PM We cannot create by carving out 12:06:48 PM In the aftermath of Great Depression 12:09:31 PM Those judgments proved tragically optimistic 12:13:51 PM Start Q&A 12:14:18 PM Angelides - eyes and ears on Wall Street for the Fed 12:16:10 PM G - when I went to NY Fed I had just done Japan 12:18:35 PM Trying to get firms to dial back risk-taking 12:18:40 PM Clean up derivatives market 12:19:02 PM Those efforts in the end were fundamentally inadequate (V) 12:19:26 PM What we did not know was the degree to which the system was reliant on ratings 12:19:38 PM We did not know the extent to which this parallel system had built up leverage 12:19:49 PM We did not know how vulnerable money-markets were to runs 12:19:58 PM And I could go on 12:20:53 PM False sense of stability about the system 12:21:28 PM People tried with duct tape and strings like the CFTC and the SEC to make the best of it but those efforts came too late and too weak 12:22:05 PM A - did you sound the alarm early enough? 12:22:13 PM G - absolutely we could have done more, absolutely. (V) 12:22:21 PM People ask if we 12:22:24 PM I do not believe we were powerless (V) 12:22:30 PM If the govt of the US had moved more quickly 12:23:27 PM A - do you think the system also doesn't have enough iconoclasts in it? That the system is unduly controlled by people within the system and not people who can step back. 12:24:06 PM G - I've always tried to bring people together in advisory committees that are a great diversity 12:25:00 PM We did not have centralized authority for accountability all across system 12:25:12 PM Our system was fundamentally siloed and balkanized 12:25:43 PM Anybody in that world could see signs of an asset-priced credit bubble 12:26:32 PM We did not have tools to contain damage earlier 12:27:56 PM G - at that time as Bear fell off the cliff we were deeply worried about what that would do 12:32:44 PM Thomas questioning 12:37:17 PM G - financial crises are caused by people incapable of imagining the inconceivable 12:40:58 PM T - there were no firewalls anywhere 12:42:31 PM G - We didn't have the tools for firebreak 12:43:51 PM G - when people are making money 12:44:03 PM T - no one thinks about the amount of money people were making on Wall Street 12:47:23 PM G - it was like cooked spaghetti together and when you had to untangle those 12:48:59 PM It was fundamentally, people were doing this thing by spreadsheet and fax. People did not have electronically accessible records of what their exposure was 12:58:06 PM G - central lesson I tried to take from the crisis
MELANIA TRUMP EXPECTED TO ATTEND RNC IN MILWAUKEE
<p><pi><b> **This package/segment contains third party material. Unless otherwise noted, this material may only be used within this package/segment.**</b></pi></p>\n<p></p>\n<p><pi><b>***This pkg contains photos from Getty Images that are only cleared for use within the pkg. Affiliates may not cut these photos out of the pkg for individual use.***</b></pi></p>\n<p></p>\n<p><b>--SUPERS</b>--</p>\n<p>:12-:16</p>\n<p>*cg ru</p>\n<p>Getty Images</p>\n<p></p>\n<p>:28-:36</p>\n<p>*cg ru</p>\n<p>Sept. 2023</p>\n<p>NBC "Meet the Press"</p>\n<p></p>\n<p>:40-:42</p>\n<p>*cg ru</p>\n<p>Getty Images</p>\n<p></p>\n<p>:43-:47</p>\n<p>*cg ru</p>\n<p>Oct. 2023</p>\n<p>SiriusXM</p>\n<p></p>\n<p>:48-1:08</p>\n<p>*cg ru</p>\n<p>Getty Images</p>\n<p></p>\n<p></p>\n<p>1:25-1:38</p>\n<p>*cg ru</p>\n<p>Getty Images</p>\n<p></p>\n<p>2:00-2:15</p>\n<p>*cg ru</p>\n<p>July 2016</p>\n<p></p>\n<p>2:13-2:24</p>\n<p>*cg rl</p>\n<p>Aug. 2008</p>\n<p></p>\n<p>2:25-2:36</p>\n<p>*cg ru</p>\n<p>Getty Images</p>\n<p></p>\n<p>2:46-2:56</p>\n<p>3:05-3:13</p>\n<p>*cg ru</p>\n<p>Aug. 2020</p>\n<p></p>\n<p><b>--VIDEO SHOWS</b>--</p>\n<p></p>\n<p><b>--LEAD IN</b>--</p>\n<p><tab />Sources tell CNN that former first lady Melania Trump will make a rare appearance at next week's Republican National Convention. </p>\n<p><tab />While it is unclear at the moment if she will speak or be a formal part of the convention program...</p>\n<p><tab />It comes after she has been largely absent from her husband's campaign .. and did not attend his criminal "hush money" trial. </p>\n<p><pi>(on cam)</pi></p>\n<p><tab />Our Randi Kaye took a look at where Melania has been in recent months... </p>\n<p><tab />And how her last appearances at the R-N-C played out. </p>\n<p></p>\n<p><b>--VO SCRIPT</b>--</p>\n<p></p>\n<p><b>--SOT</b>--</p>\n<p></p>\n<p><b>--TAG</b>--</p>\n<p></p>\n<p><b>--REPORTER PKG-AS FOLLOWS</b>--</p>\n<p>MS 20474974 // 16:31:42 (maybe font this if not clearly heard??)</p>\n<p>reporter: Are you going to return to the campaign trail with your husband?</p>\n<p></p>\n<p>16:31:46 Stay tuned.</p>\n<p></p>\n<p></p>\n<p></p>\n<p>track // casting ballot 20477498</p>\n<p></p>\n<p>That was Melania Trump -- in March this year -- telling reporters to quote 'stay tuned' about her return to the campaign trail. </p>\n<p></p>\n<p></p>\n<p></p>\n<p>Track</p>\n<p></p>\n<p>Since teasing that possibility Melania has mostly stayed out of the public eye. </p>\n<p></p>\n<p></p>\n<p></p>\n<p>track</p>\n<p></p>\n<p>She was at Donald Trump's side at Mar a Lago in November 2022, when he announced his third bid for the White House. And the former president has been teasing her return for months.</p>\n<p></p>\n<p></p>\n<p></p>\n<p>sot: Trump on NBC Meet the Press 00:39 // 19799037</p>\n<p></p>\n<p>https://www.youtube.com/watch?v=8wkPUtuePmw</p>\n<p></p>\n<p>“She’s a private person. A great person. Very confident person. And she loves our country very much. At the appropriate time, she’ll be out there.”</p>\n<p></p>\n<p></p>\n<p></p>\n<p>track</p>\n<p></p>\n<p>…. while also trying to explain away her absence… as he did on Megyn Kelly’s podcast.</p>\n<p></p>\n<p></p>\n<p></p>\n<p>Donald Trump w/ Megyn Kelly // "Megyn Kelly Show" podcast // 20192092 @ 2:49</p>\n<p></p>\n<p>she's introspective and she's confident, she doesn't need to be out there</p>\n<p></p>\n<p></p>\n<p></p>\n<p>track</p>\n<p></p>\n<p>The only person who decides if and when Melania gets "out there"... is Melania herself.</p>\n<p></p>\n<p>A source close to the former president tells tell CNN that Melania dictates her own involvement: </p>\n<p></p>\n<p>GFX</p>\n<p></p>\n<p>“She is very selective and methodical in what she wants to do and how she presents herself."</p>\n<p></p>\n<p></p>\n<p></p>\n<p>track</p>\n<p></p>\n<p>On Super Tuesday, Melania was out of view while her husband celebrated at their Mar a Lago estate. </p>\n<p></p>\n<p></p>\n<p></p>\n<p>nats/ Trump ON SUPER TUESDAY MS 20439208 // 22:24:25 </p>\n<p></p>\n<p>I want to thank my family for being here. </p>\n<p></p>\n<p></p>\n<p></p>\n<p>track</p>\n<p></p>\n<p>When the former President was on trial in New York for the hush money case, Melania did not attend. Nor did she show up for CNN's Presidential Debate in Atlanta last month. </p>\n<p></p>\n<p>In recent months, she has appeared at private events, including a fundraiser this month for the Log Cabin Republicans, a conservative LGBTQ group, as well as an April fundraiser alongside her husband at the home of investor John Paulson. </p>\n<p></p>\n<p></p>\n<p></p>\n<p>track</p>\n<p></p>\n<p>At the upcoming convention, it's still unclear if Melania will have any formal speaking role, though she did at the last two republican national conventions. </p>\n<p></p>\n<p>https://www.cnn.com/2016/07/19/politics/melania-trump-michelle-obama-speech/index.html</p>\n<p></p>\n<p>In 2016-- her speech made headlines.. after it came to light that some lines had been plagiarized from the speech given by Michelle Obama at the 2008 Democratic National Convention.</p>\n<p></p>\n<p></p>\n<p></p>\n<p>sot: Melania Trump RNC Speech (Plagiarized Clip Montage showing similarities w/ both speeches- something like below) **THIS IS SIDE BY SIDE MICHELLE AND MELANIA MS: 12125142 (prefonted)</p>\n<p></p>\n<p>-MS: 12125308</p>\n<p></p>\n<p>01:00:00;26</p>\n<p></p>\n<p>MT: “My parents impressed on me the values that you work hard for what you want in life, that your word is your bond and you do what you say and keep your promise.”</p>\n<p></p>\n<p>01:00:13;23</p>\n<p></p>\n<p>MO: “Barack and I were raised with so many of the same values like you work hard for what you want in life that your word is your bond, that you do what you say you're gonna do that.”</p>\n<p></p>\n<p></p>\n<p></p>\n<p>track</p>\n<p></p>\n<p>https://www.cnn.com/2016/07/19/politics/melania-trump-michelle-obama-speech/index.html</p>\n<p></p>\n<p>Days later, a family friend and staff writer for the Trump Organization took responsibility for the borrowed lines in Melania's speech, and apologized. The Trumps rejected her offer to resign.</p>\n<p></p>\n<p></p>\n<p></p>\n<p>track</p>\n<p></p>\n<p>In 2020, the republican convention was upended due to the COVID-19 pandemic, so Melania Trump delivered her speech from the White House Rose Garden. </p>\n<p></p>\n<p></p>\n<p></p>\n<p>sot: Melania Trump // rose garden 2020 // 00:01:42;16</p>\n<p></p>\n<p>My husband's administration will not stop fighting until there is an effective treatment or vaccine available to everyone.</p>\n<p></p>\n<p></p>\n<p></p>\n<p>track</p>\n<p></p>\n<p>She also spoke about the American Dream, and the love she says both she and Donald Trump have for this country. </p>\n<p></p>\n<p></p>\n<p></p>\n<p>sot: Melania Trump 2020 // 00:06:44;11</p>\n<p></p>\n<p>There are no words to describe how honored, humbled and fortunate I am to serve our nation as your first lady.</p>\n<p></p>\n<p></p>\n<p><b>-----END-----CNN.SCRIPT-----</b></p>\n<p></p>\n<p><b>--KEYWORD TAGS--</b></p>\n<p></p>\n<p><b>--MUSIC INFO---</b></p>\n<p></p>
Financial Crisis Inquiry Hearing 0900-1000
FCIC HEARING Second of 2 days of Financial Crisis Inquiry Commission hearing with Former Treasury Henry Paulson; Treasury Secretary Geithner; others 9:03:17 AM Start hearing 9:03:19 AM Start Angelides 9:06:21 AM Paulson oath 9:06:37 AM Start Paulson 9:06:47 AM Chairman Angelides, Vice Chairman Thomas, and members of the Commission, thank you for the opportunity to testify today. 9:07:02 AM I served as Secretary of the Treasury during the recent financial crisis. I am proud of the work we in government did to save our nation's financial system from collapse and chaos, and our economy from disaster. Even so, the crisis caused human suffering that simply cannot be measured. The American people deserve-and policymakers will benefit from-an understanding of the broad and diverse causes of the crisis. The job of providing that explanation falls to this Commission, and it is an awesome responsibility. Many mistakes were made by all market participants, including financial institutions, investors, regulators, and the rating agencies, as well as by policy makers. Most of these are well understood, and, importantly, policymakers are currently addressing some major regulatory structure and authority issues that either allowed the pre-2007 excesses in our system or made it difficult to address the crisis. Nonetheless a number of the root causes are not being addressed and remain sources of danger to our country. 9:08:15 AM I fully support your important mission, and I hope that my testimony today can assist it. I will start by giving my views on the fundamental causes of the financial crisis, and then turn to the specific topic of today's hearing-the so-called "shadow banking" system. My views are based on my long experience in the financial markets, my time as Secretary of the Treasury during the financial crisis, and the consideration I have given to these issues in the year-and-a-half since I left government. The roots of the financial crisis trace back to several factors, including housing policy, global capital flows, over-leveraged financial institutions, poor consumer protection, and an archaic and outmoded financial regulatory system-among many other causes. Underlying the crisis was the housing bubble, and it is clear that several policy decisions shaped the home mortgage market. Excesses in that market eventually led to a significant decline in home prices and a surge of loan defaults which caused tremendous losses in the financial system, triggered a contraction of credit, and put many Americans-quite literally-out on the street. 9:08:54 AM These excesses were driven in large part by housing policy. From 1994 to 2006, home ownership soared from an already spectacular 64 percent of U.S. households to a staggering 69 percent due to the combined weight of a number of government policies and programs. Fannie Mae and Freddie Mac, the government sponsored enterprises (GSEs) comprised a central part of U.S. housing policy. The GSEs operated under an inherently flawed model of private profit backed by public support, which encouraged risky revenue seeking and ultimately led to significant taxpayer losses. 9:09:35 AM The United States has always encouraged home ownership, and rightly so. Home ownership builds wealth, stabilizes neighborhoods, creates jobs, and promotes economic growth. But it must be pursued responsibly. The right person must be matched to the right house (and consequently the right home loan), and in the years before the crisis we lost that discipline. 9:10:04 AM The overstimulation of the housing market caused by government policy was exacerbated by other problems in that market. Subprime mortgages went from accounting for 5 percent of total mortgages in 1994 to 20 percent by 2006. Consumer protection, including state regulation of mortgage originations, was spotty, inconsistent, and, in some cases, nonexistent. Speculation on rising home prices led to increasingly risky loans, including far too many home loans made with no money down. Securitization separated originators from the risk of the products they originated. Mortgage fraud increased, and predatory lenders and unscrupulous brokers pushed increasingly complex mortgages onto unsuspecting borrowers. The result was a housing bubble that eventually burst in far more spectacular fashion than most previous bubbles. 9:10:57 AM Global forces also played a significant role in causing the crisis. Imbalances in the world's economies led to massive and destabilizing cross-border capital flows. While other nations save, Americans spend. Consumption in this country is the norm, spurred on by low interest rates aided by capital flowing from countries, notably China and Japan, which have high savings and low shares of domestic consumption, and further encouraged by U.S. tax laws that discourage saving. We were living beyond our means, on borrowed money and borrowed time. Consumers, businesses, and financial institutions all overextended and overleveraged themselves with inevitably disastrous results while our federal and state governments continued to borrow heavily, jeopardizing their long-term fiscal flexibility. 9:11:51 AM Our financial institutions-including commercial and investment banks-were notable examples of this overleveraging. In general, these institutions did not maintain sufficient, high-quality capital, which left them unable to absorb the significant losses they incurred as the housing bubble burst. Many of them did not understand their liquidity positions fully. They held insufficient cash and cash equivalents, and instead relied overly on short term funding sources that ran dry as the credit markets contracted. These leverage problems were further exacerbated by a lack of transparency, which caused problems in subprime to infect other classes of assets. Like a tainted food scare, a relatively small batch of deadly products-securitized subprime mortgages-led to fear and panic in the markets for many mortgage securitizations, driving down the price of assets, which triggered huge losses and severe liquidity problems. Derivative contracts, including excessively complex financial products, exacerbated the problem. These instruments embedded leverage in institutions' balances sheets along with risks which were so obscured that at times they were not fully understood by investors, creditors, rating agencies, regulators, or the management themselves. Very importantly, a number of financial institutions had woefully inadequate risk management and liquidity management practices that allowed these problems to grow and intensify, in a number of cases leading to failure of the institution. 9:13:31 AM Compounding the problems at these financial institutions was a financial regulatory system that was archaic and outmoded. Our regulatory framework was built at a different time for a different system, and it has not kept pace with the rapid changes in the financial industry. I noted during my time at Treasury the enormous gaps in authority, duplication of responsibility, and unhealthy jurisdictional competition. No single regulator had responsibility for overseeing the stability of the system. The result was that regulators were often unable to supervise the firms they oversaw adequately, they did not see the impending systemic problems that progressed towards a crisis, and they did not have the tools to contain all the harms that unfolded as institutions began to collapse. In March of 2008, this led me to recommend a blueprint for major reform of our financial regulatory system after a year-long comprehensive review. I will turn now to the specific topic of today's hearing: the "shadow banking" system, a term that refers to the large capital and credit markets outside the traditional banking system that provide credit for municipal governments, corporations, and individuals for short, intermediate, and long term funding needs. Before the crisis, these markets satisfied at least half of consumer and business credit needs and are one of the hallmarks of our advanced and highly developed capital markets. They have greatly benefited our nation, spurring growth and prosperity at all levels of our economy. They have enabled more people to receive higher education, more people to purchase homes, more people to start new businesses, and more people to plan effectively for their children's future. They have increased consumer choice, stimulated job creation, and allowed our system to diversify away from the large, concentrated banks found in other capital markets. But like all activities in the financial sector, these markets were fueled by the global excesses and regulatory flaws I have already discussed. Inside and outside the traditional banking system, financial institutions overreached, financial services were misused, and financial products were misunderstood. In addition, our regulatory system was balkanized, outdated, and lacked the infrastructure to oversee these markets, something I had observed and attempted to reform throughout my tenure at Treasury. When the crisis hit, the stress it placed on these markets exposed many of these flaws, and these flaws in turn extended and exacerbated some of the effects of the crisis. 9:15:51 AM These problems must be addressed. Our financial system cannot move forward without fortifying the weak parts of its infrastructure. But in addressing these problems, we must make sure we retain the benefits of the underlying financial innovations. In our haste to deal with the flaws in the non-bank financial system, we should not move ourselves back to a system of consolidated, monolithic commercial banks. I am confident that a thoughtful process can achieve this. 9:16:40 AM End Paulson statement 9:16:55 AM Start Q&A 9:17:01 AM Angelides 9:17:40 AM Asking about time at Goldman in which 19 subprime CDOs were issued totaling around $8 billion 9:18:33 AM P - I have said that we had excess complexity in financial products 9:19:07 AM Regulators should make sure we have real capital charges against these products 9:20:16 AM That business is a very legit business, very beneficial and it needs to be done with high standards, great integrity, and working for your clients interests 9:21:32 AM A - but what about underlying interest? 9:22:31 AM P - there's no reason why someone who wants to put in a hedge against housing prices one way or another shouldn't be able to do so 9:22:50 AM P - that's an important market-maker function 9:25:42 AM A - are we going to be able to pick up on the warning signs? 9:28:40 AM P - I think we need to work to mitigate risk. I saw immediately a huge gaping hole in the regulatory system so I took actions immediately - regular quarterly meetings of president's working group 9:29:30 AM Second I started working with Congress for reg reform legislation for Fannie & Freddie 9:30:30 AM A - was the toothpaste out of the tube by the time you arrived? 9:30:39 AM P - I would say most of the toothpaste was out of the tube (V) and there was really not the proper regulatory apparatus to deal with it (V) 9:31:37 AM P - what was not clear was the scale and degree of the problem 9:31:46 AM P - president said what will cause the crisis and I said I wish I knew 9:32:13 AM P - no one predicted this massive decline in housing prices across the United States (V) 9:32:25 AM P - we were all looking through the paradigm that we'd had in this country since 2002 9:32:38 AM The economic models didn't project the kind of wholesale significant decline in housing prices 9:32:53 AM That was the thing that people didn't predict 9:33:01 AM If we'd seen that coming I'm not sure what we could have done differently 9:33:21 AM A - people knew a storm was coming, levees were weak, and there wasn't a plan in place to deal with a crisis that was inevitable 9:33:37 AM P - there wasn't a plan in place when I arrived. We put a plan in place 9:34:44 AM Start Thomas 9:38:53 AM P - healthy repo market, you wouldn't want everyone relying on banks 9:39:19 AM Many sophisticated institutions 9:40:24 AM People got sloppy 9:40:28 AM If I'm taking mortgage securities and I'm taking no margin, that's a sloppy provision 9:40:46 AM This was something I was not aware of - the extent of the issue 9:40:53 AM This big market had grown up with little regulation 9:41:45 AM This was a shadow market that is a very valuable market and it will continue to be a valuable market but it needs to be fixed 9:42:03 AM Sloppy practice by practitioners, biggest one was banks not maintaining liquidity cushions 9:42:18 AM The biggest lesson I learned out of all the crisis was the lack of focus by so many market participants and regulators on the importance of liquidity (V) 9:44:28 AM T - you didn't get decent relationship 9:46:28 AM P - skin in the game, outsized positions that were overweighted even if they were triple A 9:47:00 AM P - people could have been predicting this crisis for years 9:47:07 AM It's foolhardy to tie up a lot of any institution's balance sheet on any particular security no matter it's rating unless it's a US Treasury security 9:48:26 AM P - there was a lot of dry timber out there and the driest timber out there was subprime (V) 9:48:39 AM There were a whole lot of things coming together to create this crisis 9:48:51 AM P - in terms of the rating agency piece of this I agree with one part of legislation 9:49:19 AM I think no matter how the rating agencies are regulated and we need more regulation and disclosure.I do not like the fact that we have several rating agencies that are enshrined in securities laws and regulatory manuals and the ratings are referred to and so I think that is just a crutch and a dangerous crutch and too many investors too many banks relied overly on a rating 9:50:14 AM I think investors should look at those as one tool 9:50:21 AM I support the legislation that would take reference to credit ratings out of our security laws 9:50:44 AM Thomas - Senate puts it in SEC, House creates 7-member 9:50:55 AM Both would require a measure of certification that due diligence has been done by someone 9:51:15 AM P - no matter how you regulate this it needs more oversight and regulation but no matter how it will not be flawless 9:52:10 AM P - I've written about it quite a bit 9:54:05 AM P - my staff is now one assistant 9:54:11 AM Start Born 9:56:52 AM P - I think these products, they didn't create the crisis, but they amplified it and magnified it 9:57:51 AM P - complexity I think is our enemy 9:57:56 AM It's hard to regulate against 9:57:59 AM You take everything that's standardized and put on exchange and you take over the counter and put on a clearinghouse
US Iran - US Undersec of State for Political Affairs Burns on Iran
NAME: US IRAN 20070306I TAPE: EF07/0278 IN_TIME: 10:28:01:03 DURATION: 00:02:17:05 SOURCES: POOL DATELINE: Washington, DC, 6 Mar 2007 RESTRICTIONS: SHOTLIST 1. Chairman of the US House of Representative Foreign Affairs Committee, Representative Tom Lantos (wearing blue shirt), sitting down 2. Wide of Nicholas Burns, US Undersecretary of State for Political Affairs, speaking 3. SOUNDBITE: (English) Nicholas Burns, US Undersecretary of State for Political Affairs: "It is my judgement that diplomacy is the best course of action in blocking and containing the Iranian regime. I do not believe that a military confrontation with Iran is either inevitable or desirable. If we continue a skilful, patient, energetic, diplomatic course, and we have the patience to play it out over the mid to long term, I'm confident we can avoid a conflict, and we can see this larger American strategy in the Middle East vis a vis Iran succeed. " 4. Lantos speaking 5. SOUNDBITE: (English) Nicholas Burns, US Undersecretary of State for Political Affairs: "Secretary (Henry) Paulson and Deputy Secretary (Robert) Kimmit have used the moral authority of the United States to try to send out a message to the international banking community that it shouldn't be business as usual with the Iranian private sector, that there are risks associated with that. And three major European banks in the past year have cut off all lending to Iran as a consequence. And I think Iranians are worried about this policy of the United States government to press forward on the financial end." 6. SOUNDBITE: (English) Representative Brad Sherman, California: "How long before we get sanctions that have a strong impact on the Iranian economy if we're going to have this whole process take place before the obtain sufficient fissile material?" 7. SOUNDBITE: (English) Nicholas Burns, US Undersecretary of State for Political Affairs: "But I would say this. We have done very well with Russia and China. We are not completely like-minded. We certainly employ different tactics at the Security Council. But we have kept together a coalition that includes Russia and China, and that's been a powerful message to the Iranians, and I wouldn't underestimate that. Second, when the Security Council resolution passed on December 23rd, I will tell you that I felt perhaps it wasn't strong enough too. After two and a half months of negotiations, we have been pleasantly surprised to see the impact it's had inside Iran. 8. Cutaway of US lawmaker STORYLINE: The US Undersecretary of State for Political Affairs said in Washington DC on Tuesday that diplomacy and not military intervention was the best course of action to persuade Iran to suspend its uranium enrichment programme. Nicholas Burns was answering questions from the US House of Representative Foreign Affairs Committee. "If we continue a skilful, patient, energetic, diplomatic course, and we have the patience to play it out over the mid to long term, I'm confident we can avoid a conflict," Burns said. Nicholas Burns, represented the United States in the talks over the uranium issue last week and told the committee that after meeting Secretary-General Ban Ki-moon on Monday afternoon that the issue has now moved to the UN Security Council and all six countries want to see a new resolution adopted "in the shortest time possible." Growing fears that Tehran might be seeking to develop enrichment capabilities for its weapons applications led the UN Security Council late last year to impose sanctions on Tehran. However Iran insists its nuclear programme is peaceful and that it has the right to enrich uranium to produce fuel for nuclear power plants. Iran's refusal to freeze all its enrichment-related activities prompted the Security Council on December 23 to impose sanctions targeting its nuclear and missile programs and the persons, companies and organisations involved in them The UN's nuclear watchdog, the International Atomic Energy Agency, last month confirmed that Iran had ignored a Security Council ultimatum to freeze enrichment - a possible pathway to nuclear arms - and had instead expanded its programme. This stand-off has put the International community under pressure to find a solution for this conflict. Burns told the committee he had intially felt the Security Resolution of 23 December had not been strong enough. "I will tell you that I felt perhaps it wasn't strong enough too. After two and a half months of negotiations, we have been pleasantly surprised to see the impact it's had inside Iran," he added. Burns said financial restrictions have proven to have had an impact. "Three major European banks in the past year have cut off all lending to Iran as a consequence. And I think Iranians are worried about this policy of the United States government to press forward on the financial end," Burns said. Burns added that it was important to send a collective message that the international community were not going to stand for Iran's uranium enrichment programme. "We have kept together a coalition that includes Russia and China, and that's been a powerful message to the Iranians, and I wouldn't underestimate that," he added.
Financial Crisis Inquiry Hearing 1200-1300
TRANSCRIPT: ANGELIDES: The meeting of the Financial Crisis Inquiry Commission will come back into order. Welcome, Mr. Secretary. Thank you for joining us today. And we appreciate you joining us mid-way in two days of hearings about the shadow banking system. Let us start, as we do with all witnesses, I'm going to ask if you would stand to be sworn for the oath. If you would please stand and raise your right hand? Do you solemnly swear or affirm under penalty of perjury that the testimony you are about to provide the commission will be the truth, the whole truth, and nothing but the truth to the best of your knowledge? Good. I know you've been to the Hill a few times and you know what those microphones and lights mean, but in this instance we appreciate having received your written testimony and we would like to afford you the opportunity, and we would like the benefit of an oral presentation by you this morning. At one minute, the yellow light will go on to go, and when time is up, the red light. We'd like you to give us a presentation of up to 10 minutes, and then we will move to commissioner questions. Thank you so much. GEITHNER: Thank you, Mr. Chairman, Mr. Vice Chairman and members of the commission. Thanks for the chance to have me up here today. You are engaged in a very important job of sifting through the wreckage of this crisis so that we can better understand what caused it and how to prevent a recurrence. And I welcome the chance to be part of that effort. The Senate took a very important step yesterday in passing with overwhelming bipartisan support reforms to prevent future financial bailouts. This is a necessary, but not sufficient step, to make our financial system more stable. And as the debate now shifts to the design of consumer protection, oversight of derivatives markets, and other issues, the votes ahead are very important. And within the context of this hearing, I want to emphasize a central tragic lesson of this crisis. We cannot create a more stable financial system by carving out certain types of financial institutions or activities from these reforms. If we do, we will only make the system less stable. if we do, we will only allow once again firms in the business of providing credit to escape the necessary protections we need for consumers and businesses against predation, abuse and excessive risk. We have to create a strong set of rules that no institution can escape. In the aftermath of the Great Depression, the United States put in place broad protections over the financial system that laid the foundation for a more stable banking industry for several decades. But over time, this financial system outgrew those protections. Over time, the constraints imposed by banking regulation encouraged activity to move away from the banking sector in search of weaker regulation and the promise of higher returns. And over time, a large parallel banking system took root outside of the regulatory framework established for banks. In this parallel system, a diverse group of financial institutions were allowed to engage in the business of banking, providing financial services to individuals and companies without being regulated as banks. At its peak, this financial system financed about $8 trillion in assets, becoming almost as large as the traditional banking system. And much of that system used substantial leverage with relatively thin cushions against the possibility of loss. This parallel financial system, operating with much weaker protections, proved exceptionally vulnerable to a loss of confidence. As the crisis intensified, investors began to pull back and demand more collateral, forcing institutions in this parallel system to sell assets to meet those demands for cash, pushing the price of financial assets down, leading to a vicious cycle of panic. That run -- it was a class run on our financial system -- brought us to the brink of collapse and our economy faced the risk, a credible risk, of entering a second Great Depression. Now, many people call this parallel system a shadow banking system, but it was not hidden away. It operated in broad daylight, financed by institutional investors with no history, a system with no history or reasonable expectation of government support in a crisis. Instead, in many ways, this parallel system was a pure failure of market discipline. So why did the protections put in place following the Great Depression not protect us against the growth of risk in this parallel system? First, what helped make the growth of this system was we entered a long period of relative economic and financial stability during which borrowers and investors took on more and more risk. Trillions of dollars of financial decisions were made in the U.S. and around the world on the expectation that house prices would never fall, that future recessions would be short and shallow, that systemic financial crises in developed markets were a thing of the past, and that the world economy would continue to grow unabated. Those judgments proved tragically optimistic. And ultimately, the protections put in place around the traditional banking system did not provide sufficient shock absorbers to withstand a deep recession and a substantial fall in real estate values. But part of the cause lies in our balkanized, fragmented regulatory system designed in a different era that lagged far behind changes in the financial markets. The government's system of financial oversight was simply not designed to constrain risk-taking in this parallel financial system. Prudential regulations were limited to banks. The Federal Reserve had no legal authority to set and enforce capital requirements on major institutions that operated essentially banking businesses outside of bank holding companies. GEITHNER: The Fed also had no legal authority over investment banks, diversified institutions like AIG, or hundreds of non-bank finance companies. The SEC, as you know, had no legal authority to set and enforce capital requirements on a consolidated basis across the full range of activities of investment banks. And more broadly -- and this is critical -- no regulator or supervisor had the core mission of looking across the financial system and taking action to prevent the diversion of activity away from the protections regulations were designed to provide. The result was a system that applied safety and soundness regulation only to banks was unable to protect the safety and stability of the broader financial system. Now, addressing these failures is the central part of the comprehensive reforms now being considered by Congress. These reforms would require the enforcement of tough constraints on leverage and risk-taking across the major institutions that played a critical part in causing this crisis. Financial institutions will no longer be able to escape these limits. Large and complex global financial institutions will be forced to operate with higher capital and more stable funding, reflecting the greater risk they pose to the economy as a whole. These reforms will bring derivatives markets out of the dark. They will provide transparency and disclosure and comprehensive oversight over all derivatives markets and all participants in those markets.And we will bring standardized derivatives into central clearinghouses and trading facilities, reducing the risk that the derivative markets could again threaten the system. These reforms will provide more stability in funding markets through reform of money market funds to make them less vulnerable to runs and to make repo markets more resilient. These reforms will help improve disclosure in accounting requirements, reducing opportunities for evasion and giving investors better tools for assessing risk. They will address conflicts in rating agencies and reduce the vulnerability of the system to future mistakes in credit ratings. And they will provide a carefully designed type of bankruptcy process for large financial institutions so that we can break them up with no risk of loss to the taxpayer and less risk of damage to the economy as a whole. Now, I know when people look back at this crisis, when they look at the excessive risks that were taken by large institutions, there is a natural inclination to want to move those risky activities elsewhere. To create stability, some argue, we should simply separate banks from risk. But in important ways, driving risk-taking into areas with less regulation, that's exactly what caused this crisis. The fundamental lesson of the parallel financial system is that we cannot make the economy safe by taking functions that are central to the business of banking, functions that are necessary to help create capital for businesses, help businesses hedge risk, and move them outside of the banks, outside the reach of strong regulation. Mr. Chairman, let me just close by thanking the commission for your important work in drawing public attention to one of -- what I think was one of the key factors in this crisis and one of the most important objectives of financial reform. Thank you very much. ANGELIDES: Thank you, Secretary Geithner. We will now begin the questioning. Let me start with just a few questions and, as I said for former Secretary Paulson today, at least in my instance, while there's been a lot of fascination generally with the bailout and how the financial system was stabilized, I think the questions I want to focus on today is how did we come to the point where it seemed like the only two options were either allow collapse of the financial system, or to commit very, very substantial, trillions of dollars of taxpayer money to save it. And I do want to talk to you in your role as president of the Federal Reserve Board of New York, recognizing that -- that you had direct supervisorial responsibilities over bank holding companies, but beyond that in many respects, you were the eyes and ears of the Federal Reserve on Wall Street. You were in constant contact with primary dealers. You had a board that did have linkages to the financial community. And that you had played a special role in monitoring systemic risk, and in fact had undertaken some efforts with respect to cleaning up the backlog in trade confirmations in the OTC derivatives market. So one of the things I noted in preparing over the last month for our look at the shadow banking system is that in the period of 2004, 2005, 2006, you actually made a number of speeches about risks that were extant on derivatives and contagion, shadow banking. I will note you made two different speeches on the same day, May 19th. It must have been a busy day talking about risk; about concentration risks posed by CDOs and credit derivatives, and about leverage in the system. ANGELIDES: And it seems to me you were in a place where you had extraordinary -- you had an extraordinary access to information, not just market data, but what primary dealers were telling you, info on the repo market. So this is a pretty fundamental question that I have, particularly as we look forward, trying to assess the impact. What didn't you know? And, you know, this doesn't mean to be just ad hominem, but what did you and other key policymakers not know and not have before you to understand the magnitude of what might hit us? GEITHNER: (OFF-MIKE) ANGELIDES: Microphone on. GEITHNER: Mr. Chairman, let me just start by saying that I had spent my -- the previous 15 years in public service dealing with a series of incredibly damaging emerging markets financial crises and the financial crisis in Japan. So when I went to the New York Fed, I had been blessed or scarred by the experience of watching countries manage and mismanage the development of risk in systems and the -- how to clean up and contain the damage in the aftermath. And when I went to the New York Fed, early in that process, beginning in 2004, we began a series of very important initiatives to try to contain, dial back, reduce the growing risks we saw in the system, and improve the odds that if conditions changed -- we face a shock, recession -- that the system was going to be stronger, in a stronger position to withstand that shock. Let me just briefly mention the three most important things we did in that context. The first was to bring a series of experts in markets and risk management, led by Jerry Corgan (ph), together to do a comprehensive examination of the state of risk management practice in managing exactly the things that have been the subject of this crisis, risk in derivatives, exposure to hedge funds, complex financial products, how liquidity is managed, how stress testing is conducted, and using a model of a process very much like what you're doing, which is sort of a post mortem process. After the failure of Long-Term Capital Management, we brought that group together at my initiative and asked them to do a comprehensive evaluation and to provide recommendations. And then we took those recommendations and we asked the major firms in the world to undertake an assessment of how they were doing against those recommendations. Second very important thing we did is to bring financial supervisors of all the major global firms -- the SEC, the British FSA, their counterparts in France and Germany and Switzerland, in particular -- together to conduct a series of what we called horizontal reviews to try to assess limitations in risk management and try to encourage people to fix those problems in risk management early. And those were targeted on very much like what the thing I began with, risks in derivatives, in lending to hedge funds, in management of liquidity, in conducting stress testing. And those efforts were designed to assess what was best practice, where there were gaps, and try to bring all the supervisors together around the world to encourage -- beginning at that point in the period of '05, '06, '07, to try to get firms to dial back the risk they were taking. And then, finally, just to mention the one thing you mentioned, we began a similar effort to start to clean up the derivatives markets, force more standardization, automation. Those were fundamental changes that have paved the way now to what we hope to achieve in these reforms, where -- to bring this stuff out of the dark onto clearinghouses so we can manage the risks better. Now, as you know, those efforts were in the end fundamentally inadequate. They did not do enough soon enough. They did not come with enough force and traction. There's a lot of complicated reasons for that I'd be happy to discuss, in part because we were operating within a set of existing capital requirements that did not adequately capture the risk that the system had to the possibility of a deep recession. So I think the simplest way to answer your question about what did we not know, what we did not know was the degree to which the system was reliant on ratings, ratings that did not capture what falling house prices would do to losses across the system. We did not know the extent to which this parallel financial system had built up leverage and exposure to liquidity risk and a level that would, when it came crashing down, would threaten the stability of the rest of the system. We did not know how vulnerable money markets were to runs, how unstable that basic funding structure was. And I could go on. ANGELIDES: So overrun by events, inadequate political infrastructure to make the changes necessary, undercalibrating the -- I mean, the size of the wave? GEITHNER: Yes, I mean, absolutely. I think that the -- you know, since we were coming out of a period where -- as I said in my remarks -- we had these two fundamental characteristics of the system. One is a long period that seemed relatively calm. So even with all the financial shocks from LTCM since, the system had got through them without catastrophic damage. That created a sense of -- a false sense of complacency about how resilient the system was. And you had this enormous growth in leverage and run risk to liquidity risk in a large parallel financial system. Those were related. And it was -- people could not assess, because they had no experience, what a shock this large would do, what would happen when you had a run on that system. But now -- but you're exactly right. So the oversight system, as I said in my remarks, did not give -- did not establish a set of classic constraints on leverage that all financial systems require on what came to be a large part of the American financial system. And people tried with duct tape and string, like the SEC did in their CFT (ph) regime, to take the authority they had to make the best of it and try to get to a point where they were trying to put in place better constraints, but that effort came too late. It was too weak. It was not grounded in law, and it was fundamentally inadequate. ANGELIDES: So let me ask this, and that is, given that you'd spoken on this -- and you had actually identified what you saw were levels of risk and some might say levels of irresponsibility, so you saw those two trains of risk and irresponsibility, you know, going towards each other, towards collision. Do you believe that you or others in leadership sounded the alarm early enough and loud enough? GEITHNER: Mr. Chairman, I will -- I say this always, and I will say again -- absolutely we could have done more, absolutely. ANGELIDES: OK. GEITHNER: And, you know, people ask, is this inevitable? Were we really fundamentally powerless as a country to prevent this from building up? And I do not agree with that. I do not believe we are powerless. I think that -- it's unfair to say this just with the benefit of hindsight, but I would say that, if the government of the United States had moved more quickly to put in place better designed constraints on risk-taking that captured where there was risk in the system, then this would have been less severe. And if the government had moved more quickly to contain the damage, I think the crisis would have been less severe, as well. ANGELIDES: So let me talk about that. And in the last two days, I've cited another -- a number of market warnings that I won't repeat today from the dramatic expansion of mortgage debt in this country to the explosion of subprime lending, the efforts of states that were preempted by the OCC to fight unfair and deceptive lending. And just -- look, and I was a person in real estate investment, just on the ground, seen 11 percent and 12 percent and 13 percent and 15 percent annual increases in home prices, so a lot of warning signs out there. So, clearly, one of the things you've identified is a lack of the structural ability to move on these problems, but do you also think -- and I want to ask this, and I really thought about it, as we've gone through a set of hearings -- do you also think that the system doesn't have enough iconoclasts in it that -- that the decision-making process is unduly controlled, essentially, by people who are of the financial system and close to it and unable to step away from it in a way you need for true risk assessment? (CROSSTALK) ANGELIDES: I mean, and I think there's variations of this, all the way from people maybe on Wall Street who can't see what's happening in Bakersfield and Sacramento on the ground to families, to people who just don't have enough distance to make a critical analysis that you would -- you would want and expect. GEITHNER: I think that's a very good question. And I try always -- I've always done this in my jobs, and I definitely tried it in the New York Fed -- to make sure that we brought together people in advisory committees we established that represented a great diversity of views in these things, from the academic community, from the broader business community, and we had a -- and we put in place a series of advisory committees that tried to capture that diversity of interests and perspectives. And I -- because I think it's -- what you said is so important. And -- and I think that it's very important for policymakers to make sure that they force themselves to be exposed to a wide diversity of views. Fundamentally I don't think that was the problem. I think the problem was that you did not have centralized accountability matched with authority anywhere in the government to look across the system, try to identify where we had a problem, and have the capacity to go in and act preemptively to try to put in place measures that might mitigate those risks. Our system was fundamentally siloed and balkanized. You had people trawling over parts of the system and parts of the system that are very risky with nobody looking at it, nobody responsible, nobody in charge. And that was a -- that was a tragic failure for the country as a whole. It was an avoidable failure, I believe. It's easy to say that in hindsight, but it was (inaudible) as you said at the time, that anybody who was operating in that world could see that -- you were seeing classic signs of an active price (ph) credit bubble that could prove very catastrophic. And the way I used to say, Mr. Chairman, was that we had this huge wave of changes in finance, capacity to hedge, other things that helped disperse risk that looked like they've produced a more stable system. They looked like they'd reduce the probability of a major financial crisis. But they also -- and this was essential to what happened -- they also meant that if we were to face a major financial crisis, it could be much more damaging and much harder to manage, because it was likely to take place and start, as it did, in this parallel system where there was much more leverage and liquidity risk. Derivative markets complicated it dramatically. And you did not have in place tools there to try to contain the damage earlier, and that's really the story of the crisis. ANGELIDES: Well, again, and many of those, you know, quote, unquote, "signals" I was talking about were not just market data, but looking at leverage ratios, liquidity risk, and those firms that were evident. Now, two very quick, specific questions, because I want to move on to other commissioners, about points in time, because one of the things I think we're trying to do is also try to measure what people saw at different points. So, very quickly -- and I raised this with Secretary Paulson today -- on March 16th, there was some engagement, as you know, between the secretary and Fannie, Freddie, OFHEO, I think fairly stated (ph) to lift the portfolio caps, keep them in the marketplace as the private market has totally withdrawn. The only reason I mention it is there's a reference -- and I don't expect you to know this e-mail -- but you -- I'm looking for the bigger picture here. Bob Steel (ph), who's involved in these negotiations, essentially, to keep Freddie in the game -- I think that's how Secretary Paulson would phrase it -- talks -- says, I was leaned on very hard by Bill Dudley (ph) to harden substantially the guarantee. I do not like that. It's not been part of my conversation with anyone else. I view that as a very significant move way above my pay grade to double the size of the U.S. debt in one fell swoop. I think what I'm really driving to is in March, that Bear weekend, did you -- were you worried about what -- something of the magnitude that ultimately happened in September happening in March? GEITHNER: Absolutely. I think we all were. I'm sure Secretary Paulson was. At that time, as -- as Bear Stearns fell off the cliff, we were deeply worried about what that would do to the broader stability of the financial system, and we knew at that point that Fannie and Freddie, like many other parts of the financial system, faced very substantial losses on their -- particularly (inaudible) mortgage portfolio -- and we worked very hard to encourage the relevant authorities to encourage those firms to go out and raise a lot of capital. As we were doing in other parts of the system, it seemed the straightforward, sensible thing. And that was important, because as we saw, fundamentally, short capital going into a storm like this is catastrophic, and they were short capital. And the problem with these crises is, people tend to wait. They -- if they wait too long, it looks weak. The pricing is expensive. They don't want to dilute (ph) their shareholders. So you have a basic, classic pattern that was magnified dramatically in the -- in the untenable corporate structure Fannie and Freddie had. And we worked, as many people did, very hard to try to encourage people to encourage them to raise capital early for exactly the reasons that the e-mail reports. ANGELIDES: Just kind of yes or no. Were you for hardening the guarantee at that point? Did you share Mr. Dudley's (ph) view? GEITHNER: I often used the argument that you need to make it more credible to the world, they're going to have the financial resources to meet their commitments, and you can do that lots of different ways. One is by making sure they raise more capital. The other is to strengthening what was an implicit commitment at that point for the government to stand behind them. And, ultimately, of course, that was -- both were necessary. And I was fully supportive of the judgment -- of the need to take that step. ANGELIDES: All right. Final question for you, and this, again, goes to depth. Later today, we'll have a panel with GE Capital, PIMCO, State Street, participants in the, quote, unquote, shadow banking system, but also the repo market. Now, it appears from documents that we have that GE was able to keep its -- going with its issuance of commercial paper throughout this crisis, even though, of course, the general spread over LIBOR increased for all participants. But, you know, at some -- at some level, a disruption in the -- the credit capacity of GE speaks volumes about the depth of what we were seeing. So on September 29th and 30th, you had six telephone conversations with Mr. Immelt. And just to put that in context, you probably lived -- you know, you probably didn't get any sleep these days. GEITHNER: Oh, absolutely. As I said in my written testimony, there are -- this crisis is littered with examples of authority that was not used early enough and forcefully enough. But in the subject of your hearing, and this is true for shadow banking, parallel banking, derivative markets generally, I would say the oversight failure was a lack of -- a gap, a vast gulf in accountability and legal authority that prevented people -- even people who had perfect foresight -- from acting preemptively to contain those risks. BORN: Let me just ask you briefly, first, about the over-the- counter derivatives market -- an enormous and unregulated market as of the time of the crisis, where there were tens of thousands of contracts out there creating counterparty credit risk, and virtually no transparency. You said in your testimony these markets have proved to be a major force of uncertainty and risk during periods of financial disruption. Do you feel that the lack of regulation, the lack of transparency, the enormous size of the market played a role in exacerbating the financial crisis? GEITHNER: I do. I would emphasize two things, though. The first is that -- and this is I think fundamental -- you had very large institutions writing hundreds and hundreds of billions of dollars of commitments in derivatives without capital to back them up. This is obviously true for AIG, but it was true for a whole industry of insurance companies and of course it was true for many other financial institutions. So fundamentally what happened is when they had to meet those commitments, they didn't have enough resources to do it, and of course that brought them to the edge of collapse. But I think the other problem was that in this world of millions of bilateral contracts, it was like spaghetti, cooked spaghetti together. And when the crisis hit and you had to untangle those and try to figure out what was my exposure to default risk across the system, it was very hard for people to know. And they reacted as people do in facing fear. They decided, "I'm going to withdraw and pull back from risk wherever I can." And that in a crisis tends to feed a panic like margin spirals do, and that tends to amplify the crisis. So the inability that those tens of thousands or millions of contracts provided for people to assess quickly what my exposure was to a risk of default by a major institution was a substantial factor exacerbating the panic and made the crisis harder to manage. And of course, the paradox is that those were markets designed to help people hedge risk. And that gave people the capacity to hedge risks, but also gave them much more risk of exposure to panics when things fell apart. BORN: So not only -- I mean, I believe they are very useful instruments and essential to managing risk, but they also magnified risk greatly in this disruption. GEITHNER: I agree with that. BORN: Is this why the administration is proposing regulatory oversight over the market? GEITHNER: Yes, absolutely. Again, you know, these markets great up -- grew dramatically in the decade that preceded this crisis. You know this, of course, very well. The risks were apparent to many earlier, but they grew dramatically over that period of time. And it was a -- fundamentally, I mean people were doing this thing by spread sheet and fax. People did not have electronically accessible records of what their exposure was. There were huge backlogs of transactions not captured by risk management systems. So when we came -- when I came into the New York Fed and we started an effort to clean that up and reduce it. It put us in a position where we couldn't finally propose reforms that would bring the standardized part of the market onto clearinghouses and make sure that centrally cleared stuff would be traded on exchanges or on electronic trading platforms. And the reforms also, of course as I said, give people the authority to make sure that major institutions writing these commitments are forced to hold capital against it; that margin is conservative enough; and that the FTC and the CFTC have the tools they need to better police fraud and manipulation, to deter fraud and manipulation earlier. Those are the reforms now working their way through the Congress and they are a very strong package of reforms. BORN: You've essentially indicated that the lack of regulation or the lower level of regulation in shadow banking made the shadow banking sector more vulnerable to the financial problems that experienced in 2007 and 2008. And I wanted to ask about kind of the flip-side of the coin, which is whether the growth and competition of the shadow banking system impacted subtly or at all on banking regulation? Because this was a less-regulated system. I think the banks did suffer competitively with various aspects of the shadow banking system. They lost deposits to the money market funds. They lost potential commercial loans to commercial paper and repo. And I can imagine that commercial banks, having felt this competitive pressure, would have wanted to be able to engage in broader activities and with less constraints from banking regulators. We have been told during our investigations that by the time Glass-Steagall was altered by Gramm-Leach-Bliley, there was not a great deal of separation in fact between the activities commercial banks could engage in and investment banks. So I wanted to ask you whether, as a banking regulator, you saw pressures to soften constraints on the commercial banking sector because of the growth of shadow banking. GEITHNER: I did not feel those constraints. But what you describe was central to everything that was happening, and you gave all the right examples, but let me provide a few more. We created a system that allowed institutions to in effect choose their regulator. The best examples of that were banks that chose to become thrifts -- Countrywide being the best example. A lot of people thought regulatory competition was a virtue. It would produce better regulation. But if you allow people to move risk to where the regulators are weakest, and they operate with leverage and risk to the system, that's just a catastrophic choice. So you saw it definitely across banking regulators, and in fact, you know, Countrywide is an example where Countrywide was able to evade the tougher restrictions of a Fed regime and choose the softer regime -- restrictions of an OTS regime. That's a good example. And overwhelmingly, you saw people pressure banks -- and every pressure to follow the market down. What happened in mortgage underwriting is another great example. I think it's true in the early part of that decade, probably up to 2004, most mortgage were still underwritten by banks and by thrifts. But over time, of course, most mortgages migrated to other parts of the system outside of the banking -- remote to the banking system for the same basic reasons. So again, the mistake is to permit that on a scale that can threaten the system. And again, what these reforms do, which is very important, is recognize the basic principle that if you're doing banking, we regulate you as banks so we can better protect the system. It doesn't mean everybody has to be exactly the same in their financial structure, but the leverage requirements they operate with, the requirements on funding should be economically similar so we produce a level of stability that's more tolerable for the country. BORN: When you were at the Federal Reserve Bank of New York, you and your staff had the role of overseeing some of the biggest bank holding companies in the world. And those were also institutions that suffered adversely during the financial crisis that we've experienced. I wonder if you would comment on the ability of supervisors to effectively oversee institutions that are that large and that complex. And whether you felt that you and your staff really had the capabilities to do the kind of job you would have wanted to do. GEITHNER: I believe we did. And I think that we had -- we have examples where it worked quite well and examples where it was just fundamentally inadequate. It was absolutely made more difficult by the fact that we were operating in a system where the checks and balances that we all rely on, which are internal controls, good audit control regimes in these firms, risk management systems that look across the entire entity and capture those risks and bring them together so you can look at them -- those things were fundamentally weak and inadequate, and we were very vulnerable to that. We were somewhat vulnerable to the fact that under Gramm-Leach- Bliley, we are -- we rely on functional supervisors to supervise for safety and soundness the underlying bank, or in the case of the FTC, in this case it was the broker-dealer. And these firms operated across the world and were able to push risk into other jurisdictions like in many cases in the U.K. in ways that make it harder to capture it. And we were vulnerable to those limitations of that system as a whole. And of course, as we've learned, the capital requirements and the accounting requirements and the disclosure requirements did not do a good enough job of giving us a good picture of what capital really was relative to risk. And that's why the big lesson I take from this, among the many lessons, are to make sure that we force the system to run with more conservative requirements on leverage. Because I do not believe you can design a system that depends on a community of regulators always being wise and tough and smart and have foresight, and perfect foresight to come in preemptively and preempt pockets of risk and bubbles in leverage. I think it's unlikely. We'll do our best. People -- our successors will do their best, but they will be imperfect. And the best defense against that potential problem is to force the system to run with stronger shock absorbers, reserves in terms of cash available to absorb losses across the system. And again, that's the lesson we're trying to bring about with these reforms so that not just the institutions run with less leverage, but that markets like repo or secured funding markets, securities lending markets, et cetera, derivatives markets where firms come together, also run with much more conservative cushions against the unknowable, against the uncertain, against the likelihood, the possibility that the next shock could be beyond our imagination, beyond our experience, and could be very damaging. I think that's the central lesson I try to take from the crisis. BORN: What about the need for a systemic view which is very hard for any of our existing regulators to have because of their siloed jurisdiction? GEITHNER: I think that's very important. There's two ways to do it, just conceptually. One is to take all the regulatory responsibilities that are relevant to systemic risk, put them in one place like maybe the British did in some ways, and have a single point of accountability for measuring, managing all those basic risks. I don't think that system works. I don't think it's feasible. We're proposing a different model, which is to create a council which brings those firms -- those entities together with their functional specialization for market integrity, for resolution like the FDIC, for safety and soundness, for the payment system, et cetera. And put them in a place where they have to sit around the table with the secretary of the treasury, who because we're the custodians of the taxpayers' money and fundamentally responsible for the financial security of the country, have to be in a position to be accountable to the Congress for making sure that complement of regulators is running the system sufficiently conservatively that there are not big gaps. The system is not lagging way behind the growth in these markets. Now, that is not going to force perfect foresight, but it I think offers a better chance of at least forcing somebody to be accountable for looking across the system and make sure that we don't recreate again huge gaps, opportunities for evasion, arbitrage, where the rules lag way behind risk the way they did in this case. BORN: Let me ask you one last thing. There became prevalent a view among economists, a view among some regulators during the last 10 or 20 years that financial markets were essentially self-regulatory. And government supervision, government regulation of markets was either unnecessary or actually counterproductive. Do you think that played a role in the regulatory weaknesses and the regulatory gaps that you have described in your testimony? GEITHNER: It's hard to know. I find it hard to imagine that anybody who lives in financial systems believes fundamentally they are self-regulating, just because the history of financial systems is a history of recurring crises, some devastating, like this one, and some more mild, but always consequential. And we learn those lessons painfully
White House Briefing with Tony Snow
White House Briefing with Press Secretary Tony Snow STIX & CUTS RS06/X84 Slugged: 1230 WH BRIEF X84.01 12:52:02 Tony Snow walks to podium 12:52:12 the president is going to Greensburg KS taking a look at the devastation that town. Its' important for him to tour a town in the matter of seconds was obliterated. It often happens in this country. There have been efforts to deal with health. He will receive briefings with officials. That is something that is important. Q & A Kansas 12:53:17 I think you are trying to pick a fight. We talked to the Governor. They've talked about Iraq deployments and National Guard of longer term planning. The question is resources available? 12:54:01 Fran said it was her understanding. We had a conversation this morning about notifications. Gov requesting a declaration. FEMA had resources moving in within a couple of hours. People were moving quickly. The governors said she had what she needs. Gov said no we could not have asked for a faster response. We've got a good power. These are not situations you can antipasti. There are a lot of resources available to KS. 12:55:49 president signed an emergency declaration. Public aid for the state. There are a lot of resources available. Let's figure out what people need and let's get it there. 12:56:23 Fran took notes and I'm giving her read out. 12:56:33 there was not a formal request, but they had conversations. The governor was out of state when it happened. It was a priority to get things moving. 12:57:10 it has nothing to do with the surge. Deployment time. This is designed to give people the predictability when they will get deployed out. 12:57:39 this is part of the regular process to assure you have predictable 12:57:52 Martha asks question 12:58:03 that's a hypothetical question. We have no indication that people did not get what they needed as soon as they needed it. 12:58:29 I think resources available. 83,000 nat guard troops. 228 heavy expandable trucks. There's a lot of stuff available, the equipment was available and people were moving as quickly as possible. 12:59:09 other items have been requested: mobile command center, 42 two-way radios, those are the things the state has requested. 12:59:46 you're taking the separate issue of nat guard deployment this particular case. She told Fran she had what she needed. I think you have to step back. 13:00:40 we can talk about these things, lets get our job done first. 13:00:49 it was there the resources were there. There are a number of resources available in KS alone. 13:01:34 you have EMS, fire dept, private vendors. Private help available immediately. You get it and we'll write the check. Boom. 13:02:08 we certainly hope so. There is an enormous amount of planning going on so you have the flexibility. You still have considerable strength in each state. Everybody is doing their best. They are also planning requirements with state so we can coordinate with them. No one can predict when something like this will strike. 13:03:15 potential disaster. You do have more than 6,000 available units. There are large amounts of individuals and equipment available. You do have plans on how to get assistance from other states. 13:04:10 I think they are separate issues.they are shared resources, just as in a time of war you have to be able to do more than one things at time. You maintain your capability of dealing with domestic concerns. How would you measure that? The fact is in many cases vital equipment for KS they have more than 100%. It's not solely a nat guard responsibility. So you respond to the needs. In this case people responded swiftly. Iraq 13:06:17 it's a start and stop measure. It denies commanders and forces the predictability they need to plan. You get into a situation where you do not have predicable funding. You are going to delay deployment and you may have to prolong tours you interrupt purchasing, planning, contracting. 13:07:26 it denies you the ability for long range planning. It affects cost containment. We think its best to go ahead and get us thru this fiscal year. Our goal is pretty clear here. 13:08:01 you're assuming more than im willing to assume 13:08:09 Martha asks about prolonging tours 13:08:18 you have to ask what the unattended consequences are for cutting off funding. You have to talk about particular units 13:08:45 what he's saying is he will give a report in sept. Please go away from the idea that Iraq is like OZ. it is not something that appears with the snap of a finger. What is the cost of the national security? How do you put together effective strategies to be successful in Iraq? It is what you would expect in a time of war. 13:10:21 im not going to say its reasonable or unreasonable. Let's see what happens. I think the Baghdad security plan is in its middle stages and its important to let them do what they think. The Iraqis play assertive roles in taking care of their security. Of course they are going to look at it 13:11:14 Martha asks question 13:11:19 petraeus mission. There's no doubt there will be continued attempts to destabilize. They want Iraq. They will do what they can to shake it up. There is considerable conflict and im not going to get the crystal ball. We continue to do it. World Bank 13:12:41 Paulson is the one who is dealing with the issue. Pres has supported Wolfowitz. Talk to treasury. 13:13:06 refer to treasury it's a hypothetical question. President supports him. It still has confidence. 13:13:40 talk to treasury they are the ones fronting this. Immigration 13:14:38 the president is trying to pull together immigration reform. Respect for the rule of law and respect for people who want to be citizens, how to deal with their status and create a temporary worker program. There are a lot of concerns. We're aware of Sen Kennedy's concerns. Dealing with issues that are still under consideration. Iraq 13:16:18 you need to ask that to members of Congress. The issue of if you leave how do you make America safer? How does that avoid creating a vacuum in Iraq or unleash economic chaos? How do you so that in a way that would not allow terrorist to proclaim victory? People who take a look at these question. The strategic goal is to build a democracy that is an ally against terror. 13:17:30 they also should be willing to acknowledge progress when they see it. 13:18:00 a lot of times facts are funny things sometimes they can support your decision. 13:18:32 you mean leave? 13:19:14 I think again don't expect Oz, expect the war and you look for incremental changes. You've seen stories about Baghdad. 13:20:03 you're referring to body counts. You avoided the real changes on the ground. Including demobilization of enemy's army. 13:21:11 we've already given you some measures of progress. You not only have shifting conditions on the ground. There are a whole series that come into play. We've offered metrics. The American people have to take a look at it. Look at the bad guys and what's going on with military operations. 13:22:15 take a look at what's goin on in the ground. The data are out there. 13:23:58 you have the PM today in response to the bombings saying we are going to step forward. Reaching out to Sunnis is an important act of reconciliation. We're going to have to figure out specific things to talk about political accomplishments. Ask congress do you leave b/c it's tough or stay b/c it gets tougher if you stay. 13:25:01 whets it going to take for you to leave? 13:25:19 its not. 13:25:23 Martha: the surge, Sept date 13:25:33 we believe that the last brigades will be getting in and operational in about a month. Time to asses what's going on. 13:26:03 the pres commitment is building capability. US are not the only partner here. Iraqis are putting their lives on the line. NJ arrests 13:26:40 US attorney will have a conference. We've given all you know. 13:28:56 Tony snow exits CUTS TO FOLLOW
Federal Reserve and AIG Hearing 1200-1300
New York Federal Reserve and AIG House oversight and government reform Committee holds a hearing with Treasury Secretary Timothy Geithner, Neil Barofsky, Elias Habayeb, the former Senior VP vp and chief financial officer of AIG and others. Hank Paulson and Stephen Friedman, former chairman of the FRBNY and current member of the border of directors of Goldman Sachs will also testify. 12:00:00 AND CURBED BY ANY FINANCIAL REGULATORY MONITOR? 12:00:02 >> CONGRESSMAN, I BELIEVE DEEPLY THAT WE NEED TOUGHER RULES, 12:00:07 ENFORCED MORE EFFECTIVELY AND EVENLY, TO MAKE SURE THAT 12:00:10 CONSUMERS AND INVESTORS ARE NOT TAKEN ADVANTAGE OF AND THE 12:00:13 SYSTEM IS NOT SO FRAGILE THAT GOVERNMENT HAS TO STEP IN THE 12:00:16 FUTURE AND TAKE THIS ENORMOUS RISK OF LOSS. 12:00:18 >> LET ME JUST ASK YOU ABOUT THE BONUS TAX BECAUSE I WOULD BE 12:00:22 INTERESTED IN THIS. FIRMS LIKE GOLDMAN RECEIVE 12:00:25 T.A.R.P. FUNDS. THEY RECEIVE LOW INTEREST MONEY 12:00:30 FROM THE OPEN WINDOW OF THE FEDERAL RESERVE AND, OF COURSE, 12:00:32 GOLDMAN AND OTHER FIRMS RECEIVE DIRECT PASS THROUGH PAYMENTS 12:00:35 WHEN AIG WAS BAILED OUT, CORRECT? 12:00:38 AND WHEN MR. PAULSON, YOUR PREDECESSOR, WAS ON THE PHONE 12:00:42 REQUESTING THIS MONEY, THIS WAS NOT ANYTHING THAT YOU MADE THE 12:00:44 REQUEST FOR, HE ASSURED US THAT WALL STREET HAD LEARNED ITS 12:00:48 WAYS. GOLDMAN AND THE OTHER WALL 12:00:50 STREET FIRMS ARE BACK TO THEIR OLD WAYS. 12:00:52 THEY HAVE BEEN SO SUCCESSFUL AND LET'S GIVE THEM CREDIT, THEY'RE 12:00:55 GOOD AT WHAT THEY DO. THE QUESTION IS WHETHER WHAT 12:00:57 THEY DO IS GOOD FOR THE ECONOMY AND FOR MAIN STREET. 12:01:01 THEY HAVE BEEN ABLE TO SET ASIDE 140 TO $160 BILLION. 12:01:07 DO YOU HAVE AN OPINION, FOR BONUSES, THEY COULD HAVE LENT 12:01:10 THAT OUT, COULD HAVE ADDED TO THEIR CAPITAL BASE AND THE THIRD 12:01:13 CHOICE, THEY COULD HAVE PUT IT IN THEIR POCKETS WHICH IS THE 12:01:15 ONE THEY HAVE CHOSEN, DO YOU THINK IN VIEW OF THE FACT THAT 12:01:17 MUCH OF THEIR PROFIT WAS MADE THROUGH TAXPAYER GENEROSITY IT 12:01:21 WOULD BE APPROPRIATE TO TAX BONUSES AS I SUGGEST IN MY 12:01:26 LEGISLATION, THE 15% ABOVE 50,000? 12:01:28 >> OF COURSE I WOULD BE HAPPY TO TAKE A CAREFUL LOOK AT THAT 12:01:31 LEGISLATION AND TALK TO YOU ABOUT HOW BEST TO DEAL WITH 12:01:35 THAT. THE BASIC PRINCIPLE THAT WE 12:01:36 SUPPORT FULLY IS TO MAKE SURE THE AMERICAN TAXPAYER IS NOT 12:01:39 EXPOSED TO A PENNY OF LOSSES FROM THE ACTIONS THE GOVERNMENT 12:01:41 HAD TO TAKE UNDER THE T.A.R.P. AUTHORITY. 12:01:43 AND I COMPLETELY AGREE, AS I SAID EARLIER, THAT WE NEED TO 12:01:46 WORK WITH THE CONGRESS TO MAKE SURE WE BRING ABOUT FUNDAMENTAL 12:01:49 CHANGES AND HOW BANKERS ARE PAID SO THAT THEY ARE NOT TAKING 12:01:52 RISKS THAT COULD IMPERIL THE ECONOMY AS A WHOLE. 12:01:54 DOING THAT IS HARD TO DO RIGHT. WE TRIED IN THE PAST, NOT VERY 12:01:59 SUCCESSFULLY, IT IS AN OBLIGATION THAT SHAREHOLDERS AND 12:02:01 BOARDS HAVE TOO. BUT IT IS THE GOVERNMENT'S 12:02:03 RESPONSIBILITY IN THE END TO MAKE SURE -- 12:02:05 >> MY TIME IS ALMOST UP. WHERE WE WOULD TAKE THE MONEY 12:02:09 THAT WAS RAISED FROM THAT AND PUT INTO SMALL BUSINESS LENDING 12:02:14 AND SOME ARE REDUCED LENDING TO AMERICAN ENTERPRISES. 12:02:17 FOLKS IN VERMONT WHO RUN BUSINESSES ASK ME IF THOSE DIES 12:02:21 MAKE SO MUCH MONEY, HOW COME THEY CAN'T LEND ME ANY? 12:02:24 >> I AGREE WITH YOU. IF YOU SAW IN THE PAPER TODAY, 12:02:27 WE ARE CLOSE TO PROPOSING TO THE CONGRESS THAT WE TAKE A LARGE 12:02:31 AMOUNT OF THE RESOURCES THAT WE HAVE GOTTEN BACK FROM BANKS, 12:02:34 FROM THE LARGE BANKS AND DEVOTE THEM TO EXACTLY THAT OBJECTIVE, 12:02:38 MAKING SURE THAT SMALL BANKS AND SMALL BUSINESSES HAVE ACCESS TO 12:02:41 CREDIT. >> THANK YOU, MR. SECRETARY. 12:02:42 MY TIME IS UP. AND THE CHAIR NOW RECOGNIZES THE 12:02:48 GENTLEMAN FROM OHIO, MR. JORDAN. >> THANK YOU PLRK CHAIRMAN. 12:02:53 MR. SECRETARY, YOU ARE INVOLVED -- YOU SAID THIS MANY 12:02:56 TIMES, INVOLVED WITH THE DECISION 15, 18 MONTHS AGO 12:03:00 RELATIVE TO THE INITIAL T.A.R.P. BAILOUT, YOU'RE INVOLVED IN ALL 12:03:02 THAT, YOU THOUGHT IT WAS THE RIGHT DECISION TO MAKE AT THE 12:03:07 TIME. >> I THOUGHT IT WAS ABSOLUTELY 12:03:10 ESSENTIAL AT THAT POINT. THE COUNTRY HAD NO CHOICE. 12:03:13 >> AND WE HAD SEVERAL HEARINGS ON BANK OF AMERICA AND MERRILL 12:03:18 LYNCH AND YOU WERE INVOLVED IN THAT DECISION. 12:03:20 YOU WERE SUPPORTIVE OF WHAT TOOK PLACE WITH THE MERGER OF -- THE 12:03:25 ACQUISITION OF MERRILL BY BANK OF AMERICA, YES OR NO? 12:03:28 >> THAT IS RIGHT THAT AT THAT TIME I WAS PART OF AN EFFORT TO 12:03:32 TRY TO FIND A SOLUTION -- PRIVATE SOLUTION TO MERRILL 12:03:36 LYNCH TO THAT POINT AND I THOUGHT THAT THAT ACTION AT THE 12:03:39 TIME WAS NECESSARY AND APPROPRIATE, YES. 12:03:40 >> AND TODAY YOU HAVE SAID THAT, YOU KNOW, YOU THINK THE INITIAL 12:03:44 DECISION RELATIVE TO AIG AND THE PAYMENT TO THE COUNTERPARTY, YOU 12:03:48 THINK THAT WAS APPROPRIATE, YOU STATED THAT STRONGLY IN YOUR 12:03:51 WRITTEN TESTIMONY, YOU TALK ABOUT THIS IS IN THE BEST 12:03:53 INTEREST OF THE AMERICAN PEOPLE. >> I DO. 12:03:54 I DO. >> WE DID NOT ACT TO HELP FORM 12:03:57 BANKS, WE ACTED BECAUSE THE CONSEQUENCES OF FAILING AT THAT 12:03:59 TIME IN THOSE CIRCUMSTANCES WOULD HAVE BEEN CATASTROPHIC TO 12:04:01 OUR ECONOMY, AMERICAN FAMILIES AND AMERICAN BUSINESSES. 12:04:03 YOU THINK IT WAS DEFINITELY THE RIGHT DECISION? 12:04:05 >> I DO. >> AND THE STAFF THAT WORKED FOR 12:04:06 YOU AT THE NEW YORK FED WOULD BE IN AGREEMENT WITH THAT ANALYSIS, 12:04:10 THAT THIS WAS SO CRITICAL, THIS HAD TO GET DONE, THE SKY WAS 12:04:14 GOING TO FALL, THE WORLD WAS GOING TO END IF WE DID NOT DO 12:04:17 WHAT YOU DECIDED TO DO RELATIVE TO THE COUNTERPARTIES AND THE 12:04:20 $6.2 BILLION SPENT. IS THAT CORRECT? 12:04:22 >> I BELIEVE IT IS. BUT I THINK THERE ARE -- TO BE 12:04:25 FAIR TO SAY THERE WERE THOSE AMONG US INVOLVED IN THIS, IN 12:04:29 EACH OF THE INSTITUTIONS INVOLVED, WASHINGTON, NEW YORK 12:04:32 TREASURY, WHO WERE DEEPLY TROUBLED BY THAT CHOICE, WERE 12:04:36 NOT COMFORTABLE WITH THIS -- >> BUT YOU THOUGHT IT WAS WHAT 12:04:39 YOU HAD TO DID AT THE TIME. >> I BELIEVE THAT, YES. 12:04:44 >> YOU SAID IN YOUR WRITTEN AND YOUR ORAL TESTIMONY THIS MORNING 12:04:47 THAT THIS WAS CRITICAL TO AMERICAN FAMILIES AND AMERICAN 12:04:50 BUSINESSES. >> I BELIEVE THAT. 12:04:51 >> IT BEGS THE OBVIOUS QUESTION, WHY THE SECRECY RELATIVE TO 12:04:56 DISCLOSURE? IF IT IS THAT IMPORTANT, $62 12:04:58 BILLION, WHY IN THE HECK NOT DISCLOSE IT WHEN IT IS HAPPENING 12:05:01 SINCE YOU SUBSEQUENTLY HAVE DONE THAT, WHY THE SECRECY AND, 12:05:05 FRANKLY, WHY WEREN'T YOU INVOLVED -- IF IT IS THAT 12:05:09 CRITICAL, THAT IMPORTANT, WHY IN THE HECK DID YOU RECUSE 12:05:11 YOURSELF -- WHY WEREN'T YOU INVOLVED? 12:05:13 >> WELL, AGAIN, JUST TO STEP BACK A SEC, WHEN THE FED 12:05:17 DISCLOSES THIS IN MARCH, I THOUGHT IT WAS THE RIGHT THING 12:05:21 TO DO. AND I THINK REASONABLE PEOPLE 12:05:23 LOOKING BACK AT THIS COULD SAY WHY WASN'T THAT POSSIBLE SOONER? 12:05:25 I THINK THAT'S A REASONABLE -- >> WHY WASN'T IT POSSIBLE IN 12:05:28 NOVEMBER WHEN IT WAS ALL GOING DOWN? 12:05:29 >> RIGHT. BUT ALL I CAN SAY IS WHAT I 12:05:32 UNDERSTAND I WAS INVOLVED IN AND I WAS NOT INVOLVED IN 12:05:36 DISCUSSIONS ABOUT -- DECISIONS ABOUT WHAT TO DO WITH THAT 12:05:39 PARTICULAR TRANSACTION THAT C 12:05:43 COUNTERPARTIES OR THE DETAILS. >> LET ME ASK YOU THIS. 12:05:45 DO YOU BELIEVE THE DECISION THAT WAS MADE BY THE FOLKS WHO WORK 12:05:47 FOR YOU AT THE NEW YORK FED TO NOT DISCLOSE UNTIL MARCH AND NOT 12:05:50 DISCLOSE WHEN IT WAS ALL TAKEN PLACE, DO YOU SUPPORT THAT S 12:05:56 DECISION? >> CONGRESSMAN -- 12:05:57 >> IT IS YES OR NO. YOU SAID IT WAS SO CRITICAL, THE 12:06:01 WORLD WAS GOING TO END, EVERYTHING WAS GOING TO GO TO -- 12:06:05 >> IT IS VERY HARD TO PUT YOURSELF IN SHOES YOU DID NOT 12:06:10 OCCUPY. AND HAVE REALLY A FAIR SENSE TO 12:06:12 EVALUATE THOSE ACTIONS IN THAT CASE. 12:06:15 AND I DON'T FEEL LIKE I CAN PUT MYSELF IN THEIR SHOES AT THAT 12:06:18 TIME. >> LET ME TELL YOU WHAT I THINK 12:06:20 HAPPENED. >> BUT I DO BELIEVE THAT THEY 12:06:22 ACTED WITH GREAT INTEGRITY, CARE AND JUDGMENT AFTER -- 12:06:26 >> HERE'S WHAT HAPPENED L LYNCH WAS ON THE RIGHT TRAIL OVER 12:06:30 HERE. THIS IS A PATTERN. 12:06:31 WE HAVE SEEN IT. YOU CAME TO THE CONGRESS OF THE 12:06:33 UNITED STATES AND SAID GIVE US $700 BILLION OF -- 12:06:35 >> I DID NOT DO THAT. >> I'M SAYING THE GOVERNMENT. 12:06:37 THE GOVERNMENT CAME TO THE CONGRESS -- 12:06:39 >> YOUR GOVERNMENT, YOUR PRESIDENT AT THE TIME. 12:06:41 >> I UNDERSTAND. I DIDN'T SAY DEMOCRAT OR 12:06:44 REPUBLICAN, I UNDERSTAND THE GOVERNMENT. 12:06:45 GIVE US THE MONEY, WE'RE GOING TO GO BUY THE TROUBLED ASSETS. 12:06:52 NINE DAYS LATER, YOU WERE IN THE ROOM WHEN THEY TOLD THE BIGGEST 12:06:57 BANKS, WE'RE NOT GOING TO BUY THE BIGGEST ASSETS. 12:06:59 >> THAT WAS ONE OF THE MOST IMPORTANT DECISIONS. 12:07:02 >> UNDERSTAND THE PATTERN. THE CONGRESS OF THE UNITED 12:07:04 STATES WAS TOLD ONE THING, TEN DAYS LATER AN ENTIRELY DIFFERENT 12:07:07 ACTION WAS TAKEN PLACE. >> I DON'T THINK THAT'S CORRECT. 12:07:10 WHAT CONGRESS AUTHORIZED -- >> YOU DON'T THINK CONGRESS 12:07:12 PASSED THAT BILL BECAUSE THEY UNDERSTOOD THAT THE MONEY THE 12:07:15 TAXPAYERS WERE GOING TO PUT UP WAS GOING TO BE USED BY TROUBLED 12:07:18 ASSETS? >> I CAN'T PUT MYSELF IN YOUR 12:07:20 SHOES BUT THE AUTHORITY THAT PRESIDENT BUSH ASKED FOR GAVE MY 12:07:25 PREDECESSOR THE AUTHORITY TO PUT CAPITAL IN BANKS. 12:07:28 AND DOING THAT -- >> HERE'S PATTERN, MR. GEITHNER, 12:07:32 HERE'S THE PATTERN. THE GOVERNMENT COMES TO THE TAX 12:07:34 PAYERS AND SAYS WE NEED MORE OF YOUR MONEY, THE WORLD IS GOING 12:07:37 TO END, WE WANT IT FOR A SPECIFIC PURPOSE AND THEN DO IT 12:07:41 FOR SOMETHING ELSE. THEY COME TO THE TAXPAYERS, WE 12:07:42 NEED MORE OF YOUR MONEY AND WE'RE GOING TO USE $62 BILLION 12:07:45 AND DON'T DISCLOSE TO THE TAXPAYER WHAT IS GO ON. 12:07:48 THIS IS WHY WE NEVER SHOULD HAVE TRAVELED DOWN THIS ROAD, THIS 12:07:51 UNPRECEDENTED INVOLVEMENT BY THE GOVERNMENT IN THE PRIVATE 12:07:54 SECTOR. WE HAVE SEEN IT WITH -- 12:07:56 >> GENTLEMAN'S TIME HAS EXPIRED. >> WE SEE IS NOW WITH AIG. 12:08:01 >> I THANK THE CHAIRMAN. >> GENTLEMAN'S TIME HAS EXPIRED. 12:08:06 THANK YOU. THE CHAIR RECOGNIZES MR. CLAY. 12:08:09 >> THANK YOU SO MUCH, MR. CHAIRMAN. 12:08:11 AND I WANT TO THANK CHAIRMAN TOWNS AND ISSA FOR CONDUCTING 12:08:18 THIS HEARING. SECRETARY GEITHNER, SEVERAL 12:08:23 ECONOMISTS AND POLICYMAKERS ASSERT THAT AIG'S ABILITY TO 12:08:29 PROVIDE CASH COLLATERAL TO THEIR COUNTERPARTIES WAS NOT RELEVANT 12:08:35 IN DESIGNING THEIR ASSISTANCE PACKAGE. 12:08:38 WHAT IS YOUR OPINION ON THIS CLAIM, THAT IT WAS NOT RELEVANT 12:08:42 IN DESIGNING THE ASSISTANCE? >> I AGREE THAT THE -- WHAT WAS 12:08:47 RELEVANT AND NECESSARY WAS HOW TO RESTRUCTURE THIS FIRM IN WAYS 12:08:51 TO PROTECT THE TAXPAYER, TO THE EXTENT WE COULD, FROM THE RISK 12:08:55 OF GREATER LOSSES. AND OUR CHOICE WAS AT THAT POINT 12:08:59 THIS VERY STARK TRAGIC CHOICE, LET AIG DEFAULT OR NOT. 12:09:03 AND WE THOUGHT THAT DEFAULT ITSELF WOULD HAVE BEEN MUCH MORE 12:09:06 EXPENSIVE. >> OKAY. 12:09:10 LET ME -- HELP ME AND HELP, I GUESS, HELP THE AMERICAN PEOPLE 12:09:17 UNDERSTAND, WHY WAS AIG'S ABILITY TO MAKE PAYMENTS TO ITS 12:09:23 COUNTERPARTIES FOR THEIR TOXIC ASSETS EVEN A FACTOR IN 12:09:28 DETERMINING THE AMOUNT OF BAILOUT MONEY TO AWARD THEM? 12:09:30 >> FOR AN INSURANCE COMPANY OR ANY FINANCIAL INSTITUTION TO 12:09:35 OPERATE, THEY NEED TO OPERATE WITH A HIGH CREDIT RATING. 12:09:38 WITHOUT THAT, THEY COULD NOT BORROW MONEY TO FUNCTION. 12:09:41 THEY COULD NOT WRITE INSURANCE CONTRACTS BECAUSE PEOPLE WOULD 12:09:43 NOT BELIEVE THEY WOULD HAVE THE FINANCIAL WHEREWITHAL TO BACK 12:09:46 THOSE COMMITMENTS. SO THE RATING IS CRITICAL. 12:09:50 IF WE WERE TO HAVE DEFAULTED ON ANY OF THOSE LEGAL CONTRACTS, 12:09:55 AIG WOULD HAVE BEEN DOWNGRADED. THE COUNTERPARTIES WOULD HAVE 12:09:59 THE RIGHT TO TAKE MORE MONEY, AND TO DEFAULT ON -- AND TO 12:10:05 BRING ABOUT THE BASIC COLLAPSE OF THE FIRM. 12:10:09 SO IT IS THAT STARK TRAGIC CHOICE. 12:10:11 IF AIG HAD NOT PAID, THEY WOULD HAVE LOST THE RATING AND THE 12:10:16 FIRMS WOULD HAVE COLLAPSED -- THE FIRM WOULD HAVE COLLAPSED. 12:10:18 IF WE HAD CONTINUED TO LEND THE MONEY FOR THEM TO MAKE THOSE 12:10:22 PAYMENTS, THE RATING WOULD HAVE ALSO BEEN IN JEOPARDY BECAUSE 12:10:26 AIG ALREADY HAD A LOT OF DEBT AT THAT POINT. 12:10:28 THE CHOICE WAS TO RESTRUCTURE THEM SO WE LIMITED THE DRAIN OF 12:10:31 CASH AND LEFT THE TAPAYER -- E >> YOU ARE SAYING THE 12:10:39 COUNTERPARTIES WOULD HAVE HAD A RIGHT THROUGH BANKRUPTCY -- 12:10:42 >> A LEGAL RIGHT TO SUE TO RECOUP THAT CLAIM. 12:10:47 >> OKAY. DID ANYONE INVOLVED IN THE 12:10:54 CONCESSION NEGOTIATIONS EVER SUGGEST THAT AIG'S 12:10:58 COUNTERPARTIES SHOULD NOT BE RELEVANT IN THEIR BAILOUT 12:11:03 P PACKAGE? 12:11:05 DID THAT ISSUE EVER ARISE AMONG THE NEGOTIATIONS OR ANYONE THAT 12:11:10 YOU ENCOUNTERED DURING THE NEGOTIATIONS? 12:11:16 >> THAT IS A COMPLICATED QUESTION, GOOD QUESTION, BUT AS 12:11:18 I TRIED TO EXPLAIN IN TESTIMONY, THE -- WHAT WE'RE GUIDED BY -- 12:11:22 WHAT WAS GOING TO BE THE BEST WAY AT LEAST COST TO PREVENT A 12:11:27 DEFAULT AND PROTECT THE SYSTEM AND THE ENTIRE SYSTEM WAS AT 12:11:32 STAKE THEN. AND NO FIRM IN THE COUNTRY WOULD 12:11:35 HAVE BEEN INSULATED FULLY FROM THE COLLAPSE OF THE ENTIRE 12:11:40 AMERICAN FINANCIAL SYSTEM. AND OUR JUDGMENT WAS THAT AIG'S 12:11:43 DEFAULT WOULD HAVE MATERIALLY RAISED THE PROBABILITY OF THAT 12:11:47 COLLAPSE. OUR CHOICES WERE TERRIBLE 12:11:49 CHOICES, BUT THEY CAME DOWN TO WHAT WAS THE BEST WAY TO PREVENT 12:11:53 THAT OUTCOME ON THE BEST TERMS FOR THE TAXPAYER. 12:11:56 >> SO THEN THAT GET TO THE POINT OF BEING TOO BIG TO FAIL. 12:12:01 AIG'S TENTACLES WERE THAT WIDESPREAD THROUGHOUT THE 12:12:05 COUNTRY AND THE WORLD THAT -- >> EXACTLY THE RIGHT QUESTION. 12:12:10 THERE ARE TWO THINGS THAT MATTER IN THIS CASE. 12:12:12 ONE IS YOU HAD A SET OF FIRMS LIKE AIG, HUGE, RISKY, SPREAD 12:12:21 EVERYWHERE, INVOLVED IN A WHOLE RANGE OF THINGS. 12:12:24 AND YOU HAD A WORLD THAT WAS BURNING. 12:12:27 SO, AGAIN, THE FIRST TIME SINCE THE GREAT DEPRESSION YOU HAD 12:12:31 FINANCIAL SYSTEMS AROUND THE WORLD REALLY AT THE BRINK OF 12:12:35 STOPPING IN THEIR TRACKS. AND IT IS THOSE TWO CONDITIONS 12:12:38 THAT ARE MOST RISKY. IF THE WORLD HAD BEEN STABLE, 12:12:41 EVERYTHING WOULD HAVE BEEN FINE, WE WEREN'T ON THE EDGE OF THE 12:12:43 WORST RECESSION IN GENERATIONS, THEN WE COULD HAVE BEEN AFFORDED 12:12:46 TO BE COMPLETELY INDIFFERENT TO THE FATE OF AIG OR ALL OF THOSE 12:12:52 INSTITUTIONS. BUT BECAUSE AIG WAS SO LARGE AND 12:12:54 SO INTERCONNECTED AND BECAUSE THE SYSTEM WAS SO FRAGILE, IT 12:12:58 WOULD HAVE BEEN IRRESPONSIBLE TO TAKE THE RISK THE FAILURE WOULD 12:13:02 HAVE DRAMATICALLY AMPLIFIED THE PRESSURES WE'RE STILL LIVING 12:13:07 WITH TODAY. >> DID -- COULD YOU HELP 12:13:10 DESCRIBE WHAT THE REACTION WAS IN THE NEGOTIATIONS TO THE 12:13:16 COUNTERPARTIES, PROS AND CONS, AS FAR AS, YOU KNOW, PAYING 12:13:22 COUNTERPARTIES. >> WE WRESTLED WITH LOT OF 12:13:24 CHOICES AS I TRIED TO EXPLAIN IN MY WRITTEN TESTIMONY. 12:13:26 WE THOUGHT ABOUT WHETHER IT WAS BETTER TO DEFAULT, TO IMPOSE A 12:13:32 HAIRCUT, TO NEGOTIATE CONCESSIONS UNDER THREAT OF 12:13:35 DEFAULT. WE THOUGHT ABOUT KEEP PAYING AND 12:13:38 WATCH THAT MONEY KEEP RUNNING OUT THE DOOR WITH THE 12:13:41 COUNTERPARTIES STILL HOLDING THE UNDERLYING ASSETS. 12:13:44 WE THOUGHT ABOUT NEGOTIATING OVER TIME, TRYING TO STRETCH IT 12:13:47 OUT, SEE IF WE COULD FIND A BETTER WAY TO SOLVE THAT 12:13:51 PROBLEM. NONE OF THOSE OPTIONS WERE 12:13:54 REALISTIC. NONE OF THEM WERE FEASIBLE. 12:13:56 THEY WERE NOT BETTER THAN THE CHOICE WE CHOSE. 12:13:58 AND, AGAIN, IF YOU -- I THINK YOU LOOK BACK AND TAKE A FAIR 12:14:02 READING OF THIS, ALTHOUGH THE GOVERNMENT IS STILL EXPOSED TO 12:14:05 SUBSTANTIAL RISK OF LOSS, THOSE LOSSES ARE MUCH LOWER TODAY 12:14:08 BECAUSE OF THE ACTIONS WE TOOK IN AIG AND THIS TRANSACTION, 12:14:12 WHICH, AGAIN, PEOPLE ARE SO UNDERSTANDABLY CONCERNED ABOUT, 12:14:15 HAS PUT THE TAXPAYER IN A BETTER POSITION THAN IF SIMPLY WE KEPT 12:14:19 MAKING THOSE PAYMENTS OR IF WE DEFAULTED ON THEM. 12:14:21 >> THANK YOU. >> THE GENTLEMAN'S TIME HAS 12:14:24 EXPIRED. I YIELD FIVE MINUTES TO THE 12:14:26 GENTLEMAN FROM CALIFORNIA, CONGRESSMAN BILBRAY. 12:14:29 >> THANK YOU, MR. SECRETARY. WE'RE SUPPOSED TO DO OVERSIGHT 12:14:32 AND REFORM. WE'RE TRYING TO GET INFORMATION 12:14:34 SO THAT WE CAN DO THE REFORM TO MAKE SURE THE NEXT TIME THIS 12:14:37 PROCESS COMES UP WE HAVE PROCEDURES AND LAWS THAT ADDRESS 12:14:41 THIS. AND SO IT IS REAL IMPORTANT THAT 12:14:44 WE IDENTIFY HOW THIS WENT SO WE CAN TRY TO CORRECT IT AND MAKE 12:14:46 SURE IT DOESN'T HAPPEN AGAIN. NOT ONLY IN MARCH YOU KNEW THAT 12:14:53 THERE WAS A SO-CALLED DISCLOSURE ISSUE, BUT IN FEBRUARY YOU HAD 12:15:00 SAID IN A SPEECH THAT ONE OF THE MAJOR ISSUES THAT YOU WERE 12:15:04 CONCERNED ABOUT IS THE LACK OF DISCLOSURE THAT WAS CAUSING THE 12:15:07 AMERICAN PEOPLE NOT TO TRUST THE SYSTEM. 12:15:10 NOW, I THINK WE'LL ALL AGREE THAT IN LAYMAN'S TERMS WHAT THE 12:15:14 AVERAGE CITIZEN WHEN THEY HEARD DISCLOSURE ISSUE, THEY HEAR 12:15:19 COVER-UP. NOW, WHY, IN A SYSTEM THAT IS 12:15:23 SUPPOSED TO BE OPEN, THE AMERICAN PEOPLE HAVE A RIGHT TO 12:15:25 KNOW WHERE THEIR MONEY GOES. WHY WAS THERE EVEN A DISCLOSURE 12:15:30 ISSUE. WHY WERE WE EVEN DISCUSSING THE 12:15:32 SO-CALLED COVER-UP OF THE $160 BILLION, WHERE IT WAS GOING, IN 12:15:36 THIS PROCESS? WHY WAS THAT EVEN AN ISSUE THAT 12:15:40 AS SOON AS YOU KNEW THERE WAS A PROBLEM THERE THAT SOMEBODY 12:15:43 DIDN'T CLARIFY THIS? WAS THAT YOUR STAFF HAD 12:15:46 BASICALLY DID NOT INFORM YOU THAT THERE HAD BEEN THIS 12:15:49 COVER-UP THIS DISCLOSURE ISSUE, AND DID YOU MAKE THAT DECISION 12:15:53 OR WAS THAT A DECISION MADE OUTSIDE? 12:15:55 BECAUSE AIG SENT THE INFORMATION OVER. 12:15:57 IT WAS AN INTERNAL PROCESS WITHIN THE GOVERNMENT ITSELF 12:16:00 THAT SAID WE'RE NOT GOING TO DISCLOSE TO THE PUBLIC THIS 12:16:04 INFORMATION. >> MY COLLEAGUES AT NEW YORK 12:16:06 FED, I THINK THEY PUT IN THE PUBLIC DOMAIN A VERY THOUGHTFUL 12:16:09 EXPLANATION OF THE JUDGMENTS THEY WRESTLED WITH AND 12:16:12 ULTIMATELY REACHED. AND I KNOW AND I'M CONFIDENT 12:16:15 THAT THEIR COLLEAGUES IN WASHINGTON SPENT A HUGE AMOUNT 12:16:17 OF TIME THROUGHOUT THOSE MONTHS TRYING TO WRESTLE WITH HOW TO 12:16:21 MEET THE UNDERABLE PUBLIC INTEREST IN GREATER DISCLOSURE 12:16:25 OF THESE THINGS AND THEY ULTIMATELY, I THINK 12:16:27 APPROPRIATELY, CAME TO THE UNDERSTAND THAT THEY COULD AND 12:16:30 SHOULD PUT THAT INFORMATION IN THE PUBLIC DOMAIN. 12:16:33 NOW YOU'RE EXACTLY RIGHT, I HAVE BEEN A GREAT PROPONENT OF 12:16:37 GREATER TRANSPARENCY AND THE CENTERPIECE OF THE STRATEGY THAT 12:16:39 WE ADOPTED TO FIX THIS MESS IN THE FINANCIAL SYSTEM WAS TO 12:16:44 FORCE THE LARGEST BANKS IN THE COUNTRY TO DISCLOSE FOR THE 12:16:47 FIRST TIME TO THE PUBLIC, TO ALL INVESTORS, THE SCALE OF LOSSES 12:16:51 THEY MIGHT FACE IN THE EVENT THIS RECESSION WAS MUCH MORE 12:16:55 DAMAGING THAN IT PROVED TO BE. AND THAT PROVIDED THE BASIS FOR 12:16:58 PRIVATE INVESTORS JUDGING WHO WAS STRONG, WHO WAS LESS STRONG, 12:17:02 AND DECIDING TO PUT IN CAPITAL IN THOSE INSTITUTIONS. 12:17:05 >> WERE YOU TOLD -- IN OTHER WORDS, DID YOUR STAFF KNOW THE 12:17:08 COVER-UP WAS THERE, DISCLOSURE ISSUE WAS THERE BEFORE YOU KNEW 12:17:10 IT WAS THERE? WAS THE DECISION TO -- 12:17:22 >> AGAIN, I THINK AS THE RECORD THE COMMITTEE HAS ALREADY PUT IN 12:17:27 SHOWS THERE WERE DISCUSSIONS THAT WERE HAPPENING ABOUT WHAT 12:17:31 TO DISCLOSE WHEN THROUGHOUT THAT PERIOD OF TIME. 12:17:35 >> WERE YOU INVOLVED IN THOSE DISCUSSIONS? 12:17:37 >> AS I SAID IN MY THING, I'LL SAY IT AGAIN, I PLAYED NO ROLE 12:17:39 IN DECISIONS ABOUT WHAT TO DISCLOSE ABOUT THESE 12:17:42 TRANSACTIONS TO THESE INDIVIDUAL COUNTERPARTIES. 12:17:45 >> DID YOUR STAFF MAKE THE DECISION NOT TO INFORM YOU OR 12:17:49 INCLUDE YOU IN THAT DECISION-MAKING PROCESS? 12:17:50 >> YES, THEY DID, THOUGH I MADE -- 12:17:52 >> WOULD YOU -- WOULD YOU WANT TO KNOW ABOUT THAT OR WOULD YOU 12:17:56 PREFER THAT YOU DIDN'T KNOW ABOUT IT AT THE TIME? 12:17:58 >> I THINK IN RETROSPECT I WISH I HAD KNOWN, FRANKLY. 12:18:02 BUT AFTER NOVEMBER 24th I APPROPRIATELY REMOVED MYSELF 12:18:05 FROM DECISIONS ABOUT A WHOLE RANGE OF POLICY ISSUES THE FED 12:18:10 WAS DEALING WITH, BUT THE PEOPLE THAT WERE MAKING THOSE DECISIONS 12:18:14 IN CLOSE CONSULTATION WITH PEOPLE IN WASHINGTON AND WITH 12:18:17 LEGAL COUNSEL, ARE PEOPLE OF GREAT JUDGMENT AND ENORMOUS 12:18:22 INTEGRITY AND I HAVE ENORMOUS TRUST AND CONFIDENCE, NOT JUST 12:18:25 IN THEIR JUDGMENT, BUT IN THE QUALITY OF THE DECISIONS THEY 12:18:28 MADE THROUGHOUT THAT PERIOD OF TIME. 12:18:30 >> DO YOU FEEL TODAY THAT AT THE TIME THEY MADE THE DECISION TO 12:18:33 DO THE COVER-UP, THE DISCLOSURE ISSUE, THAT THEY FELT YOU DID 12:18:37 NOT WANT TO KNOW ABOUT IT AT THE TIME? 12:18:39 DO YOU THINK THEY MADE A DECISION THAT -- 12:18:41 >> I DO NOT -- IN MY ENTIRE TIME THERE I WAS NEVER AWARE OF A 12:18:46 SITUATION IN WHICH MY COLLEAGUES SOUGHT TO SHIELD ME FROM 12:18:51 SOMETHING. I WAS PRESIDENT OF THE NEW YORK 12:18:53 FED. I WAS GOING TO BE ACCOUNTABLE 12:18:55 FOR DECISIONS MADE ON MY WATCH. BUT AFTER THE 24th, FOR REASONS 12:19:00 THAT I THINK ARE FAIR AND RIGHT FOR THE INSTITUTION, I COULD NO 12:19:07 LONGER RUN THOSE DAY TO DAY JUDGMENTS AND I WITHDREW FROM 12:19:10 THOSE AND I THINK THOSE WERE NECESSARY. 12:19:11 >> AND YOUR STAFF DECIDED TO SHIELD YOU FROM THE COVER-UP 12:19:14 SIDE OF IT TOO? >> NO, I DECIDED THAT I WOULD 12:19:17 WITHDRAW MYSELF FROM -- I DIDN'T DECIDE THIS ALONE. 12:19:19 I DECIDED THIS IN CONSULTATION WITH THE CHAIRMAN OF THE BOARD 12:19:22 OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM AND WITH THE 12:19:25 INCOMING ADMINISTRATION TO PROTECT THE INSTITUTION FROM THE 12:19:28 UNIQUE CONDITIONS I WAS IN THEN. >> MR. SECRETARY WHAT DATE DID 12:19:32 YOU KNOW THAT THAT THERE WAS A COVER-UP, A DISCLOSURE ISSUE, 12:19:36 WHEN WERE YOU INFORMED? >> I ONLY KNEW ABOUT THESE 12:19:42 DISCUSSIONS ABOUT DISCLOSURE WHEN THEY STARTED TO MAKE -- TO 12:19:45 BE IN THE PUBLIC DOMAIN -- ACTUALLY I DON'T KNOW WHEN THEY 12:19:49 FIRST ROSE TO THE ATTENTION OF THE CONGRESS. 12:19:50 BUT WHEN THEY ROSE TO THE ATTENTION OF THE CONGRESS, THEY 12:19:52 WERE IN THE PRESS, I WAS AWARE OF THEM. 12:19:54 >> THE GENTLEMAN'S TIME HAS EXPIRED. 12:19:57 >> THANK YOU VERY MUCH. >> LET ME THANK YOU, SECRETARY 12:20:00 GEITHNER, FOR YOUR TESTIMONY AND, OF COURSE, WE WILL NOW -- 12:20:05 >> MR. CHAIRMAN? >> MR. CHAIRMAN, I WOULD ASK 12:20:07 UNANIMOUS CONSENT THAT ALL MEMBERS BE ALLOWED TO PUT THEIR 12:20:10 QUESTIONS IN WRITING TO THE SECRETARY AND WOULD ASK THAT THE 12:20:12 SECRETARY, IF HE WOULD RESPOND TO THEM IN WRITING SINCE SO MANY 12:20:15 MEMBERS WERE NOT ABLE TO ASK THEIR QUESTIONS. 12:20:17 >> WITHOUT OBJECTION, SO ORDERED. 12:20:19 THANK YOU, MR. SECRETARY. >> MR. CHAIRMAN -- 12:20:23 >> MR. CHAIRMAN, I'M NOT SURE WHAT THE RIGHT POINT OF ORDER 12:20:26 HERE IS, BUT I RECOGNIZE HOW TREMENDOUSLY BUSY THE SECRETARY 12:20:29 IS, BUT I ALSO RECOGNIZE THE NEED FOR THIS CONGRESS AND 12:20:32 PEOPLE ON BOTH SIDES OF THE AISLE TO BE ABLE TO ASK SOME 12:20:35 QUESTIONS. WE HAVE BEEN WAITING PATIENTLY 12:20:37 HERE ALL DAY. I WOULD HOPE THAT THE CHAIRMAN 12:20:41 WOULD DO WHAT IS NECESSARY -- >> I'M ONE THAT, AS YOU KNOW, 12:20:45 YOU'VE BEEN HERE LONG ENOUGH TO REALLY KNOW ME BECAUSE I BELIEVE 12:20:47 IN OPENNESS AND I BELIEVE IN GOING AS LONG AS IT TAKES, BUT 12:20:51 MR. PAULSON HAS A PROBLEM WITH HIS SCHEDULE IN TERMS OF THE 12:20:54 AMOUNT OF TIME HE WOULD BE ALLOWED. 12:20:56 SO IF WE CONTINUE, THEN HE WILL NOT BE ABLE TO TESTIFY. 12:20:59 SO I THINK THAT'S THE ISSUE THAT WE HAVE TO DEAL WITH. 12:21:02 SO THAT'S THE REASON WHY WE'RE CUTTING IT BECAUSE -- IT WAS 12:21:07 AGREED THAT THIS WOULD HAPPEN, AND, OF COURSE, I UNDERSTAND 12:21:11 THAT SEVERAL PEOPLE THAT DID NOT HAVE AN OPPORTUNITY TO RAISE 12:21:14 QUESTIONS. BUT WHAT WE -- WHAT I WOULD 12:21:16 SUGGEST IS THAT YOU PUT THE QUESTIONS TO THE SECRETARY IN 12:21:19 WRITING AND HE WILL ANSWER BECAUSE IF NOT, THEN THE SECOND 12:21:23 WITNESS WE WILL NOT BE ABLE TO HEAR FROM AT ALL AND I THINK -- 12:21:26 >> MR. CHAIRMAN, IF I COULD BE SO BOLD, MY GUESS IS IF WE WERE 12:21:31 TO SURVEY OR TALK TO THE PEOPLE ON THE PANEL, PARTICULARLY THE 12:21:34 PEOPLE WHO DIDN'T HAVE A CHANCE TO ASK QUESTIONS, I THINK WITH 12:21:36 ALL DUE RESPECT, WE WOULD MUCH RATHER HEAR FROM THE CURRENT 12:21:43 TREASURY SECRETARY THAN THE PAST TREASURY SECRETARY WHOSE 12:21:45 SCHEDULE IS PROBABLY MORE FLEXIBLE. 12:21:46 >> THE POINT OF THE MATTER IS WE HAVE A HEARING THAT HAS BEEN 12:21:49 SCHEDULED AND IT HAS BEEN STRUCTURED. 12:21:50 AND I WISH WE COULD SORT OF STAY HERE AND ALLOW EVERYBODY TO DO 12:21:55 THAT, BUT THE POINT IS THAT I THINK IN THIS SITUATION -- 12:21:59 >> MR. CHAIRMAN -- >> -- I'D BE DELIGHTED TO YIELD 12:22:05 TO THE GENTLEMAN AGAIN. >> I APPRECIATE T YOU'VE BEEN SO 12:22:07 FAIR AND GENEROUS AND PERSONALLY VERY GOOD TO ME. 12:22:09 IS THERE A WAY WE COULD VOTE ON WHICH DIRECTION TO GO ON THIS? 12:22:13 >> WELL YOU KNOW, IT IS ACTUALLY UP TO THE CHAIRMAN. 12:22:15 BUT LET ME SAY WHAT I WOULD LIKE TO DO. 12:22:18 I WOULD GIVE A MINUTE TO TWO ON THIS SIDE AND A MINUTE TO TWO ON 12:22:24 THIS SIDE AND THAT'S IT. WE HAVE TO MOVE FORWARD. 12:22:25 WE HAVE A SCHEDULED HEARING THAT IS HERE, LOOKING FOR CERTAIN -- 12:22:30 >> WOULD THE GENTLEMAN YIELD? >> LOOKING FOR CERTAIN 12:22:33 INFORMATION. IN ORDER TO GET INFORMATION WE 12:22:34 NEED TO TALK TO THE PRESENT SECRETARY. 12:22:37 WE NEED TO TALK TO THE PAST AND, OF COURSE, WE HAVE OTHERS THAT 12:22:39 WE STILL -- >> WOULD THE GENTLEMAN YIELD? 12:22:41 >> MR. CHAIRMAN, I JOIN YOU IN THAT. 12:22:47 >> RESERVING THE RIGHT TO OBJECT. 12:22:51 I JUST WANT TO SAY THAT ANY MEMBER OF THIS COMMITTEE HAS THE 12:22:54 ABILITY TO SUBMIT QUESTIONS IN WRITING. 12:22:56 MR. GEITHNER, IN RESPONSE TO AN EARLIER QUESTION, SAID THAT, YOU 12:23:01 KNOW IN THE INTEREST OF TIME, HE WOULD BE WILLING TO ANSWER 12:23:03 QUESTIONS IN WRITING. IS THAT NOT TRUE? 12:23:05 >> ABSOLUTELY, OF COURSE. >> SO MR. CHAIRMAN, ANYBODY WHO 12:23:08 WOULDN'T GET A CHANCE TO ASK A QUESTION HERE COULD PUT IT IN 12:23:11 WRITING. I WITHDRAW ANY OBJECTION. 12:23:13 >> LET ME SAY THAT WE WILL GO TWO ON THIS SIDE, TWO ON THAT 12:23:17 SIDE, BUT A MINUTE, REMEMBER -- >> RESERVING THE RIGHT TO 12:23:22 OBJECT. >> YES. 12:23:23 I DON'T KNOW WHAT YOU'RE OBJECTING TO. 12:23:26 >> IF YOU'LL RECOGNIZE ME. UNANIMOUS CONSENT REQUEST FOR 12:23:29 TWO MINUTE EACH. I WOULD BE HAPPY TO FORGO MY 12:23:32 TIME FOR SECRETARY PAULSON TO ASK SECRETARY GEITHNER -- 12:23:36 >> I WISH WE COULD OPERATE THAT WAY, BUT, YOU KNOW, WHEN YOU 12:23:39 HAVE HEARINGS THAT ARE STRUCTURED, THEY'RE NOT 12:23:41 STRUCTURED IN THE FACT THAT SOMEONE WOULD GIVE UP THEIR 12:23:44 TIME -- THAT'S NOT THE WAY WE DO IT. 12:23:46 SO THE POINT OF THE MATTER IS THAT WE ACCEPTED TWO MINUTE ON 12:23:49 THIS SIDE, OR WE MOVE FORWARD. OKAY. 12:23:54 SO THAT'S WHAT'S ON THE TABLE. SO TWO MINUTES ON THIS SIDE, TWO 12:23:57 MINUTES ON THAT SIDE. OKAY, YOU WANT TO DESIGNATE. 12:24:00 >> I WITHDRAW MY OBJECTION. >> DESIGNATE THE TWO ON THIS 12:24:03 SIDE, MR. CONNOLLY. YOU HAVE A MINUTE TO RAISE ONE 12:24:06 QUESTION WITH THE SECRETARY. MR. CONNOLLY FROM VIRGINIA. 12:24:13 OKAY. >> THANK YOU, MR. CHAIRMAN. 12:24:15 AND THANK YOU -- >> CAN I ASK FOR ONE MINUTE. 12:24:17 >> THANK YOU, MR. CHAIRMAN. MR. GEITHNER, WE HAVE ONE 12:24:20 MINUTE, AND ONE HAS THE SENSE THAT SOME PEOPLE IN THIS ROOM 12:24:23 PERHAPS WANT TO REWRITE HISTORY AND I UNDERSTAND GIVEN THE 12:24:26 HISTORY OF WHY THEY MIGHT WANT TO DO THAT. 12:24:28 IN YOUR OPENING STATEMENT, YOU TALKED ABOUT THE NEED FOR 12:24:30 FINANCIAL REGULATORY REFORM. COULD YOU EXPAND ON WHY WE NEED 12:24:34 THAT PARTICULARLY WHEN IT COMES TO REGULATING THAT WHICH WAS 12:24:37 RESISTED FROM REGULATION IN THE PAST LIKE DERIVATIVES AND CREDIT 12:24:44 DEFAULT SWAPS. >> I DON'T THINK IT IS A HARD 12:24:46 CASE TO MAKE. LOOK AT THE WRECKAGE CAUSED BY 12:24:47 THE CRISIS TO SAY THE SYSTEM FAILED DRAMATICALLY. 12:24:50 AND, AGAIN, THE TWO MOST SIMPLE FAILURES THAT HAPPENED IS PEOPLE 12:24:53 WERE ALLOWED TO TAKE RISKS WITHOUT CONSTRAINTS. 12:25:00 WE LET A SYSTEM OPERATE WHERE SYSTEMS THAT WERE HUGE AND 12:25:03 CONSEQUENTIAL OPERATED WITH NO ADULT SUPERVISION, WITH NO 12:25:06 CONSTRAINTS AND BROUGHT THE COUNTRY TO THE EDGE OF COLLAPSE. 12:25:08 LET ME JUST SAY ONE THING IN COMMON WITH THE FOLLOWING FIRMS, 12:25:13 FANNIE AND FREDDIE, THE LARGEST INVESTMENT BANKS IN THE COUNTRY, 12:25:19 A AIG, A SET OF SPECIALIZED 12:25:21 INSURANCE COMPANIES, A WHOLE RANGE OF CONSUMER FINANCE 12:25:25 COMPANIES, A BUNCH OF -- THEY ALL HAD ONE THING IN COMMON, 12:25:28 WHICH THEY WERE NOT SUBJECT TO A SET OF SENSIBLE RULES TO 12:25:31 CONSTRAIN THE RISKS THEY HAD TO TAKE. 12:25:33 WHAT WE PROS TO IN FINANCIAL REFORM IS TO CHANGE THAT. 12:25:36 IT IS A SIMPLE IMPERATIVE. THAT'S NOT ENOUGH, THOUGH. 12:25:40 BECAUSE PEOPLE MAKE MISTAKES IN THE FUTURE. 12:25:42 SO WE NEED TO MAKE SURE WHEN THEY MAKE THOSE MISTAKES THAT WE 12:25:45 CAN LET THEM FAIL AND FAILURE CAN HAPPEN WITHOUT CATASTROPHIC 12:25:48 DAMAGE. WE NEED TO BE ABLE TO CONTAIN 12:25:50 THE DAMAGE, ISOLATE IT, DRAW A LINE AROUND IT, PUT THEM OUT OF 12:25:53 THEIR MISERY, PUT THEM OUT OF EXISTENCE WITHOUT THE TAXPAYER 12:25:56 BEING EXPOSED AND WE NEED TO MAKE SURE THAT WE DON'T HAVE A 12:25:59 SYSTEM WHERE THE TAXPAYER IS EXPOSED TO THE RISK OF LOSS 12:26:02 WHERE INVESTOR AND CREDITORS LIVE WITH THE EXPECTATION THAT 12:26:04 THE GOVERNMENT WILL BE THERE AGAIN. 12:26:07 AND, AGAIN, THAT'S SOMETHING THAT IS A -- I THINK WE ALL HAVE 12:26:11 A HUGE OBLIGATION, RESPONSIBILITY. 12:26:13 IT WAS THE LAWS OF THE LAND THAT ALLOWED THAT TO HAPPEN. 12:26:15 THE LAW OF THE LAND THAT MADE IT IMPOSSIBLE FOR THE GOVERNMENT TO 12:26:18 ACT AND I THINK WE NEED TO WORK TOGETHER TO CHANGE THAT. 12:26:20 >> I THANK THE GENTLEMAN. I THANK THE CHAIRMAN FOR HIS 12:26:23 CONSIDERATION. >> THANK YOU VERY MUCH. 12:26:24 AND NOW I RECOGNIZE MR. FORTENBERRY. 12:26:28 FOR ONE MINUTE. >> THANK YOU, MR. CHAIRMAN. 12:26:30 MR. SECRETARY, WELCOME. FOR LAST YEAR AND HAVE WE HAVE 12:26:33 BEEN PRIVATIZING PROFITS AND SOCIALIZING RISK. 12:26:37 AND IF THE OPTIC ON THE AIG AREN'T BAD ENOUGH, THE 12:26:40 COUNTERPARTIES TO THE AIG WHO RECEIVED 100% PARODY FOR THEIR 12:26:46 LIABILITIES, SEVEN OF THE TOP TEN ARE FORM FIRMS SO CMT 12:26:51 GENERALAL HAD $6.5 BILLION OF AMERICAN TAXPAYER BAILOUTS IN 12:26:56 EFFECT FOLLOWED BY GOLDMAN SACHS. 12:26:58 YOU SAID THIS ECONOMY IS CRISIS. THIS YEAR GOLDMAN SACHS WILL 12:27:01 GIVE $16 BILLION OF BONUS PAYMENTS, ABOUT $500,000 PER 12:27:06 EMPLOYEE. THIS IS REALLY DIFFICULT TO 12:27:09 UNDERSTAND WHY THERE WASN'T, AT FIRST, A DESIRE TO HAVE 12:27:13 TRANSPARENCY IN REGARDS TO COUNTERPARTY TRANSACTIONS. 12:27:17 CAN YOU ADDRESS THAT, PLEASE? >> I'M NOT SURE IF YOU WERE HERE 12:27:19 FOR THAT PART OF THE CONVERSATION -- 12:27:21 >> I WAS HERE FOR THE ENTIRE TIME. 12:27:23 >> BUT, AGAIN, THE ACTIONS WE TOOK WERE NECESSARY IN THE 12:27:29 PUBLIC INTEREST, BETTER THAN THE ALTERNATIVES, TO HELP PREVENT 12:27:34 CATASTROPHIC DAMAGE AND IF YOU ARE OUTRAGED AS I THINK YOU 12:27:37 SHOULD BE ABOUT HOW THE ECONOMY AND OUR SYSTEM WAS IN THIS MESS, 12:27:41 I HOPE YOU WILL JOIN WITH US IN TRYING TO WORK TO MAKE SURE IT 12:27:45 DOESN'T HAPPEN IN THE FUTURE. THIS IS NOT SOMETHING THAT 12:27:47 SHOULD BE REPUBLICAN OR DEMOCRAT. 12:27:49 THERE IS A DEEP, I THINK, MORAL OBLIGATION WE HAVE TO TRY TO 12:27:52 MAKE SURE WE PUT IN PLACE REFORMS THAT WILL PREVENT THIS 12:27:55 FROM HAPPENING AGAIN. . 12:27:57 IF THE GOVERNMENT HAD DONE THAT SOONER, THIS WOULD HAVE BEEN 12:28:02 LESS DAMAGING AND A CRITICAL PART OF THE FAILURE WAS WE RAN A 12:28:05 COUNTRY, LARGEST ECONOMY IN THE WORLD, LARGEST FINANCIAL SYSTEM 12:28:08 IN THE WORLD, WITHOUT HAVING THE KIND OF BANKRUPTCY TYPE POWERS 12:28:11 WE HAD FOR BANKS FOR DECADES. >> LET'S TRY TO DO THAT ON A 12:28:15 BIPARTISAN BASIS, SIR, PLEASE. >> I'M SORRY, THE GENTLEMAN'S 12:28:18 TIME HAS EXPIRED. AND NOW I RECOGNIZE THE 12:28:22 GENTLEMAN FROM ILLINOIS, CONGRESSMAN DAVIS, FOR ONE 12:28:24 MINUTE. >> THANK YOU VERY MUCH, MR. 12:28:26 CHAIRMAN. AND THANK YOU, MR. SECRETARY. 12:28:31 LET ME JUST ASK IF YOU HAD TO DO IT AGAIN, TO DO IT ALL OVER, 12:28:38 WOULD YOU CHANGE ANY OF THE DECISIONS THAT YOU MADE IN THE 12:28:42 FALL OF 2008 TO RESCUE AIG AND PAY THE COUNTERPARTIES PART? 12:28:49 >> CONGRESSMAN, AS I THINK ABOUT THIS A LOT, AND ONE OF THE GREAT 12:28:53 THINGS OF OUR COUNTRY IS PEOPLE LOOK BACK AND COME TO THEIR OWN 12:28:56 JUDGMENT, WHETHER WE MADE THE BEST CHOICES. 12:28:58 BUT I AM VERY CONFIDENT THAT WE MADE THE BEST OF A SET OF 12:29:04 TERRIBLE CHOICES, THAT THERE WERE NO BETTER ALTERNATIVES. 12:29:08 WE DID NOT HAVE THE OPTION OF BANKRUPTCY. 12:29:10 WE DID NOT HAVE THE OPTION OF DEFAULT. 12:29:12 WE DID NOT HAVE THE OPTION OF SELECTIVE HAIRCUTS. 12:29:15 IT WOULD HAVE BEEN CATASTROPHIC TO LET THE INSTITUTION FAIL. 12:29:18 WE DIDN'T RESCUE AIG. WE INTERVENED SO THAT WE COULD 12:29:25 DISMEMBER IT SAFELY WROUGHT IT W 12:29:27 -- WITHOUT IT WRECKING THE COUNTRY AND THE SYSTEM. 12:29:28 I THINK THE BIG MISTAKE WE MADE AS A COUNTRY AND THERE ARE 12:29:31 MISTAKES THAT WE HAVE TO REFLECT ON DEEPLY FOR A LONG TIME, WERE 12:29:34 WHY THE GOVERNMENT DIDN'T ACT SOONER TO LIMIT RISK TAKING, WHY 12:29:38 THE GOVERNMENT DIDN'T PROVIDE COMPETENT AUTHORITIES WITH THE 12:29:40 ABILITY TO CONTAIN RISK TAKING AND WHY WE DIDN'T HAVE IN PLACE 12:29:44 THE KIND OF TOOLS WE HAD FOR A LONG TIME FOR BANKS TO TRY TO 12:29:47 DEAL WITH THESE KIND OF FAILURES. 12:29:48 I THINK THOSE WERE TRAGIC MISTAKES. 12:29:50 THE LESSON OF FINANCIAL CRISES IS IF YOU DON'T ACT SOONER, 12:29:55 THINGS GET TO THE POINT WHERE THEY CAN CAUSE CATASTROPHIC 12:29:58 DAMAGE. AND IF YOU LET IT -- IF YOU 12:30:00 STAND BACK AND HOPE IT WILL BURN ITSELF OUT, CORRECT ITSELF, IT 12:30:04 WILL BE A GOOD HEALTHY ADJUSTMENT FOR THE ECONOMY, THAT 12:30:07 CAN CAUSE ENORMOUS DAMAGE. AND IT WILL CAUSE ENORMOUS 12:30:09 DAMAGE NOT JUST TO THE AMERICAN LIVES AND PEOPLE WHO WILL BE 12:30:12 LIVING WITH FOR A LONG TIME, BUT TO THE REVENUE BASE OF THE 12:30:16 COUNTRY, DEEPLY IMPAIRS THE CAPACITY FOR GOVERNMENT TO DO 12:30:18 THINGS THAT ARE NECESSARY, LIKE -- THAT WE NEED RESOURCES 12:30:22 FOR, PROTECT NATIONAL SECURITY, MAKE SURE TEACHERS CAN BE IN THE 12:30:25 SCHOOLS, THESE THINGS ARE DEEPLY CONNECTED. 12:30:28 IF YOU STAND BACK, AND TRY TO HOPE THE MARKET WILL FIX ITSELF, 12:30:33 YOU COURT CATASTROPHE. I HOPE WE LEARNED THAT LESSON. 12:30:36 SHOULD NEVER HAPPEN AGAIN. >> THANK YOU VERY MUCH. 12:30:38 >> THE GENTLEMAN'S TIME HAS E 12:30:43 EXPIRED. I RECOGNIZE THE GENTLEMAN FROM 12:30:44 UTAH. >> THANK YOU, MR. CHAIRMAN. 12:30:45 THANK YOU PLRK SECRETARY. I WAS GOING TO ASK ABOUT THE 18 12:30:48 PHONE CALLS YOU MADE TO RAHM EMANUEL, MORE THAN ANY MEMBER OF 12:30:53 CONGRESS. WHAT I WOULD ASK YOU ABOUT IS 12:30:55 THIS IDEA THAT THEY'RE GOING TO MAKE PROMPTS. 12:30:57 I'M GOING TO READ TWO STATEMENT AND REQUEST YOU A QUESTION FROM 12:31:00 NEIL BAROFSKY'S TESTIMONY THAT IS COMING UP. 12:31:02 FIRST ONE IS, QUOTE, ON PAGE 13, TREASURY'S OWN T.A.R.P. 12:31:08 FINANCIAL STATEMENT ESTIMATES THAT TREASURY WILL NOT BE MADE 12:31:11 WHOLE BUT IS RATHER PROJECTED TO LOSE MORE THAN $30 BILLION ON 12:31:14 ITS AIG INVESTMENTS. SECOND QUOTE, NARROWLY ASSERTING 12:31:19 THAT TAXPAYERS WILL BE MADE WHOLE ON MAIDEN LANE THREE, ONE 12:31:24 PART OF THE AIG COUNTERPART TRANSACTIONS WITHOUT MENTIONING 12:31:27 THE HUGE LOSSES TREASURY EXPECTS TO SUFFER ON OTHER INEXTRICABLY 12:31:31 LINKED PARTS OF THE VERY SAME TRANSACTS IS SIMPLY 12:31:34 UNACCEPTABLE. THE AMERICAN PEOPLE DESERVE 12:31:36 BETTER. SO MY QUESTION, AND HOPING YOU 12:31:38 CAN RESPOND TO THOSE TWO STATEMENTS, IS WHEN YOU REFER TO 12:31:42 PROFITS FROM THE AIG COUNTERPARTY BAILOUT ARE YOU 12:31:45 COUNTING THE COST OF THE $35 BILLION IN CASH AIG HANDED OVER 12:31:49 TO COUNTERPARTIES, OR JUST THE $27 BILLION THEY GOT DIRECTLY 12:31:54 FROM THE NEW YORK FED? >> CONGRESSMAN, I THINK MR. 12:31:57 BAROFSKY AND I AGREE ON THIS AND I SAID IN MY STATEMENT, I WAS 12:32:01 VERY CLEAR, THE GOVERNMENT IS STILL EXPOSED TO SUBSTANTIAL 12:32:05 RISK OF LOSS ON ITS INVESTMENTS IN AIG. 12:32:09 THE FEDERAL RESERVE, IN THIS TRANSACTION, I THINK MORE 12:32:12 GENERALLY IS UNLIKELY TO FACE ANY LOSS. 12:32:14 THAT IS A GOOD THING. WE SHOULD WELCOME THAT. 12:32:16 BUT THE GOVERNMENT IS STILL EXPOSED TO RISK OF LOSS. 12:32:20 WE DON'T KNOW HOW LARGE THE LOSSES WILL BE. 12:32:21 WHAT YOU REFER TO IS NOT A P 12:32:25 PROJECTION, JUST AN ESTIMATE BASED ON CURRENT MARKET PRICES. 12:32:27 BUT THE IMPORTANT THING, I HOPE YOU JOIN ME IN THIS, IF WE ADOPT 12:32:32 THIS FINANCIAL RESPONSIBILITY FEE, THE TAXPAYER WILL NOT BEAR 12:32:35 A PENNY OF THE BURDEN -- >> SOUNDS LIKE A TAX TO ME. 12:32:38 DOESN'T SOUND LIKE A -- SOUNDS LIKE A TAX TO ME. 12:32:41 >> CALL IT WHAT YOU WANT. >> I CALL IT A TAX. 12:32:43 I WISH YOU WOULD TOO. CALL IT WHAT IT IS. 12:32:45 >> AGAIN, IN THE LAW THE CONGRESS PASSED, AUTHORIZING 12:32:48 THESE ACTIONS, CONGRESS REQUIRED THE SECRETARY OF TREASURY TO 12:32:52 PROPOSE A WAY TO MAKE SURE TAXPAYERS ARE HELD HARMLESS. 12:32:56 WE DID THAT. I HOPE YOU WILL JOIN US IN 12:32:58 SUPPORTING THAT BECAUSE THERE IS NO REASON WHY THE AMERICAN 12:33:02 TAXPAYER SHOULD BE EXPOSED TO A PENNY OF LOSS IN WHAT WE DID IN 12:33:05 AIG. WE CAN MAKE THAT POSSIBLE. 12:33:06 >> THE GENTLEMAN'S TIME HAS EXPIRED. 12:33:10 THANK YOU VERY MUCH, MR. SECRETARY, FOR YOUR TESTIMONY. 12:33:13 AND YOU MAY BE EXCUSED. NOW WE CALL UPON OUR SECOND 12:33:20 PANEL. >> THE SECOND WITNESS -- THE 12:34:13 SECOND WITNESS FOR TODAY'S HEARING IS FORMER TREASURY 12:34:16 SECRETARY DUN DER THE BUSH ADMINISTRATION, SECRETARY HENRY 12:34:22 PAULSON. MR. PAULSON PLEASE STAND AS I 12:34:23 ADMINISTER THE OATH. DO YOU SOLEMNLY SWEAR TO TELL 12:34:29 THE TRUTH, AND NOTHING BUT THE TRUTH? 12:34:32 IF SO ANSWER IN THE AFFIRMATIVE? >> I DO. 12:34:34 >> YOU MAY BE SEATED. LET THE RECORD REFLECT HE 12:34:38 ANSWERED IN THE AFFIRMATIVE. I'LL ASK THE WITNESS TO 12:34:46 SUMMARIZE HIS TESTIMONY IN FIVE MINUTES AND, OF COURSE, WE KNOW 12:34:49 THE PROCEDURE, YOU KNOW, THE YELLOW LIGHT MEANS YOU HAVE A 12:34:52 MINUTE LEFT AND THE RED LIGHT MEANS STOP AND THEN, OF COURSE, 12:34:55 WE WILL HAVE TIME TO RAISE QUESTIONS WITH YOU. 12:34:57 YOU KNOW THE PROCEDURE. YOU'VE BEEN THROUGH THIS QUITE A 12:35:00 FEW TIMES. SO GOOD TO HAVE YOU BACK. 12:35:02 >> MR. CHAIRMAN, THANK YOU. AND I WILL GO THROUGH THIS 12:35:07 QUICKLY. FIRST OF ALL, CHAIRMAN TOWNS, 12:35:09 RANKING MEMBER ISSA, AND DISTINGUISHED MEMBERS OF THE 12:35:15 COMMITTEE, I APPRECIATE THE OPPORTUNITY TO TESTIFY BEFORE 12:35:18 THIS COMMITTEE. I WAS SECRETARY OF THE TREASURY 12:35:21 IN 2008. IN THAT ROLE I HAD THE PRIVILEGE 12:35:23 TO WORK WITH MANY TALENTED MEN AND WOMEN IN GOVERNMENT AND THE 12:35:27 PRIVATE SECTOR WHO LABORED TO PULL OUR NATION BACK FROM THE 12:35:31 BRINK OF DISASTER. THE DECISION TO RESCUE AIG WAS 12:35:35 CORRECT AND I STRONGLY SUPPORTED IT. 12:35:39 AND AIG FAILURE WOULD HAVE BEEN DEVASTATING TO THE FINANCIAL 12:35:42 SYSTEM AND TO THE ECONOMY. TODAY'S HEARING RELATES TO 12:35:47 PAYMENTS TO AIG'S CREDIT DEFAULT SWAP COUNTERPARTIES. 12:35:51 I WAS NOT INVOLVED IN ANY OF THE DECISIONS MADE WITH RESPECT TO 12:35:55 THOSE PAYMENTS, NOR WAS I INVOLVED IN ANY OF THE DECISIONS 12:35:59 ABOUT AIG'S PUBLIC DISCLOSURE OF THOSE PAYMENTS. 12:36:02 THOSE MATTERS WERE HANDLED BY THE FEDERAL RESERVE BANK OF NEW 12:36:05 YORK AND THE FEDERAL RESERVE BOARD. 12:36:07 THEY SOUGHT TO MAKE APPROPRIATE DECISIONS ON THOSE MATTERS AND I 12:36:12 AM CONFIDENT THAT THIS REVIEW WILL SHOW THAT THEY DID. 12:36:17 I HAVE LIMITED KNOWLEDGE ON THE TOPICS OF IMMEDIATE INTEREST TO 12:36:21 THE COMMITTEE, BUT WILL SHARE THE FOLLOWING OBSERVATIONS. 12:36:27 THE RESCUE OF AIG WAS NECESSARY AND I BELIEVE THAT WE AND THE 12:36:31 GOVERNMENT WHO ACTED TO RESCUE IT INCLUDING SECRETARY GEITHNER, 12:36:35 CHAIRMAN BERNANKE AND ME, ACTED PROPERLY AND IN THE BEST 12:36:39 INTEREST OF OUR COUNTRY. THE REASONS THE RESCUE OF AIG 12:36:44 WAS NECESSARY ARE WELL WORTH EXAMINING. 12:36:47 I BELIEVE THEY ARE REPRESENTATIVE OF A CAUSES OF 12:36:49 OTHER ASPECTS OF THE CRISIS AND INDICATE WHERE REGULATORY REFORM 12:36:56 IS NECESSARY. THERE ARE THREE REASONS WE 12:36:58 NEEDED TO SAVE AIG THAT STAND OUT IN MY MIND. 12:37:04 FIRST, AIG WAS INCREDIBLY LARGE AND INTERCONNECTED. 12:37:09 IT HAD $1 TRILLION BALANCE SHEET, A MASSIVE DERIVATIVES 12:37:13 BUSINESS THAT CONNECTED IT TO HUNDREDS OF FINANCIAL 12:37:16 INSTITUTIONS, BUSINESSES AND GOVERNMENTS, TENS OF MILLIONS OF 12:37:19 LIFE INSURANCE CUSTOMERS, AND TENS OF BILLIONS OF DOLLARS OF 12:37:23 CONTRACTS GUARANTEEING THE RETIREMENT SAVINGS OF 12:37:28 INDIVIDUALS. IF AIG COLLAPSED, IT WOULD HAVE 12:37:30 BUCKLED OUR FINANCIAL SYSTEM AND BROUGHT ECONOMIC HAVOC ON THE 12:37:34 LIVES OF MILLION OF OUR CITIZENS. 12:37:38 SECOND, AIG WAS SERIOUSLY UNDERREGULATED. 12:37:42 ALTHOUGH MANY OF AIG'S SUBSIDIARIES INCLUDING ITS 12:37:46 INSURANCE COMPANIES WERE SUBJECT TO VARYING LEVELS OF REGULATION, 12:37:50 THE PARENT ENTITY WAS FOR ALL PRACTICAL PURPOSES AN 12:37:55 UNREGULATED HOLDING COMPANY. CONSEQUENTLY THERE WAS NO SINGLE 12:38:01 REGULATOR WITH A COMPLETE PICTURE OF AIG OR A 12:38:04 COMPREHENSIVE UNDERSTANDING OF HOW IT WAS RUN. 12:38:08 IT WAS NOT UNTIL AIG STARTED TO FAIL THAT REGULATORS BEGAN TO 12:38:12 UNDERSTAND HOW BADLY MANAGED IT HAD BEEN, AND HOW MUCH THE TOXIC 12:38:17 ASPECTS OF PARTS OF ITS BUSINESS HAD INFECTED OTHERWISE HEALTHY 12:38:23 PARTS. THIRD, AIG COULD NOT BE 12:38:27 EFFECTIVELY WOUND DOWN. UNLIKE FAILED DEPOSITORY 12:38:31 INSTITUTIONS, WHICH CAN BE TAKEN OVER BY THE FDIC WITH LITTLE TO 12:38:37 NO HARM TO THE DEPOSITORS OR THE GSEs, SEAMLESSLY PLACED IN THE 12:38:45 CONSERVATORSHIP, THERE WAS AND IS NO RESOLUTION AUTHORITY 12:38:49 AVAILABLE TO WIND DOWN FAILING INSTITUTION LIKE AIG. 12:38:54 THE ONLY OPTION IS BANKRUPTCY. A PROCESS THAT IS SIMPLY NOT 12:38:59 CAPABLE OF PROTECTING THE MILLIONS OF AMERICANS WHOSE 12:39:02 FINANCES ARE INTERTWINED WITH AIG'S. 12:39:06 THE GOVERNMENT RESCUE OF AIG IN THE FALL OF 2008 WAS DIRECTLY 12:39:11 SHAPED BY THESE REALITIES. WE HAD TO PROTECT THE ECONOMY 12:39:15 AND THE FINANCES OF MILLIONS OF AMERICANS. 12:39:18 WE COULD NOT HAVE ANTICIPATED THE MAGNITUDE OF AIG'S PROBLEMS 12:39:22 AND WE HAD NO WAY OF LETTING IT FAIL WITHOUT DISASTROUS 12:39:27 COLLATERAL CONSEQUENCES. WE HAD TO INTERVENE AND I'M 12:39:30 THANKFUL WE DID. I DO NOT MEAN TO SAY THAT I'M 12:39:34 HAPPY WE NEEDED TO INTERVENE. TAXPAYER MONEY SHOULD NOT HAVE 12:39:37 TO BE SPENT TO SAVE A MISGUIDED AND MISMANAGED ENTERPRISE. 12:39:43 BUT THE FUNDAMENTAL PROBLEM LIES NOT IN HOW WE INTERVENED, BUT 12:39:47 WHY WE NEEDED TO INTERVENE. WE NEED TO MODERNIZE OUR 12:39:53 REGULATORY STRUCTURE BY CREATING A SYSTEMIC RISK REGULATOR AND 12:39:58 RESOLUTION AUTHORITY SO ANY LARGE FIRM THAT FAILS CAN BE 12:40:03 LIQUIDATED WITHOUT DESTABILIZING THE SYSTEM. 12:40:06 LARGE FINANCIAL INSTITUTIONS OF THIS COUNTRY WILL ALWAYS PLAY A 12:40:10 ROLE THAT IS ESSENTIAL TO OUR ECONOMIC GROWTH. 12:40:13 BUT THEY MUST ONLY BE PERMITTED TO GROW AND INTERCONNECT 12:40:17 THROUGHOUT OUR ECONOMY UNDER CAREFUL OVERSIGHT AND WITH A 12:40:20 MECHANISM FOR ALLOWING THOSE CONNECTIONS TO BE BROKEN SAFELY. 12:40:24 THANK YOU, MR. CHAIRMAN, AND I WOULD BE HAPPY TO ANSWER ANY 12:40:29 QUESTIONS. >> THANK YOU VERY MUCH FOR YOUR 12:40:32 TESTIMONY. LET ME SAY THAT YOU WERE DEEPLY 12:40:35 AND AGGRESSIVELY INVOLVED IN DEALING WITH THE FINANCIAL 12:40:39 CRISIS AND WE SAW THAT WITH AIG, OF COURSE, AND BANK OF AMERICA 12:40:43 AND WITH THE T.A.R.P. MY QUESTION IS WHY DID YOU SIT 12:40:51 ON THE SIDELINE AND NOT USE YOUR CONSIDERABLE INFLUENCE TO CALL 12:40:55 THE CEOs OF THE COUNTERPARTIES TO GET THEM TO TAKE A HAIRCUT? 12:41:00 WHY WOULDN'T YOU DO THAT? YOU ARE A PERSON THAT WAS VERY 12:41:05 INFLUENTIAL IN ALL OF THIS, AND I CAN UNDERSTAND WHY YOU 12:41:09 WOULDN'T DO THAT. >> WELL, MR. CHAIRMAN, AS YOU 12:41:12 INDICATED I HAD NO INVOLVEMENT AT ALL IN THE PAYMENT TO THE 12:41:20 COUNTERPARTIES, NO INVOLVEMENT WHATSOEVER. 12:41:23 NOW TO EXPLAIN THIS WE WORKED VERY COLLABORATIVELY DURING THE 12:41:28 CRISIS. THERE IS A LOT GOING ON, COMING 12:41:31 AT US FROM ALL SIDES. AND WHICHEVER AGENCY HAD THE 12:41:36 AUTHORITIES TOOK RESPONSIBILITY FOR EXECUTION. 12:41:38 AND THIS WAS CLEARLY A CASE -- IT WAS A FEDERAL RESERVE LOAN. 12:41:42 THEY HAD THE AUTHORITIES TO MAKE IT AND ADMINISTER IT, AND THEY 12:41:46 HAD THE TECHNICAL EXPERTISE TO DO THE RESTRUCTURING. 12:41:52 >> BUT, YOU KNOW, I JUST SEE IT A LITTLE STRANGE THAT YOU WOULD 12:41:57 SIT ON THE SIDELINE AND NOT HELP THE AMERICAN PEOPLE IN TERMS 12:42:00 OF -- YOU WERE SO INVOLVED IN THE EARLY STAGES AND YOU -- I 12:42:04 MEAN THROUGHOUT THE PROCESS, AND THEN TO SIT ON THE SIDELINE AT A 12:42:08 TIME LIKE THIS, I JUST FIND THAT -- 12:42:11 >> MR. CHAIRMAN, ANYBODY THAT KNOWS ME KNOW I WASN'T SITTING 12:42:13 ON THE SIDELINE. I WAS -- I WAS NOT INVOLVED IN 12:42:17 THIS ISSUE. BUT I WAS INVOLVED IN MANY OTHER 12:42:21 ISSUES EVERY SINGLE DAY OF THE WEEK INCLUDING WEEKENDS. 12:42:26 SO I DIDN'T -- >> WHY NOT? 12:42:27 WHY WOULDN'T YOU BE INVOLVED IN THIS? 12:42:29 >> BECAUSE THIS WAS A FEDERAL RESERVE LOAN. 12:42:33 THEY HAD THE AUTHORITY. THEY HAD THE TECHNICAL 12:42:37 EXPERTISE. AND, YOU KNOW, I SAID IN MY 12:42:40 TESTIMONY, I HAVE GREAT CONFIDENCE IN THE 12:42:46 PROFESSIONALISM, THE INTEGRITY, THE MOTIVES, THE ABILITIES OF 12:42:49 THE PEOPLE THAT WERE HANDLING THIS. 12:42:53 SO THIS WAS THEIR JOB TO HANDLE AND I WAS WORKING ON MANY OTHER 12:42:59 THINGS WHICH WERE IN MY BAILEY WICK. 12:43:04 >> WHY WOULDN'T YOU LET AIG GO INTO BANKRUPTCY? 12:43:09 WHY NOT? >> IF AIG HAD FAILED, THIS WAS A 12:43:17 HUGE FINANCIAL ORGANIZATION, INTERCONNECTIONS THROUGHOUT THE 12:43:21 ECONOMY. IF IT HAD FAILED WITH THE SYSTEM 12:43:23 AS FRAGILE AS IT WAS, I BELIEVE IT WOULD HAVE TAKEN DOWN -- 12:43:28 >> TALK DIRECTLY INTO THE MICROPHONE. 12:43:30 THEY'RE HAVING PROBLEMS HEARING YOU. 12:43:32 >> I WOULD HAVE TAKEN DOWN THE WHOLE FINANCIAL SYSTEM AND THE 12:43:34 ECONOMY. IT WOULD HAVE BEEN A DISASTER. 12:43:38 TODAY, AFTER ALL THE AC THE ACT THAT HAVE BEEN TAKEN BY THE 12:43:44 GOVERNMENT, WE STILL HAVE THIS TERRIBLE 10% UNEMPLOYMENT LEVEL. 12:43:48 I BELIEVE THAT IF THE SYSTEM HAD COME DOWN AND FAILED, WE COULD 12:43:53 EASILY HAVE HAD UNEMPLOYMENT REACHING OR EXCEEDING THE 25% 12:43:59 LEVEL WE HAD IN THE GREAT DEPRESSION. 12:44:01 WE WOULD HAVE LOST MANY ADDITIONAL BILLIONS OF DOLLARS 12:44:05 AND IN AMERICAN SAVINGS. HOME PRICES WOULD BE MUCH LOWER 12:44:09 THAN THEY ARE TODAY, SO AS UNATTRACTIVE AS THE GOVERNMENT 12:44:17 RESCUE OF AIG WAS, AND NONE OF US THAT SUPPORTED THAT FOUND 12:44:24 THAT TO BE AN ATTRACTIVE OR DESIRABLE OPTION, IT WAS JUST 12:44:28 MUCH, MUCH BETTER THAN THE ALTERNATIVE, WHICH WOULD HAVE 12:44:32 BEEN ECONOMIC DISASTER IN THIS COUNTRY. 12:44:34 >> I NOW YIELD FIVE MINUTES TO THE GENTLEMAN FROM CALIFORNIA, 12:44:36 RANKING MEMBER. >> MR. CHAIRMAN, I WOULD ASK 12:44:38 THAT WE GO TO THE MEMBERS WHO DID NOT HAVE AN OPPORTUNITY IN 12:44:41 THE FIRST ROUND AND, MR. CHAIRMAN, I WOULD ALSO ASK ONE 12:44:44 THING, WILL YOU AGREE, SINCE THE SECRETARY SAID HE WOULD ANSWER 12:44:47 OUR QUESTIONS TO JOIN WITH ME IN ENSURING THAT ALL QUESTIONS ARE 12:44:51 ANSWERED OR THAT WE BRING THE SECRETARY BACK ASSUMING HE DOES 12:44:55 NOT ANSWER THEM FOR SOME REASON? >> SO ORDERED. 12:44:57 >> THANK YOU. MR. LUETKEMEYER WOULD BE NEXT OF 12:44:59 THOSE WAITING. >> THANK YOU, MR. CHAIRMAN. 12:45:05 MR. PAULSON, ONE OF THE THINGS THAT WE'RE LOOKING INTO HERE 12:45:10 WITH AIG, CAN YOU EXPLAIN TO ME, IS AIG AND THEIR FINANCIAL 12:45:13 PRODUCTS, WAS THAT A SUBSIDIARY OF AIG OR WAS THAT PART OF 12:45:17 THE -- THEIR BUSINESS MODEL? >> I BELIEVE IT WAS PART OF THE 12:45:21 BUSINESS MODEL. >> THERE WASN'T A SEPARATE 12:45:26 ENTITY? >> IT WAS CLEARLY -- IT WAS 12:45:30 CLEARLY AT THE HOLDING COMPANY AND IT WAS A -- IT WAS PART 12:45:34 OF -- IT WASN'T PART OF AN INSURANCE BUSINESS MODEL, BUT IT 12:45:37 WAS SURE PART OF THE COMPANY'S BUSINESS STRATEGY. 12:45:40 >> BECAUSE IT MAKES A BIG DIFFERENCE IF IT IS NOT PART OF 12:45:44 THE INSURANCE PART OF THE COMPANY, IT IS A SUBSIDIARY, YOU 12:45:47 CAN LET THAT THING GO DOWN AND IT DOESN'T AFFECT THE INSURANCE 12:45:50 PART OF IT, WHICH I BELIEVE IT WAS, ISN'T THAT CORRECT? 12:45:53 >> WELL, I WOULD SAY THIS TO YOU, THIS COMPANY WAS SO BIG AND 12:46:01 INTERTWINED THAT IT WAS -- IF THERE WAS ANY WAY THAT THE 12:46:06 PEOPLE WHO WERE WORKING ON THIS COULD HAVE FOUND A WAY TO JUST 12:46:11 HIVE OFF AND LET ONE SMALL PART OF THE COMPANY -- 12:46:14 >> WOULD THE GENTLEMAN SUSPEND? MR. PAULSON, EXCUSE ME, WE WANT 12:46:18 TO MAKE SURE THAT MEMBERS CAN HEAR YOUR TESTIMONY. 12:46:21 AND, YOU KNOW, IT IS AMAZING WHAT SO MUCH MONEY IN THIS 12:46:24 FEDERAL GOVERNMENT WE DON'T HAVE A BETTER SOUND SYSTEM. 12:46:25 I'M GOING TO NEED YOU TO SPEAK AS CLOSELY TO THAT MIKE AS YOU 12:46:31 CAN. >> SO TO JUST BE -- TO JUST BE 12:46:33 CLEAR THERE WAS NO WAY TO HIVE OFF AND HAND THIS WILL SITUATION 12:46:41 DIFFERENTLY. THERE WAS A VERY FEW DAYS TO ACT 12:46:43 TO PREVENT BANKRUPTCY WITH NO WINDDOWN POWERS TO LET THIS 12:46:50 COMPANY BE LIQUIDATED AND AVOID BANKRUPTCY. 12:46:53 >> WELL, WITH ALL DUE RESPECT, IF IT IS A SEPARATE ENTITY, IT 12:47:01 COULD GO ON, SIR. ANOTHER QUESTION VERY QUICKLY. 12:47:04 IN SECRETARY GEITHNER'S TESTIMONY, HE INDICATED THAT HE 12:47:07 FELT THAT CONTRACTUALLY THE CONTRACTS THAT WE HAD -- THE 12:47:11 INVESTMENTS THAT WERE MADE BY FOREIGN BANKS AND TO AIG THAT 12:47:14 THEY WERE INVOLVED WITH NEEDED TO BE ADHERED TO AND WORKED 12:47:17 WITH. WAS THE GOVERNMENT A PART OF 12:47:23 THOSE CONTRACTS? >> I -- AS I SAID IN MY 12:47:27 TESTIMONY, I HAD NO INVOLVE WITH THE PAYMENT OF ANY OF THOSE 12:47:32 CONTRACTS. I JUST WAS NOT INVOLVED IN THAT 12:47:35 MATTER. >> SO THE GOVERNMENT WASN'T A 12:47:36 PARTY OF THE CONTRACTS THEN? THE GOVERNMENT WASN'T PARTY OF 12:47:39 THE CONTRACTS? >> THIS WAS NOT SOMETHING THAT I 12:47:41 WAS DIRECTLY INVOLVED IN. I SAID THAT I HAVE VERY MUCH 12:47:45 TRUST THE MOTIVES AND THE ABILITIES AND THE JUDGMENTS OF 12:47:50 THE PEOPLE THAT MADE THOSE DECISIONS, BUT I WASN'T PARTY TO 12:47:53 THEM AND I CAN'T ANSWER THAT QUESTION. 12:47:56 >> THAT'S ONE OF THE FRUSTRATIONS AND I APPRECIATE 12:47:59 YOUR CANDOR. MY FRUSTRATION WITH THE CHAIR 12:48:01 THAT WE DON'T GET FULL TESTIMONY AND GET ALL THE QUESTIONS 12:48:05 ANSWERED, ASKED AND ANSWERED SO WE CAN COME TO YOU WITH WHAT WE 12:48:08 FEEL IS GOOD INFORMATION TO GET GOOD BACK AND FORTH HERE. 12:48:11 I APOLOGIZE TO YOU. LET ME MOVE ON TO SOMETHING 12:48:13 ELSE. I KNOW RIGHT NOW WE'RE LOOKING 12:48:15 AT AND THE PRESIDENT PROPOSED SOME TOO BIG TO FAIL SORT OF 12:48:19 STRATEGIES TO TRY AND ADDRESS THE ISSUE OF TOO BIG TO FAIL. 12:48:24 WHERE ARE YOU IN THIS DEBATE? WHAT DO YOU THINK ABOUT THE 12:48:27 PROPOSALS ON THE TABLE RIGHT NOW, SIR? 12:48:29 >> WHEN I WAS SECRETARY OF THE TREASURY I PUT OUT A REGULATORY 12:48:35 BLUEPRINT AND I STILL BELIEVE THAT THAT IS A WAY TO GO. 12:48:42 I AM VERY -- I THINK IT IS ESSENTIAL THAT WE HAVE WINDDOWN 12:48:47 AUTHORITIES, RESOLUTION AUTHORITIES, SO THAT ANY 12:48:51 FINANCIAL ORGANIZATION, NO MATTER HOW BIG, CAN BE 12:48:54 LIQUIDATED OUTSIDE OF THE BANKRUPTCY PROCESS WITHOUT 12:48:57 TAKING DOWN THE REST OF THE ECONOMY. 12:48:59 AND SO I THINK THAT IS ESSENTIAL. 12:49:02 AND THERE ARE SOME PARTS OF THE -- OF THE PROPOSALS UP HERE 12:49:10 BEING DEBATED BY CONGRESS WHICH ARE THE SAME AS IN THE 12:49:13 REGULATORY BLUEPRINT WE PUT FORWARD, A BIG ONE BEING THE 12:49:17 SYSTEMIC RISK REGULATOR AND I'M STRONGLY IN FAVOR A SYSTEMIC 12:49:21 RISK REGULATOR. >> DO YOU BELIEVE WE NEED TO 12:49:25 TAKE THE RISK INVESTMENTS THAT ARE PART OF SOME OF MANY OF THE 12:49:28 BIG BANKS NOW AND TAKE THEM OFF THE BOOKS AND A SEPARATE 12:49:32 SUBSIDIARY FOR THIS, GO BACK TO GLASSSTEGELE FIREWALL THERE? 12:49:38 >> THAT IS NOT MY RECOMMENDATION. 12:49:40 I BELIEVE THAT WHEN YOU LOOK AT THE -- AT THE CRISIS, WHAT I SAW 12:49:44 IN THE CRISIS WAS THAT IT WAS ACROSS A NUMBER OF FINANCIAL 12:49:50 TYPE OF FINANCIAL INSTITUTIONS, AND THE EXCESS OF RISK TAKING, I 12:49:56 SAW, WAS NOT LIMITED TO ONE BUSINESS ACTIVITY. 12:50:02 IT WAS MUCH BROADER THAN THAT. I THINK WE NEED A BROADER 12:50:05 APPROACH. AGAIN, WHAT I FAVOR IS A 12:50:07 SYSTEMIC RISK REGULATOR AND WINDDOWN THE PROBLEMS I HAVE 12:50:10 WITH WHAT YOU'RE SUGGESTING, SIR, SUDDENLY WE HAVE THE 12:50:13 TAXPAYERS THROUGH FDIC INSURANCE ON THE HOOK FOR RISK TAKERS OUT 12:50:16 HERE, I THINK, IT'S IMPORTANT THAT WE TAKE THESE THINGS AFTER 12:50:19 THE BOOKS AND HAVE A -- IF IT GOES DOWN IT GOES DOWN AND THE 12:50:23 BANKS AND INSURANCE FUNDS AND TAXPAYERS AS A WHOLE ARE NOT ON 12:50:28 THE HOOK FOR THAT. I THINK IT'S IMPORTANT WE GO 12:50:34 DOWN THAT ROAD. WHAT YOU'VE DONE WITH AIG IS USE 12:50:35 THE FEDERAL GOVERNMENT OF THE OFFICIAL UNDERWRITER OF ALL 12:50:37 INVESTMENTS IN THE WORLD. IF WE'RE UNDERWRITING FOREIGN 12:50:40 CONTRACTS, INVESTMENTS, WHAT HAVE WE DONE? 12:50:43 WE'VE GONE DOWN THAT ROAD. I APPRECIATE YOUR COMMENTS. 12:50:45 >> GENTLEMAN'S TIME EXPIRED. CHAIR, IN KEEPING WITH THE 12:50:50 NECESSITY OF MAKING SURE MEMBERS WHO DO NOT ASK QUESTIONS THE 12:50:53 LAST ROUND ARE GIVEN A CHANCE TO GO FIRST, WE RECOGNIZE MR. 12:51:02 TEERNEY. >> MR. PAULSON, THANK YOU FOR 12:51:04 BEING HERE THIS MORNING. YOU WERE IN FULL AGREEMENT WITH 12:51:06 NOT ALLOWING AIG TO GO BANKRUPT? >> ABSOLUTELY. 12:51:11 >> I THINK BACK HOME PEOPLE DON'T KNOW WHERE TO GIVE THE 12:51:13 CREDIT FOR THIS. I THINK WE NEED TO GIVE CREDIT 12:51:17 WHERE CREDIT IS DUE IF THAT'S A GOOD DECISION. 12:51:19 PEOPLE SEE MR. GEITHNER AS TREASURER. 12:51:23 IN FACT, THESE WERE DECISIONS MADE IN 2008. 12:51:27 YOU WERE PRESIDENT BUSH'S SECRETARY OF THE TREASURY, 12:51:29 CORRECT? >> ABSOLUTELY. 12:51:31 >> AND MR. BERNANKE WAS THE HEAD OF THE FED? 12:51:35 THEN, OF COURSE, WE HAD THE NEW YORK FEDERAL RESERVE BOARD 12:51:38 PARTICIPATING IN THESE CONVERSATIONS AS WELL. 12:51:40 SO YOU'RE PRETTY MUCH THE GROUP THAD DECIDED THEY SHOULD GIVE 12:51:45 $85 BILLION IN SEPTEMBER TO AIG. THOSE ARE MOSTLY THE 12:51:47 PARTICIPANTS, AM I RIGHT? >> YEAH. 12:51:49 WE WERE -- AS I SAID IN MY TESTIMONY I VERY MUCH SUPPORTED 12:51:54 THAT RESCUE. >> IN NOVEMBER IT WAS THE SAME 12:51:58 GROUP. YOU AS PRESIDENT BUSH'S 12:51:59 SECRETARY OF THE TREASURY, MR. BERNANKE AND THE NEW YORK FED 12:52:07 DECIDED TO GIVE ADDITION THE FUNDS TO AIG, SOME OF WHICH WE 12:52:08 USED TO PAY COUNTERPARTIES TO THE PRESIDENTS, RIGHT? 12:52:10 >> YES. IN NOVEMBER -- IN THE T.A.R.P. 12:52:16 WE MADE A $40 BILLION CAPITAL INVESTMENT AND THEN THE FED PUT 12:52:21 SOME ADDITIONAL MONEY IN -- WHICH WAS USED UP FOR THE 12:52:26 CONTRACTS. >> JUST SO WE'RE CLEAR, GIVEN 12:52:29 CREDIT HERE, THE T.A.R.P., $7 BILLION OF T.A.R.P., IN FACT, 12:52:32 WAS DURING YOUR TERM AS SECRETARY OF TREASURY UNDER 12:52:35 PRESIDENT BUSH? >> I'M PROUD OF THAT. 12:52:36 >> OKAY, THAT WAS YOUR IDEA? WAS IT, THE T.A.R.P.? 12:52:39 >> THAT WAS A NUMBER OF OUR IDEAS BUT, YES, THAT'S SOMETHING 12:52:42 I'M PROUD OF AND SOMETHING THAT WAS VERY NECESSARY. 12:52:44 >> THE $85 BILLION THAT WAS LOANED TO AIG WAS NOT 12:52:49 APPROPRIATED BY CONGRESS. NOBODY ASKED CONGRESS TO MAKE A 12:52:51 VOTE ON THAT, AM I RIGHT? >> THAT WAS A DECISION TAKEN BY 12:52:54 THE FED WITH THE SUPPORT -- >> WHAT SOURCE OF MONEY DID THEY 12:52:57 USE TO GET THAT $85 BILLION? >> THEY USED THEIR FUNDS. 12:53:02 >> THEIR FUNDS EMANATE FROM WHERE? 12:53:04 >> FROM THE U.S. GOVERNMENT. >> WERE THEY FREES FROM OTHER 12:53:08 BANKS? DID THEY COME FROM YOUR 12:53:10 TREASURY? WHERE DO THEY COME? 12:53:11 >> THEY COME FROM THE -- THE FED OBVIOUSLY CAN PRINT MONEY. 12:53:15 >> OKAY. AND DID THEY TAKE MONEY THAT 12:53:17 THEY HAD FROM FEES CHARGED TO MEMBER BANKS OR PRINT MONEY TO 12:53:21 ACCOMMODATE THIS $85 BILLION? >> YOU'D HAVE TO ASK THE FED 12:53:25 THAT. >> YOU'RE NOT AWARE? 12:53:27 >> I'D LIKE THEM TO ANSWER THAT QUESTION. 12:53:29 >> YOU MAY NOT LIKE TO ANSWER THE QUESTION, SIR, BUT IF YOU 12:53:32 KNOW THE INFORMATION I'M ASKING YOU TO SHARE WITH US, WHAT IS 12:53:37 YOUR BEST UNDERSTANDING OF WHERE THAT MONEY CAME FROM? 12:53:39 >> MY BEST UNDERSTANDING IS ALL DOLLARS ARE GREEN SO THOSE ARE 12:53:50 ULTIMATELY TAXPAYER DOLLARS AND THAT WAS WHY -- 12:53:51 >> WE'RE PAINFULLY AWARE THEY'RE TAXPAYER DOLLARS, SIR. 12:53:52 >> THAT WAS WHY THE TREASURY WAS SUPPORTIVE AND WE -- WE WERE 12:53:56 VERY SUPPORTIVE OF THAT TRANSACTION. 12:53:58 >> WE ALL UNDERSTAND THE FULL FAITH IN -- THE PROMISE -- 12:54:02 TAXPAYER DOLLARS WE'RE PAINFULLY AWARE. 12:54:05 I'M ASKING YOU WHETHER SINCE THEY DIDN'T COME TO CONGRESS FOR 12:54:07 THE APPROPRIATION, WHETHER THE $85 BILLION CAME FROM FEES 12:54:11 CHARGED TO MEMBER BANKS, NEWLY PRINTED MONEY OR SOME 12:54:15 COMBINATION OF THE BOTH. >> I DON'T BELIEVE IT CAME FROM 12:54:17 FEES CHARGED TO MEMBER BANKS. >> OKAY. 12:54:19 THANK YOU. WE GOT TO THE POINT WHERE A 12:54:21 DECISION HAD TO BE MADE ABOUT WHETHER OR NOT TO LET AIG GO 12:54:25 BANKRUPT. LATER CAME TO A POINT WHETHER OR 12:54:27 NOT TO PAY THE COUNTERPARTIES 100% OF THOSE CONTRACTS OR NOT. 12:54:31 ONCE THE DECISION MADE NOT TO LET THEM GO BANKRUPT YOU LOST 12:54:34 LEVERAGE TO ARGUE IN TERMS OF GETTING -- BEING ABLE TO PAY 12:54:38 LESS THAN 100%. IS THAT A FAIR STATEMENT? 12:54:40 >> AS I SAID, I DIDN'T PARTICIPATE IN THE -- IN THOSE 12:54:45 DECISIONS REGARDING PAYMENT AND I ALSO SAID WE DIDN'T HAVE THE 12:54:49 WIND-DOWN POWERS. >> OKAY. 12:54:50 YOU WERE INVOLVED WITH -- I FORGET HOW MANY CONGRESSMEN SAID 12:54:54 THERE WERE PHONE CALLS BETWEEN THE NEW YORK FED AND YOU. 12:54:57 I'D YIELD -- 225 TELEPHONE CONVERSATIONS BETWEEN THE HEAD 12:55:01 OF THE NEW YORK FED AND YOU DURING THIS PERIOD OF TIME. 12:55:03 SO I THINK WE MIGHT BE FAIR IN ASSUMING KBLOU YOU WERE 12:55:10 DISCUSSING SOME OF THESE PARTY MATTERS? 12:55:12 >> WE HAD A RANGE OF MATTERS TO DISCUSS. 12:55:15 WE CLEARLY DISCUSSED THE RESCUE AS I SAID, I DID NOT HAVE 12:55:19 INVOLVEMENT AND -- >> MY FINAL QUESTION. 12:55:21 I NEED YOUR HELP WITH THIS. MOST PEOPLE AT HOME DRAW THE 12:55:24 CONCLUSION THAT NOT TO ALLOW AIG TO GO INTO BANKRUPTCY WOULD HAVE 12:55:28 BEEN DEVASTATING BECAUSE THE CONSEQUENCES WOULD HAVE BEEN 12:55:31 SEVERE. IT WOULD BE ENORMOUSLY HELPFUL 12:55:33 IF YOU CAN PUT YOURSELF IN THE POSITION OF THE LOCAL BOOKKEEPER 12:55:38 FOR A MEDICAL FIRM OR HOUSEKEEPER OR LAWYER OR 12:55:44 TEACHERS AIDE. HOW SPECIFICALLY COULD THAT 12:55:46 INDIVIDUAL BEEN HARMED IF YOU HAD NOT MADE THE DECISION TO NOT 12:55:50 ALLOW AIG TO GO BANKRUPT? WHAT WOULD HAVE BEEN THE 12:55:52 CONSEQUENCE TO THEM? >> THAT'S THE RIGHT QUESTION, 12:55:55 CONGRESSMAN, BECAUSE THEY WERE THE REAL VICTIMS. 12:55:58 THEY WOULD HAVE LOST JOBS, WOULD HAVE LOST -- 12:56:02 >> HOW? HOW WOULD THAT HAVE HAPPEN? 12:56:04 SHOW ME FROM THE TIME YOU MADE THE DECISION WHAT WOULD HAVE 12:56:08 SPIRALED DOWN TO EFFECT THEIR LIVES. 12:56:10 >> THE GENTLEMAN'S TIME HAS EXPIRED. 12:56:12 THE WITNESS WOULD BE PLEASED TO ANSWER HIS QUESTION, I HOPE. 12:56:15 >> OKAY. WHAT I BELIEVE -- WE WERE -- 12:56:20 AROUND THE TIME OF THE AIG RESCUE WHEN MARKETS WERE FROZEN 12:56:25 WE HAD A SITUATION IN THIS COUNTRY WHERE EVEN BLUE CHIP 12:56:31 INDUSTRIAL COMPANIES WERE HAVING TROUBLE FINANCING. 12:56:33 I KNEW WE WERE ON THE BRINK THAT IF AIG HAD GONE DOWN I BELIEVE 12:56:41 THAT WE WOULD HAVE HAD A SITUATION WHERE MAIN STREET 12:56:44 COMPANIES, INDUSTRIAL COMPANIES OF ALL SIZE, WOULD NOT HAVE BEEN 12:56:48 ABLE TO RAISE MONEY FOR THEIR BASIC FUNDING. 12:56:51 AND THEY WOULDN'T HAVE BEEN ABLE TO PAY THEIR EMPLOYEES. 12:56:54 THEY WOULD HAVE HAD TO LET THEM GO. 12:56:56 EMPLOYEES WOULDN'T HAVE PAID THEIR BILLS. 12:56:58 THIS WOULD HAVE RIPPLED THROUGH THE ECONOMY. 12:57:01 THE -- TODAY, CONGRESSMAN, WE HAVE AFTER EVERYTHING THAT WAS 12:57:05 DONE, ALL THE RESOURCES WE HAVE 10% UNEMPLOYMENT. 12:57:07 I BELIEVE WE EASILY WOULD HAVE HAD 25% UNEMPLOYMENT. 12:57:14 TODAY WE HAVE HOME PRICES THAT HAVE DROPPED PRECIPITOUSLY IN 12:57:17 SOME PARTS OF THE COUNTRY. HOME PRICES WOULD HAVE GONE MUCH 12:57:22 LOWER. AIG GUARANTEED TENS OF BILLIONS 12:57:25 OF DOLLARS OF SAVINGS FOR RETIREMENT SAVINGS FOR 12:57:29 AMERICANS. THERE WOULD HAVE BEEN GREAT 12:57:30 LOSSES. THIS WOULD HAVE BEEN ECONOMIC 12:57:33 NIGHTMARE. >> THANK YOU, MR. PAULSON. 12:57:35 CHAIR RECOGNIZES MR. SOUTER. >> THANK YOU. 12:57:41 I HAVE A VARIATION OF THE SAME QUESTION YOU WERE GOING THROUGH. 12:57:43 ONE OF THE PROBLEMS WE HAVE IS THAT IT APPEARS AIG WAS TREATED 12:57:50 DIFFERENTLY THAN OTHER COMPANIES THROUGHOUT THIS WHOLE THING IN 12:57:53 THIS SENSE THAT THE HOLDERS OF THE DEBT WERE PAID AT PAR. 12:57:57 WHICH MEANS THAT IN EFFECT THE BANKS GOT 100% BUT, FOR EXAMPLE, 12:58:03 GM CREDITORS, SMALL BUSINESSES ALL ACROSS AMERICA AND OTHER 12:58:08 COMPANIES THAT WERE LET GO, THEY GOT TEN CENTS ON THE DOLLAR, 30 12:58:11 CENTS ON THE DOLLAR AND IT'S PART OF A FACT BUT A PERCEPTION 12:58:17 THAT THAT WAS UNFAIR, THAT WALL STREET WAS COVERED BUT MAIN 12:58:21 STREET WASN'T, IN DEBT. AIG WAS DIFFERENT IN WHAT SENSE? 12:58:25 NOW, I KNOW, WAS IT 120 SEPARATE FINANCE COMPANIES AND 80 12:58:29 INSURANCE OR IS THAT FLIPPED? SOMETHING LIKE THAT. 12:58:31 IN OTHER WORDS, IT WAS A COLLECTION. 12:58:33 >> A BIG COMPLEX COLLECTION OF COMPANIES, CORRECT. 12:58:35 >> AND THAT IF THE INSURANCE DIVISIONS WERE SEPARATED, AND 12:58:39 CAME UNDER STATE, PART OF THE ARGUMENT IS STATE REGULATION. 12:58:42 THAT THEY WERE SO INTERTWINED WITH THE FINANCE LET ME ASK ONE 12:58:49 OTHER QUESTION BEFORE WE GET INTO DETAILS OF THAT. 12:58:51 YOU SAID BANKRUPTCY WASN'T AN OPTION BUT IT ALSO MEANT THAT 12:58:54 DID YOU TRY TO PUT PRESSURE ON THE PEOPLE WHO HELD THE DEBT TO 12:58:57 WRITE DOWN SOME OF THEIR DEBT? OR ONCE YOU MADE THE STATEMENT 12:59:01 WE WEREN'T GOING TO LET IT
APTN 1830 PRIME NEWS NORTH AMERICA
AP-APTN-1830 North America Prime News -Final Friday, 16 April 2010 North America Prime News World Airports 4 05:02 Pt No Singapore/CNN/CNBC/BBC WRAP Stranded passengers in airports due to volcanic ash, Paris take-off Europe Ash 04:01 See script REPLAY Eurocontrol comment, pilot describes incident, scientific plane takes off Iceland Floods 02:08 No Access Iceland REPLAY Swollen river, ice flash floods from melting glacier, evacuation centre, sots China Quake 4 03:38 AP Clients Only REPLAY Rescuers, villagers and monks try to find survivors under quake rubble Kyrgyzstan Bakiyev 2 03:47 Pt No Access Russia WRAP Officials take weapons from ousted leader's family, Bakiyev ++US Goldman Sachs 01:39 AP Clients Only NEW Goldman Sachs accused of civil fraud in subprime mortgage market ++Brazil US Dam 01:31 AP Clients Only NEW Judge overturns delay for bidding on Amazon dam, James Cameron sots B-u-l-l-e-t-i-n begins at 1830 GMT. APEX 04-16-10 1456EDT -----------End of rundown----------- AP-APTN-1830: World Airports 4 Friday, 16 April 2010 STORY:World Airports 4- WRAP Stranded passengers in airports due to volcanic ash, Paris take-off LENGTH: 05:02 FIRST RUN: 1730 RESTRICTIONS: Pt No Singapore/CNN/CNBC/BBC TYPE: Various/Nat SOURCE: AP TELEVISION/Mediacorp News STORY NUMBER: 643229 DATELINE: Various - 16 April 2010 LENGTH: 05:02 AP TELEVISION - AP CLIENTS ONLY MEDIACORP NEWS - NO ACCESS SINGAPORE/CNN/CNBC/BBC SHOTLIST: (FIRST RUN 1330 EUROPE PRIME NEWS, 16 APRIL 2010) AP TELEVISION - AP CLIENTS ONLY Rome, Italy 1. Wide of Fiumicino Rome airport 2. Wide control tower 3. Wide interior of Fiumicino Rome airport 4. People lining up to check timetable 5. Screen giving passengers information 6. People waiting 7. SOUNDBITE: (English) Michael Parson, Tourist from Ireland: "Last night we were taken to a hotel in Ostia (town close by airport), which was very nice, and we were all happy to be in 'Bella Italia'. So, if you have to be stuck, Italy is the best place in the world. We love it." 8. Wide of people looking at screen (FIRST RUN 1330 EUROPE PRIME NEWS, 16 APRIL 2010) AP TELEVISION - AP CLIENTS ONLY Amsterdam, The Netherlands 9. Various of people queueing at Air Berlin check-in 10. Wide of people queuing to buy train tickets 11. Wide of couple sitting on floor 12. Low shot of airport official speaking with passengers 13. Passengers waiting by their luggage trolley 14. Various of people sleeping on stretchers in airport ++NEW (FIRST RUN 1730 NEWS UPDATE, 16 APRIL 2010) AP TELEVISION - AP CLIENTS ONLY Paris, France 15. British Airways Open Skies plane taking off from runway at Orly airport bound for Newark, New Jersey, US 16. Pan interior airport of screens showing cancelled flights and air traffic disrupted 17. Check-in desk 18. SOUNDBITE: (English) Frank Freiler, General Manager of Beauty Care Solutions: "So we're one of the lucky few. It sounds like they are actually going to get out of Paris today and get back to beautiful downtown Newark, New Jersey." (FIRST RUN 1330 EUROPE PRIME NEWS, 16 APRIL 2010) AP TELEVISION - AP CLIENTS ONLY Delhi, India 19. Various of tourists sitting outside at Delhi airport 20. Pan of display board showing flight status 21. Close-up of display board 22. Wide of passengers 23. Wide of passengers leaving with their luggage 24. SOUNDBITE: (English) David Overend, British Tourist "This volcano in Iceland spreading ash all over Britain and I think it's causing problems with the navigation systems and also a concern about particles going into engines. So, obviously, till the British authorities are absolutely satisfied that it's safe we can't fly which is the right thing to do but it's a bit frustrating." 25. Airline official putting up notice 26. Passenger talking to airline official (FIRST RUN 1330 EUROPE PRIME NEWS, 16 APRIL 2010) AP TELEVISION - AP CLIENTS ONLY Bangkok, Thailand 27. Wide pan of passengers in Bangkok Suvarnabhumi Airport departure hall 28. Close pan of departures board showing flight to London delayed 29. Wide of airport, people walking, pushing trolleys 30. Wide pan of passengers queuing at airline desk 31. SOUNDBITE: (English) Helene Uschakow, German tourist: "We have lost our jobs when we don't come to the work." 32. Various of people, whose flights are delayed, sitting in hotel garden 33. SOUNDBITE: (English) Brendan Wright, British tourist: "Beside myself. Because I've got no money left, don't know where to go, what to do, on my own, so, yeah, completely lost." 34. Wide of airport departures hall (FIRST RUN 1330 EUROPE PRIME NEWS, 16 APRIL 2010) MEDIACORP NEWS - NO ACCESS SINGAPORE, CNN, CNBC, BBC Singapore 35. Pan of stranded passengers at Changi Airport 36. Various of passengers in waiting area 37. Flight information boards 38. Close-up of cancelled flight information 39. Various of stranded passengers 40. SOUNDBITE: (English) No Name Given, Tourist: "It's an absolute nightmare. Nobody tells you anything. They said they were going to come down and tell us within the hour, and nobody came down and told us anything until the next day." 41. SOUNDBITE: (English) No Name Given, Tourist: "They're providing us with food and water and drinks and blankets. Obviously the floor's hard, but we've got through the night." 42. Departure information board 43. Various of passenger at Singapore Airline counter 44. SOUNDBITE, Nicholas Ionides,Vice-President, Public Affairs for Singapore Airlines "The situation now is that we don't know when those airports will be reopened, those airports that are closed. So we're in very close contacts with authorities in those areas, and we're trying to find out as soon as we can, when those airports will be opened. " 45. Pan across departure information board 46. Wide of stranded passengers at Changi Airport STORYLINE: Thousands of travellers worldwide who were hoping to fly into Europe airports were stranded on Friday as ash from a volcano in Iceland caused havoc with flight travel. Travel chaos engulfed major European cities and the UN warned of possible health risks from falling ash. Thousands of planes stayed on the tarmacs to avoid the hazardous cloud and aircraft were unable to fly in. Eurocontrol, the European air traffic agency, said the flight disruptions that upended travel in Europe and reverberated throughout the world on Thursday were even worse on Friday. Half a dozen European nations had closed their airspaces it said. The cloud was drifting east and about 60 percent of European flights were not operating. Delays will continue into Saturday, it said. Passengers were left stranded in Rome Fiumicino international airport on Friday when international flights to northern Europe were cancelled due to volcano cloud. Italian news agency reported the cancellation of at least 34 international flights to and from northern Europe during the first part of Friday. But later on Friday a British Airways plane chartered by Open Skies took off from Orly airport in the French capital Paris, bound for Newark in the United States - one of the few planes allowed to leave French airspace all day. There were about 45 passengers aboard, amongst them Frank Freiler, a general manager for Beauty Care Solutions in the United States. "So we're one of the lucky few," he said. "It sounds like they're actually going to get out of Paris today and get back to beautiful downtown Newark, New Jersey." No explanation was given as to why civil aviation restrictions were lifted for some but not all planes. Airspace reopened on Friday over the northern parts of Norway and Sweden but remained closed in the rest of the Nordic region because of the volcanic ash cloud from Iceland, officials said. Sweden reversed a gradual reopening of its airspace after weather reports indicated the plume would continue to spread over the region into the weekend. Only small airports in the northernmost parts of the country were operational. The country's civil aviation authority said it didn't know when the restrictions would be lifted. Norwegian airport operator Avinor reopened airspace over the northern half of Norway's west coast in the morning but most of the country remained a no-fly zone, including Oslo's Gardermoen Airport. In Denmark, aviation officials said the airspace would stay closed at least through 0600GMT Saturday. Finland, which closed its airspace early on Friday, said it would extend the measure to Sunday afternoon instead of Saturday, as earlier planned. Finnish airports operator Finavia Corp. said it expected the volcanic ash plume to remain over the country for several days. State-run Air India cancelled 11 flights on Friday from New Delhi and Mumbai to Frankfurt-Chicago, Frankfurt-Newark, London-Toronto, and directly to London and Paris, according to a statement. Jet Airways, a private airline said it had cancelled 15 flights from New Delhi and Mumbai to London and Brussels and to Toronto, Newark and New York via Brussels pending the reopening of European airports and air space. Thai Airways announced on its website that it cancelled ten flights between Bangkok and Europe on Friday. Some travellers stuck in Thailand said they may have to wait until 20 April for the earliest flight to Europe. Others said they'd been told it could be May before they get onto a flight. Singapore airport authorities faced a shortage of hotel rooms to accommodate stranded passengers. 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APTN APEX 04-16-10 1434EDT ------------------- END -- OF -- ITEM ------------------- AP-APTN-1830: Europe Ash Friday, 16 April 2010 STORY:Europe Ash- REPLAY Eurocontrol comment, pilot describes incident, scientific plane takes off LENGTH: 04:01 FIRST RUN: 1630 RESTRICTIONS: See script TYPE: English/Nat SOURCE: AP TELEVISION/SKY/PA/EUMETSAT STORY NUMBER: 643183 DATELINE: Various - 16 April 2010 LENGTH: 04:01 AP TELEVISION - AP CLIENTS ONLY SKY - NO ACCESS UK/RET/CNNI/AL JAZEERA ENGLISH PA - NO UK/COMMERCIAL USE EUMETSAT - AP CLIENTS ONLY/ MUST COURTESY EUMETSAT SHOTLIST: (FIRST RUN 0830 EUROPE PRIME NEWS - 16 APRIL 2010) AP TELEVISION - AP CLIENTS ONLY Berlin, Germany 1. Pan exterior of Airberlin planes on tarmac (FIRST RUN 0830 EUROPE PRIME NEWS - 16 APRIL 2010) AuBC - NO ACCESS AUSTRALIA Sydney, Australia 2. Wide exterior of Quantas plane on tarmac 3. Mid of Qantas containers next to plane 4. Wide interior of people waiting at check-in desks (FIRST RUN 0830 EUROPE PRIME NEWS - 16 APRIL 2010) AP TELEVISION - AP CLIENTS ONLY Paris, France 5. Wide of Air France planes on tarmac 6. Mid of Air France plane tails ++NEW (FIRST RUN 1630 EUROPE PRIME NEWS - 16 APRIL 2010) AP Photos - No Access Canada/For Broadcast use only - Strictly No Access Online or Mobile Brussels, Belgium - 16 April 2010 7. STILL showing computer display at the European Air Navigation Agency, the coloured dots representing aircraft in flight in European airspace ++NEW (FIRST RUN 1630 EUROPE PRIME NEWS - 16 APRIL 2010) PA - NO UK/COMMERCIAL USE London, UK - 29 January 1982 8. STILL British Airways 747 Captain Eric Moody receiving an award for landing safely in Jakarta, Indonesia, after volcanic dust caused total loss of power in all four engines ++NEW (FIRST RUN 1630 EUROPE PRIME NEWS - 16 APRIL 2010) SKY NEWS - No Access UK/RTE/CNNi/Al Jazeera English 9. SOUNDBITE (English) Eric Moody, Former 747 pilot: (The 'He' that Captain Moody refers to is the cabin steward) "We'd gone from down around 15, 16 thousand feet and I knew that the oxygen masks had now dropped down in the cabin and I wanted to speak to him and I tried to talk to him on the telephone system on board but that wasn't working and that was part, we were confused because lots of things we had been trained, that would work in these situations weren't working and vice versa so all three of us on the flight deck admitted to being very confused during the whole thing however, the only way I could speak to him was to use the passenger address and I thought well I've always been an honest sort of a bloke, let's tell them the truth. And I just said 'Good evening again ladies and gentlemen, this is Captain Eric Moody here, we've got a small problem in that all four engines have failed we're doing our upmost to get them going, I trust you are not in too much distress.'" ++NEW (FIRST RUN 1630 EUROPE PRIME NEWS - 16 APRIL 2010) AP TELEVISION - AP CLIENTS ONLY Brussels, Belgium - 16 April 2010 10. Wide of news conference 11. Close up of map showing european airspace 12. SOUNDBITE (English) Joe Sultana, Deputy Director of Central Floor Management Unit at Eurocontrol: "I think the decision made by each state and each air navigation service provider was taken in the interests of safety of air travel. There is guidance from the International Civil Aviation Authority. I cannot say whether it is an overreaction - undereaction, I think everyone is working in the interests of safety." ++NEW (FIRST RUN 1630 EUROPE PRIME NEWS - 16 APRIL 2010) EUMETSAT - AP CLIENTS ONLY/ MUST COURTESY EUMETSAT Satellite image of Europe - 16 April 2010 13. Satellite image of volcanic ash cloud (peach coloured) stretching from northern Finland to the United Kingdom ++NEW (FIRST RUN 1630 EUROPE PRIME NEWS - 16 APRIL 2010) SKY - NO ACCESS UK/RET/CNNI/AL JAZEERA ENGLISH Cranfield Airfield, UK - 16 April 2010 14. Scientific plane taxiing on tarmac 15. SOUNDBITE (English) Guy Gratton, Scientist: ++SOUNDBITE STARTS UNDER PREVIOUS SHOT++ "We're going to be flying to the North and Northeast of London, operating over East Anglia and the North Sea, between about 5 thousand and 15 thousand feet. The intention is to identify where the edges of the ashcloud are and I certainly expect to be finding it this time. The Met office are currently seeing a thin layer of ash over Cardington, which is just a few miles from here between 6 and 8 thousand feet and the satellites are showing the bulk of the ash running down the east side of the North Sea and over Denmark so we're going to be looking at the edges of that, refining the model the Met office have got and hopefully putting them in a good position to make the best possible advice with regard to whether and when it's safe to reopen the London airports." 16. Research plane taking off from Cranfield Airfield to collect data on volcanic ash over UK STORYLINE: Eurocontrol, the European air navigation safety agency, said on Friday that travellers should brace themselves for more disruptions because of ash from Iceland's volcano. Deputy Director of Central Floor Management Unit at Eurocontrol, Joe Sultana, said that they had no option but to err on the side of caution. "There is guidance from the International Civil Aviation Authority. I cannot say whether it is an overreaction - undereaction, I think everyone is acting in the interests of safety," he told reporters in Brussels. Eurocontrol predicted only 12,000 flights in all of Europe on Friday, down from 28,000 on a normal day. On Thursday, when the air traffic emergency gradually spread across Europe, there were 20,334 flights. Twelve countries have been affected by the no-fly ban on Friday: Britain (excluding Scotland), Belgium, the Netherlands, Denmark, Sweden, Norway, Finland, Estonia, northern France (including all Paris airports), northern parts of Germany, parts of Poland (including Warsaw airport) and the Czech Republic. On Friday, trans-Atlantic flights, normally 300, were severely curtailed. Only about 120 flights arrived from across the Atlantic, said Eurocontrol. Former British Airways pilot, Eric Moody, told British broadcaster Sky just how dangerous volcanic ash can be to a plane after one of his flights almost crashed. "And I just said 'Good evening again ladies and gentlemen, this is Captain Eric Moody here, we've got a small problem in that all four engines have failed we're doing our upmost to get them going, I trust you are not in too much distress,'" he explained how he was forced to tell his passengers of the danger they were in. Captain Moody was later given the Hugh Gordon Burge award for managing to land the plane safely in Jakarta. Meanwhile, in a bid to learn more about exactly where the perimeter of the ash is and how quickly it is spreading around the United Kingdom a group of scientists took a special research plane up into the sky on Friday to take samples. "The satellites are showing the bulk of the ash running down the east side of the North Sea and over Denmark so we're going to be looking at the edges of that, refining the model the Met office have got and hopefully putting them in a good position to make the best possible advice with regard to whether and when it's safe to reopen the London airports," Scientist Guy Gratton told British broadcaster Sky. The information brought back from the mission, due to land back at Cranfield Airport in Bedfordshire at 9pm (2000 GMT), will be given to the Met Office to help with its forecasting. Clients are reminded: (i) to check the terms of their licence agreements for use of content outside news programming and that further advice and assistance can be obtained from the AP Archive on: Tel +44 (0) 20 7482 7482 Email: infoaparchive.com (ii) they should check with the applicable collecting society in their Territory regarding the clearance of any sound recording or performance included within the AP Television News service (iii) they have editorial responsibility for the use of all and any content included within the AP Television News service and for libel, privacy, compliance and third party rights applicable to their Territory. APTN APEX 04-16-10 1434EDT ------------------- END -- OF -- ITEM ------------------- AP-APTN-1830: Iceland Floods Friday, 16 April 2010 STORY:Iceland Floods- REPLAY Swollen river, ice flash floods from melting glacier, evacuation centre, sots LENGTH: 02:08 FIRST RUN: 1330 RESTRICTIONS: No Access Iceland TYPE: Icelandic/Nat SOURCE: RUV STORY NUMBER: 643208 DATELINE: Eyjafjallajokull - 16 April 2010 LENGTH: 02:08 RUV - NO ACCESS ICELAND SHOTLIST: 1. Pan of flash flood that came from the Eyjafjallajokull (ay-yah-FYAH'-plah-yer-kuh-duhl) volcano overnight, bursting the banks of a nearby river 2. Various of fast flowing water with ash in it 3. Various of water gushing over broken levee 4. Pan right of fast flowing water with pumice lumps floating on the surface 5. Wide pan of high river 6. Various of blocks of ice surrounded by bits of pumice/ash 7. Tilt-up from river to sky 8. Officials monitoring the river 9. Close-up of officials faces 10. Various of farmer Elin S. Ragnarsdottir talking on her mobile at the Hvolsvollur emergency centre 11. SOUNDBITE (Icelandic) Elin S. Ragnarsdottir, Farmer: "Sure. We completely depend on the Civil Protection people. They are doing a wonderful job. We feel very welcome here." 12. Emergency centre workers carrying a table into centre STORYLINE Ice chunks the size of houses tumbled down from a volcano beneath Iceland's Eyjafjallajokull glacier on Thursday, as hot gases melted the ice. The volcano began erupting on Wednesday for the second time in less than a month. Torrents of water filled with ash and pumice roared down the steep slopes of the volcano. About 40 people nearby were evacuated because of flash floods, which washed away chunks of the country's main ring road. Farmer Elin S. Ragnarsdottir was one of the locals being looked after at the Hvolsvollur emergency centre. "We completely depend on the Civil Protection people. They are doing a wonderful job. We feel very welcome here," she said. More floods from melting waters are expected as long as the volcano keeps erupting, a member of the Civil Protection Department said. Iceland, a nation of 320-thousand people, sits on a large volcanic hot spot in the Atlantic's mid-oceanic ridge, and has a history of devastating eruptions. One of the worst was the 1783 eruption of the Laki volcano, which spewed a toxic cloud over Europe. 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APTN APEX 04-16-10 1434EDT ------------------- END -- OF -- ITEM ------------------- AP-APTN-1830: China Quake 4 Friday, 16 April 2010 STORY:China Quake 4- REPLAY Rescuers, villagers and monks try to find survivors under quake rubble LENGTH: 03:38 FIRST RUN: 1230 RESTRICTIONS: AP Clients Only TYPE: Mandarin/Nat SOURCE: AP TELEVISION STORY NUMBER: 643201 DATELINE: Jiegu, Yushu County - 16 April 2010 LENGTH: 03:38 AP TELEVISION - AP CLIENTS ONLY SHOTLIST 1. Top shot of collapsed school complex with excavator digging rubble 2. Rescuers and monks gathered in front of damaged school complex 3. Body of student being placed in a blanket to be taken away by monks 4. Wide of monks and rescuers 5. Various of monks taking body away 6. Close-up of body being wrapped in quilts 7. Various of research team, students and parents gathered watching monks wrap student's body 8. Wide of monk wrapping body 9. Woman crying 10. Wide of Chen Guangming, Vice Principle of Yushu Vocational Boarding School, talking to two journalists 11. SOUNDBITE (Mandarin) Chen Guangming, Vice Principle of Yushu county's Vocational Boarding School: "Some teachers and I were digging and pulling out students with our bare hands. We didn't have any kind of tools. We couldn't lift the bigger rocks so we found some ropes and pulled them. Mostly we used our hands, you see mine are cut. This way we were able to pull out five, three of them are still alive." 12. Former student looking at photos he found in the rubble 13. Photo of a student who was found dead 14. Tilt-up from school books on floor of hallway to rescuers working at end of hallway 15. Reverse shot of search team 16. Pan of devastated neighbourhood on hill 17. Various of people searching through rubble to find possessions 18. Wide of crowd gathered to receive relief supplies from cargo truck 19. Police holding back crowd as relief supplies are distributed 20. People watching from behind police line 21. Various of tents wrapped in plastic bags being handed down from truck to waiting residents 22. Various of troops and rescue team searching through rubble for survivors 23. Various of monks sitting on ground chanting ritual prayers for those died beneath Jiegu Temple 24. Various of pile of wrapped bodies of earthquake victims in cloths on a stage 25. Various of oil lamps 26. SOUNDBITE (Mandarin) GeGa, Tibetan Buddhist Monk: "For us the Tibetan people, this is critically important. Every Tibetan here believes in Buddhism. For them, religious rituals, like chanting of scriptures and a belief in salvation for the dead, are very important. If there is no ritual, like praying and helping the dead into the afterlife, Tibetans would feel very guilty." 27. Wide of monks performing ritual in front of bodies 28. Close-up of monk chanting prayer into microphone 29. Various of monks chanting 30. Close-up of Tibetan prayer wheel spinning in monk's hand STORYLINE Rescuers probed the rubble for sounds or movement on Friday in a rush to find anyone still buried alive more than 48 hours after an earthquake hit western China, killing at least 791 people. Many survivors shivered through a second night outdoors as they waited for tents to arrive in the remote, mountainous Tibetan area. People with broken arms or legs cried in pain as medical teams could offer little more than injections for relief. Stunned survivors wandered the dusty streets of Jiegu, where relief workers estimated 70 percent to 90 percent of the low-slung town of wood-and-mud housing had collapsed. The official Xinhua News Agency reported on Friday afternoon the death toll had risen to 791, with 294 missing. The report said 11,477 people were injured, 1,174 severely. The strongest of the quakes on Wednesday morning measured magnitude 6.9 by the US Geological Survey and 7.1 by China's earthquake administration. China Central Television (CCTV) reported that about 40-thousand tents would be in place by Saturday, enough to accommodate all survivors. Also on the way was more equipment to help probe for signs of life under the debris, it said. The remote mountain region's high altitude, about 13-thousand feet (four-thousand metres), left some rescuers and even their sniffer dogs breathless or feeling ill. At one collapsed school, civilians, including Tibetan monks in crimson robes, joined rescue workers on top of a pile of debris to pull out the bodies of students. "Some teachers and I were digging and pulling out students with our bare hands. We didn't have any kind of tools ... Mostly we used our hands, you see mine are cut. This way we were able to pull out five, three of them were still alive," said Chen Guangming, Vice Principle of Yushu County's Vocational Boarding School, where the bodies of 26 students were found. Xinhua quoted a local education official as saying 66 children and 10 teachers had died, mostly in three schools, but more remained missing. A spokesman for the Qinghai-based educational NGO Gesanghua, said the first and third grade classrooms at the Yushu No. 3 Wanquan Elementary School crumbled because they were built with mud, instead of brick and cement. An employee at the Children's Home of Hope for orphans, said 30 of the home's children were missing, including many who attended classes at the No. 3 Wanquan school. The collapsed schools were an eerie echo of the massive Sichuan quake in 2008, in which thousands of students died when their poorly built schools collapsed. But unlike Sichuan - where schools toppled as other buildings stood - nearly everything fell over in Yushu. Meanwhile, Tibetan monks prayed over hundreds of bodies on Friday at a makeshift morgue next to their monastery. One of the monks from the Jiegu Monastery, estimated that about thousand bodies had been brought to a hillside clearing in the shadow of the monastery. He said a precise count was difficult because bodies continued to trickle in and some had already been taken away by family members. Dozens of monks began singing chants, or sutras, late in the afternoon and planned to begin cremating the unclaimed bodies on Saturday. According to one of the monks it was impossible to perform traditional sky burials for all. Tibetan sky burials involve chopping a body into pieces and leaving it on a platform to be devoured by vultures. Clients are reminded: (i) to check the terms of their licence agreements for use of content outside news programming and that further advice and assistance can be obtained from the AP Archive on: Tel +44 (0) 20 7482 7482 Email: infoaparchive.com (ii) they should check with the applicable collecting society in their Territory regarding the clearance of any sound recording or performance included within the AP Television News service (iii) they have editorial responsibility for the use of all and any content included within the AP Television News service and for libel, privacy, compliance and third party rights applicable to their Territory. APTN APEX 04-16-10 1434EDT ------------------- END -- OF -- ITEM ------------------- AP-APTN-1830: Kyrgyzstan Bakiyev 2 Friday, 16 April 2010 STORY:Kyrgyzstan Bakiyev 2- WRAP Officials take weapons from ousted leader's family, Bakiyev LENGTH: 03:47 FIRST RUN: 1230 RESTRICTIONS: Pt No Access Russia TYPE: Russian/Natsound SOURCE: AP TELEVISION/RU-RTR/KTR STORY NUMBER: 643185 DATELINE: Various, 15/16 April 2010 LENGTH: 03:47 AP TELEVISION - AP CLIENTS ONLY RU-RTR - NO ACCESS RUSSIA KYRGYZ TV - AP CLIENTS ONLY SHOTLIST: (FIRST RUN 1130 ME EUROPE PRIME NEWS, APRIL 16 2010) AP TELEVISION - AP CLIENTS ONLY Teyit, Jalal-Abad region, southern Kyrgyzstan, April 16 2010 1. Wide shot of ousted president Kurmanbek Bakiyev's supporters around yurt (tent) where Bakiyev's family is holding talks with representatives of the new government 2. Pan of talks inside yurt 3. Pan from Kanybek Turdumambetov, prosecutor of the Jalal-Abad region, to General Artur Medotbekov, deputy head of the state security service GSNB 4. Mid shot of weapons handed in by the Bakiyev family - four Saiga automatic rifles and one Kalashnikov automatic rifle 5. Mid shot government officer picking up one rifle 6. Close up of inspector emptying magazine 7. Close up of rounds of ammunition on the floor 8. Mid shot of weapons (FIRST RUN 1130 ME EUROPE PRIME NEWS, APRIL 16 2010) KYRGYZ TV - AP CLIENTS ONLY Bishkek, Kyrgyzstan, April 16 2010 9. SOUNDBITE: (Russian) Roza Otunbayeva, interim president: "Bakiyev's active movements, his public speeches in Jalal-Abad and Osh, where he was surrounded by gunmen, have put the country on the edge of a civil war. We could not let a new tragedy happen to our people." ++NEW (FIRST RUN 1230 NEWS UPDATE, APRIL 16 2010) AP TELEVISION - AP CLIENTS ONLY FILE - Osh, southern Kyrgyzstan, April 15 2010 10. Ousted president Kurmanbek Bakiyev getting out of car, people cheering 11. Bakiyev addressing crowd 12. Wide of crowd running as gunfire starts, AUDIO: Gunfire (FIRST RUN 1130 ME EUROPE PRIME NEWS, APRIL 16 2010) KYRGYZ TV - AP CLIENTS ONLY Bishkek, Kyrgyzstan, April 16 2010 13. SOUNDBITE: (Russian) Roza Otunbayeva, interim president: "Bakiyev won't evade justice, he will not be able to hide anywhere in the world. None of the relatives or allies of Bakiyev that were with him until the end, have been allowed out of the country." ++NEW (FIRST RUN 1230 NEWS UPDATE, APRIL 16 2010) AP TELEVISION - AP CLIENTS ONLY FILE - Osh, Kyrgyzstan, April 15 2010 14. Bakiyev's convoy leaving Osh 15. Pan from crowd to armed man firing in sky, AUDIO: Gunfire (FIRST RUN 1130 ME EUROPE PRIME NEWS, APRIL 16 2010) RTR - NO ACCESS RUSSIA Brasilia, Brazil, April 15 2010 16. SOUNDBITE: (Russian) Dmitry Medvedev, Russian president: "We had to get various parties involved. At the summit in Washington I held talks with both the president of Kazakhstan who helped solve this issue, and with the US president, taking into account the various divergent interests in the country and in the region as a whole. Finally reason triumphed, and I would like to say again that I really hope that we have managed to avoid a deterioration in the development of events there." (FIRST RUN 1130 ME EUROPE PRIME NEWS, APRIL 16 2010) AP TELEVISION - AP CLIENTS ONLY Teyit, Jalal-Abad region, southern Kyrgyzstan, April 16 2010 17. Wide shot of Bakiyev's supporters outside yurt where Bakiyev's family is holding talks with representatives of the new government 18. Mid shot Kanybek Bakiyev, Kurmanbek Bakiyev's brother, talking to supporters 19. SOUNDBITE: (Russian) Kanybek Bakiyev, Kurmanbek Bakiyev's brother: "On the one hand, we are less worried about his fate and his life now that he is holding talks with the opposition (in Kazakhstan). Let us hope a compromise solution is found. But the people are still excited and concerned over the president's fate." 20. Wide shot of crowd of Bakiyev supporters arguing with government officials as they try to leave Bakiyev's estate 21. SOUNDBITE: (Russian) General Artur Medotbekov, deputy head of the state security service: "The Prosecutor-General's Office has launched a criminal case and wants to interrogate Zhanybek Bakiyev and former defence minister Bakyt Kalyev. Bakyt Kalyev has been detained, while Zhanybek Bakiyev should come here now and testify." 22. Mid shot of Medotbekov leaving the compound 23. Mid shot of officials transferring confiscated weapons which are placed inside a vehicle STORYLINE: Relatives of Kyrgyzstan's ousted president submitted weapons to officials on Friday in their home village in the south of the country, a day after the president himself fled the country. While the moves appeared to reduce the likelihood of resistance by Kurmanbek Bakiyev backers, Kyrgyzstan's interim authorities were still searching for one of his brothers after issuing a warrant for his arrest, and it was unclear if Zhanybek Bakiyev would submit peacefully. Zhanybek Bakiyev, former head of the presidential guard service, is accused of ordering that shots be fired into a crowd of protesters on April 7 in the capital, Bishkek. The shooting enraged protesters, who stormed government buildings, driving the president to take refuge in the family compound in the southern village of Teyit. At least 83 people died in the Bishkek violence. For more than a week, the president tried to marshal support to resist the opposition figures who claimed power in Bishkek after his departure. But after fleeing a support rally on Thursday when gunfire broke out, he flew to neighbouring Kazakhstan under a plan negotiated by the US, Russian and Kazakh presidents, the United Nations, the European Union and the Organisation for Security and Cooperation in Europe. It was unclear how long he would remain in Kazakhstan. Interim leader Roza Otunbayeva said on Friday the country would push for an international investigation of the violence and that "Bakiyev won't evade justice." Police and the regional prosecutor came to the Bakiyev family compound on Friday morning, and Bakiyev's brother Akhmat, who is not sought for arrest, turned over several hunting and assault rifles. Otunbayeva on Thursday showed The Associated Press what she said was a formal letter of resignation handwritten by the president and received by fax. "Bakiyev's active movements, his public speeches in Jalal-Abad and Osh, where he was surrounded by gunmen, have put the country on the edge of a civil war,"Otunbayeva said. General Artur Medotbekov, Deputy Head of the state security service said former defence minister Bakyt Kalyev had been detained. On Thursday a member of the interim government said Kalyev was arrested in southern Kyrgyzstan while attempting to escape. The government member said Kalyev was also accused of ordering a crowd of protesters be fired upon in Bishkek on April 7. Bakiyev's departure raised hopes for a quick settlement of the crisis in the former Soviet republic, which hosts a US air base at the capital's airport. The Manas base has resumed full operations, the US Embassy said on Thursday. "Refuelling operations continue as usual, and the transit of troops has resumed," the embassy said in a statement. The troop transports to and from Afghanistan had been suspended since last week, other than a brief resumption Friday to fly a few hundred troops from the base back to the US. Russia, which also has an air base in Kyrgyzstan, has supported the US-led operations in Afghanistan but has shown growing impatience with the US military presence in the Central Asian region, which it considers its backyard. Russian President Dmitry Medvedev said in a statement issued by the Kremlin on Thursday that the Bakiyev regime collapsed because of corruption, its reliance on clan ties and inability to solve social problems. "I really hope that we have managed to avoid a deterioration in the development of events there," he said. He said Russia would provide humanitarian aid to Kyrgyzstan. Clients are reminded: (i) to check the terms of their licence agreements for use of content outside news programming and that further advice and assistance can be obtained from the AP Archive on: Tel +44 (0) 20 7482 7482 Email: infoaparchive.com (ii) they should check with the applicable collecting society in their Territory regarding the clearance of any sound recording or performance included within the AP Television News service (iii) they have editorial responsibility for the use of all and any content included within the AP Television News service and for libel, privacy, compliance and third party rights applicable to their Territory. APTN APEX 04-16-10 1434EDT ------------------- END -- OF -- ITEM ------------------- AP-APTN-1830: ++US Goldman Sachs Friday, 16 April 2010 STORY:++US Goldman Sachs- NEW Goldman Sachs accused of civil fraud in subprime mortgage market LENGTH: 01:39 FIRST RUN: 1830 RESTRICTIONS: AP Clients Only TYPE: English/Nat SOURCE: AP TELEVISION STORY NUMBER: 643228 DATELINE: New York - 16 April 2010/FILE LENGTH: 01:39 AP TELEVISION - AP CLIENTS ONLY SHOTLIST: FILE: New York, New York - exact date unknown 1. Various of Goldman Sachs building (85 Broad Street) Washington DC - April 16 2010 2. Various of US Securities and Exchanges Commission (SEC) New York - 16 April 2010 3. SOUNDBITE: (English) Art Hogan, Chief Market Analyst at Jeffries and Co: "The SEC (Securities and Exchanges Commission) is saying Goldman was deceptive and misleading in the way they marketed a particular product." FILE: New York, New York - exact date unknown 4. Flag flying outside Goldman Sachs building (85 Broad Street) New York - 16 April 2010 5. SOUNDBITE: (English) Art Hogan, Chief Market Analyst at Jeffries and Co: "In the near term obviously, one of the offshoots that we are seeing today is that the stock prices in general are going down, the financials are the worst performing group in the S&P 500, down about five percent, the S&P is down about two percent. So this has had a market reaction and now we'll see if that is going to be an over-reaction or if there's something that plays out over the next several days." FILE: New York, New York - exact date unknown 6. Tilt-down Goldman Sachs building (85 Broad Street) New York - 16 April 2010 7. SOUNDBITE: (English) Art Hogan, Chief Market Analyst at Jeffries and Co: "Goldman Sachs has been long one of the top investment banks. If you look back over the last couple of years of this financial crisis we went through, they certainly were able to come out of it in a better fashion than Bear Sterns or Lehman did. They have got a reputation for having very, very aggressive trading and very, very smart people working there, that's long been the case. They have had decades of the reputation of being one of the top investment banks and they certainly seem to have come out of the financial crisis in better shape than some of their competitors did." New York - 16 April 2010 8. Various exteriors of Goldman Sachs building (85 Broad Street) STORYLINE: The US government has accused investment bank Goldman Sachs & Co. of defrauding investors by failing to disclose conflicts of interest in mortgage investments it sold as the housing market was collapsing. The Securities and Exchange Commission said in a civil complaint on Friday that Goldman failed to disclose that one of its clients helped create - and then bet against - subprime mortgage securities that Goldman sold to other investors. The SEC said the fraud, a blow to the reputation of Wall Street's most powerful firm, was orchestrated in 2007 by a Goldman vice president then in his late 20's. The employee, Fabrice Tourre, has since been promoted to executive director of Goldman Sachs International in London. Tourre, the SEC said, boasted to a friend that he was able to put such deals together as the mortgage market was unravelling in early 2007. In an email to the friend, he described himself as "the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!" Two European banks that bought the securities lost nearly one (b) billion dollars, the SEC said. The agency is seeking to recoup profits reaped on the deal. Goldman Sachs denied the allegations. In a statement, it called the SEC's charges "completely unfounded in law and fact" and said it will contest them. "The SEC (Securities and Exchanges Commission) is saying Goldman was deceptive and misleading in the way they marketed a particular product," Art Hogan, Chief Market Analyst at Jeffries and Co, said. Goldman, founded more than 140 years ago, built a reputation as a trusted adviser to its investment banking clients. In recent years, it shifted toward taking more risks with its clients' money and its own. Goldman's trading allowed the firm to weather the financial crisis better than most other big banks. It earned a record 4.79 (b) billion US dollars in the last quarter of 2009. The SEC's enforcement chief said the agency is investigating a wide range of practices related to the crisis. The prospect of possible legal jeopardy for other major financial players roiled the stock market. Goldman Sachs shares fell more than 12 percent. The Dow Jones industrial average sank more than 100 points in midday trading. The charges come as lawmakers seek to crack down on Wall Street practices that helped cause the financial crisis. Among proposals Congress is weighing are tougher rules for complex investments like those involved in the alleged Goldman fraud. The Goldman client implicated in the fraud is one of the world's largest hedge funds, Paulson & Co. The SEC said it paid Goldman roughly 15 (m) million dollars in 2007 to put together an investment offering that was tied to mortgage-related securities the hedge fund viewed as likely to decline in value. Separately, Paulson took out a form of insurance that allowed it to make a huge profit when those securities became nearly worthless. ABN Amro, a major Dutch bank, was the biggest loser in the securities, having paid Goldman 841 (m) million US dollars, according to the SEC. And IKB, a German commercial bank, lost nearly all its 150 (m) million US dollars investment, the agency said. Most of the money they lost went to Paulson in a series of transactions between Goldman and the hedge fund, the SEC said. The civil lawsuit filed by the SEC in federal court in Manhattan was the government's most significant legal action related to the mortgage meltdown that ignited the financial crisis and helped plunge the country into recession. The SEC is seeking unspecified fines and restitution from Goldman Sachs and Tourre. Paulson & Co. is run by John Paulson, who reaped (b) billions by betting against subprime mortgage securities. He is not related to former Treasury Secretary Henry Paulson. In an annual letter to shareholders, Goldman said it began reducing its exposure to the US mortgage market in late 2006. It said it did so by selling mortgage investments or buying credit default swaps. The swaps are a form of insurance that pays out if the value of the underlying asset declines. Those hedges, also known as short positions, served Goldman well. As the housing market began to decline and losses piled up for other big banks, Goldman suffered less damage. That led to criticism that the bank benefited at the expense of clients who bought mortgage-backed securities that became toxic. Goldman denied that. Clients are reminded: (i) to check the terms of their licence agreements for use of content outside news programming and that further advice and assistance can be obtained from the AP Archive on: Tel +44 (0) 20 7482 7482 Email: infoaparchive.com (ii) they should check with the applicable collecting society in their Territory regarding the clearance of any sound recording or performance included within the AP Television News service (iii) they have editorial responsibility for the use of all and any content included within the AP Television News service and for libel, privacy, compliance and third party rights applicable to their Territory. APTN APEX 04-16-10 1550EDT ------------------- END -- OF -- ITEM ------------------- AP-APTN-1830: ++Brazil US Dam Friday, 16 April 2010 STORY:++Brazil US Dam- NEW Judge overturns delay for bidding on Amazon dam, James Cameron sots LENGTH: 01:31 FIRST RUN: 1830 RESTRICTIONS: AP Clients Only TYPE: English/Nat SOURCE: AP TELEVISION/Amazon Watch STORY NUMBER: 643213 DATELINE: Washington DC/Tocantins - 15 April 2010/Recent LENGTH: 01:31 AP TELEVISION - AP CLIENTS ONLY AMAZON WATCH VNR - AP CLIENTS ONLY SHOTLIST: AMAZON WATCH VNR - AP CLIENTS ONLY Village along Xingu River - 13 April 2010 1. Various of village in Brazilian Amazon visited by director James Cameron AP TELEVISION - AP CLIENTS ONLY Washington DC - 15 April, 2010 2. SOUNDBITE: (English) James Cameron, Film Director "What is being requested here is that the people who are directly affected by the project have a voice in the approval process for this type of project. And the reason the environmental community and the indigenous rights community is so focused on this project is because it will create precedent for the 19 or 20 other major hydro-electric projects that are planned in Brazil." AMAZON WATCH VNR - AP CLIENTS ONLY Village along Xingu River - 13 April 3. Various of village in Brazilian Amazon visited by director James Cameron AP TELEVISION - AP CLIENTS ONLY Washington DC - 15 April, 2010 4. SOUNDBITE: (English) James Cameron, Film Director "It does involve the international community because these big hydroelectric projects in the Amazon are destroying parts of the forest which are the biggest natural mechanisms for carbon sequestration. One of them on the planet as the forest dies it releases that carbon back into the environment, we all suffer. The point that I make to them, and I haven't got to speak directly to President Lula but the point that I've made in press conferences down there is that every nation shares a responsibility for carbon pollution. And because North America has basically led the pack in carbon pollution for a very long time it has a greater debt to pay on a global level." 5. Pan from Cameron to audience STORYLINE: A judge on Friday overturned a decision that could have delayed construction of a huge Amazon dam opposed by environmentalists, Indians and the director of "Avatar." The decision was made in the Brazilian capital to suspend contract bidding scheduled for next week and also overturned the suspension of the environmental licence for the 11-thousand-megawatt Belo Monte dam, according to a statement from Brazil's solicitor general. A spokeswoman for federal prosecutors acting on behalf of dam opponents said the decision was being analysed and that an appeal would be filed, but it was not clear when. She spoke on condition of anonymity in keeping with policy. Brazil's electricity regulator resumed plans to hold an auction Tuesday to pick a consortium to build and operate the 11 (b) billion US dollars dam and sell electricity to the nation, said a spokeswoman for the agency, known as Aneel. She also spoke on condition of anonymity because of department rules. "Avatar" director James Cameron was in Brazil this week to protest the dam, and the decision to delay bidding came on Wednesday. Environmentalists and indigenous groups say Belo Monte would devastate wildlife and the livelihoods of 40-thousand people who live in the area to be flooded. They also argue that the energy generated by the dam will largely go to big mining operations, instead of benefiting most Brazilians. Brazilian President Luiz Inacio Lula da Silva has repeatedly insisted that the dam is essential for Brazil's future energy needs. Latin America's largest nation has a fragile energy grid that was hit last year by a blackout that darkened much of the nation. Belo Monte would supply 6 percent of the country's electricity needs by 2014. This is the same year Brazil will host World Cup Football and just two years before Rio de Janeiro holds the 2016 Olympics. Cameron this week called the proposed dam a "pivotal battleground" because it will set the stage for development of more dams. He took part in a protest against the dam in Brasilia and visited with Indians in the small Amazon city of Altamira near the proposed dam site. Actress Sigourney Weaver, who starred in "Avatar", accompanied Cameron. Their visit was reminiscent of a 1989 trip by rock star Sting, who protested the same dam alongside Indians in an event that helped persuade international lenders not to finance it. Brazil was shuddering under a heavy foreign debt at the time. But economically booming Brazil no longer needs money from abroad to build the dam. Silva has said foreign visitors from rich nations should not lecture Brazil about the dam and Amazon deforestation because their countries mowed down their own forests centuries ago. Brazilian officials also contest estimates made by environmentalists of the damage the dam would cause, saying the dam was approved after years of planning to protect wildlife and people living nearby. The solicitor general's office said in its statement that the dam's construction will create 18-thousand jobs in one of Brazil's poorest regions, the state of Para. Clients are reminded: (i) to check the terms of their licence agreements for use of content outside news programming and that further advice and assistance can be obtained from the AP Archive on: Tel +44 (0) 20 7482 7482 Email: infoaparchive.com (ii) they should check with the applicable collecting society in their Territory regarding the clearance of any sound recording or performance included within the AP Television News service (iii) they have editorial responsibility for the use of all and any content included within the AP Television News service and for libel, privacy, compliance and third party rights applicable to their Territory. APTN APEX 04-16-10 1531EDT ------------------- END -- OF -- ITEM -------------------
Europe Finance Wrap - Press TV UK rescue plan, int rate cuts, market closures, reax; Iceland PM
NAME: EUR FINANC WP 20081008Ix TAPE: EF08/1022 IN_TIME: 10:41:19:11 DURATION: 00:07:59:05 SOURCES: AP/Various DATELINE: Various, 8 Oct 2008 RESTRICTIONS: SHOTLIST AP TELEVISION London, UK 1. Wide of Bank of England 2. Low angle view of the Bank of England London Stock Exchange London, UK 3. Aerial of London Stock Exchange as balls rise signifying opening of market 4. Wide of electronic stock boards AP TELEVISION London, UK 5. Wide of traders at CMC Markets 6. Electronic stocks boards showing FTSE index and charts 7. Mid of trader BOWTIE TV London, UK 8. Wide of UK House of Parliament session 9. Wide of British Prime Minister Gordon Brown addressing parliament 10. SOUNDBITE (English): Gordon Brown, British Prime Minister: "We have produced additional liquidity to the system, up to 200 billion pounds, we have said that we were prepared to buy shares in our banks and re-capitalise our banks, to the tune of 50 billion pounds, and we've also done something that other countries I believe will follow very soon and that is to provide medium term financing, up to 250 billion pounds guaranteed by the Treasury. And this is the means by which by taking coordinated action as a whole and leading the world in doing so, I believe we can get our banking system on a sound footing and that is the key to the future. Now to have that combined with the macro-economic action, a cut in interest rate, is an important message being sent round the world that we will do everything in our power to make sure our economy moves forward." 11. Wide of Brown AP TELEVISION London, UK 12. Tilt down exterior of the Institute for Fiscal Studies 13. Cutaway close-up of plaque reading (English): "The Institute for Fiscal Studies" 14. SOUNDBITE (English) Robert Chote, Director of the Institute for Fiscal Studies: "Well, there the perception clearly is that the economy here and elsewhere is set to weaken quite significantly, we may already be in recession in the sense of seeing the economy shrink by at least two quarters. The bank I think has probably taken the view that given recent events, that the danger of inflation being too high in the short term is something to be put to one side and we need to look to the likely weakness of the economy, so this will hopefully make growth recover slightly more quickly than it otherwise would do." AP TELEVISION London, UK 15. Wide tilt up pan of buildings at London's Canary Wharf financial district 16. Wide of financial ticker on building in Canary Wharf 17. Close of ticker 18. SOUNDBITE: (English) Matt Wheeler, financial district worker: "We have had the tsunami. Everything has collapsed, that's gone and we are now going to have the ripple effect. Just because we have heard interest rate cuts why should the world suddenly be ok." 19. Cutaway of news stand displaying news headlines reading: (English) "Bank Rate Slashed" 20. SOUNDBITE: (English) No name given, financial district worker, Vox pop: "Hopefully it will become better but at the moment it is quite dangerous for everybody here." 21. Mid of news stand billboard reading: (English) "Banks Rescue: City Reaction" 22. Close of newspaper headline AP TELEVISION Stockholm, Sweden 23. Various of Swedish Central bank exterior 24. Various of Kaupthing Bank headquarters 25. SOUNDBITE (English) Peter Borsos, Kaupthing Sweden information manager: "Well. It's something we have applied for at the Swedish Central Bank, in order to have the liquidity in the financial turmoil that exists not only in Sweden but all over the world, and in our case, particularly in Iceland." 26. Various of Stockholm Stock Exchange AP TELEVISION Reykjavik, Iceland 27. Various of Landsbankinn (A.K.A Landsbanki) building exterior 28. SOUNDBITE (English) Elly Armanns, voxpop: "Yes, I'm worried. I think we've reached the bottom. Now we have to all stand on our feet, put our hands together and jump up again. I believe that." 29. Various of protest concert 30. Fan with placard reading (Icelandic): "God Bless Iceland" 31. Pan across Parliament building to protest concert AP TELEVISION Reykjavik, Iceland 32. Wide of Geir H. Haarde, Iceland Prime Minister at news conference 33. SOUNDBITE (English): Geir H. Haarde, Iceland Prime Minister: "I must say that I was somewhat surprised. But I would also like to say that legal recourse or legal action is something that is always available and is one way of settling disputes in a civilised manner. Going to a court. But I don't know, we are hoping and planning to try to resolve this issue in good cooperation with the UK authorities." 34. Cutaway of reporters 35. SOUNDBITE (English): Geir H. Haarde, Iceland Prime Minister "Russia is a friendly country although we criticise Russia when we think is right to do so. We did that on Georgia. We've done that with respect to their bombers that come down here regularly nowadays. But it's still a friendly country. And why should we not call on them in a situation like this if they are able to help. I have no indication on whether or not they are asking for something unusual or unnatural in return." 36. Wide of Haarde AP TELEVISION Frankfurt, Germany 37. Exterior of stock exchange AP TELEVISION Frankfurt, Germany 38. Interior of Frankfurt Stock Exchange 39. Pan across graph on screen 40. Trader 41. US dollar note on computer 42. Soft toy on computer 43. Close of figures on screen 44. SOUNDBITE: (English) Professor Dr. Wolfgang Gerke, Professor at European Business School: "The impact of the rate cut was not that strong simply because we have already lost the faith in the financial system and it will take more steps than that to get the faith back." 45. Wide interior Frankfurt Stock Exchange AP TELEVISION Croissy-Beaubourg, Paris suburbs - France 46. Cheque being ceremonially handed to small business owner by French Finance Minister Christine Lagarde 47. Lagarde with journalists 48. SOUNDBITE (French): Christine Lagarde, French Finance Minister: "Listen Sir, we are doing things one after the other. Here we are in the situation of supporting businesses. To finance the development of the economy is our priority. For the rest, I think it has been made clear - French banks will not go bankrupt." AP TELEVISION Rome, Italy 49. Wide tilt down exterior of Italian economy ministry 50. Car carrying Emma Marcegaglia, President of Confindustria (Italian business association) entering ministry 51. Wide of Marcegaglia getting out the car and walking in the Ministry's court yard 52. Wide shot exterior of Luiss University in Rome 53. SOUNDBITE (English): Pierpaolo Benigno, Professor of business and economic sciences, Luiss University: "I expect they (the Italian Government) will do a plan similar to the one that UK did this morning you know a rescue plan for banks. So, it is not clear at this point if Unicredit is in trouble or not." 54. Various of Benigno pointing at graph on computer STORYLINE In a rare coordinated move, the European Central Bank, the US Federal Reserve and other major central banks from around the world slashed interest rates on Wednesday to prevent a mushrooming financial crisis from becoming a global economic meltdown. In Europe, which also has been hit hard by the financial crisis, the Bank of England cut its rate by one-half point to 4.5 percent and the European Central Bank sliced its rate by half a point to 3.75 percent. The rate cuts came against a backdrop of increasing anxiety in global financial markets. European governments had been struggling on Wednesday to contain the deepening world financial crisis, with Britain stepping in to help its hard-pressed banks and Russia shutting down its biggest stock market for two days. However the early boost to stock markets provided by the news that banks had cut their key interest rates by a half-percentage point soon dissipated amid severe stresses in lending markets. Investors have been fleeing shares on worries that neither the Fed, nor other central banks, could move fast enough to stop the rising turmoil. European indexes fell. In Britain, the FTSE-100 fell 5.2 percent, Germany's DAX dropped 5.9 percent, and France's CAC-40 dropped 6.3 percent. The British Treasury had earlier announced it would be investing up to 50 (b) billion pounds (87.5 (b) billion US dollars) in exchange for stakes in the country's largest banks and building societies, widen the amounts available through an existing short-term bank credit program 200 (b) billion pounds, and guarantee 250 (b) billion pounds (437.5 billion US dollars) worth of short and medium-term debt. The partial nationalisation of some of the country's leading banks was supposed to put them on a "sound footing", said Prime Minister Gordon Brown, after Tuesday's precipitous collapse in banking stocks, most notably Royal Bank of Scotland PLC and HBOS PLC, shook already weak confidence in the financial system. Brown and Treasury chief Alistair Darling hope that the package of measures will eventually give banks more confidence to start lending to each other. Brown told members of parliament the British government action, along with the interest rate cut sent an "important message .... that we will do everything in our power to make sure our economy moves forward". An Italian analyst suggested the Italian government may shortly follow in Britain's footsteps. But workers in London's financial district of Canary Wharf were sceptical of the benefits of the government's actions. Analysts at Frankfurt Stock Exchange also expressed doubt over the benefits of the interest rate cut. Meanwhile, Iceland plunged further into financial crisis on Wednesday as it scrapped plans to nationalise a major bank, instead placing it into receivership, and abandoned attempts to put a floor under its falling currency by fixing the exchange rate. The financial strife also developed into a diplomatic spat as the British government said that it planned to sue over lost deposits held by tens of thousands of Britons with Icelandic bank accounts. The threat prompted Prime Minister Geir H. Haarde to say the Nordic country was working "to resolve this issue in good cooperation with the UK authorities." Haarde, who has complained of a lack of support for the country's financial crisis from other European nations, has sought a 4 (b) billion euro loan from Russia as the country scrambles to stop the collapse of its economy. Some support came from Sweden, where the central bank said on Wednesday it would grant liquidity assistance to the Swedish arm of Icelandic bank Kaupthing with a loan of up to 5 billion crowns (702 million US dollars) "to safeguard financial stability in Sweden and ensure the smooth functioning of the financial markets." The intervention of the British and Swedish authorities underscores the effect that a full-blown collapse of Iceland's financial system would have on the rest of Europe, given the heavy investment by Icelandic banks and companies across the continent. Moscow's MICEX stock exchange, where most of Russia's trading takes place, announced it is shutting until Friday after opening with steep losses. With coordinated government action proving to be difficult, governments around the world are beginning to look around for someone to blame. France's Finance Minister Christine Lagarde appeared to put responsibility for the crisis on US Treasury Secretary Hank Paulson for allowing the investment bank Lehman Brothers Holdings Incorporated to collapse, while Britain's Brown said Britain will take legal action against Icelandic authorities to recover money held by British savers in UK branches of troubled Icelandic banks. Lagarde told reporters on Wednesday that financing the economy was a "priority". During a trip to a small Paris business Lagarde stressed: "French banks will not go bankrupt". The selling tide was so huge that the Paris stock exchange briefly suspended calculating the benchmark CAC-40 index amid a massive influx of sell orders that caused it to plummet nearly 8.2 percent at one stage.
Washington Mutual Bank Failure Hearing 1500-1600
washington mutual bank failure The Permanent Investigations Subcommittee of the Senate Homeland Security Committee chaired by Senator Carl Levin hears from James Vanasek, former chief risk officer of Washington Mutual, Scottsdale, Arizona; Ronald Cathcart, former chief risk officer of Washington Mutual, Seattle; Kerry Killinger, former president and CEO of Washington Mutual and many, many others. 15:00:00 APRIL OF '06 BETWEEN YOU AND MR. KILLINGER. 15:00:02 YOU DESCRIBE THE SITUATION AT LONG BEACH. 15:00:04 THIS IS APRIL OF '06. QUOTE, THE MAJOR WEAK POINT WAS 15:00:09 THE REVIEW OF LONG BEACH. DELINQUENCIES ARE UP 140% AND 15:00:15 FORECLOSURS CLOSE TO 70%. FIRST PAYMENT DEFAULTS ARE WAY 15:00:18 UP AND THE 2005 VINTAGE IS WAY UP RELEVANT TO PREVIOUS YEARS. 15:00:23 IT IS UGLY. THEN YOU CITE A NUMBER OF 15:00:26 FACTORS FOR WHY THE PROBLEMS SHOULD BE SOLVED. 15:00:28 FIVE MONTHS LATER YOU SENT MR. KILLINGER ANOTHER E-MAIL ABOUT 15:00:31 LONG BEACH, WHICH WE MARKED EXHIBIT 12 IF YOU WANT TO LOOK 15:00:34 AT THAT. IN THIS E-MAIL CHAIN FROM 15:00:36 SEPTEMBER OF '06, YOU WROTE MR. KILLINGER THE FOLLOWING, QUOTE, 15:00:42 LONG BEACH IS TERRIBLE. REPURCHASES, EARLY PAYMENT 15:00:47 DEFAULTS, MANUAL UNDERWRITING, VERY WEAK SERVICING, COLLECTION 15:00:50 PRACTICES AND A WEAK STAFF. CLOSE QUOTE. 15:00:54 AND YOU SAID THAT YOU WERE ADDRESSING THE PROBLEMS. 15:00:58 BUT THE PROBLEMS DIDN'T GET ADDRESSED AND A YEAR LATER, NOW 15:01:00 AUGUST 20th OF '07 IN THE AUDIT OF LONG BEACH, LOAN ORIGINATION 15:01:05 INSIDE UNDERWRITING. AND THIS IS EXHIBIT 19. 15:01:08 AND IF YOU LOOK AT PAGE 3 OF EXHIBIT 19 HERE'S WHAT IT SAYS. 15:01:16 BASICALLY THE SAME OLD PROBLEMS. QUOTE, REPEAT ISSUE. 15:01:19 SO THIS IS A REPEAT ISSUE. UNDERWRITING GUIDELINES 15:01:22 ESTABLISHED TO MITIGATE THE RISK OF UNSOUND UNDERWRITING 15:01:25 DECISIONS ARE NOT ALWAYS FOLLOWED. 15:01:27 ACCURATE REPORTING AND TRACKING OF EXCEPTIONS TO POLICY DOES NOT 15:01:33 EXIST. SO THAT TAKES US UP TO AUGUST 20 15:01:35 OF '07. SO NOW LET ME ASK YOU, MR. 15:01:39 ROTELLA WHY DID THESE PROBLEMS EXIST YEAR AFTER YEAR? 15:01:42 WHAT'S THE EXPLANATION FOR THAT? >> MR. CHAIRMAN, JUST BY WAY OF 15:01:46 BACKGROUND, WHEN I WAS WITH JPMORGAN CHASE, I RAN A SMALL 15:01:51 SUBPRIME BUSINESS RELATIVE TO LONG BEACH. 15:01:53 WHEN I JOINED IN '05, MY INITIAL F 15:02:00 FOCUS WAS ON THE MAIN HOME LOANS BUSINESS. 15:02:03 I SHORTLY BECAME VERY CONCERNED ABOUT LONG BEACH AROUND THE 15:02:05 MIDDLE OF '05. AS WE'VE HEARD A COUPLE OF 15:02:08 TIMES, MANAGEMENT WAS RELIEVED OF THEIR DUTIES. 15:02:11 THAT WAS MY RECOMMENDATION AND RESPONSIBILITY AT THE END OF 15:02:15 '05. THE FOLKS THAT WERE RUNNING LONG 15:02:17 BEACH WERE EITHER ASKED TO LEAVE OR LEFT. 15:02:19 I TRANSFERRED THAT BUSINESS AT THE BEGINNING OF '06 INTO THE 15:02:23 MAIN HOME LOANS UNIT UNDER A GROUP OF PEOPLE WHO WERE BETTER 15:02:27 EQUIPPED TO RUN IT, AND WE WENT ABOUT A PROCESS TO TRY TO 15:02:31 IMPROVE THAT COMPANY. IN ADDITION, WHILE WE WERE DOING 15:02:34 THAT, WE DID BRING THE VOLUME IN LONG BEACH DOWN SUBSTANTIALLY. 15:02:39 EVERY QUARTER STARTING IN THE FIRST QUARTER OF '06. 15:02:42 AS WE WENT THROUGH THAT PROCESS, IT BECAME INCREASINGLY CLEAR AS 15:02:46 I'VE INDICATED IN HERE THAT THE PROBLEMS IN LONG BEACH WERE DEEP 15:02:50 AND THE ONLY WAY WE COULD ADDRESS THOSE WERE TO CONTINUE 15:02:54 TO CUT BACK VOLUME AND ULTIMATELY SHUT IT DOWN. 15:02:57 SO FROM MY PERSPECTIVE, AS THE CHIEF OPERATING OFFICER, TAKING 15:03:01 OUT MANAGEMENT, RESTRUCTURING THE BUSINESS, BRINGING DOWN 15:03:04 VOLUME AND ULTIMATELY SHUTTING IT DOWN WAS A PROACTIVE NUMBER 15:03:11 OF STEPS. >> AUGUST OF '07 IF YOU LOOK AT 15:03:16 EXHIBIT 79, PAGE 2. NOW WE'RE AUGUST OF '07. 15:03:20 HERE'S WHAT YOU WRITE. HOME LOANS. 15:03:22 THE ORIGINAL PRIME ONLY WAS THE WORST MANAGED BUSINESS I'VE SEEN 15:03:25 IN MY CAREER. THIS ISN'T JUST LONG BEACH. 15:03:31 THAT IS UNTIL WE GOT BELOW THE HOOD OF LONG BEACH. 15:03:34 EVEN BEFORE YOU GOT TO LONG BEACH YOU SAID THAT HOME LOANS, 15:03:38 WHICH IS PART OF WAMU, WAS THE WORST MANAGED BUSINESS YOU'D 15:03:41 SEEN IN YOUR CAREER. WHAT WAS THE PROBLEMS WITH THE 15:03:44 HOME LOANS MANAGEMENT? >> MR. CHAIRMAN, THERE WAS A 15:03:46 REASON I WAS HIRED AFTER 18 YEARS OF EXPERIENCE AT JPMORGAN 15:03:50 CHASE. AS I SAID EARLIER, THE COMPANY, 15:03:52 AND THIS IS WELL KNOWN IN THE INDUSTRY IN THE MORTGAGE 15:03:55 BUSINESS HAD EXPERIENCED SIGNIFICANT PROBLEMS IN '03 AND 15:04:00 '04. THE PROBLEMS IN THE MAIN HOME 15:04:02 LOANS GROUP, WHICH IS WHERE I FOCUSED A LOT OF MY INITIAL 15:04:06 ATTENTION WERE SEVERAL. THE FIRST I'D MENTION IS THE 15:04:09 MANAGEMENT TEAM DID NOT HAVE A GREAT DEAL OF EXPERIENCE IN 15:04:13 RUNNING A MORTGAGE COMPANY THAT SIZE. 15:04:16 I WENT THROUGH A PROCESS ALONG WITH DAVID SCHNEIDER WHO JOINED 15:04:21 LATER IN THE YEAR OF REPOPULATING MOST OF THE SENIOR 15:04:23 JOBS IN THAT BUSINESS. SECONDLY, THE TECHNOLOGY IN THE 15:04:28 BUSINESS WAS ANTIQUATED AND, AS I SAID EARLIER, THERE WERE 12 -- 15:04:33 LITERALLY 12 DIFFERENT PRODUCTION SYSTEMS AS A RESULT 15:04:36 OF MANY ACQUISITIONS. THERE WERE MANUAL PROCESSES IN 15:04:42 THE BUSINESS AND RELATIVE TO WHAT I HAD SEEN AT MY PREVIOUS 15:04:47 EMPLOYER, THE COMPANY HAD MANY, MANY SHORTCOMINGS AS IT RELATED 15:04:52 TO PROCESSING, CLOSING AND SERVICING LOANS. 15:04:56 >> NOW I THINK YOU WERE HERE EARLIER THIS MORNING WHEN WE 15:05:00 WENT THROUGH PRIOR PANELS, THE 2005 INTERNAL WAMU INVESTIGATION 15:05:06 OF THE TWO SOUTHERN CALIFORNIA LOAN OFFICES, MONTEBELO AND 15:05:11 DOWNEY. FOUND EXTENSIVE RATES OF FRAUD 15:05:14 AFFECTING THEIR LOANS. IT WAS ALL ON 23B IF YOU WANT TO 15:05:19 REFER TO THAT. WE'VE ALSO REVIEWED A 15:05:22 MEMORANDUM, WHICH IS EXHIBIT 24, WHICH WAS PREPARED IN 2008 AFTER 15:05:28 THE FRAUDS AND EVIDENCE OF IT RESURFACED. 15:05:35 IT FOUND SKRIRTUALLY NO ACTION HAD BEEN TAKEN FOLLOWING THE '05 15:05:38 INVESTIGATION. AND AFTER REVIEWING THE LOANS BY 15:05:41 MONTEBOLLO IN '07 FOUND 62% CONTAINED FRAUDULENT 15:05:45 INFORMATION. SO WE'VE GOT YEAR AFTER YEAR 15:05:46 AFTER YEAR WE'VE GOT A COUPLE PARTS OF YOUR COMPANY THAT ARE 15:05:51 APPARENTLY ENGAGED IN SERIOUSLY FRAUDULENT LOANS WITH 15:05:57 MISINFORMATION THAT IS PERVASIVE. 15:06:00 SO STARTING IN '05, WHY WEREN'T ANY ACTIONS TAKEN AFTER THAT 15:06:04 FIRST '05 REVIEW? >> ON THE PARTICULAR CASE OF THE 15:06:10 '05 REVIEW, I WAS NOT AWARE OF THAT AT THE TIME. 15:06:12 I WAS AWARE OF THE '08 REVIEW THAT YOU REFERENCED EARLIER THAT 15:06:16 CAME THROUGH ONE OF OUR MORTGAGE INSURERS. 15:06:19 AND I'D SIMPLY SAY, SENATOR, AS PRESIDENT OF THE COMPANY WITH 15:06:24 40,000 EMPLOYEES, FIRST OF ALL, ALL FRAUD IS BAD. 15:06:29 AND ANY INSTANCE OF FRAUD THAT WAS BROUGHT TO MY ATTENTION 15:06:31 WOULD BE TURNED OVER TO INTERNAL AUDIT AND/OR LEGAL TO DO A 15:06:35 SEPARATE REVIEW AND IF THEY CAME BACK AND TOLD ME THAT THERE 15:06:39 INDEED WAS FRAUD, BELIEVE ME, SIGNIFICANT ACTION WOULD BE 15:06:43 TAKEN. >> WELL, SOMEBODY DIDN'T TELL 15:06:44 YOU ABOUT IT. IS THAT WHAT YOU ARE SAYING? 15:06:47 >> I AM NOT AWARE OF THE 2005 SITUATION. 15:06:53 AT THE TIME. >> SOMEBODY DIDN'T TELL YOU? 15:06:55 >> NO, SIR. >> THESE ARE VERY SERIOUS 15:06:58 ALLEGATIONS. THESE ARE HIGH FRAUD RATES. 15:07:00 NOW WHO SHOULD HAVE TELD YOU ABOUT IT? 15:07:02 >> SURE. >> WHO SHOULD HAVE TOLD YOU 15:07:04 ABOUT IT? >> THAT WOULD NORMALLY COME FROM 15:07:06 THE BUSINESS OR THE AUDITOR LEGAL DEPARTMENT. 15:07:09 >> THE FIRST YOU HEARD OF THAT WAS WHEN? 15:07:11 >> I BECAME AWARE OF THIS PARTICULAR SITUATION WHEN IT WAS 15:07:13 BROUGHT TO MY ATTENTION IN 2008. >> THAT'S THE FIRST -- 15:07:17 >> AS WAS REFERENCED IN YOUR DOCUMENTS FROM LATER IN THE 15:07:22 BINDER. >> NOW IN 2007, WE HAD A REVIEW. 15:07:31 THIS IS EXHIBIT NUMBER 21. THIS WENT TO YOU ALSO. 15:07:44 THIS WAS NOW A PROBLEM THAT CORPORATE CREDIT REVIEW, HIGH 15:07:54 RISK IN EFFECT OF FRAUD DETECTION TOOLS. 15:07:57 WE CREDIT RISK INFRASTRUCTURE IMPACTING CREDIT QUALITY. 15:08:04 THEY LOOKED AT 187 LOANS THAT THEY WERE REVIEWING. 15:08:13 132 OF THOSE, 187 FILES THAT WERE LOOKED AT. 15:08:17 OF THOSE 132 THAT WERE SAMPLED WERE IDENTIFIED WITH RED FLAGS. 15:08:23 NOT ADDRESSED BY THE BUSINESS UNIT. 15:08:27 80 HAD INCOME LOANS THAT WERE IDENTIFIED AS BEING 15:08:32 UNREASONABLE. 87 EXCEEDED PROGRAM PARAMETERS. 15:08:36 133 HAD CREDIT EVALUATION OR LOAN DECISION ERRORS PRESENT. 15:08:42 WERE YOU FAMILIAR -- THIS WAS SENT TO YOU, ACCORDING TO THE 15:08:45 COVERAGE SHEET HERE, MR. ROTELLA. 15:08:48 EXHIBIT 21. DO YOU REMEMBER THIS ONE? 15:08:49 >> I DO. >> WELL, YOU SAID YOU'D FOUND 15:08:51 OUT ABOUT IT IN 2008 FOR THE FIRST TIME. 15:08:54 THIS IS 2007. >> SENATOR, THIS REPORT LABELED 15:08:59 WHOLESALE SPECIALTY LENDING IS ABOUT SUBPRIME BUSINESS. 15:09:04 BY AUGUST OF '07, WE HAD SHUT THAT BUSINESS DOWN. 15:09:08 THIS AUDIT REPORT IS REFLECTIVE OF THE ACTIONS THAT I TOOK WHICH 15:09:13 WERE TO RELIEVE MANAGEMENT OF THEIR DUTIES, TAKE THE VOLUME 15:09:16 DOWN AND ULTIMATELY SHUT THIS BUSINESS DOWN BY THE TIME THIS 15:09:19 WAS ISSUED. >> BUT YOU SAID YOU FIRST BECAME 15:09:22 AWARE OF FRAUD IN '08. THIS SHOWS SIGNIFICANT FRAUD IN 15:09:29 '07. >> I WAS REFERRING TO THE TWO 15:09:31 CALIFORNIA RETAIL OFFICES FROM MONTEBELLO AND DOWNEY WHEN I 15:09:37 MENTIONED '08. >> IN -- IF YOU TAKE A LOOK NOW 15:09:42 AT EXHIBIT 33. THIS IS A REPORT BY RADIANT 15:09:55 GUARANTY WHICH SECURED SOME OF WAMU'S MORTGAGES. 15:09:58 THEY REVIEWED A NUMBER OF '07 LOANS TO EVALUATE ITS 15:10:02 UNDERWRITING AND COMPLIANCE WITH THEIR GUIDANCE. 15:10:05 THEY RATED WAMU'S LOAN FILES UNACCEPTABLE. 15:10:09 IF YOU LOOK AT EXHIBIT 33. NOW JUST ONE OF THE LOAN 15:10:13 EXAMPLES, THIS IS -- I'M PICKING ONE FROM PAGE FIVE, BUT THERE'S 15:10:16 MANY. THIS IS A $484,000 LOAN GIVEN TO 15:10:22 A SIGN DESIGNER. THAT'S SOMEBODY WHO DESIGNS 15:10:25 SIGNS THAT CLAIMED TO BE MAKE 3G $4,000 A MONTH IN INCOME. 15:10:28 AND THIS IS WHAT THE REPORT SAID. 15:10:31 BORROWER STATED MONTHLY INCOME OF 34,000 DOES NOT APPEAR TO BE 15:10:35 REASONABLE. NOTED ANOTHER PROBLEM. 15:10:36 THE LOAN FILE APPRAISED THE HOUSE AND $575,000 BUT ANOTHER 15:10:41 REPORT SAID THE PROBABLE VALUE WAS $321,000. 15:10:45 AN AMOUNT LESS THAN THE LOAN. THAT'S JUST ONE OF THE LOANS 15:10:48 THAT RATE RADIANT FOUND UNACCEPTABLE AND UNINSURABLE. 15:10:51 WERE EITHER OF YOU AWARE OF THE RADIANT REPORT, MR. ROTELLA? 15:10:55 WERE YOU AWARE OF IT? >> NO, SIR. 15:10:57 >> WERE YOU? >> NO, SIR. 15:10:59 >> LOOK AT EXHIBIT 30. WE'VE DISCUSSED THIS BEFORE. 15:11:02 THIS IS A SIGNIFICANT INCIDENT NOTIFICATION. 15:11:05 IT RELATED TO EARLY PAYMENT DEFAULTS AT THE WESTLAKE VILLAGE 15:11:09 HOME LOAN CENTER AND IT SAID THAT IN THIS REPORT, EXHIBIT 30, 15:11:18 IT SAID THAT ONE SALES ASSOCIATE ADMITTED THAT DURING THE CRUNCH 15:11:21 TIME, SOME OF THE ASSOCIATES -- SOME OF THE ASSOCIATES -- WOULD 15:11:25 MANUFACTURE ASSET STATEMENTS FROM PREVIOUS LOAN DOCUMENTS AND 15:11:29 SUBMIT THEM TO THE LOAN PROCESSING CENTER. 15:11:32 SHE SAID THE PRESSURE WAS TREMENDOUS FROM THE LOAN 15:11:35 PROCESSING CENTER TO GET THEM THE DOCUMENTS SINCE THE LOAN HAD 15:11:39 ALREADY BEEN FUNDED AND PRESSURE FROM THE LOAN CONSULTANTS TO GET 15:11:43 THE LOANS FUNDED. ALL THE SALES ASSOCIATES STATED 15:11:46 THAT THE LOAN OFFICERS DID NOT INSTRUCT THEM TO FALSIFY 15:11:51 DOCUMENTATION. IT JUST TOLD THEM TO GET THE 15:11:53 LOANS FUNDED WITH WHATEVER IT TOOK. 15:11:55 WHATEVER IT TOOK. EXHIBIT 31. 15:11:57 INTERNAL INVESTIGATIVE REPORT ABOUT THE SAME INCIDENT SAYS 15:12:00 THAT SALES ASSOCIATES WOULD TAKE ASSET STATEMENTS FROM OTHER 15:12:06 FILES AND CUT AND PASTE THE CURRENT BORROWER'S NAME AND 15:12:13 ADDRESS. WERE YOU AWARE, FIRST, MR. 15:12:16 ROTELLA, THAT WAMU EMPLOYEES WERE CUTTING CORNERS AND EVEN 15:12:22 ENGAGING IN FRAUD TO MEET VOLUME DEMANDS? 15:12:24 >> NO, SIR. >> WERE YOU AWARE, MR. 15:12:26 KILLINGER? >> NO, SIR, THAT'S AN ABSOLUTE 15:12:28 VIOLATION OF THE CODE OF CONDUCT OF THE COMPANY. 15:12:29 >> I AM SURE IT IS. BUT WERE YOU AWARE OF IT? 15:12:32 THAT'S MY QUESTION. >> THAT INVESTIGATIVE REPORT, 15:12:36 EXHIBIT 31. WERE YOU AWARE OF THAT 15:12:38 INVESTIGATIVE REPORT? >> IN THIS -- IN REGARDING 15:12:42 WESTLAKE, I BELIEVE IT WAS PRIOR TO THIS PARTICULAR REPORT, I 15:12:47 HAD -- I HAD SOMEONE GIVE ME A CALL AND A TIP THAT THERE MIGHT 15:12:51 HAVE BEEN AN ISSUE AT THAT OFFICE. 15:12:54 I IMMEDIATELY FORWARDED THAT INFORMATION TO OUR INTERNAL 15:12:57 AUDIT WHO DID AN INVESTIGATION ON THAT AND I TURNED IT OVER TO 15:13:01 THEM FOR THAT INVESTIGATION. >> IN TERMS OF THAT SPECIFIC 15:13:04 EXHIBIT, THOUGH, WERE YOU AWARE OF THAT? 15:13:06 HAD YOU SEEN THAT? >> I DO NOT RECALL THIS SPECIFIC 15:13:09 EXHIBIT. >> THANK YOU. 15:13:11 SENATOR? >> MR. KILLINGER, YOU SEEM TO 15:13:14 HAVE SOMEEOPINIONS ABOUT WHY WAMU WAS SEIZED. 15:13:18 WHY DO YOU THINK WAMU WAS SEIZED? 15:13:21 I KNOW IT WAS AFTER YOU WERE GONE. 15:13:23 >> AS I MENTIONED IN MY COMMENTS, I THINK WASHINGTON 15:13:26 MUTUAL WAS VERY WELL POSITIONED FROM -- WITH ITS CAPITAL AND 15:13:32 OPERATING PLAN TO WORK ITSELF THROUGH THIS FINANCIAL CRISIS. 15:13:35 AND I THINK IT WAS MAKING EXCELLENT PROGRESS ON THAT. 15:13:38 AND I THINK THAT IT WAS SEIZED, IN MY OPINION, IN AN UNNECESSARY 15:13:44 MANNER. CLEARLY THERE WAS A LOT OF 15:13:48 PRESSURE ON THE FINANCIAL SYSTEM AND REGULATORS AND POLICYMAKERS 15:13:52 AT THAT POINT IN TIME IN THE WAKE OF THE COLLAPSE OF LEHMAN. 15:13:57 HOWEVER, I JUST DON'T THINK THE COMPANY WAS TREATED IN THE SAME 15:14:00 EQUAL HANDED FAIR MANNER THAT ALL OTHER FINANCIAL INSTITUTIONS 15:14:05 WERE. AND IT'S VERY MUCH -- TO USE AN 15:14:09 ANALOGY OF OXYGEN. YOU KNOW, NONE OF US CAN LIVE ON 15:14:13 OXYGEN IF IT'S CHOKED OFF FOR A BRIEF PERIOD OF TIME. 15:14:16 AND LIQUIDITY IS THAT EQUIVALENT IN FINANCIAL SERVICES. 15:14:19 AND LIQUIDITY DID START TO BECOME TIGHT. 15:14:22 NOT JUST FOR WASHINGTON MUTUAL, BUT FOR THE ENTIRE INDUSTRY FOR 15:14:24 A BRIEF PERIOD OF TIME. BUT THE -- POLICY LEADERS 15:14:31 ELECTED TO OPEN UP THOSE TUBES OF OXYGEN FOR MOST BANKS AND 15:14:36 GAVE THEM A HUGE AMOUNT OF BENEFITS AND WASHINGTON MUTUAL 15:14:41 INEXPLICABLY IN MY OPINION, WAS NOT ALLOWED TO HAVE THE BENEFITS 15:14:45 OF HAVING THAT OXYGEN COME TO THEM FOR THAT BRIEF PERIOD OF 15:14:48 TIME. AND NOW IN HINDSIGHT, WE CAN 15:14:50 SEE, FOR THOSE THAT WERE ABLE TO GET THROUGH THAT BRIEF PERIOD 15:14:54 AND START TO GET BACK ON THE MEND, THAT THE FINANCIAL 15:14:59 POSITION IS JUST EXTRAORDINARILY DIFFERENT TODAY THAN IT WAS 12 15:15:02 MONTHS AGO. I BELIEVE WASHINGTON MUTUAL 15:15:04 COULD HAVE AND SHOULD HAVE BEEN ABLE TO BE ONE OF THOSE 15:15:08 SURVIVING BANKS. >> WHY WAS WASHINGTON MUTUAL 15:15:11 SPECIFICALLY, I MEAN, IS IT JUST BAD LUCK? 15:15:16 >> WELL, I THINK THERE'S JUST AN ELEMENT OF TIMING. 15:15:19 AS I INDICATED -- >> I MEAN, WHY WAS WASHINGTON 15:15:21 MUTUAL -- THE OTHERS WERE GIVEN THE OXYGEN. 15:15:24 YOU WERE NOT. WHY WAS THAT, DO YOU THINK? 15:15:26 >> WELL, OBVIOUSLY, I'VE HAD A CHANCE TO THINK ABOUT THIS FOR 15:15:30 AN EXTENDED PERIOD OF TIME AFTER HAVING BEEN AWAY, AND IT UST 15:15:33 DOESN'T LOOK FAIR TO ME. AND I THINK THAT THE COMPANY WAS 15:15:37 NOT TREATED FAIRLY EARLIER IN THE YEAR WHEN IT WAS EXCLUDE ON 15:15:40 THAT DO NOT SHORT LIST. THAT, BY REMOVING THE TARGET 15:15:44 FROM THE BACKS OF OTHER BANKS IT PUT THE TARGET ON THE BACK OF 15:15:49 WASHINGTON MUTUAL. I DON'T THINK WASHINGTON MUTUAL 15:15:51 WAS TREATED FAIRLY WHEN THE HUNDREDS OF TELEPHONE CALLS AND 15:15:56 MEETINGS TOOK PLACE BETWEEN WALL STREET EXECUTIVES AND POLICY 15:16:00 LEADERS TO DECIDE THE FATE OF HOW THINGS WOULD WORK. 15:16:02 WASHINGTON MUTUAL WAS EXCLUDED FROM THOSE MEETINGS. 15:16:05 AND THEN I THINK IT'S JUST, YOU KNOW, INEXPLICABLE THAT 15:16:10 WASHINGTON MUTUAL GETS QUICKLY SEIZED AND THEN WITHIN A MATTER 15:16:13 OF JUST A FEW DAYS ALL OF THESE OTHER MEASURES THAT GAVE THE 15:16:17 LIFEBLOOD TO THE REST OF THE INDUSTRY TOOK PLACE. 15:16:20 I JUST THINK THOSE ARE UNFAIR THINGS, AND I WANTED TO SPEAK 15:16:24 ABOUT THAT ON BEHALF OF ALL OF MY FELLOW AND PAST EMPLOYEES AND 15:16:32 INVESTORS WHO I THINK WERE HARMED AS A RESULT OF THAT. 15:16:34 >> DO YOU THINK WALL STREET BANKS WERE GIVEN PREFERENCE BY 15:16:37 THE REGULATORS? >> WELL, I AM LOOKING AT THE -- 15:16:43 IN HINDSIGHT YOU LOOK AT THE POSITION WE WERE IN AND WE MADE 15:16:46 A DECISION TO OVERNIGHT, INSTANTLY, GIVE WALL STREET 15:16:52 BANKS ACCESS TO BECOMING BANK HOLDING COMPANIES AND ACCESS TO 15:16:54 THE FED FOR LIQUIDITY. WE VERY QUICKLY PASSED THE 15:16:59 VARIOUS LEGISLATION THAT INCREASED THE FDIC INSURANCE 15:17:03 LIMIT TO $250,000 AND HAD THE FDIC GUARANTEE BANK DEBT. 15:17:07 THAT WOULD HAVE BEEN HUGE FOR WASHINGTON MUTUAL. 15:17:09 THEY INJECTED THE T.A.R.P. MONEY ACROSS THE BOARD. 15:17:12 THERE WERE MANY BANKS, PARTICULARLY WALL STREET BANKS, 15:17:14 THAT LIQUIDITY WAS A MAJOR ISSUE FOR THEM AND THEY WERE SAVED BY 15:17:20 THIS. >> WHAT WAS YOUR RELATIONSHIP 15:17:21 WITH REGULATORS BEFORE THIS? DID YOU HAVE A GOOD RELATIONSHIP 15:17:23 WITH REGULATORS? >> WE WORKED VERY CLOSELY WITH 15:17:26 OUR REGULATORS. I THINK WE HAD FREQUENT MEETINGS 15:17:29 WITH THE OTS. AS I INDICATED IN MY COMMENTS, 15:17:32 AT THE TIME I LEFT, WHICH WAS IN EARLY SEPTEMBER 2008, WE HAD NOT 15:17:39 BEEN DIRECTED TO RAISE ANY ADDITIONAL CAPITAL. 15:17:41 WE HAD NOT BEEN DIRECTED TO SEEK A MERGER PARTNER. 15:17:45 SO IT'S ALMOST INCOMPREHENSIBLE TO ME THAT TWO WEEKS LATER THE 15:17:51 COMPANY -- OR THREE WEEKS LATER THAT THE COMPANY IS SEIZED. 15:17:52 >> DID YOU EVER MEET, DURING 2008, WITH MR. PAULSON AND MR. 15:17:57 BERNANKE? >> I MET WITH MR. PAULSON ON A 15:18:00 COUPLE OF OCCASIONS BECAUSE I WAS A MEMBER OF THE THRIFT 15:18:05 INDUSTRY ADVISORY COUNCIL, WHICH MET -- MEETS -- ACTUALLY THREE 15:18:08 TIMES A YEAR WITH THE FEDERAL RESERVE. 15:18:11 I DID NOT MEET PERSONALLY WITH MR. PAULSON. 15:18:14 I DID TALK TO MR. PAULSON ON THE PHONE. 15:18:17 >> LET ME ASK YOU SOME OTHER QUESTIONS. 15:18:20 STATED INCOME LOANS, KIND OF AN UNUSUAL THING FOR ME. 15:18:23 WHAT SAY STATED INCOME LOAN? >> I THINK WE HEARD THIS 15:18:26 MORNING, STATED INCOME LOANS ARE LOANS IN WHICH INFORMATION IS 15:18:30 PUT ON AN APPLICATION WHERE A CUSTOMER TELLS US WHAT THEIR 15:18:37 INCOME IS AND THEN IT'S NOT VERIFIED. 15:18:40 >> AND HOW DID IT DEVELOP? >> IT'S, AGAIN, THAT PRODUCT OR 15:18:45 THAT FEATURE HAS BEEN AROUND FOR MANY, MANY YEARS. 15:18:49 I THINK WHAT WE'RE ALL DEALING WITH IS THE HOUSING CRISE ICE 15:18:54 EXCUSE ME, THE HOUSING BOOM GREW, AND AS COMPETITION GREW, 15:18:59 THE USE OF LIMITED DOCUMENTATION AND NO DOCUMENTATION KIND OF 15:19:02 LOANS CERTAINLY EXPANDED. AND AS WE WERE COMMENTING 15:19:08 EARLIER, AS WE BECAME MORE CONCERNED THAT THE HOUSING 15:19:13 MARKET HAD INCREASED IN RISK, I THINK THAT THAT IS ONE OF THE 15:19:17 ELEMENTS WE ALL STARTED TO TAKE A LOOK AT. 15:19:20 SO IN OUR CASE, WE STARTED TO CUT BACK ON OUR ORIGINATIONS, WE 15:19:23 ELIMINATED SOME OF THE PRODUCT OFFERINGS. 15:19:25 WE TIGHT END UNDERWRITING. AS I HEARD FROM DAVID SNYDER 15:19:29 EARLIER THIS MORNING, AT ONE POINT WE ALSO DECIDED THAT 15:19:31 LIMITED DOCUMENTATION LOANS WERE NOT APPROPRIATE. 15:19:34 >> AND WHAT SIZE MORTGAGES WERE STATED INCOME LOANS USED FOR AT 15:19:38 WAMU? >> AGAIN, I DON'T HAVE DIRECT 15:19:40 KNOWLEDGE. WHAT I HEARD THIS MORNING IS 15:19:44 THAT MOST LOAN CATEGORIES COULD BE DONE WITH THAT. 15:19:47 >> AND WHEN A STATED INCOME LOAN WAS RESOLD, DID THE PROSPECTUS 15:19:52 DISCLOSE THAT THE LOAN WAS MADE WITHOUT VERCATION OF BORROWER 15:19:58 INCOME? >> I HAVE NO KNOWLEDGE OF WHAT 15:20:00 WAS PUT IN. THAT WAS DONE BY OUR CAPITAL 15:20:03 CORP. I WAS SIMPLY NOT INVOLVED IN ANY 15:20:04 OF THOSE. >> OKAY. 15:20:07 DO YOU THINK PEOPLE WERE ACTUALLY LYING ABOUT THEIR 15:20:11 INCOME ON THESE STATED INCOME LOANS? 15:20:13 >> WELL, CLEARLY IT'S SPECULATION BECAUSE I JUST DON'T 15:20:18 KNOW. I AM CERTAINLY VERY DISAPPOINTED 15:20:20 TO THINK ABOUT MY CUSTOMERS LYING TO ME BECAUSE THAT'S 15:20:24 FRAUD. AND IT SHOULDN'T HAPPEN. 15:20:27 BUT I THINK AN OBJECTIVE LOOK AT THINGS IS THAT THERE MUST HAVE 15:20:31 BEEN SITUATIONS WHERE PEOPLE DID NOT TELL THE TRUTH ON THEIR 15:20:36 APPLICATIONS. >> MR. ROTELLA, WOULD YOU BE 15:20:39 SURPRISED IF PEOPLE WERE LYING ON THESE STATED INCOME LOANS? 15:20:42 >> SENATOR, I BELIEVE, GIVEN THE EXPANSION OF STATED INCOME 15:20:47 LENDING IN THE MARKETPLACE IN GENERAL, IT WOULD BE NAIVE TO 15:20:51 THINK THAT THERE WEREN'T SOME WHO DID. 15:20:54 >> DO YOU HAVE REASON TO BELIEVE THAT WAMU'S INTERNAL CONTROLS 15:20:57 WERE SUFFICIENT TO DETER FRAUD ON THESE KIND OF PRODUCTS? 15:21:01 >> WELL, AS I SAID EARLIER, SENATOR, FRAUD IS -- ALL FRAUD 15:21:06 IS BAD, AND THERE'S FRAUD IN ALL FINANCIAL PRODUCTS. 15:21:10 I'VE SEEN THAT THROUGHOUT MY CAREER. 15:21:11 AS I SAID, RELATED TO WAMU'S OPERATING WEAKNESSES, THERE WERE 15:21:16 CERTAIN TOOLS, AT LEAST WHEN I GOT THERE, AND EVEN AT THE END, 15:21:20 WE WERE TRYING TO IMPLEMENT TO HELP US IDENTIFY FRAUD. 15:21:23 THERE ARE AUTOMATED TOOLS AND VARIOUS TECHNIQUES YOU CAN USE. 15:21:28 WAMU IS BEHIND THE CURVE WHEN I JOINED. 15:21:30 AND WE WERE MAKING STRIDES TO GET BETTER AT IT. 15:21:32 BUT BY NO MEANS WERE WE PERFECT. >> WHY DID YOU DECIDE -- WHY DID 15:21:37 YOU DECIDE TO STOP STATED INCOME LOANS, EITHER ONE OF YOU. 15:21:40 MR. KILLINGER? WHY DID YOU STOP DOING THEM? 15:21:42 >> WELL, AGAIN, MARKET CONDITIONS CHANGED VERY 15:21:46 DRAMATICALLY WITH HOUSING PRICES COMING DOWN AND THERE'S A NUMBER 15:21:49 OF THINGS THAT WE CHANGE. AS YOU HEARD THIS MORNING, WE 15:21:52 TIGHTENED UNDERWRITING. WE CHANGED LOAN PRODUCTS. 15:21:56 WE CEASED OFFERING SOME OF THE SUBPRIME PRODUCTS. 15:21:59 WE CEASED OFFERING OPTION A.R.M.s. 15:22:01 WE STARTED TO GO BACK TO MORE DOCUMENTATION ON THE LOANS. 15:22:08 AND THERE ARE JUST A NUMBER OF THINGS THAT BECAME MORE 15:22:11 APPROPRIATE BECAUSE THE HOUSING CONDITIONS CHANGED SO 15:22:15 DRAMATICALLY. >> SO IT WAS JUST RIGHT THEN 15:22:16 WHEN YOU REALLY FOUND OUT HOW BAD STATED LOANS WERE? 15:22:19 >> WELL, I THINK AGAIN THESE ARE EVOLUTIONARY PROCESSES. 15:22:23 AND AS IT BECAME MORE EVIDENT TO US THAT THE HOUSING DOWNTURN WAS 15:22:28 GOING TO BE GREATER THAN WE INITIALLY THOUGHT, WE TOOK 15:22:32 INCREMENTALLY MORE ACTIONS. AS I MENTION IN MY COMMENTS, TWO 15:22:36 YEARS AGO, WE WERE ONE OF THE FIRST -- IN OUR PEER GROUP, TO 15:22:41 BE OUT THERE SAYING WE'RE WORRIED ABOUT HOUSING. 15:22:44 WE ARE GOING TO REDUCE WHAT WE'RE DOING. 15:22:46 DO YOU KNOW HOW TOUGH IT IS -- WELL, OF COURSE YOU DO -- TO GO 15:22:50 BE THE ONLY MAJOR PLAYER LAYING OFF THOUSANDS OF EMPLOYEES AND 15:22:56 HAVING TO THINK ABOUT THEIR FAMILIES AND WHAT THEY ARE 15:22:58 DOING. >> YOU CAN UNDERSTAND THAT 15:22:59 PEOPLE WOULD BE CONCERNED THAT WHEN THIS THING WENT DOWN, KIND 15:23:04 OF THE OLD THING FROM WATERGATE, WHEN DID YOU KNOW IT AND WHEN 15:23:07 DID YOU KNOW IT BECAUSE THESE WERE BEING PACKAGED UP INTO 15:23:11 MORTGAGE-BACKED SECURITIES. SO IT'S REALLY KIND OF REEVANT , 15:23:16 TO FIGURE OUT WHEN THESE WERE DONE. 15:23:19 THEY KNEW THEY WERE BAD AND PACKAGED THEM UP INTO 15:23:22 MORTGAGE-BACKED SECURITIES. YOU ARE PASSING THEM ON TO 15:23:24 SOMEONE ELSE AND THERE'S FRAUD INVOLVED IN THAT. 15:23:26 I'M NOT JUST TALKING ABOUT WAMU. I'M NOT MISSING SOMETHING, AM I, 15:23:31 HERE? >> ALL I CAN TALK ABOUT IS WHAT 15:23:33 WE DID, AND WHEN I GOT CONCERNED, WE STARTED PULLING 15:23:36 BACK ON OPERATIONS. WE REDUCED THESE ORIGINATIONS. 15:23:40 WE CUT OUR MARKET SHARES. WE STARTED TO GO IN THESE 15:23:44 DIRECTIONS. I DIDN'T KNOW THERE WAS GOING TO 15:23:46 BE A 40% DECLINE IN HOUSING PRICES. 15:23:49 THAT ONLY -- YOU KNOW, EVEN IN THE MIDDLE PART OF 2007, 15:23:53 SECRETARY PAULSON WAS SAYING, I THINK THIS HOUSING THING IS 15:23:56 CONTAINED AND IT'S NOT REALLY GOING TO IMPACT THE OVERALL 15:23:59 ECONOMY AND LEAD US INTO A RECESSION. 15:24:01 CHAIRMAN BERNANKE WAS SAYING SOMETHING SIMILAR ABOUT THE 15:24:04 CONTAINMENT OF THE SUBPRIME ISSUES. 15:24:09 IT WASN'T UNTIL THE SECOND HALF OF '07 WHEN IT BECAME PRETTY 15:24:13 OBVIOUS TO US THAT THINGS WERE GOING TO BE PRETTY DIFFICULT AND 15:24:17 WE NEEDED TO PULL IN OUR HORNS EVEN MORE. 15:24:19 >> SO IN THESE -- BUT ALL THESE REGISTERED SECURITY DEALS YOU 15:24:24 HAD TO SIGN THEM AS A CEO, RIGHT? 15:24:26 >> NO, SIR. >> WHO DID SIGN THEM, DO YOU 15:24:30 KNOW? >> AGAIN, I WAS NOT DIRECTLY 15:24:32 INVOLVED IN ANY OF OUR SECURITIZATIONS OR THOSE 15:24:36 SECURITIES. >> LET ME ASK YOU ABOUT FICA 15:24:39 BECAUSE WE TALKED ABOUT THAT EARLIER. 15:24:52 WAMU USED FIKO SCORES, RIGHT? >> YES. 15:24:55 >> AND ARE THEY A GOOD INDICATOR OF CREDIT WORTHINESS? 15:24:59 >> WELL, HISTORICALLY, THE TWO BEST INDICATORS OF A LOAN 15:25:03 PERFORMANCE WAS LOAN TO VALUE RATIO AND FICO SCORE. 15:25:08 AND THOSE DID A PRETTY GOOD JOB OF PREDICTING HOW A LOAN WOULD 15:25:13 PERFORM. THERE WERE OTHER FACTORS SUCH AS 15:25:16 THE AMOUNT OF INCOME THAT SOMEBODY HAD AND THEIR ABILITY 15:25:21 TO COVER THE DEBT. THERE WERE INDICATORS ABOUT FULL 15:25:24 DOCUMENTATION, LIMITED DOCUMENTATION, ADJUSTABLE RATE, 15:25:27 FIXED RATE, CONFORMING, NONCONFORMING. 15:25:31 A LOT OF THINGS THAT ALSO IMPACTED. 15:25:32 BUT THE TWO MOST IMPORTANT WERE LOAN TO VALUE AND FICO. 15:25:38 WHAT CHANGED IN THIS CYCLE IS THIS WHOLE THING ABOUT HOUSING 15:25:41 PRICES DECLINING BY 40% OR MORE, AS YOU HEARD -- I THINK THIS 15:25:46 MORNING, ALL OF A SUDDEN, PEOPLE FACED WITH BEING UNDER WATER IN 15:25:51 THEIR MORTGAGES AND, GUESS WHAT? EVEN IF THEY HAD A DECENT FICO, 15:25:57 THERE PROPENSITY TO BECOME DELINQUENT WAS MUCH, MUCH 15:26:01 GREATER. >> YOU DON'T THINK THIS HAD TO 15:26:03 DO WITH THE MORTGAGE-BACKED SECURITIES WERE GREAT. 15:26:05 PEOPLE WERE MAKING MONEY ON THEM, FOLKS ON WALL STREET WERE 15:26:08 MAKING MONEY TAUN AND THAT'S WHAT CAUSED THE EXPLOSION IN 15:26:12 MORTGAGE-BACKED SECURITIES AND THAT'S PART OF THE PROBLEM? 15:26:14 IT WAS JUST THE FACT THAT THE HOUSING MARKET FINALLY STOPPED? 15:26:16 >> WELL, I THINK -- I THINK THEY ARE DIFFERENT TOPICS. 15:26:21 AND CERTAINLY SOMEWHAT INTERRELATED. 15:26:23 YOU KNOW, I -- I MADE A COMMENT IN MY WRITTEN TESTIMONY THAT 15:26:27 THERE IS NO SIMPLE OR SINGLE CAUSE OF WHAT -- 15:26:29 >> NO, I'M JUST SAYING -- I'M NOT SAYING THERE'S ANYONE ANY 15:26:33 ONE SINGLE CAUSE. I'M JUST SAYING THAT WAS PART OF 15:26:35 IT. I THINK AT LEAST THE LITERATURE 15:26:37 KEEPS SAYING THAT AS THIS THING GREW AND GOT MORE AND MORE 15:26:40 PROFITABLE, PEOPLE KIND OF REACHED OUT A LITTLE FURTHER AND 15:26:43 STRETCHED THINGS A LITTLE MORE WHERE MAYBE SOMETHING LIKE 15:26:45 STATED LOANS, VALUE TO LOANS MAY BE OKAY FOR A WHILE. 15:26:50 PEOPLE JUST STARTED TAKING IT AND USING IT AS A TOOL IN ORDER 15:26:53 TO GET INTO MORE MORTGAGE-BACKED SECURITIES SO THEY COULD FEED 15:26:57 THIS GIGANTIC MACHINE THAT WAS SO INCREDIBLY PROFITABLE TO 15:26:59 EVERYONE INVOLVED. >> THERE WAS NO QUESTION THAT 15:27:04 THE -- THAT THERE WAS A TREMENDOUS GROWTH OF CAPITAL 15:27:08 COMING IN FROM WALL STREET AND INTEREST IN THIS BUSINESS AND 15:27:10 THE GSEs. AND THAT INCREASINGLY PUT 15:27:14 PRESSURE -- COMPETITIVE PRESSURES ON EVERYBODY TO ADJUST 15:27:21 LOAN TERMS AND THINGS. AND I -- 15:27:23 >> BUT DON'T YOU THINK AT THAT POINT THE COMPENSATION ALSO 15:27:26 HELPED? THE FACT YOU -- YOU SET THE 15:27:29 COMPENSATION. YOU WERE PART OF THE PROCESS 15:27:30 THAT SET THE COMPENSATION FOR THE FOLKS OUT THERE GENERATING 15:27:33 THE LOANS, RIGHT? >> YES, WE DID. 15:27:36 ALTHOUGH I WILL TELL YOU THAT PEOPLE HAVE MORTGAGE REPS HAVE 15:27:42 BEEN PAID ON COMMISSION -- >> NO COMMISSION, BUT -- 15:27:45 >> -- FOR MANY, MANY YEARS. >> WE HAD IT SHOW THAT THERE WAS 15:27:49 MUCH MORE COMMISSION ON THE HIGHER RISK, HIGHER RETURN 15:27:52 PRODUCTS THAN THERE WERE ON THE LOWER RISK, LOWER RETURN 15:27:54 PRODUCTS, RIGHT? >> ALTHOUGH, AGAIN, I'M NOT 15:27:57 INTIMATELY FAMILIAR BECAUSE THOSE WERE DONE WITHIN THE 15:27:59 BUSINESS UNIT. BUT I ALSO KNOW THOSE CHANGE 15:28:01 EACH YEAR. AND SO YOU GOT TO LOOK AT WHAT 15:28:04 WAS IT IN EACH YEAR AND NOT NECESSARILY JUST TO ONE POINT IN 15:28:07 TIME. >> OKAY. 15:28:08 DO YOU KNOW IF THERE WERE FICO SCORES IN SOME OF THESE 550? 15:28:12 DO YOU KNOW WHAT THE RANGE WAS OF WASHINGTON MUTUAL FICO 15:28:16 SCORES? >> WELL, AGAIN, I DON'T HAVE ALL 15:28:18 THE INTIMATE KNOWLEDGE, BUT I DO KNOW, BECAUSE I FOLLOWED WHAT 15:28:23 THE BULK OF THE FICO SCORES WERE FOR OUR PORTFOLIOS. 15:28:27 AND, FOR EXAMPLE, OUR OPTION A.R.M. PORTFOLIO HAD AN AVERAGE 15:28:32 FICO SCORE SLIGHTLY ABOVE 700. OUR HOME EQUITY WAS SLIGHTLY 15:28:36 ABOVE 730. AND OUR OTHER PRIME RESIDENTIAL, 15:28:42 I THINK, WAS ABOUT 718. SO IN THOSE RANGE. 15:28:45 AND I THINK IN THE CASE OF LONG BEACH -- OR THE SUBPRIME 15:28:50 PORTFOLIO, WE HELD IN PORTFOLIO IT WAS SOMEWHERE IN THE MID600s. 15:28:55 >> YOU UNDERSTAND THE PROBLEM WITH USING AVERAGES? 15:29:00 >> YEAH. >> BARBELL EFFECT. 15:29:02 >> I DON'T HAVE THE BARBELL NUMBERS IN FRONT OF ME. 15:29:05 THAT'S THE BEST I CAN GIVE YOU. >> YOU DO UNDERSTAND THAT USING 15:29:08 AVERAGES, THAT'S WHAT THE RATING AGENCIES DID AND CLEARLY THERE 15:29:11 WERE FOLKS OUT THERE, I DON'T KNOW WHETHER IT'S WASHINGTON 15:29:14 MUTUAL OR ONE OF THEM THAT WAS USING A BARBELL KIND OF 15:29:18 DISTRIBUTION. >> NO, WE HAD -- I HAD -- WE HAD 15:29:22 CELLS, MATRIXES THAT SHOW EVERY FICO AT EVERY BAND AND ALSO 15:29:26 AGAINST THE LOAN TO VALUE, AGAINST EVERY ONE OF THOSE 15:29:29 FICOs. I JUST DON'T HAVE THAT DETAIL. 15:29:32 >> SOME OF THESE INFORMATION THAT SOME OF THE LOANS WERE 15:29:38 BEING SOLD WERE CLEARLY QUESTIONABLE. 15:29:45 IS THAT -- IS THAT YOUR FEELING THAT EVERYTHING THAT YOU SOLD 15:29:48 WHILE YOU WERE CEO OF WASHINGTON MUTUAL, THE VAST MAJORITY OF IT 15:29:54 WAS LOANS THAT WEREN'T -- YOU DIDN'T KNOW WERE DELINKUENT. 15:29:58 NO ONE KNEW THEY WERE DELINQUENT? 15:30:00 NO ONE KNEW THERE WERE ANY PROBLEMS WITH THEM? 15:30:02 >> CLEARLY, OUR POLICY AND WHAT I BELIEVE IS THAT AT THE TIME 15:30:07 WHEN CERTAIN LOANS WERE SOLD, ALL OF OUR LOANS WERE SOLD, THAT 15:30:12 WE FELT THAT THAT WOULD BE APPROPRIATE FOR THE CUSTOMER. 15:30:16 WE HAD PUT OUT A RESPONSIBLE LENDING PRINCIPLE. 15:30:19 IN FACT, THAT REQUIRE US TO MAKE THAT PROACTIVE LOOK. 15:30:24 IS THIS AN APPROPRIATE PRODUCT FOR THE CUSTOMER, AND GIVEN THE 15:30:27 TIMES, DO WE THINK IT'S REASONABLE? 15:30:29 THAT CHANGED WHEN THE HOUSING MARKET CHANGED. 15:30:32 THAT'S WHY WE PULLED BACK AND STOPPED ORIGINATING OPTION 15:30:36 A.R.M.s AND DID THE SAME ON CERTAIN SUBPRIME PRODUCTS 15:30:38 BECAUSE GIVEN WHAT HAPPENED TO THE HOUSING MARKET, THOSE 15:30:41 PRODUCTS WERE NO LONGER APPROPRIATE. 15:30:43 BUT AT THE TIMES WHEN THEY WERE PART OF OUR ARSENAL, WE THOUGHT 15:30:46 THAT THEY WOULD BE APPROPRIATE. >> WHAT DO YOU THINK MR. 15:30:51 ROTELLA. IS THE VAST MAJORITY OF PRODUCTS 15:30:52 YOU WERE SELLING THROUGH MORTGAGE-BACKED SECURITIES WERE 15:30:55 SAFE FOR CUSTOMERS? WASN'T ANY FRAUD INVOLVED? 15:31:01 THERE WAS NO LOANS DELINQUENT, ANYTHING THAT YOU KNOW OF? 15:31:07 >> SENATOR, THE COMPANY, AGAIN, WAS A MASSIVE MORTGAGE LENDER. 15:31:11 >> SURE. >> AS I SAID EARLIER, PRIOR TO 15:31:13 MY ARRIVAL, IT WAS NUMBER TWO IN THE INDUSTRY. 15:31:18 AND, YOU KNOW, PEAKED AT ABOUT $420 BILLION IN ORIGINATIONS IN 15:31:24 2003. SO THE AMOUNT OF PRODUCT EITHER 15:31:25 PUT INTO PORTFOLIO OR SOLD WAS SIGNIFICANT. 15:31:29 SO IN ANY BUSINESS DOING THAT AMOUNT OF VOLUME OVER A NUMBER 15:31:34 OF YEARS, PARTICULARLY GIVEN SOME OF THE WEAKNESSES IN THE 15:31:37 OPERATING INFRASTRUCTURE, YOU ARE GOING TO HAVE LOANS THAT 15:31:39 WILL GET INTO THE SECURITIZATION PROCESS THAT PROBABLY SHOULDN'T 15:31:45 HAVE. OUR POLICIES -- MY POLICIES WHEN 15:31:47 I WAS AT JPMORGAN CHASE FOR 18 YEARS AND CEO OF THEIR MORTGAGE 15:31:52 COMPANY, YOU WOULD NOT DO THAT. AND IF YOU KNEW ABOUT IT, YOU 15:31:55 WOULD STOP IT. >> YOU MUST HAVE BEEN ALARMED 15:31:57 WHEN YOU READ ABOUT THESE LONG BEACH MEMOS AND THE THINGS THAT 15:32:01 CHAIRMAN LEVIN IS TALKING ABOUT WHERE PEOPLE WERE CUTTING AND 15:32:04 PASTING AND THINGS LIKE THAT WERE GOING ON AT A TIME WHEN IT 15:32:10 WAS CLEAR THE EXPLOSION -- NOT ONLY THE EXPLOSION IN HOUSES 15:32:13 BEING SOLD BUT THE EXPLOSION IN MORTGAGE-BACKED SECURITIES AS WE 15:32:17 BROUGHT ALL THESE THINGS DO INTO IT. 15:32:19 YOU HAD TO BE CONCERNED THAT PEOPLE WERE BEGINNING TO BEND 15:32:22 THE AGE. YOU ARE A SMART MAN. 15:32:23 AS YOU SAID YOU HAVE LOADS OF EXPERIENCE IN THIS BUSINESS. 15:32:27 JUST LOOK AT THESE THINGS AND SAY THIS WAS NOT LIKE A -- THIS 15:32:30 IS BUSINESS IS SO BIG I DON'T KNOW WHAT'S GOING ON. 15:32:32 THIS IS A BUSINESS THAT'S EXPLODING. 15:32:34 IT'S EXPLODING IN A VERY COMPETITIVE TIME. 15:32:37 PEOPLE'S COMPENSATION WAS BASED ON DOING WELL AND DOING WELL 15:32:40 MEANT SELLING AS MANY OF THESE RISKY THINGS AS YOU COULD. 15:32:42 I MEAN, YOU HAD TO BE AT LEAST HAVE A FEELING THERE WAS 15:32:47 SOMETHING GOING ON HERE THAT WAS A LITTLE SCARY. 15:32:51 >> SENATOR, CHAIRMAN LEVIN REPEATED A COUPLE OF COLORFUL 15:32:55 COMMENTS I MADE IN SOME E-MAILS ABOUT MY VIEWS OF THE BUSINESS. 15:32:59 AS I SAID IN MY OPENING STATEMENT, THIS BUSINESS WAS ON 15:33:02 AN EXPLOSIVE GROWTH PATH. >> RIGHT. 15:33:04 >> WHEN I JOINED. WAS ON AN EXPLOSIVE GROWTH PATH 15:33:08 WITH A VERY WEAK INFRASTRUCTURE. >> EXACTLY. 15:33:10 >> I WAS BROUGHT IN THERE TO FIX THAT. 15:33:12 AND I WORKED NIGHT AND DAY TO DO THAT. 15:33:15 >> RIGHT. >> I BROUGHT IN THE PEOPLE TO DO 15:33:17 THAT, AND WE MADE A LOT OF STRIDES. 15:33:19 WE ALSO BROUGHT THAT BUSINESS DOWN SIGNIFICANTLY. 15:33:23 SO IF I WASN'T CONCERNED, I WOULDN'T HAVE TAKEN SOME OF THE 15:33:26 ACTIONS I DID TO BRING IN NEW MANAGEMENT, NEW TECHNOLOGY, TO 15:33:29 RESTRUCTURE THE BUSINESS AND TO TAKE VOLUME DOWN. 15:33:31 AND ULTIMATELY SHUT DOWN THE SUBPRIME BUSINESS TOTALLY, AS 15:33:35 WELL AS OPTION A.R.M.s. >> AND ALSO SHUT DOWN LONG 15:33:38 BEACH, RIGHT? >> I DID RECOMMEND THE SHUTTING 15:33:39 DOWN OF LONG BEACH. YES, SIR. 15:33:43 >> SO MR. KILLINGER, JUST A FINAL QUESTION I HAVE. 15:33:45 WITH ALL THAT GOING ON, YOU GET A REPORT FROM MR. VANSAK. 15:33:52 THEY ARE WORRIED ABOUT AN IMPENDING CRISIS DUE TO LACKED 15:33:55 STANDARDS AND POOR INTERNAL CONTROLS AS EARLY AS 2004. 15:33:58 WHEN THEY CAME AND TALKED ABOUT THAT, DIDN'T IT KIND OF SEND 15:34:03 CHILLS? I MEAN, THIS -- YOU MADE THIS -- 15:34:06 YOU MADE WASHINGTON MUTUAL WHAT IT IS TODAY. 15:34:09 THE IDEA THAT YOUR TWO RISK OFFICERS, ONE RIGHT AFTER 15:34:12 ANOTHER, COMING IN IN 2004 AND SAYING WE HAVE A REAL, REAL 15:34:15 PROBLEM HERE. KIND GOVERN THROUGH WHAT WENT 15:34:17 THROUGH YOUR HEAD BETWEEN 2004 AND 2005, 2006. 15:34:21 >> THIS IS RELATING TO THE SUBPRIME BUSINESS? 15:34:23 >> YEAH, THE WHOLE THING THAT THEY WERE JUST CONCERNED ABOUT. 15:34:28 LAX STANDARDS, REPORTS FROM LONG BEACH. 15:34:30 ALL THE THINGS COMING INTO YOUR OFFICE. 15:34:32 YOU ARE THE CEO. AND THESE TWO TOP RISK GUYS ARE 15:34:34 SAYING WE HAVE A REAL SERIOUS PROBLEM HERE. 15:34:37 OBVIOUSLY, YOU HIRED MR. ROTELLA BECAUSE YOU WERE CONCERNED ABOUT 15:34:40 THIS. >> ABSOLUTELY. 15:34:41 SO AGAIN, LET ME PUT IT QUICKLY INTO PERSPECTIVE. 15:34:45 LONG BEACH MORTGAGE IS -- WAS A VERY SMALL PART OF OUR 15:34:48 OPERATION. YOU KNOW, MAYBE 3% OF OUR 15:34:50 EMPLOYEES AND IT WAS JUST A SMALL PART OF WHAT WE WERE 15:34:56 DOING. SO WHEN REPORTS, YOU KNOW, AROSE 15:34:59 THAT THERE WERE SOME PROBLEMS THERE, YOU KNOW, THE FIRST TIME 15:35:03 I ACTUALLY INSTRUCTED OUR GENERAL COUNCIL TO GO IN AND 15:35:07 WORK ON GETTING THINGS CLEANED UP IN TERMS OF THE REPS AND 15:35:12 WARRANTIES AND GETTING IT STRAIGHTENED UP. 15:35:14 THEY THOUGHT THEY WERE MAKING SOME PROGRESS. 15:35:15 AND I HAD A BRIEF PERIOD WHERE IT LOOKED LIKE THINGS WERE GOING 15:35:19 ALONG OKAY. THEN IT STARTED TO GET SOME 15:35:22 REPORTS ABOUT THAT IT'S -- WE'RE SEEING SOME MORE PROBLEMS. 15:35:24 SO WE DECIDED TO CHANGE OUT MANAGEMENT. 15:35:30 A NEW OPPORTUNITY TO GET IN HERE. 15:35:32 AND IT WAS ALSO OBVIOUSLY, AGAIN, OVERALL, THAT THE COMPANY 15:35:35 HAD EXPANDED TO A SIZE THAT IT WAS APPROPRIATE. 15:35:40 IN 2004, WE MADE A DECISION TO BRING IN A PRESIDENT AND CHIEF 15:35:45 OPERATING OFFICER TO BE ABLE TO BE HANDS-ON OR BE ON TOP OF 15:35:48 THOSE THINGS BECAUSE, YOU KNOW, FRANKLY, MORE AND MORE OF MY 15:35:52 TIME WAS BEING PULLED AWAY FROM ALL THE THINGS AND TRAVEL YOU 15:35:55 HAVE TO DO AS A CEO. AND WE THOUGHT THAT THAT WOULD 15:35:58 BE A VERY GOOD STRUCTURE. I THINK THAT WAS THE RIGHT THING 15:36:01 TO DO. AND I THINK THAT IT WAS NOT ONLY 15:36:04 BRINGING STEVE IN. HE IN TURN, BROUGHT IN A LOT OF 15:36:07 TALENT IN THE MORTGAGE SPACE WHERE WE NEEDED THE MOST TALENT, 15:36:11 INCLUDING YOU SAW DAVID SNYDER AND DAVID BECK AND JUST A WHOLE 15:36:18 HOST OF OTHER PEOPLE THAT CAME IN BEHIND IT. 15:36:21 SO OUR RESPONSE TO THESE ONGOING PROBLEMS WAS TO TRY TO FIX IT, 15:36:25 CHANGE OUT MANAGEMENT, TRY TO WORK AS HARD AS WE COULD. 15:36:29 BUT THEN ALSO UNDERSTANDING THAT THE MARKET WAS GETTING 15:36:34 PROGRESSIVELY MORE DIFFICULT, AND THAT KIND OF TIPPED US AT 15:36:38 ONE POINT OF SAYING, YOU KNOW, I THINK WE'RE MAKING -- WE'RE 15:36:42 MAKING SOME PROGRESS HERE, BUT THE MARKET'S GOTTEN TOUGH 15:36:46 ENOUGH. LET'S JUST PLAIN CLOSE THAT 15:36:48 BUSINESS DOWN. >> SENATOR KAUFMAN. 15:36:49 >> THANK YOU. >> MR. KILLINGER, I WANT TO 15:36:57 REFER YOU TO EXHIBIT 39, WHERE ON APRIL 3rd, 2007, I THINK WE 15:37:03 BETTER BE WELL PREPARED TO DEFEND THE OPTION A.R.M. 15:37:08 PORTFOLIO. I THINK IF YOU'LL GO TO EXHIBIT 15:37:10 39, THAT'S IN A STATEMENT THAT YOU MADE. 15:37:16 >> OKAY. YES. 15:37:19 >> WHAT I WOULD LIKE -- DID YOU BELIEVE AT THAT TIME THAT OPTION 15:37:22 A.R.M.s WERE LIKELY TO CAUSE WIDESPREAD PROBLEMS AND THIS 15:37:26 WOULD FORCE WAMU TO DEFEND ITS ACTIONS? 15:37:29 >> NO, THE -- >> WHAT WAS THE BASIS FOR THAT 15:37:32 STATEMENT? >> THIS STATEMENT WAS -- I WAS 15:37:34 PASSING ON TO SOME EXECUTIVES A LETTER THAT I RECEIVED FROM 15:37:39 SOMEBODY OUTSIDE OF THE ORGANIZATION WHO HAD AN OPINION 15:37:42 ABOUT OPTION A.R.M.s. AND WHAT ARE WHAT I WAS PASSING 15:37:45 IT ON TO THE FOLKS TO THINK THROUGH BOTH WHAT DOES THIS MEAN 15:37:49 IN TERMS OF WHAT INVESTOR INTEREST MIGHT BE AND HOW WE 15:37:54 MIGHT NEED TO EXPLAIN ABOUT OPTION A.R.M.s TO THE INVESTORS 15:38:00 IN OUR COMPANY. AND ALSO TO TAKE A LOOK AGAIN, 15:38:04 IF MARKET CONDITIONS ARE CHANGING AND IF THEY ARE IS 15:38:08 THERE ANYTHING ELSE THAT WE SHOULD CONSIDER DOING IN OUR 15:38:12 OPTION A.R.M. PORTFOLIO. >> IN EXHIBIT 11 YOU SAID IN 15:38:15 APRIL 2006, WE MAY WANT TO CONTINUE TO SELL MOST OF THE 15:38:19 LONG BEACH ORIGINATIONS UNTIL EVERYONE GETS COMFORTABLE WITH 15:38:23 CREDIT. WHY DO YOU THINK ANYONE WOULD 15:38:24 HAVE WANTED TO BUY WHAT YOU WERE SELLING IF THE LONG BEACH 15:38:27 PRODUCT WAS BAD? >> WELL, AGAIN, LONG BEACH'S 15:38:32 BUSINESS MODEL WAS TO ORIGINATE AND SELL ITS PRODUCTS, EVER 15:38:36 SINCE WE BOUGHT THEM. THAT WAS THEIR SOLE BUSINESS 15:38:38 MODEL TO ORIGINATE AND EITHER SELL AS LOANS OR INTO 15:38:41 SECURITIZATIONS. WE WERE IN THE PROCESS OF 15:38:44 CHANGING THAT BUSINESS TO MOVE IT UNDER THE BANK SO THAT WE HAD 15:38:48 MORE FLEXIBILITY TO POTENTIALLY RETAIN THE -- SOME OF THE LOANS 15:38:54 THAT WE WOULD ORIGINATE. AND WE JUST STARTED TO DO SOME 15:38:57 OF THAT PROCESS. BUT WE ALSO, YOU KNOW, I WANTED 15:39:01 TO BE ASSURED THAT BEFORE WE EXPANDED OUR VOLUMES AND TOOK 15:39:05 MORE INTO PORTFOLIO AND CHANGE WHAT WE WERE DOING THAT WE FELT 15:39:09 VERY COMFORTABLE ABOUT CREDIT PROCESSES AND ALL THOSE KINDS OF 15:39:14 THINGS. >> IN EXHIBIT NUMBER 50, MR. 15:39:17 BECK SAID TO YOU IN NOVEMBER 2006 THAT LONG BEACH MORTGAGE 15:39:22 COMPANY PAPER IS AMONG THE WORST PERFORMING PAPER IN THE MARKET 15:39:25 IN 2006. DID YOU SEE IN APRIL WHAT MR. 15:39:28 BECK FOUND TO BE TRUE IN NOVEMBER? 15:39:30 NAMELY, THAT LBMC PAPER WAS GOING TO TANK? 15:39:37 >> NO, I DON'T RECALL THIS. >> SO YOU WEREN'T -- YOU WEREN'T 15:39:40 AWARE OF HIS STATEMENT THAT IT WAS THE WORST IN THE MARKET? 15:39:44 >> I DON'T -- YOU ARE REFERRING TO -- 15:39:47 >> MR. BECK SAID -- >> NUMBER 50? 15:39:49 >> IN MR. BECK SAID IN EXHIBIT NUMBER 50 IN NOVEMBER 26006 THAT 15:39:54 LONG BEACH MORTGAGE CORPORATION PAPER IS AMONG THE WORST 15:39:56 PERFORMING PAPER IN THE MARKET. >> OKAY. 15:39:59 I -- I JUST DO NOT RECALL SEEING THIS MEMO. 15:40:07 >> WHO IS THE MEMO ADDRESSED TO IN FRONT OF YOU? 15:40:10 >> THE ONE I AM SEEING IS DAVID SNYDER AND ARLENE HYDE. 15:40:14 SO YOU WERE UNAWARE OF THEIR ASSESSMENT OF YOUR PAPER? 15:40:18 >> AGAIN, I JUST DON'T RECALL THE SPECIFICS OF THIS AT ALL. 15:40:22 >> OKAY. >> EXHIBIT 78, IN THIS E-MAIL 15:40:26 EXCHANGE FROM MARCH 10th, 2005 WITH VIM VENASIK YOU WROTE IHAVE 15:40:31 NEVER SEEN SUCH A HIGH-RISK HOUSING MARKET AS MARKET AFTER 15:40:34 MARKET THINKS THEY ARE UNIQUE AND FOR WHATEVER REASON THEY ARE 15:40:37 NOT LIKELY TO EXPERIENCE PRICE DECLINE. 15:40:39 THIS TYPICALLY SIGNIFIES A BUBBLE. 15:40:41 IS IT ACCURATE TO SAY THAT YOU SAW A BUBBLE IN HOUSING PRICES 15:40:44 AS EARLY AS MARCH 2005? >> YES. 15:40:47 >> DID YOU SEE A BUBBLE IN THE HOUSING PRICES BEFORE MARCH 15:40:52 2005? >> I DON'T RECALL MY EXACT 15:40:56 TIMING. I DO REMEMBER MAKING PUBLIC 15:40:58 COMMENTS BEGINNING IN THE MIDDLE PART OF 2005. 15:41:01 I REMEMBER TALKING TO THE BOARD FROM TIME TO TIME ABOUT -- THAT 15:41:06 THERE WAS GROWING RISK BECAUSE HOUSING PRICES ARE GROWING 15:41:10 FASTER THAN THE RATE OF INFLATION. 15:41:13 BUT ALSO AT THE SAME TIME, I CAN REMEMBER EVERYBODY ARGUING OF 15:41:16 WHY THAT'S GOING TO BE OKAY AND IT'S UNLIKELY TO BE A 15:41:21 SIGNIFICANT DOWNTURN IN HOUSING. WE WERE KIND OF THE FRONT EDGE 15:41:25 OF TRYING TO ASSESS THAT THERE WAS A CONCERN HERE. 15:41:28 >> WELL, THAT FOLLOWS INTO MY SECOND QUESTION BECAUSE IN 15:41:32 JANUARY OF 2005 IS WHEN YOU PUSHED FORWARD A HIGH-RISK 15:41:37 LENDING STRATEGY FOR BOARD APPROVAL. 15:41:39 ONLY TWO MONTHS EARLIER IF YOU SAW PRICES WOULD DECLINE IN THE 15:41:42 NEAR FUTURE, WHY WOULD YOU BE PUSHING THROUGH A HIGH-RISK 15:41:46 STRATEGY ON A MARKET YOU THOUGHT WAS A BUBBLE. 15:41:48 >> SENATOR, THE -- WE APPROVED A NEW STRATEGIC PLAN IN ACTUALLY 15:41:53 THAT SUMMER OF '04. AND PART OF THAT PLAN -- THIS IS 15:41:57 NOT THE WHOLE PLAN. REMEMBER, THIS IS A SMALL PART 15:41:59 OF OUR BUSINESS. BUT PART OF THAT PLAN WAS 15:42:03 INCREASING THE SUBPRIME PORTFOLIO THAT WE HAD IN OUR 15:42:07 PORTFOLIO OVER A PERIOD OF TIME. BUT I ALSO WAS VERY CAREFUL TO 15:42:11 SAY THAT'S GOING TO BE SUBJECT TO MARKET CONDITIONS AND WE WILL 15:42:17 BE OPPORTUNISTIC. AND THE REALITY IS WE DID NOT 15:42:20 EXECUTE ON THAT. WE ENDED UP SHRINKING THAT 15:42:22 PORTFOLIO THAT WE HELD RATHER THAN GROWING IT. 15:42:25 >> YEAH, AND THIS CHART ACTUALLY SHOWS THAT. 15:42:27 >> NO, WHAT SHOWS IT IS WHAT WE HELD IN PORTFOLIO. 15:42:30 AND THE FACTS THAT -- >> THE LOAN ORIGINATIONS ALSO 15:42:34 SHOW IT. >> OUR ORIGINATIONS DECLINED AND 15:42:36 OUR MARKET SHARE OF SUBPRIME ORIGINATIONS DECLINED. 15:42:40 FIRST, WE WERE ONLY 6%. AND WE CUT IT TO ABOUT 3%. 15:42:43 AND THAT MARKET SHARE IS ABOUT HALF OF WHAT WE HAD IN THE 15:42:46 OVERALL MARKET. BUT IN TERMS OF WHAT WE HELD IN 15:42:48 PORTFOLIO, THE PORTFOLIO SHRANK AND WE HAD PLANS TO GROW IT. 15:42:53 >> BETWEEN 2004 AND 2005, AT THE TIME YOU SHIFTED TOWARDS THIS 15:43:00 HIGH-RISK STRATEGY, YOU -- AT THE SAME TIME YOU SWITCHED FROM 15:43:03 DOING BUSINESS WITH FANNIE TO DOING MORE BUSINESS WITH FREDDIE 15:43:07 MAC. IS THAT SIMPLY A COINCIDENCE OR 15:43:09 WHAT WAS THE BUSINESS ADVANTAGE TO MOVING TO FREDDIE MAC FROM 15:43:13 FANNIE MAE? >> YEAH, THE -- I DON'T HAVE THE 15:43:18 PERSONAL DETAILS OF THE PROS AND CONS OF DOING BUSINESS WITH EACH 15:43:22 OF THEM. THOSE CONTRACTS WERE NEGOTIATED 15:43:25 ACTUALLY WITH -- IN THE HOME LOANS GROUP AND I THINK STEVE 15:43:29 MIGHT HAVE BEEN INVOLVED THERE. SO I CAN'T RECALL WHY ONE WAS 15:43:33 PICKED OVER THE OTHER, BUT WE ALWAYS TRIED TO HAVE THEM IN A 15:43:36 GOOD COMPETITIVE POSITION. >> I'D LIKE TO ENTER INTO THE 15:43:42 RECORD THE WASHINGTON MUTUAL DOCUMENT FANNIE MAE ALLIANCE AND 15:43:45 FREDDIE MAC BUSINESS RELATIONSHIP PROPOSAL FROM MAY 15:43:49 OF 2005. AND HERE'S WHAT YOUR EXECUTIVE 15:43:54 SUMMARY SAYS. THE KEY IS FREDDIE PROPOSAL IS 15:43:57 PROVIDES SIGNIFICANT LIQUIDITY FOR OUR OPTION A.R.M. 15:44:01 ORIGINATIONS WITH MORE ADVANTAGEOUS CREDIT PARAMETERS, 15:44:04 COMPETITIVE G FEES AND PREFERRED ACCESS TO THE BALANCE SHEET 15:44:07 RELATIVE TO OUR CURRENT AGREEMENT WITH FANNIE. 15:44:09 SO IT WAS ECONOMICALLY -- IT WAS AN ECONOMICALLY DRIVEN POSITION. 15:44:14 >> THAT SOUND LIKE A BETTER DEAL. 15:44:17 AND NOT JUST OPTION A.R.M.s, BUT I THINK I HEARD BETTER GUARANTEE 15:44:21 FEES IN THAT EXPLANATION. >> ALL RIGHT. 15:44:26 I HAVE ONE FINAL QUESTION FOR YOU, MR. KILLINGER. 15:44:31 AND THAT WAS, AT ONE TIME TOWARDS THE END, BEFORE THE FDIC 15:44:37 CAME IN ON YOUR BUSINESS, WERE YOU IN NEGOTIATIONS TO SELL THIS 15:44:43 BUSINESS? >> IN THE SPRING OF 2008, WE 15:44:49 DETERMINED THAT THE HOUSING MARKET, YOU KNOW, WAS CONTINUING 15:44:53 TO SOFTEN AND THAT WE NEEDED TO EITHER RAISE NEW CAPITAL OR SEEK 15:44:59 A MERGER PARTNER. AND THE BOARD WENT THROUGH A 15:45:03 VERY THOROUGH REVIEW OF ALTERNATIVES AT THAT TIME. 15:45:07 AND WE CONSIDERED BOTH THE POTENTIAL SALE, THEN WE LOOKED 15:45:11 AT THE EQUITY INFUSION THAT WE COULD GET. 15:45:14 AND WE ULTIMATELY MADE A DECISION TO TAKE IN $7.2 BILLION 15:45:19 IN AN EQUITY INFUSION. AND THAT'S WHAT THE BOARD 15:45:22 ELECTED TO DO. >> AND HOW WERE YOU GOING TO DO 15:45:24 THAT? >> WE DID IT. 15:45:27 HOW? >> SO HOW DID YOU ACCOMPLISH 15:45:31 $7.2 BILLION EQUITY INFUSION? >> IT WAS A COMBINATION, AS I 15:45:35 RECALL, OF A CONVERTIBLE PREFERRED THAT BASICALLY MOST OF 15:45:40 IT WOULD CONVERT INTO A COMMON ONCE WE GOT THE ADDITIONAL 15:45:44 SHARES APPROVED BY SHAREHOLDERS. AND THERE WERE CERTAIN WARRANTS 15:45:48 ATTACHED TO THAT. AND IT WAS LED BY A PRIVATE 15:45:52 EQUITY -- A NUMBER OF LARGE INSTITUTIONAL INVESTORS. 15:45:56 >> SO YOU ACTUALLY SOLD THAT EQUITY? 15:45:59 AND THOSE WARRANTS? AND THAT CONVERTIBLE PREFERRED? 15:46:02 >> THERE WAS A PRIVATE PLACEMENT OFFERING OF THOSE. 15:46:06 >> BUT IT WAS SOLD? >> YES. 15:46:08 >> AND WHO REPRESENTED THE OTHER SIDE OF THAT TRANSACTION? 15:46:10 WHO WAS THE BROKER/DEALER? OR THE UNDERWRITER? 15:46:15 WHO WAS THE PLACEMENT? >> I WAS GOING TO SAY -- 15:46:17 >> LEAD PLACEMENT FIRM? >> THE LEAD PLACEMENT FOR US 15:46:20 WOULD HAVE BEEN GOLDMAN SACHS AND LEHMAN BROTHERS, I BELIEVE. 15:46:24 >> OKAY. >> ALL RIGHT. 15:46:27 MR. ROTELLA, UNDER EXHIBIT NUMBER 2, IN YOUR TESTIMONY YOU 15:46:31 MENTION WASHINGTON MUTUAL ADOPTED A HIGH-RISK LENDING 15:46:34 STRATEGY BEFORE YOU ARRIVED. THAT'S ON PAGE 4. 15:46:37 YOU SAID I DID NOT DESIGN THE STRATEGY ON PAGE 5. 15:46:41 DID YOU MEAN TO IMPLY SOME DISTANCE BETWEEN YOURSELF AND 15:46:46 THIS STRATEGY? >> SENATOR, AS I SAID IN MY 15:46:48 OPENING STATEMENT, SHORTLY AFTER ARRIVING AT WASHINGTON MUTUAL 15:46:53 AND HAVING BEEN AN OBSERVER FROM JPMORGAN CHASE, I WAS AWARE OF 15:46:57 THE FACT THAT THE COMPANY HAD AN EXTREME CONCENTRATION IN REAL 15:47:02 ESTATE LOANS AS A THRIFT. IT HAD A CONCENTRATION IN 15:47:06 FLORIDA AND IN CALIFORNIA, 60% OF ITS MORTGAGE ASSETS. 15:47:11 AS I SAID EARLIER IT WAS GOING THROUGH EXPLOSIVE GROWTH, 15:47:15 PARTICULARLY IN HIGH-RISK LENDING AND THE OPERATING 15:47:19 INFRASTRUCTURE WAS QUITE WEAK. THAT COMBINED WITH THE VIEW THAT 15:47:22 THE HOUSING MARKET WAS SOFTENING LED A GROUP OF US TO BEGIN A 15:47:27 PROCESS OF DIVERSIFYING THE COMPANY AND DE-EMPHASIZING THE 15:47:31 MORTGAGE BUSINESS WHICH, OVER TIME, WE HOPED WOULD LEAD US TO 15:47:35 A COMPANY THAT WAS CONCENTRATED LESS IN REAL ESTATE AND HAD 15:47:40 OTHER ASSET CLASSES. >> SO IN YOUR TESTIMONY ON THE 15:47:43 ONE HAND YOU SAY THAT YOU WERE SIMPLY CARRYING OUT THE CHAIRMAN 15:47:46 AND CEO'S STRATEGIES AS FAR AS THE HIGH RISK CATEGORY. 15:47:49 BUT ON THE OTHER HAND, YOU ARE SAYING IT WAS YOUR DECISION TO 15:47:52 DECREASE THE HIGH-RISK LENDING? WHICH IS IT? 15:47:55 >> SENATOR, NO, I'M NOT SAYING IT WAS MY DECISION, BUT I AND 15:47:58 OTHERS BELIEVE THAT THE COMPANY NEEDED TO DIVERSIFY ITSELF AND 15:48:01 MOVE AWAY FROM ITS MORTGAGE LEGACY. 15:48:05 THAT WAS A DISCUSSION AMONGST A NUMBER OF EXECUTIVES AND 15:48:09 ULTIMATELY UP TO THE CEO. AND WE MADE A FIRM DECISION TO 15:48:13 MAKE SOME OF THE PROACTIVE STEPS THAT I'VE MENTIONED IN THE 15:48:17 MORTGAGE BUSINESS AND ALSO BEGIN TO DIVERSIFY SOME OF OUR OTHER 15:48:20 BUSINESSES. >> WHAT WAS GOING ON AT LONG 15:48:22 BEACH OTHER THAN WHAT WE'VE DISCUSSED HERE TODAY THAT 15:48:24 REQUIRED THE WHOLE MANAGEMENT STRUCTURE TO BE CHANGED? 15:48:28 IN YOUR VIEW? >> WHEN I JOINED IN 2005, BIG 15:48:36 ORGANIZATION. I MOVED FROM THE EAST COAST TO 15:48:38 THE WEST COAST AND WAS GETTING FAMILIAR WITH THE COMPANY. 15:48:40 MY FIRST FOCUS WAS IN THE MAIN HOME LOANS BUSINESS WHICH DID 15:48:44 NOT HAVE A LEADER AT THE TIME. IT WAS REPORTING UP TO THE SAME 15:48:48 PERSON WHO WAS RUNNING BOTH OUR COMMERCIAL MORTGAGE AND OUR 15:48:52 SUBPRIME BUSINESS. I TOOK THAT BUSINESS OVER AND 15:48:56 RAN IT MYSELF UNTIL I HIRED SOMEBODY. 15:48:58 AND AS I INSTITUTED A SERIES OF BUSINESS REVIEWS IN THE COMPANY, 15:49:02 I BECAME INCREASINGLY CONCERNED AT A COUPLE OF THINGS IN LONG 15:49:06 BEACH. ONE, THE GROWTH PATH WAS JUST 15:49:09 INCREDIBLY RAPID. AND, TWO, I COULDN'T GET 15:49:13 TRANSPARENCY INTO WHAT WAS HAPPENING IN THE BUSINESS, WHICH 15:49:15 ALWAYS WORRIES AN EXECUTIVE. OVER THE COURSE OF THAT SECOND 15:49:19 HALF OF THE YEAR, I BECAME INCREASINGLY CONCERNED AND 15:49:22 ULTIMATELY TOWARDS THE END OF THE YEAR THERE WAS THIS FAIRLY 15:49:26 SIGNIFICANT REPURCHASE BLOW-UP THAT HAS BEEN DISCUSSED EARLIER 15:49:29 IN THE DAY. I MADE A RECOMMENDATION AT THAT 15:49:31 POINT TO MOVE FORWARD ON MAKING MANAGEMENT CHANGES BASED ON THE 15:49:34 COMBINATION OF THOSE FACTORS. >> ONE LAST QUESTION, IF I 15:49:38 COULD. HOW DEPENDENT, IN YOUR VIEW, WAS 15:49:40 WASHINGTON MUTUAL ON ITS RELATIONSHIP WITH FANNIE MAE AND 15:49:43 FREDDIE MAC? >> WELL, LIKE ALL BIG MORTGAGE 15:49:48 LENDERS, SENATOR, FANNIE MAE AND FREDDIE MAC WERE IMPORTANT. 15:49:53 AND I WOULDN'T CALL IT DEPENDENT, BUT THERE WAS A 15:49:56 SUBSTANTIAL AMOUNT OF PRODUCTION THAT WAS SOLD OFF TO EITHER 15:49:59 FANNIE OR FREDDIE AFTER I GOT THERE. 15:50:01 IT WAS SWITCHED OVER TO FREDDIE MAC. 15:50:03 SO DEPENDING ON WHAT LEVEL OF DEPENDENCY YOU'D LIKE TO 15:50:07 CHARACTERIZE IT AS, ANY MORTGAGE LENDER THAT'S IN THE MORTGAGE 15:50:11 BUSINESS, GIVEN THE GOVERNMENT ADVANTAGES AND THE DUOPOLY THAT 15:50:15 FREDDIE AND FANNIE HAD NEEDED TO DO BUSINESS WITH THEM. 15:50:18 IT WOULD BE DIFFICULT TO BE A MORTGAGE PLAYER WITHOUT THEM. 15:50:21 >> THANK YOU. MR. KILLINGER, ONE LAST 15:50:23 QUESTION. AT ANY TIME PRIOR TO THE CLOSURE 15:50:28 BY THE FDIC, DID YOU HAVE CONVERSATION WITH A MAJOR 15:50:32 FINANCIAL FIRM IN NEW YORK ABOUT THE SALE OF YOUR BUSINESS TO 15:50:35 THEM? >> AS I MENTIONED I COMMENTED - 15:50:39 >> I'M ASKING THE QUESTION AGAIN SPECIFICALLY TO GIVE YOU A 15:50:42 CHANCE TO ANSWER THAT QUESTION. DID YOU HAVE CONVERSATIONS WITH 15:50:47 PRINCIPALS OF FINANCIAL FIRMS IN NEW YORK CITY ABOUT THE SALE OF 15:50:52 WAMU OR THE CAPTURE OF WAMU BY A LARGER FINANCIAL INSTITUTION? 15:50:57 >> YES, AND THAT WAS, AS I SAID EARLIER, THAT WAS IN THE SPRING, 15:51:03 IN THAT MARCH-APRIL PERIOD WHEN THE BOARD CONSIDERED ALL 15:51:06 STRATEGIC ALTERNATIVES BETWEEN RAISING CAPITAL AS WELL AS -- 15:51:09 >> THAT WAS GOLDMAN SACHS AND LEHMAN. 15:51:11 >> WERE THE INVESTMENT BANKERS WORKING WITH US. 15:51:14 >> WERE THERE OTHERS THAT YOU HAD CONVERSATION WITH? 15:51:16 >> WELL, THEY WERE REPRESENTING US. 15:51:18 >> MM-HMM. WHO ELSE -- WHO DID THEY HAVE 15:51:20 CONVERSATIONS WITH IN TERMS OF THE SALE OF THE BUSINESS, NOT 15:51:23 RAISING ADDITIONAL CAPITAL, BUT THE SALE OF THE BUSINESS? 15:51:29 >> THERE WERE I'LL SAY A HANDFUL OF POTENTIAL INTERESTED PARTIES. 15:51:33 WE PUT OUT A NET THAT WAS BROAD, BOTH DOMESTICALLY AND 15:51:39 INTERNATIONALLY TO SEE IF ANYONE, YOU KNOW, WOULD BE A 15:51:43 POTENTIAL PARTNER AT THAT TIME, AND WE TALKED TO, YOU KNOW -- 15:51:47 THE INVESTMENT BANKERS TALKED TO A NUMBER OF THEM, AND THEN THERE 15:51:50 WERE A COUPLE OF PARTIES THAT WE TALKED ON A MORE PRIVATE BASIS. 15:51:54 >> WOULD YOU BE SO KIND AS TO GIVE THE COMMITTEE THE NAMES OF 15:51:58 THOSE INDIVIDUALS? >> I'M NOT SURE THAT'S BEEN 15:52:00 PUBLICLY DISCLOSED. >> WELL, YOUR COMPANY IS GONE, 15:52:06 AND FOR US TO GET TO THE BOTTOM OF THIS WE NEED TO KNOW EVERY 15:52:10 DETAIL, SO CAN YOU REFUSE TO ANSWER AND THEN WE WILL -- WE 15:52:12 WILL WORK ON THAT, BUT THE FACT IS THAT'S INFORMATION THAT'S 15:52:15 GOING TO COME OUT, AND GOOD LAWYERS DON'T ASK QUESTIONS THEY 15:52:19 DON'T ALREADY KNOW THE ANSWERS TO, SO I THINK IT WOULD PROBABLY 15:52:22 BE BENEFICIAL, AND I'M NOT A LAW, BY THE WAY, FOR YOU TO GIVE 15:52:26 US THAT INFORMATION. YOU DON'T HAVE TO DO IT 15:52:32 PUBLICLY, BUT YOU CAN GIVE IT TO THE COMMITTEE. 15:52:35 THANK YOU VERY MUCH. >> THANK YOU VERY MUCH, SENATOR 15:52:37 COBURN. LET ME GO BACK TO YOUR STRATEGY. 15:52:39 YOU SAY YOU ADOPTED THIS SHIFT TO HIGH-RISK STRATEGY IN '04 AND 15:52:48 '05, IS THAT CORRECT, BUT THAT IT WASN'T IMPLEMENTED. 15:52:50 YOU DIDN'T EXECUTE IT. >> NOT ALL ELEMENTS, YEAH. 15:52:53 >> YOU SURELY EXECUTED YOUR FOCUS ON HIGH-RISK PROJECTS, 15:52:57 PRODUCTS. I MEAN, TAKE A LOOK AT 6B. 15:53:02 YOU'RE STILL -- YOU TAKE A LOOK AT THAT EXHIBIT, HOME LOANS 2007 15:53:07 STRATEGY TEAM GOALS, UPDATED 11/12/07. 15:53:14 YOUR GOAL IS GROWTH, 45%. DRIVE NON-DRIVE EXPANSION 15:53:22 I INITIATIVE, SUPPORT MARKET SHARE 15:53:29 INCREASES FOR NON-PRIME PRODUCT. KEY TO SUCCESS, FOCUS BY ALL 15:53:32 CHANNELS ON TARGETING HIGHER MARGIN PRODUCTS. 15:53:35 THAT'S HIGHER RISK PRODUCTS. EXHIBIT 6B. 15:53:44 >> OKAY. SORRY, I'M BEHIND TAB 6. 15:53:52 >> YOU SURE TRIED TO EXECUTE THAT NEW STRATEGY FOR AT LEAST A 15:53:56 YEAR, YEAR AND A HALF. >> AND SENATOR, WE DID EXECUTE 15:53:59 ELEMENTS OF IT. >> WELL, LET'S JUST FOCUS HERE 15:54:03 ON HIGHER MARGIN PRODUCTS. YOU WANT TO FOCUS ALL CHANNELS 15:54:05 ON TARGETING HIGHER MARGIN PRODUCTS. 15:54:07 DRIVE NON-PRIME EXPANSION INITIATIVE, THAT'S YOUR GOAL. 15:54:15 >> I'M JUST TRYING TO CATCH UP WITH YOU. 15:54:22 WHERE IS 6B? OKAY. 15:54:24 >> UPDATED 11/12/70, BY THE WAY. >> THANKS. 15:54:29 >> YOU SEE THAT UPDATED 11/12/70. 15:54:32 >> OKAY. I'M SEEING THIS, YES. 15:54:35 >> SO THIS IS THE -- THE TARGET FOR THE HOME LOANS GROUP THAT 15:54:39 WE'RE LOOKING AT, NOT THE COMPANY. 15:54:42 >> RIGHT. DRIVE NON-PRIME EXPANSION. 15:54:51 >> YES. >> OKAY. SETTING -- WITH THE BOARD, 15:54:54 SETTING THE STRATEGY FOR THE OVERALL COMPANY, IT REALLY NEEDS 15:54:58 TO BE IN THE CONTEXT. WHEN WE TALKED ABOUT 15:55:02 DIVERSIFYING THE COMPANY, THAT INCLUDED HAVING A STRATEGY FOR 15:55:05 ENTERING THE CREDIT CARD BUSINESS, AND WE SUBSEQUENTLY 15:55:07 DID THE PROVIDIAN ACQUISITION WHICH WAS A SIGNIFICANT PART. 15:55:11 IT ALSO HAD A MATERIAL REDUCTION IN INTEREST RATE RISK, AND 15:55:16 THAT'S WHY WE SOLD SO MANY MORTGAGE SERVICING RIGHTS, AND 15:55:20 WE ALSO HAD EVEN IN THE HOME LOANS AREA, THAT THIS WOULD BE A 15:55:23 LESSER PART OF OUR OVERALL BUSINESS AND THAT THE PRIMARY 15:55:27 GROWTH OF THE BUSINESS WOULD BE IN OUR RETAIL BANKING STORES, 15:55:31 AND THAT'S WHERE WE WERE GOING TO OPEN UP SIGNIFICANT NUMBERS 15:55:34 OF RETAIL BANKING STORES, SO THE OVERALL CONTEXT OF THE COMPANY 15:55:37 IS STILL A SHRINKAGE OF THE WHOLE LENDING BUSINESS BUT 15:55:41 WITHIN THE HOME LENDING BUSINESS THAT WE WOULD HAVE MORE OF A 15:55:43 FOCUS ON SOME OF THESE OTHER PRODUCTS. 15:55:46 >> SOME OF THE OTHER PRODUCTS BEING HIGH-RISK PRODUCTS? 15:55:50 >> LIKE SUBPRIME WHICH WE DID NOT EXECUTE ON. 15:55:54 >> WELL, YOU EXECUTED ON A BUNCH OF HIGH-RISK PROBLEM. 15:55:58 YOU'VE GOT OPTION A.R.M., HOME EQUITY, DID YOU EXECUTE ON IT. 15:56:02 >> WE DID EXECUTE ON EXPANDING OUR PORTFOLIO IN HOME EQUITY. 15:56:07 WE DID NOT EXPAND THE PORTFOLIO OF OPTION A.R.M.s. 15:56:13 OPTION A.R.M.s ACTUALLY DECLINED IN -- IN THE SIZE OF THOSE 15:56:18 PORTFOLIOS. >> YEAH. 15:56:19 >> IT WAS STILL LARGER THAN IT WAS IN '03, SO YOU HAD STILL A 15:56:23 LARGE SIGNIFICANT -- YOU HAD A SIGNIFICANT AMOUNT OF OPTION 15:56:26 A.R.M.s EVEN AS LATE AS '06, BUT THIS IS AN '07 DOCUMENT TALKING 15:56:32 ABOUT CHANNELING FOCUS, ALL CHANNELS ON TARGETING HIGHER 15:56:35 MARGIN PRODUCTS. THOSE ARE HIGHER RISK PRODUCTS. 15:56:38 THAT'S '07 NOVEMBER. ON JUNE 12th, HERE'S WHAT YOU 15:56:42 SAID, JUNE 12th, '06, IN YOUR REPORT, QUOTE, FINALLY OUR HOME 15:56:48 LOANS GROUP SHOULD COMPLETE ITS REPOSITIONING. 15:56:51 THAT'S THE REPOSITIONING THAT YOU HAD DECIDED ON IN '04 AND 15:56:55 '05, TO FOCUS MORE ON HIGH RISK. JUNE 12th, '06. 15:57:00 OUR HOME LOAN GROUP SHOULD COMPLETE ITS REPOSITIONING 15:57:02 WITHIN THE NEXT 12 MONTHS, SO THAT'S YOUR JUNE 6th TO JUNE OF 15:57:07 '07, AND WE'LL BE IN A POSITION TO PROFITBLY GROW ITS MARKET 15:57:13 SHARE OF OPTION A.R.M., HOME EQUITY, SUBPRIME AND ALL DAY 15:57:22 LOANS. >> THAT WAS THE PLAN. 15:57:23 WE JUST DID NOT EXECUTE IT BECAUSE OF CHANGING MARKET 15:57:26 CONDITIONS. >> BUT, ON JUNE 12th, '06 YOU'RE 15:57:29 STILL PLANNING ON EXECUTING IT. THIS IS A PLAN THAT YOU SHIFTED 15:57:32 TO IN '04 AND '05. >> YEAH. 15:57:34 >> SO YOU DID EXECUTE THIS FOR ABOUT A YEAR, YEAR AND A HALF. 15:57:37 >> WE STARTED DOWN THAT DIRECTION, BUT MUCH LESS THAN 15:57:40 WHAT WE HAD PLANNED, AND AS HOUSING BECAME MORE CHALLENGING, 15:57:43 WE MOVED EVEN FURTHER AWAY FROM THAT PLAN. 15:57:45 >> I UNDERSTAND, BUT I DON'T THINK YOU OUGHT TO GET AWAY WITH 15:57:48 A STATEMENT YOU DIDN'T EXECUTE IT. 15:57:50 YOU DID EXECUTE ON IT FOR A YEAR, YEAR AND A HALF. 15:57:52 YOU TRIED TO EXECUTE IT UNTIL THE MARKET CHANGED? 15:57:54 >> OKAY. >> NOW, HERE'S A PIE CHART WHICH 15:58:13 WE HAVE HERE WHICH SHOWS THE PERCENTAGE OF YOUR INVENTORY 15:58:16 WHICH IS HIGH RISK COMPARED TO THE LOW RISK. 15:58:19 JUST TAKE A LOOK AT A 03 IN BLUE. 15:58:25 IN BLUE THE MAJORITY LOW RISK 30-YEAR LOANS, FIXED LOANS. 15:58:35 '04, LOOK AT THE DRAMATIC SHIFT. THE RED IS YOUR HIGH RISK, AND 15:58:39 AS A PART OF YOUR INVENTORY STARTING IN '04 AND GOING 15:58:43 THROUGH '05, '606, '07, THE BLUE, WHICH IS YOUR TRADITIONAL 15:58:50 30-YEAR TYPICALLY FIXED LOANS BECOME A -- NO MORE THAN A 15:58:55 QUARTER OF YOUR INVENTORY. THE HIGH-RISK PART OF THE 15:58:59 INVENTORY GOES FROM ABOUT A THIRD IN '03 TO THREE-QUARTERS
Campaign 2008: Hillary Clinton at University of Pennsylvania
HILLARY VERBATE: CLINTON: Thank you. Thank you. (APPLAUSE) It's great to be back here at Penn and in Philadelphia. I remember giving the commencement address here some years ago and I always had that image of the beauty of this campus and, of course, its extraordinary reputation. And I'm delighted to have a chance to be here with you to talk about an issue that is critical not only to Pennsylvania but to our country. I want to thank Congresswoman Schwartz. She and I will be together later this afternoon and I'm looking forward to that very much. Mayor Nutter, I have heard the governor say that you could be the second-best mayor in Philadelphia history. I know you're aiming for first, so keep it up. (LAUGHTER) You're doing a great job. And Governor Rendell, who has been so visionary and strategic in his leadership, first, of Philadelphia, then, of course, of Pennsylvania. And what he just said about how he and his administration responded to the first signs of trouble from the mortgage market is just typical of Ed Rendell. He really is someone who is always looking to solve problems. And that's why he's been so successful and why I'm so grateful for his support. You know, I want to take a moment to note yesterday's heartbreaking news that five years after the start of the war there have now been 4,000 U.S. military deaths in Iraq. Tens of thousands of our brave men and women have also suffered serious wounds, both visible and invisible, to their bodies, their minds and their hearts. As president, I intend to honor their extraordinary service and the sacrifice of them and their families by ending this war and bringing them home as quickly and responsibly as possible. (APPLAUSE) You know, as the headlines of the past months have made clear, we are experiencing a crisis of confidence in our country. We have a crisis of confidence in our leadership with respect to Iraq and we have a crisis of confidence in our economy. What started out as a subprime mortgage crisis has now become a national credit crisis, rippling out from banks and boardrooms to businesses and living rooms across America. We've had three straight months of private sector job losses. Consumer confidence is down and falling. The dollar has hit record lows and gas prices, record highs. And last week, the Federal Reserve took unprecedented measures to rescue Wall Street, the likes of which we haven't seen since the Great Depression. These are not just red flags or warning signs. They are indisputable indicators that our economy is in serious trouble. And now we face an urgent question: How do we keep today's turmoil from spiraling into a long and painful recession? This is no easy task. The 21st century American economy is more complex and more interconnected with the global economy than ever before. It is shaped each day by billions and billions of individual transactions and interactions on every continent, subject to crises or even just speculation in one country can move markets in dozens of others with the blink of an eye or a flick of a mouse. In today's economy, trouble that starts on Wall Street often ends up on Main Street, sometimes within minutes, sometimes over the course of months or even years. When there's a run on mortgage-backed securities and the bottom falls out for investment banks, the bottom falls out for families who see the value of their homes -- their greatest source of wealth -- decline. When our credit markets freeze up, that doesn't just cause panic on our trading floors, but in small businesses that can't get the capital they need to survive, and on college campuses, like this one, when the student loan for next semester falls through. When we continue to persist in brain dead energy policy, as confidence in our currency erodes, that means gas prices so high you feel like it costs more to commute to work than you make when you get there. It means rising food prices that strain household budgets. It means having less left over for savings or even dipping into savings to make ends meet. It means more challenges for the mayor. Because property tax revenues drop, businesses don't have the same ability to make that profit that benefits the city. It means more problems for the governor, who has to look across a complex state economy trying to figure out how to keep what has been a remarkable string of real budget balances and surpluses. It causes problems for our country. Ultimately, the true currency of today's American economy is confidence. When people lose confidence in the economy and our president's ability to manage it, problems become crises and crises lead to more crises. So, we need a president who can restore our confidence, a president who is ready to confront complex economic problems with comprehensive solutions, a president who will act at the first signs of trouble, working with experts to identify the problem with agencies to adapt regulations, with Congress to pass necessary legislation; working to prevent crises rather than just reacting too little too late. We need a president who is ready on day one to be commander in chief of our economy. If you give me the chance, I will be that president. I will start by facing our economic situation as it is, not as we wish it would be. That means acknowledging that our economic crisis is, at its core, a housing crisis, a crisis caused in part by unscrupulous mortgage lenders and brokers and unregulated transactions in mortgage- backed securities, in part by speculators who were buying multiple houses to sell for a quick buck and other buyers who didn't act responsibly, and in part by a president and administration who failed to anticipate and continue to downplay the problems we face. Unlike what happened here in Pennsylvania, when Governor Rendell started seeing problems -- and I remember those articles we had in the newspaper, Governor -- where the housing supply was being, you know, expanded and people were putting zero money down and they were trying to once again get the American dream, they were commuting sometimes two hours to be able to afford that house -- well, those warning signals went unheeded in Washington, but thankfully not in Harrisburg. And what we have to do now is to look at our housing crisis in greater detail. And I'd like to outline my plans to address it. 2.2 million foreclosure notices went out last year, up 75 percent from 2006. Communities of color have been especially hard hit. Subprime loans are five times more common in predominantly African- American neighborhoods than predominantly white ones. And 41 percent of loans to Hispanics are subprime, compared to only 22 percent to whites. But this crisis isn't just about the more than two million households at risk of losing their homes. And, of course, 2.2 million foreclosure notices means many more people than that, because, obviously, you have homes where anywhere from two to 10 people live. It's about the tens of millions of families who have lost value in their homes. When I talk about the home foreclosure crisis, sometimes people, I can tell, look at me a little skeptically because they, I can tell, are thinking to themselves, "I didn't buy one of those mortgages, I don't have an ARM. I'm not at risk." But, in fact, that is just not the case. Home prices dropped almost 9 percent last quarter -- home prices for everyone. If you've paid off your home, if you have a fixed-rate mortgage with a manageable interest rate, you have suffered the steepest decline on record. That means families have lost at least $1.9 trillion in housing wealth so far, nearly two-thirds of the size of the entire United States government budget. And today, nearly 9 million families are struggling with mortgages that are under water. They actually owe more for their mortgages than their homes are worth. So what was once their biggest financial asset is now a financial liability. The housing crisis is also a crisis for our cities, our towns and our neighborhoods. At least 41 million homes will lose value because of foreclosures in their neighborhoods, including 1.7 million homes right here in Pennsylvania. Abandoned homes and boarded up neighborhoods mean higher crime rates, lower property values and plummeting tax receipts for cities and towns across America. Now, a year ago in March 2007, I called for immediate action to address abuses in the subprime market and I laid out detailed concrete proposals for how to do so. I warned this administration that the problems in subprime mortgages would soon spill over into regular mortgages. The response from our president? Well, his treasury secretary told Congress that the problem was, quote, "contained." And president himself assured us there would be a, quote, "soft landing for the housing market." The housing crisis soon spread from subprime to traditional mortgages. And in August of last year, I warned the administration that the housing mortgage crisis would soon ripple out through the entire economy. Again, I called for immediate action and laid out concrete proposals to prevent foreclosures and help states hard-hit by this crisis. I also called for tighter regulation of the housing market, starting with unscrupulous mortgage brokers who were taking advantage of our families. I would require mortgage brokers to disclose right up front that they paid -- they're paid based on the size of the mortgage they sell to put buyers on notice. I would work with states to develop strong, meaningful broker licensing standards to screen brokers and govern their conduct. And I would require all brokers to register with the federal government so that home buyers can do their own background checks to ensure they're dealing with someone who will deal fairly with them. I also call for greater regulation of mortgage lenders. I would eliminate the prepayment penalties that lead to such high rates of default. I would require lenders to take into account the borrower's ability to pay property taxes and insurance fees when deciding whether to make a loan in the first place. CLINTON: Too many loan lenders haven't made that part of the calculation, and too many families don't know that they need to budget for these expenses. In October I proposed legislation, the Foreclosure Rescue Fraud Act, that imposed new criminal penalties on lenders who are taking advantage of people, offering foreclosure rescue schemes that lure families in, take their money and do nothing to help them. I've also proposed that we amend the bankruptcy code to give judges the discretion to write down the value of struggling families' homes. Believe it or not, bankruptcy judges can write down the value of many other things to help families pay off their debt, but not their homes. They can write off the value or write down the value of second homes, which seems kind of ironic to me. Making this amendment to the code will help families in bankruptcy pay off their mortgages and stay in their homes. Now, the response to all of this from the administration: Well, they continued their "wait and don't see" approach, largely ignoring the mounting problems. By December of last year the mortgage crisis had become a national credit crisis. So I went to New York City and I told Wall Street they needed to do their part to address this crisis. I put forward an aggressive plan for a 90-day moratorium on all subprime foreclosures and a voluntary five-year freeze on interest rates for all subprime mortgages. The response from this administration? A plan that let banks off the hook and left homeowners to fend for themselves. In the words of one expert, the president's plan was the bank lobby's dream. This administration's top economic priority, it seems, has been to lavish roughly $400 billion in tax cuts on the wealthiest 1 percent of Americans while families have lost nearly five times that in the value of their homes. Last week, when it became clear Wall Street was on the brink of a financial meltdown, the Fed and the administration sprang into action. The Fed extended a $30 billion lifeline to prevent Bear Stearns from imploding and took unprecedented action to provide tens of billions of dollars in credit for other struggling investment banks as well. Homeowners, on the other hand, have received next to no assistance. Well, let's be clear. When families are losing their homes, that's also... (AUDIO GAP) CLINTON: ... Representative Barney Frank and Senator Chris Dodd, that would expand the government's capacity to stand behind mortgages that are reworked on affordable terms. Currently, families apply to the government and the government decides on an individual basis whether to work with them to restructure their mortgages. You heard the governor say that maybe there will be 1,000 families that will be helped in Pennsylvania. That is a slow process that helps relatively few families. It simply isn't enough to revive our housing market. The Frank/Dodd legislation would move beyond this incremental approach by setting up an auction system for mortgage companies that hold hundreds of thousands of these mortgages. Through this system, these companies could sell mortgages in bulk to banks and other buyers. The buyers would be willing to purchase these mortgages and restructure them to make them affordable for families because they know that government will guarantee them once they are refinanced. This will be good for families who can keep their homes. It would be good for mortgage lenders because it's more profitable than foreclosures. It would be good for our economy, helping to unfreeze our credit markets. But given the severity of today's housing crisis, simply facilitating this auction process might not be enough to get our economy moving again. That's why I believe the Federal Housing Administration should also stand ready to be a temporary buyer, to purchase, restructure and resell underwater mortgages. Just as it has in the past, this kind of temporary measure by the government could give our economy the boost it needs and families the help they certainly need. It would not require a single new federal bureaucracy. It would be designed to be self- financing over time, so would cost taxpayers nothing in the long run. It's a sensible way for everyone -- lenders, investors, mortgage companies and borrowers -- to share responsibility, keep families in their homes, stabilize communities and the economy. In order to determine whether the approach outlined by Representative Frank and Senator Dodd is sufficient or whether we need the government to step in as a purchaser, I'm calling on President Bush to appoint an emergency working group on foreclosures. That's the second part of my plan. We simply cannot wait until Congress passes legislation to find the best way to help millions of families. That's why I'm proposing this emergency working group on foreclosures. It could be led by a distinguished nonpartisan group of economic leaders, like Alan Greenspan, Robert Rubin, Paul Volcker. It's the kind of proactive step that would help reestablish confidence in our economy, by showing that the president and the administration is taking our economic crisis seriously. I've been calling for several weeks for the president to show some sense of urgency. This group's first order of business would be to determine how the government should implement the solutions proposed in the Frank-Dodd legislation and whether the legislation goes far enough. If it's decided additional steps are needed, then we should investigate whether and how the Federal Housing Administration or other government entities or Fannie Mae and Freddie Mac could buy, restructure and resell these underwater mortgages. The group would report back to Congress on a very tight time line, no more than three weeks. In the meantime, while the emergency working group is being formed, we should implement the moratorium on foreclosures that I first called for in December. Every unnecessary home foreclosure just worsens the credit crisis and further depresses housing prices. Secretary Paulson and others have finally acknowledged the need for this moratorium in certain cases. I hope they will act as quickly as possible to implement it. The third part of my plan is a new housing stimulus package, to provide $30 billion directly to states and localities, like Pennsylvania and Philadelphia, hard hit by this crisis. Right now, concentrated clusters of foreclosures are devastating some communities. A recent study of 10 states by the U.S. Conference of Mayors found that the foreclosure crisis will lead to $6.6 billion in lost tax revenues in just those 10 states alone. Just over a month ago, Congress passed and President Bush signed a $168 billion stimulus package. But this package did next to nothing to help homeowners and communities struggling with foreclosures. I said at the time, if we did not address the housing crisis, we would not be able to stem the bleeding. Congress is trying to combat a recession caused by the housing crisis without doing anything to address that crisis. Well, if the Fed can extend $30 billion to help Bear Stearns address their financial crisis, the federal government should provide at least that much emergency assistance to help families and communities address theirs. That's why I'm calling for the creation of a one-time emergency $30 billion fund that would go directly to cities and states to address the housing crisis. This money could be used to purchase foreclosed or distressed properties, which cities and states could then resell to low-income families or convert into affordable rental housing. It could be used to help neighborhoods with high foreclosure rates avoid increased crime and blight by investing in everything from police and fire support to graffiti removal and better lighting. It could be used by local agencies to provide counseling and refinancing to help families avoid foreclosure in the first place. Governor Rendell has been leading the way with programs like that here in Pennsylvania. The Pennsylvania Homeowners' Emergency Mortgage Assistance Program offer small, low-cost loans to families facing foreclosure. It has saved up to 40,000 homes since it started. And this past October, Governor Rendell launched two additional programs to help homeowners refinance and restructure their mortgages. And we're seeing results here in Pennsylvania. Since the end of 2006, Pennsylvania's foreclosure rate has decreased 11 percent. I look forward to working with governors like Governor Rendell, and with mayors like Mayor Nutter, who's already providing outstanding leadership here in Philadelphia, to replicate this kind of success across America. The fourth and final part of my plan involves passing new legislation to clarify legal liability for mortgage companies that act to help more borrowers stay in their homes. Right now, many mortgage companies are reluctant to help families restructure their mortgages because they're afraid of being sued by the investment banks, the private equity firms, and others who actually own the mortgage papers. Because, remember, all of these mortgages were bundled up in these huge packages and sold around the world. So you can't just go down to see your mortgage broker or your bank or your other lender to work out a deal, because they no longer own the paper. This is the case even though writing down the value of a mortgage is often more profitable than foreclosing, both for mortgage companies and for most of those who own the mortgages. That's why I will be proposing legislation, when Congress returns, to provide mortgage companies with protection against the threat of such lawsuits. I know this kind of policy isn't particularly glamorous and it probably won't make headlines. But it will make a critical difference in helping families save their homes, and getting our economy back our track. Now, some may claim that the plan I have outlined today is a bail-out. They'll argue that it's not the government role to help. Well, that is the same kind of tired rhetoric we've been hearing for years now. And I think the American people know better. We've had enough of that old ideology. We're ready for solutions, here and now. And to those who object to our government helping middle-class families and low-income families devastated by the housing crisis, I say this. We've given Bear Stearns a $30 billion lifeline. We've given their credits, their lenders, their customers and those associated with them the same lifeline. We are now, through the Fed's change in policy, lending billions of dollars a day to help Wall Street banks that aren't regulated, that aren't transparent, that are not held accountable. How can you tell a family about to lose their home that there is nothing we can do to help them? How can you tell them that if they had failed spectacularly, we would have helped them, but because they're failing quietly, desperately, we've turning our backs? How can you tell them that there's nothing we can do to rebuild the American dream? You know, I have been across our country for years. I know how much a home means to all of us. I remember like it was yesterday when Bill bought our first home. It was back in 1975 and we were living in Arkansas and teaching at the university there in the law school. We weren't yet married, but not for lack of asking on Bill's part. (LAUGHTER) And one day, we drove by this tiny red-brick house with a "for sale" sign in front. All I said was I thought it was a sweet looking house and never thought about it again. Several weeks later, Bill said to me, "Do you remember that house you liked?" I had never been inside, I had never been outside looking inside; I had just driven by. I said, "What house that I liked?" He said, "You know, that red- brick house on California Drive. Well, I bought it. So now you got to marry me because I can't live in it by myself." It wasn't exactly a mansion and the kitchen needed a lot of work, but I did say yes. And that fall, we were married in the living room of that house, surrounded by our closest friends and family. That first home meant the world to us. It was where we started our life together, celebrated birthdays, anniversaries and holidays with our friends. And families across America feel the same way, whether it's your first house or your tenth house. It is part of who we are as Americans to look at that home ownership as such an important part of the American dream. Today we face unprecedented economic challenges. But we also have within our reach unprecedented economic opportunities. We've got clean energy opportunities that we are not exploiting. Utilities are changing the way they do business, focusing on efficiency, not just producing energy. Renewables like wind and solar are the most exciting prospects for American manufacturing in decades. I've even proposed we establish a carbon reduction mortgage association, or a Connie Mae, an idea that Vice President Gore first came up with. We'd direct Fannie Mae and Freddie Mac to provide loans to help people build more and retrofit more energy-efficient homes. We'd save money, over the long run. We'd create millions of green-collar jobs. We've got infrastructure opportunities to rebuild crumbling roads, bridges, and highways, just like I-95, right here in Philadelphia, opportunities to revolutionize our public transportation systems, cut down on traffic and pollution. We can do so much that will really build the strong economy we need in the 21st century. But we won't do it by just waiting and watching and losing the opportunity to act. We've got so many great ideas that will give us the tools we need for the 21st century. Now, turning the economy around won't be easy. But we're gathered in the very city where our founders put to paper the words that have guided our nation and inspired the world for more than 200 years. Each generation of Americans has faced threats to our ideals. Each generation has met them. We have fought wars, overcome a recession, weathered all kinds of problems, lived through the Great Depression. We've had market crises of all kinds. Through it all, as President Franklin Roosevelt once said, we have always to the hope, the belief, the conviction that there is a better life, a better world beyond the horizon. But we have to translate that hope into reality. We have to translate that conviction into solutions. And if we do, we will meet the current challenges with confidence and optimism. We will rebuild our economy stronger and more vibrant, more resilient than ever before. It is a question of leadership. And I hope we don't have to wait until the next president is sworn in, but that we will come together and exercise that leadership in both the public and the private sector as soon as possible. That's why I've set forth this plan and hope that the administration will begin to act with the urgency that the crisis before us demands. Thank you all very much. -------------------------------------------------------------------------------- From: Hayashi, Seiko X. Sent: Monday, March 24, 2008 11:21 AM To: ABCTV News DC INGEST INFO; ABCTV News DC NFVLogs Cc: Miller, Avery S. Subject: Sen. Hillary Clinton Major Policy Address @ University of Pennsylvania - STIX March 24, 2008 SEN. HILLARY CLINTON DELIVERS MAJOR POLICY ADDRESS AT THE UNIVERSITY OF PENNSYLVANIA IN PHILADELPHIA - STIX NY2/X75/Slugged: 1030 HILLARY PHILLY X75 10:39:50 SEN. HILLARY CLINTON: great to be back here in Penn. 10:41:14 Yesterday's hear breaking news.extraordinary services, ending war, bringing them home as quickly as possible. 10:42:01 experiencing a crisis of confidence, leadership. Economy. 10:42:16 Sub-prime mortgage, national credit crisis. Job losses, consumer confidence is down and falling. Dollar hit record low. 10:42:52 These are not just red flags and warning signs. Indisputable indicators economy is in serious trouble. 10:43:06 How do we keep turmoil spiraling into long and painful recession. 10:43:39 One country can move.trouble that starts on Wall Street starts on Main Street. When there is a run, bottom falls out for investment banks. Sees value of home decline. 10:44:40 costs more to go to work, rising food prices. Less saved up for savings. 10:46:10 just reacting, too little too late. Need ready on day one. Acknowledging economic crisis. Caused by lenders and brokers. 10:46:49 Multiple houses to sell for quick buck. Unlike PA, Gov. Rendell. 10:47:38 look at housing in greater detail. 2.2 million foreclosure notices went out last year. Up 75% from 2006. Communities of color especially hard hit. 10:48:59 Home prices dropped 9%. 10:56:14 Our dream home.American crisis. President who stands up for special interest. Now it's time for President who stands up for American families. Rebuild American middle class. 10:56:54 Aggressive action, keep communities from spiraling. 10:57:09 Today I'm announcing 4 point. 11:00:27 Working emergency foreclosures. Proposing emergency working group, it could be lead by distinguished non-partisan group. 11:01:57 moratorium in certain cases. Third part, new housing stimulus packages. 11:04:47 Passing new legislation. 11:12:14 Thank you very much. 11:12:17 Hillary walks off podium
DEMOCRATIC LEADERS PRESS CONFERENCE
DEMOCRATIC LEADERS - PRESS CONFERENCE - Speaker Nancy Pelosi, House Majority Leader Steny Hoyer, House Majority Whip James E. Clyburn, and Assistant to the Speaker Chris Van Hollen hold a press conference in the Capitol Visitor Center. House Speaker Nancy Pelosi press conference with other House Democratic leaders SLUG: 1430 PELOSI PRESSER RS23 73 AR: 16x9 Disc: 644 *Fed to NY on 5106* 14:40:56 SPEAKER PELOSI: Good afternoon. Q (Welcome ?). SPEAKER PELOSI: Nice to see you here, the new digs, or newer digs. As we come to the end of this part of this session, it is with great pride that we review the major accomplishments of this Congress. 14:41:15 One week and one day after the president stood on the steps on the Capitol to ask for swift, bold action now to take our country in a new direction, one week and one day later, Congress passed the recovery -- the recovery act. Because of that recovery act, 3.6 million jobs were saved or created for our economy. We proceeded from there with a blueprint for the future, a statement of our national values contained in the president's budget proposal: to reduce the deficit, to lower taxes for the middle class, and to create jobs, around three pillars of investment: 14:41:58 first among equals, health care; innovation and education, recognizing that innovation begins in the classroom; and new clean energy jobs for the future. As you know, we passed the health-care reform bill and at the same time our education bill. We're making college education more affordable for America's working families. Health-care reform is -- we were proud to stand with those who fought for Social Security and Medicare and now health care for all Americans as a right, not a privilege -- health care that is better-quality, lower-cost and more accessible to many more Americans. This too is a job creator. Again, recognizing that innovation begins in the classroom and it is the way that we keep America number one, we passed the education bill as well, again reducing the cost of student loans for students, increasing Pell grants, making sizable contributions to our minority- serving institutions, and the list goes on. Following that, we passed the Wall Street reform legislation with historic regulation that hadn't been done in decades to reform Wall Street, and including in that consumer protection -- the most sweeping consumer protection in the history of our country. The list goes on and on. We are very pleased with what we have done for veterans -- again, historic, transformational changes in terms of putting our veterans first every single day that we serve in the Congress. And our investments in small businesses, taking us to the end of the term. We started with the president on the steps of the Capitol; we've come to a point where this week, on Monday, the president signed the small-business bill providing credit to the tune of -- leverage to the tune of $300 billion for our small businesses, which are our job creators and our capital formation. We all -- did all of this in a fiscally sound way. Economists have told us if we had not acted with the recovery act, "cash for clunkers" and other federal initiatives, we would have 8-1/2 million more people unemployed, that we would have 14-1/2 percent unemployment, and that we would have even worse and deeper deficits. We're very proud of the work of the Congress. We worked closely not only as a team but as a partnership and the leadership to make this happen. And of course none of it would have been possible without the visionary leadership of President Barack Obama. As we go forward, our members left last evening in a spirit of optimism, very pleased about taking the message of fighting for the middle class; of moving America forward and not going back; of making it in America, as we all have here, making it in America and not shipping jobs overseas; giving tax cuts to the -- for all Americans to create jobs, not tax cuts at the high end which will increase the deficit; and to preserve Social Security and Medicare and not privatize it and cut them. So these are the priorities we have as we go into the election. We're very proud of many, many issues on the agenda that relate to our "Make It in America" agenda, creating good-paying jobs here and not shipping them overseas. 14:45:43 And central -- a great leader in that regard has been our majority leader, Steny Hoyer, who designed the (pin ?), coined the phrase and is leading the effort to make it in America. Mr. Hoyer. 14:46:00 REP. HOYER: Thank you very much, Madame Speaker. Of course, our entire agenda has been designed so that every American, every individual can make it in America. When President Obama and the 111th Congress took their oaths of office, America was facing the worst economic crisis since the Great Depression. We were losing almost 800,000 jobs per month. Over a quarter of the personal wealth in America had been wiped out. We were in a record amount of debt. From the day we began our work, Congress had the overriding goal of stopping the free fall, creating jobs and building a solid foundation to the future. There's no doubt that Americans are still hurting. There's still a long way to go. But we're moving in the right direction. The economy has added around 3 million jobs, and American manufacturing is on the rebound. We added 136,000 manufacturing jobs during the first seven months of this year, the longest sustained growth in 13 years. To build on that success, Democrats have worked hard to pursue a "Make It in America" agenda, a plan to continue the rebound of American manufacturing, create reasons for companies to create jobs in America and not take them overseas, not to outsource them, building an environment that encourages investment and innovation in America. The most recent "Make It in America" bill was signed on Monday by the president. It creates a small-business fund, provides an additional $12 billion in tax cuts for small business. It's a shame that on some 16 of our bills that cut taxes for small businesses, our Republican colleagues voted against 15 of them. It provides an additional $30 billion so that small businesses can get loans to expand and create jobs. Yesterday we passed another important "Make It in America" bill, which holds China accountable for its currency manipulation. This bill pushes work -- works to level the trade playing field, which helps Americans keep their jobs and create new ones here in America. 14:48:33 But in the long run, our economy will struggle if our children are drowning in debt. After President Bush and the Republicans ran up record debt, Democrats are putting us back on a sound fiscal plain. We restored PAYGO to ensure that Congress pays for what it buys. President Obama created a bipartisan fiscal commission to tackle our deficit. And we've pledged to vote on its recommendations when they come. We have a great deal of work, obviously, left to be done before our economy has fully recovered. But our record on behalf of working families contrasts sharply with Republicans' plan to deliver, and I quote, "the exact same agenda" of the failed Bush years, which exploded the deficit, devastated working Americans, and ushered in the worst economy we've seen since Herbert Hoover. Our agenda has been and will be to reinstill the confidence in every American's mind that they, their children and their neighbors can and will make it in America. I'm now pleased to yield to the extraordinarily successful Democratic whip from South Carolina, Jim Clyburn. 14:50:07 REP. CLYBURN: Thank you very much, Mr. Leader, Madame Speaker, Chairman Van Hollen. I don't think that there's anything more central to families' making it in America than for us to protect the men and women who protect America. And on that score this historic Congress has been tremendously successful. We refocused our fight against the terrorists, gave our troops a pay raise, equipped them with body armor and the armored vehicles they need. We improved health care for 5 million veterans. We expanded VA health-care services for women veterans. We provided retroactive pay for troops whose service was extended under stop-loss orders. And we ensure that the Vietnam veterans and survivors exposed to Agent Orange will receive long-overdue benefits. We expanded the new GI Bill passed by Democrats in the last Congress, to provide college education for veterans of Iraq and Afghanistan, to all children of fallen troops since September 11th, 2001. Despite their rhetoric, Republicans failed to make necessary investments in our troops, jeopardized the economic security of military families and shortchanged the veterans' health care. But we're also moving American families forward. We passed historic health reform that makes coverage more affordable for small businesses and families, and we implemented a Patient Bill of Rights last week to stop insurance companies from denying coverage for children with pre-existing conditions, or dropping people when they get sick. It ends lifetime coverage limits, and lets young adults stay on their parents' policies until age 26. Health reform reduces the deficit by $143 billion in the first 10 years, and 1.2 trillion (dollars) over the next 10 years. Unfortunately, Republicans are promising to repeal health-care reform and the benefits that come with it. We can't go back. We must continue moving America forward. And to help us get that done, (our ?) next speaker is out and about making sure that every one of the people who voted for all this landmark legislation comes back here next year to keep moving America forward. Ladies and gentlemen, Chairman Chris Van Hollen. REP. VAN HOLLEN: Thank you very much to our very distinguished whip, Mr. Clyburn. As the speaker and all of my colleagues have said in discussing these major legislative initiatives, they all reflect choices -- choices that are made about the priorities for the American people and the way forward. And the choice we made was to begin to rein in the power of some of the big corporate special interests who had their sway during the previous eight years. 14:54:02 The previous eight years had an economic agenda that served the interests of some very few special interests at the expense of American consumers, American workers and American taxpayers. The choices we made were in support of American workers, American taxpayers and American consumers. 14:54:11 And let's start with the Wall Street reform bill. With the Wall Street reform bill, we will ensure that never again -- never again will taxpayers be left having to pick up the tab for bad decisions made on Wall Street, and never again will workers across the country be held hostage by reckless gambling in parts of Wall Street. Now that piece of legislation also ended the TARP initiative, the bank rescue initiative launched by President Bush and former Secretary of Treasury Paulson. It ended that. We passed that important reform legislation. Amazingly, not only did our Republican colleagues oppose it, but they have now made as one of their central planks of their platform repealing it, accomplishing what a lot of very well-paid lobbyists in this town were not able to do: to turn back the clock and give that power back to big banks on Wall Street at the expense of American consumers and others. 14:55:28 There are a number of other examples. We talked about the higher education legislation, making sure that kids could afford their college education. What choice did we make there? The choice we made was to say: We don't think some of the biggest banks need to be taking this big cut of taxpayer dollars without taking any significant risk. Let's make sure that money goes to students who are struggling to pay their way through college. They need it. The big banks don't need it. That choice was reflected when it came to making sure that teachers who were about to be laid off around the country -- that would have led to smaller class sizes this fall for our kids -- we made sure that local school districts have the funds to make sure that those teachers were in the classrooms when all our kids went back to school. 14:56:18 How did we pay for it? We paid for it by shutting down these perverse loopholes in the tax code that reward multinational corporations that ship jobs overseas. Our colleagues on the other side of the aisle said no to that, putting the interests and the profits of multinational corporations above the interests of American workers right here at home. And interestingly, even though the issue of outsourcing was one of the most popular recommendations made by the American people when the Republicans did their listening tour -- it was right up there -- you will not find one mention of outsourcing, not one, in the 47-page document that the Republicans put forward. Why? Because it didn't fit with the economic agenda, the same one they pursued for the previous eight years. Similar choices were made with respect to health insurance, health insurance. During the previous eight years, health insurance premiums quadrupled and profits went through the ceiling. Under the new bill we passed, we're going to rein in the cost of premiums, and we will ensure that no longer are kids in America discriminated against because they've got asthma or diabetes or some other preexisting condition. Finally, on the health-care issue, we saw the choice they made. They put a budget on the floor of the House last year that would cut Medicare by 75 percent over a period of time; turn it into a voucher program, no more guaranteed benefit; and say, hey, you're off on the private insurance market with this voucher of declining value. That was their health-care proposal -- again, one that would greatly benefit a lot of the same insurance companies that opposed the health- care reform bill. And let me just end with this. We've seen the response of a lot of the special interests whose power has been reined in as a result of the Wall Street reform bill, the health-care reform bill, the end to special tax breaks for corporations that outsource. They're now spending millions of dollars around the country trying to defeat people who are trying to rein in their power and to support people who would return to the economic agenda that serves the interests of those particular entities. That's what's going on. And that's why -- that's why, when it came to the DISCLOSE bill, where we said you can say whatever you want about the records of members of Congress or their (parties ?), go ahead, just tell us who's bankrolling your ads. Just tell us who's paying for those ads. That the voters have a right to know. And the fact of the matter is, they don't want to tell the American voter who's paying for those. We're finding out. And as we find out, it's becoming clearer and clearer that it's the special interests that were served by the economic policies of the previous eight years and whose power was reined in by the measures that we took in this Congress. So that's the kind of choices that our members made, and those are the kind of choices that were made by the other side. And we hope that as the American people look at those records, they will see the choices that were made on both sides and the choices ahead of us. 15:00:03 SPEAKER PELOSI: I thank my colleagues, the majority leader, the majority whip -- (inaudible) -- assistant to the speaker and the chair of the Democratic Congressional Campaign Committee for being here today and being there for America's working families every single day. And we'd all be pleased to take any questions you may have now. Q Madame Speaker, you talk a lot about choices, but there are some choices that your caucus was unable to make this week, unable to make this year. There was no budget. There's no decision or vote on what to do on extending tax cuts. I'm wondering what you can say about Republican charges that you've run out of gas, that you don't have the will to govern anymore. SPEAKER PELOSI: Do any of my colleagues want to take that before I do? (Laughter.) REP. HOYER: You know, I think I answered this -- (inaudible). We have a budget enforcement resolution. 15:00:52 We passed a budget enforcement resolution. What does a budget do? A budget sets, as all you know who cover the Congress, an upper level of spending. We passed that. That's a cap. The budgets beyond that are subject to the Appropriations Committee allocations. So we have a budget enforcement, Leslie (sp). We passed it. And we're going to follow up with that budget enforcement resolution. On the second part of your question, we're going to make sure that no American is taxed any additional tax on their income up to $200,000 -- no American. One-hundred percent of America will not have any increase in their taxes individually, up to $200,000, and as families, up to $250,000. And we're going to do that before the end of the year, when the Republican policy of phasing out the present tax would have required an increase in their taxes. We're going to make sure that doesn't happen. SPEAKER PELOSI: Yes. Q On the same note, there's more than a month until election day, and your members are paid by the taxpayers. Isn't it sort -- seem sort of strange that taxpayers are funding your members to go out and campaign for the next month, rather than be here to work? SPEAKER PELOSI: Well, let me say that our members are called "representatives." And as I say to them over and over again, your job description and your title is one and the same: representative. Our constituents want us to hear what they are saying about the issues so that they can represent us. So our members are doing the other part of their job: listening to their constituents and listening to what their priorities are, so that they can come back here and fight for those priorities. The job is not just what happens in Washington, D.C. It's almost two jobs. You have a job in your district; and you have a job in Washington, D.C., to come here and to legislate and vote. So our members work very hard, and it's up to their constituents to make that judgment about how they'd like them to spend their time. Yes, ma'am. Q Madame Speaker? Madame Speaker, across town, Republican Leader Boehner is now giving a speech about reforming Congress, and he talks about the House that you're running now, and he says it's in a state of emergency; the institution does not function, does not deliberate, and seems incapable of acting on the will of the people. I wonder what you think of his message and his argument that he's the guy to clean it up. SPEAKER PELOSI: Would you like to speak to that, Mr. Van Hollen? REP. VAN HOLLEN: Certainly. I think everybody is very aware of the fact that Mr. Boehner, the Republican leader, 15:03:39 was part of a Republican Party in the House that engaged in a number of efforts that I think were not held in very high regard by the American people, beginning with the K Street Project, which all of you recall was an effort by Tom DeLay and others to essentially have this fusion between special interests on K Street and the legislative agenda of the Republican Party. And what we're finding out when we look at their platform and their recommendations is that fusion remains to this day. Mr. Boehner invited a whole bunch of Wall Street lobbyists down here to Washington and met with them behind closed doors to plan to sabotage and kill the Wall Street reform bill. And so I guess it's no surprise now that that's a major part of their agenda if they were again to return. The measures that were taken by the speaker in this House represent a dramatic change from before. Number one, when it came to making sure that we held our members accountable, we set up an outside group to review all the cases that may have been made, all the -- all the allegations made against members, so that you had an independent body making judgments about those and forwarding recommendations. Republican colleagues oppose that. 15:05:09 Earmark reform. You might remember that there was a lot of talk on the Republican side about how they were going to have this moratorium on earmarks. I want you to look at their 47-page document, and I challenge anyone to find anything in there about earmark reform. We reformed the process. We dramatically reduced the number of earmarks. They quadrupled during the time that Mr. Boehner was part of the Republican vanguard. And as result of the actions we've taken, the process is transparent. The numbers have come way down, and we no longer provide any funding in that form to for-profit corporations and interests, because we think that distorts the market. The Republicans oppose that. It's very clear that they would return to that, since they didn't mention that in their document. And finally, I will end with this: When it came to the whole process of holding members accountable, when their members got in trouble, they actually changed the rules retroactively to protect them. So it's very interesting to see -- MS. : (Off mike.) REP. VAN HOLLEN: What's that? MS. : (Off mike.) REP. VAN HOLLEN: Yeah. And they fired the chairman of the ethics committee who actually brought serious charges against some of their members. So it's, I think, going to take a great -- a great leap of faith with the American people to believe that one of the people who was the architect of all those Republican policies is now somehow going to reform them, when in fact their own document that they released the other day shows that continued cozy relationship between the policies they express and the lobbyists. MORE So -- 15:07:17 REP. HOYER: Let me just add, the Republican strategy has been and continues to this day to create gridlock and failure. That's been their objective in the House and in the Senate. What was the result? They failed. Norm Ornstein has said this is the most productive Congress in recent memory. It's the most productive Congress in which I have served. So they failed, but they gave the impression to the American people that we couldn't work together because that was their political strategy. And then they have now made a pledge to the American people, as has been pointed out, not by me, not by the speaker, not by Chris Van Hollen, not by Democrats -- David Frum, George Bush's speechwriter, when he said, speaking of this new document, "a pledge to do nothing." Speeches are fine. The American people want performance. And on every criteria of comparison, this Congress is moving America ahead. I have to leave now, but this Congress has been extraordinarily productive, though contentious because unlike -- and I claim some degree of credibility in working in a bipartisan fashion with Roy Blunt and with others on the Foreign Intelligence Surveillance Act to make America secure, on the Help America Vote Act to make America have a better democracy, and on other items for the security and welfare of our nation. Unfortunately, the party of "no" adopted a political strategy of obstructionism and now claims that there is not anything happening in the Congress. And the facts belie their assertions as their pledge pledges to do nothing. Q Madame Speaker? Q Madame Speaker? 15:09:35 SPEAKER PELOSI: I just want to add one thing to that, because when we talk about bipartisanship and cooperating with the Republicans, it was the Democrats in the House of Representatives -- and in the Senate, but especially in the House -- who took the lead in working with President Bush to pull us out of a financial crisis. We were told, because we asked, not because they thought they were responsible to tell -- it was their responsibility to tell us -- on September 18th, 2008, we were told that if we did not act immediately, there would be no economy on Monday. That was a Thursday night. There would be no economy on Monday. This is how far down the road into financial crisis the Bush administration had taken us. We knew we had to do some reform. We did it. We did it in a way, though, that was different from the way the Bush administration proposed. We did it to make the taxpayer whole. And that's almost where we are now, and we have cut off the fund of TARP. That was a very big level of cooperation with the Republicans that not even the Republicans in the House of Representatives gave to their president of the United States. It's no wonder that Mr. Boehner wants to talk about process. They have no substantive issues to take to the American people. If they want to talk about process, we can talk to them about that. But we'd rather be talking about progress, rather than process. Progress for America's working families: That's what the president has said will be the measure of our success, the progress made by those families. Yes, ma'am. Q Madame Speaker? Q Madame Speaker, tomorrow the president is expected to pick Pete Rouse to replace Rahm Emanuel as chief of staff. Could you say a few words about Pete, what you know about him, and also about your former colleague Rahm Emanuel going off to run for mayor? SPEAKER PELOSI: Now we're talking about people. We were talking about politics; we were talking about policy; now we're talking about people. First let me say about Rahm, of course he enjoys a great reputation, and I might even use the word affection, among his former colleagues in the House of Representatives. He can do anything he sets his mind to, 15:11:44 and we all wish him much success. I extended those greetings to him when I saw him this morning at the White House. 15:11:51 As far as Pete Rouse is concerned, the only issue that matters there is, does the chief of staff have the confidence of the president of the United States. Pete Rouse certainly has the respect of those in Congress, who know his service to our country well. If that's the president's choice, then we salute him and offer cooperation with him. Q Madame Speaker -- Q Would you endorse Rahm? Q Madame Speaker? Q Would you endorse Rahm, Madame Speaker? SPEAKER PELOSI: (Off mike.) (Laughter.)