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Bankers Under Fire; Kids With Cash

Aired April 27, 2010 - 10:58   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

TONY HARRIS, CNN ANCHOR: Here are some of the big stories we're following you in the CNN NEWSROOM for Tuesday, April 27th.

Did Goldman Sachs make billions betting against the mortgage market? Executives say no. Lawmakers say they've got some explaining to do. We explain why today's hearing matters to you. Plus this --

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I have my own portfolio initial tiff and it's really amazing. It would take everything (INAUDIBLE) to the next level.

(END VIDEO CLIP)

HARRIS: Educating the next generation of bankers and brokers. Chicago students learn valuable lessons about money while investing in their future.

And families literally ripped apart by deadly tornadoes. Among the victims, a baby and two young sisters.

(BEGIN VIDEO CLIP)

ED LAVANDERA, CNN CORRESPONDENT: The father grabbed one girl and a brother grabbed his sister. But the power of the storm was just too much. The girls were sucked out of the house and thrown about 100 yards deep into the woods.

(END VIDEO CLIP)

HARRIS: Ed Lavandera with the heartbreak along one road in Mississippi.

Good morning, everyone. I'm Tony Harris. Those stories and your comments right here, right now in the CNN NEWSROOM.

(MUSIC PLAYING)

Oh, I love how this day is stacking up. Money and power clashing now in Washington.

Executives from Wall Street's most profitable firm, Goldman Sachs, are defending their company's actions during the housing meltdown. They are on Capitol Hill facing questions from a Senate subcommittee. Lawmakers accuse the firm of helping to create the housing bubble, then making billions from the bust by secretly betting against their own mortgage deals. In effect, betting against you.

President Obama, meanwhile, is focussed on bringing jobs back to Main Street. Jobs lost, in large measure, as a result of the near collapse of the financial system and credit markets seizing up. He is taking his message to cities in Illinois and Iowa, hardest hit by the financial crisis.

Live pictures now from the Senate subcommittee hearing. What happens here could affect the future of the entire financial industry. That includes your bank, your retirement savings, your 401(k), even your mortgage.

I asked the CNN Money team to explain why this hearing should matter to you.

(BEGIN VIDEOTAPE)

STEPHANIE ELAM, CNN BUSINESS CORRESPONDENT: I'm Stephanie Elam in New York.

You may not think Goldman Sachs has anything to do with you, but what happens on Wall Street impacts Main Street. So if you need proof, just take a look at the housing crisis.

Three years ago, most people had never heard of subprime mortgagees. But last year there were a record number of foreclosures affecting people with good credit, too. So we've got to learn from the past. If Goldman Sachs had a role in bringing down the mortgage market, we need to figure out how so we can make sure it doesn't happen again, and that's why you should care.

(END VIDEOTAPE)

(BEGIN VIDEOTAPE)

CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: I'm Christine Romans on Capitol Hill.

Why does this matter to you? You're going to get probably the best look at how Wall Street works than you've ever seen. The question is, does Wall Street work to make the economy grow or make companies get bigger so they can hire people, or was Wall Street working against Main Street? That's what we'll find out today.

(END VIDEOTAPE)

HARRIS: Wow. OK.

Let's get to the action now on Capitol Hill. Our man in the hearing room, Chief Business Correspondent Ali Velshi.

And Doctor, to you, the same question. Why does this hearing matter today?

ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Well, I don't know if you have a picture of it, Tony. I'm just hearing myself, so I'm going to take this out of my ear for a second.

Fabrice Tourre is speaking now. Christine is actually in the hearing room. I've moved outside.

And what we're listening to is this is the guy -- this is the 31- year-old executive director, vice president. He's the guy who the SEC -- he's the only Goldman employee, by the way, that the SEC has named in its charges.

This hearing is different from the SEC. This is senators who are trying to figure out what role the investment banking community, investment bankers as a whole, had in this financial crisis.

We knew there was a recession anyway. Did these guys and the things that they were doing, doing more to make it worse? And that's what we're listening to.

Let's listen in to Fabrice Tourre, "Fabulous Fab." You may have heard of him.

HARRIS: Yes.

(JOINED IN PROGRESS)

FABRICE TOURRE, EXECUTIVE DIRECTOR, GOLDMAN SACHS STRUCTURED PRODUCTS GROUP TRADING: -- permit sophisticated institutions to customize the exposure they wish to take in order to better manage the credit and market risks of their investment holdings.

Mr. Chairman, as you know, the Securities and Exchange Commission recently filed a civil suit alleging that I failed to disclose to investors certain material information regarding a transaction that I helped to structure named Abacus 07AC1. I deny categorically the SEC's allegations, and I will defend myself in court against this false claim.

Since the suit was filed, there have been many questions raised about the AC-1 transaction and my role in it. I appreciate the opportunity to answer those questions, and I want to make a few points absolutely clear.

First, the only two investors in the transaction, ACA and IKB, were institutions with significant resources and extensive experience in the CDO market.

Second, I never told ACA, the portfolio selection agent, that Paulson & Company would be an equity investor in the AC-1 transaction or would take any loan position in the deal. Although I don't recall the exact words I used, I recall informing ACA that Paulson's fund was expected to buy credit protection on some of the senior tranches on this deal. This necessarily meant that Paulson was expected to take some short position in the transaction.

Moreover, from the early stages of the transaction in January, 2007, to its completion several months later, none of the offering documents provided to ACA indicated that Paulson's fund would be an equity investor. (INAUDIBLE) was confused about Paulson's role in the transaction, that every opportunity to clarify the issue, representative of Paulson's fund participated directly in all of my meetings with ACA regarding the transaction.

I do not ever recall ACA asking me or Paulson representatives if Paulson's fund would be an equity investor. Indeed, ACA and Paulson had several discussions about the transaction and at least one meeting without Goldman Sachs representatives present. Quite frankly, I'm surprised that ACA could have believed that the Paulson fund was an equity or a long investor in this deal.

Third, the AC-1 transaction was not designed to fail. ACA and IKB were two of the most important clients to my desk. Moreover, the securities referenced in the transaction did not underperform the other securities of that ratings class in vintage (ph). In fact, all those securities performed poorly because the subprime mortgage market suffered a broad collapse.

Goldman Sachs also had no economic motive to design the AC-1 transaction to fail. Quite the contrary. We held long exposure in the transaction just like ACA and just like IKB. When the securities referenced in AC-1 declined in value, we lost money, too, including around $83 million with respect to the retained (ph) loan position.

Finally, ACA selected the portfolio of securities referenced in the transaction, not Paulson. ACA had sole authority to decide what securities would be referenced in the transaction, and it does not dispute that fact.

Neither the Paulson fund nor Goldman Sachs could dictate to ACA the securities referenced in the deal. Paulson's funds made suggestions to ACA, as did IKB and as did Goldman Sachs. And the SEC complaint conceived that ACA rejected most of Paulson's suggestions while accepting others.

So, while Paulson, Goldman Sachs, and IKB all had inputs in the referenced portfolio for AC-1, ACA ultimately analyzed and approved each security in the transaction. Thus, when Goldman Sachs represented to investors that ACA selected the referenced portfolio, that statement was absolutely correct.

Mr. Chairman, the last week has been challenging for me and my family, as I have been the target of unfounded attacks on my character and motives. I appreciate the opportunity to appear before the subcommittee to answer these false charges. I wish to repeat, I did not mislead IKB or ACA, two of the most sophisticated institutional investors in these products anywhere in the world.

I will be pleased to answer any questions that the subcommittee may have.

HARRIS: Well, we want to hear the questions.

And Mr. Tourre, we'd love to hear your answers.

Let's bring back in our chief business correspondent, Ali Velshi. Ali, what we were listening to there was Fabrice Tourre defending himself and Goldman against the SEC charges. Did I hear that correctly?

VELSHI: Yes. And look, there's not a general disagreement in most of the facts. The issue is this -- how much did Goldman allow this hedge fund investor, John Paulson, to influence the selection of this particular portfolio that he's talking about, and how much of that information was passed on to the people who made that investment? How much disclosure was there, basically?

I mean, look, this comes down to every business deal you ever do. Right? Off the top of my head, I think about buying a used car. If you know something about that car that the buyer should know and you don't disclose it, that's your responsibility.

So, basically, the allegation here is that Fabrice Tourre structured a product that was sold to people who thought it was something, and he might have known something more about it. And he was saying that is incorrect.

And basically, the position he's taking is that you all, meaning politicians, or regulars, you all don't know enough about this stuff. We're all very sophisticated, the buyers were sophisticated, we all knew what was going on.

HARRIS: A touch deeper here, it's that this Paulson Group and Goldman Sachs work together to develop this portfolio that they had -- the suggestion is that they had a strong indication would fail, and that they bet that it would fail even as the portfolio was being sold to investors as something they could make money on.

VELSHI: Right, which from the Paulson hedge fund group was doing nothing wrong. I can bet that the Mets are going to lose X number of games. That's fine. The issue is, if you are selling the other side of that bet, you might bet that the Mets are going to win all of these games.

But what if I know something about the Mets that you don't know, or what if you're selling something -- I'm selling something to you and you don't know that I actively am working against that? That's where the gray area comes in, and that's what they're making the argument about.

As for the larger argument that I think most of our viewers are interested in, is this moral, is this ethical? They're not even touching that right now. They're just talking about the strict legality of what they did and whether or not they broke any laws.

HARRIS: Yes, good stuff. Ali, appreciate it. Thank you.

VELSHI: Thank you.

HARRIS: We want to hear from you on this financial reform issue. What are your questions? What are your concerns? If you would, send them to me at CNN.com/Tony, or post them at CNN.com/ireport. We will try to address them right here over the next couple of hours and throughout the day, really, in the CNN NEWSROOM.

Watching today's hearings on the financial meltdown, most of us face a steep learning curve when it comes to understanding investments. I know I do, but what about the next generation? We're going to meet some school kids who are getting an early start on their financial education.

And Rob Marciano, where is he? In the Weather Center tracking a storm that is brewing right now out West. We will check in with Rob in just a couple of minutes.

You're in the CNN NEWSROOM.

(COMMERCIAL BREAK)

HARRIS: We are keeping an eye on Capitol Hill, where senators are questioning Wall Street executives about events leading up to the mortgage meltdown. Right now, though, we're going to take a look at some younger investors.

CNN's Christine Romans reports that students at an inner city Chicago school are learning about money by investing it.

(BEGIN VIDEOTAPE)

ROMANS (voice-over): Meet America's future investment bankers and accountants.

UNIDENTIFIED FEMALE: We have to look out for the dividends.

UNIDENTIFIED FEMALE: I like checking the Dow.

UNIDENTIFIED FEMALE: My favorite stock is Apple.

ROMANS: At Ariel Academy, students learn to you to make money...

UNIDENTIFIED FEMALE: The financial ratio, it helps the business like...

ROMANS: Save money...

UNIDENTIFIED FEMALE: I think everybody should at least save half of their money.

UNIDENTIFIED FEMALE: Don't forget your decimal.

ROMANS: And invest money, real money. Thanks to the school's unique saving and investment curriculum.

CONNIE MORAN, DIRECTOR, ARIEL INVESTMENT CURRICULUM: The incoming class gets a $20,000 endowment. When they get to fifth grade, students will start to choose stocks they think we should be buying, and we will buy them. UNIDENTIFIED FEMALE: Stock prices (INAUDIBLE) $67.58, and the dividends is 14 cents per share.

(APPLAUSE)

ROMANS: When students graduate from eighth grade, the $20,000 goes back to the incoming first grade. Any profit above that amount gets split, half goes to improving the school or to charity, the other half gets divided among the kids.

UNIDENTIFIED FEMALE: I'm not going to invest in that at all.

ROMANS: Of course, some years, like 2009, there's no profit, and the kids learn that investing is no slam dunk. But that doesn't deter kids like Ariel graduates Mario and Miles Gage.

MARIO GAGE, ARIEL ACADEMY GRADUATE: I have my own portfolio and it's just really amazing. I'm able to take that I learned at Ariel to the next level.

ROMANS: Miles and Marioy weren't the only ones in the family getting an education.

MICHELLE GAGE, MOTHER OF ARIEL ACADEMY GRADUATES: And I started looking over some of the materials they were bringing home. It was still a little foreign to me, but then they kind of broke it down, like children do, and I started getting a little excited about that, and then the knowledge, and I'm like, wow. You know what? This is fun.

ROMANS: Fun and finance doesn't often appear in the same sentence. But that's not true at Ariel. From age appropriate learning to an inspirational environment and a ultimate reward, attending a McDonald's shareholding meeting. Making this all possible is John Rogers, chairman and founder of Ariel investments after which the school is named.

Ariel, along with partner Nuveen Investments, put up the $20,000 for each grade. In 1991, Ariel started working with this public school on the south side of Chicago, because it was one of most underserved in the city. Ninety-eight percent of the student body is African-American, 78 percent are considered low income. Nowadays, test scores are on the rise outperforming the district and the state average with the help of teachers like Connie Moran.

MORAN: Good morning.

ROMANS: Named "Teacher of the Year" by the National Foundation for Teaching Entrepreneurship in 2007.

UNIDENTIFIED FEMALE: Ever since I've listened to Miss Moran in class I heard her say invest in your money, invest in your money, invest in your and now I'm going to listen to her.

ROMANS: Christine Romans, CNN.

(END VIDEOTAPE)

HARRIS: I love it. I love it.

As we keep an ear to the hearings, we're also tuned in to what you're saying. Especially our Josh Levs. We're following your responses and your questions, what doesn't make sense and what do you really want to know.

There's Josh.

If you would, keep those messages coming at our pages here, and we'll share of them a little later this hour.

Josh is back in a minute, and there are the sites. Send in your comments right now. Josh is back in just a couple of minutes.

You're in the CNN NEWSROOM.

(COMMERCIAL BREAK)

HARRIS: Live pictures right now, Capitol Hill. There's the committee chair, Carl Levin.

Executives from Wall Street's -- really, the most profitable firm on Wall Street -- we're talking about Goldman Sachs -- defending the company's actions during the housing meltdown and facing some tough questions. We will, of course, keep an eye on the hearing throughout the day for you.

What exactly should we hear from Goldman Sachs today? CNNMoney.com has some answers.

For that, we turn to our Josh Levs.

Josh, good to see you.

What questions should these executives be facing today?

JOSH LEVS, CNN CORRESPONDENT: That's one of the big questions that's being tackled, Tony. I'll tell you, there's so much going on alongside this hearing if you're watching it.

By the way, it continues to be live right here on CNNMoney.com. So we definitely encourage you to check it out, because we want you to see every little bit of it. But stay with us as well. We'll bring you the most important parts here.

Let me go to this. Here's what I have for you.

One of the big stories we have at CNNMoney.com today is what the top four questions are that people should be asking, that these lawmakers should try to tackle today.

The first one here, is this the work of a single employee? As we know, Tony, there is one employee whose name has been coming up, a 31- year-old man, Tourre, who is going to continue to come up a lot. Now, the question at this point is, is this a case in which Goldman could say, you know what, it's really one person, they distance themselves from him? But is it more a case in which they have to start talking about what kind of oversight they have within their company, how much is really being done to watch what all the employees are doing to protect everyone that's affected by their decisions?

The second question -- all right, we skipped ahead here. Why spend so much money on lobbying this year?

You know, Tony, you and I were looking at this today.

HARRIS: Yes.

LEVS: Goldman Sachs, making millions and millions of dollars in contributions, is one of the big places that makes contributions to lawmakers. And, you know, our folks at CNN Money -- this is a great story from this writer, David Ellis (ph), who says they should have to stop and say exactly what they're looking for.

HARRIS: OK.

LEVS: It's a big chunk of cash. What exactly do you want by spending all this money?

And the fourth one I'll point to you there, has the company that generates so much money from trading help the economy grow? You know, the slogan that they use is that they do indeed help the economy grow, but what this story points out -- and I learned a bit from this -- you know, they're making a lot of money. They're making billions of dollars, but what they're doing is not these direct investments into small businesses or individual consumers. So, if their position is, what we do, the decisions that we make are good for the economy, they should have to break that down today, and that is what our folks at CNNMoney.com are saying.

HARRIS: I love, love, love that.

LEVS: Me too. Let's hope that they actually ask that. I'm hoping that enough lawmakers actually read that list before the hearing started today, or are checking it right now on their BlackBerrys and they actually get them in there.

HARRIS: You know, back in the day, that's why we gave our money to these investment houses, so that they would find the innovation, the innovative company that would spur on the next big growth cycle.

LEVS: Yes.

HARRIS: And hiring, right? And employment, and everybody would -- all right.

LEVS: Back in the day, banks used to pay you for holding on to your money.

HARRIS: How about that?

LEVS: Everything has changed. It's a whole new world.

HARRIS: OK. And Josh, we're also hearing from our viewers as well, correct?

LEVS: We are, yes. And I'll just mention really quickly what we're seeing so far.

We're going to be bringing you some answers next hour. We're going to be sharing some of your words next hour.

But what we're seeing in a lot of cases are a lot of people very angry. But what's also really interesting here, Tony, is that the anger doesn't just go out to Goldman Sachs or toward these companies. We're seeing a lot of people question, why should we trust the SEC or Congress to do anything that's going to mark a lasting change?

A lot of people saying that doesn't make sense, that the SEC missed this, ,this time, what's to make us think they won't miss it next time? And that's something we're going to tackle for you next hour -- CNN.com/Josh or the best Web site in the world, CNN.com/Tony.

Keep those questions coming.

HARRIS: You're the man. All right, Josh. Appreciate it.

LEVS: Thanks, Tony.

HARRIS: Let's get you caught up now on our top stories.

President Obama takes his push for financial reform to Main Street today. He will stop first in Iowa, one of the states hardest hit by unemployment. There, he will meet with farmers and small business owners to talk about putting Americans back to work. The president began the day by announcing a new commission on fiscal responsibility.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I want this commission to be free to do its work. In theory, there are few issues on which there is more big risk, bipartisan agreement, than fiscal responsibility. But in practice, this responsibility for the future is often overwhelmed by the politics of the moment.

(END VIDEO CLIP)

HARRIS: A record drug bust in Hong Kong. Police acting on a missing person tip stormed a home in a small village. No missing person there, but they did find this huge stash of cocaine, estimated street value more than $43 million. Eight people arrested.

A parliamentary vote in Ukraine became a free-for-all. Take a look at this, after opposition members began hurling eggs at the speaker. But as you can see here in a second -- that's the egg- throwing part, right? There's the umbrella.

OK. Break early. The meeting divulged from here to open fisticuffs. The meeting was actually called to ratify a treaty to extend Russia's naval presence in Ukraine for another 25 years.

Did we ever see the fisticuffs? I'm not sure we did.

Still to come in the NEWSROOM, one simple tap and things began falling into place for a school in Haiti. How a Texas game of dominos is helping rebuild the battered country.

(COMMERCIAL BREAK)

HARRIS: Dominos falling in Texas, and the chain reaction is helping to rebuild Haiti. Check it out.

Each domino is worth a dollar raised by students at the St. George Episcopal School. So far, about $27,000. That's a nice round number. That's real money that will help rebuild a school in Haiti.

(BEGIN VIDEO CLIP)

JENNIFER WICKHAM, ST. GEORGE EPISCOPAL SCHOOL: For every dollar that we raise, we put a domino in the floor of our gym. And so by having all of the dominos lined up, people can see how little efforts and little bits of money add up to make a big difference.

(END VIDEO CLIP)

HARRIS: And it does. It really does.

There he is. There's the man, Rob Marciano.

(WEATHER REPORT)

HARRIS: Wall Street bigwigs on the defensive in Washington. We are live at the hearing into the role Goldman Sachs played in the mortgage meltdown.

Plus, a live report on efforts to push financial reform forward.

We are all about your money today, right here in the CNN NEWSROOM.

(COMMERCIAL BREAK)

TONY HARRIS, CNN ANCHOR: A clash of titans. Top execs from Wall Street giant Goldman Sachs facing tough questions from Senate lawmakers. Live pictures here of the subcommittee hearing on Capitol Hill. Goldman Sachs denying allegations it made billions from the housing collapse at the expense of their own clients.

(BEGIN VIDEO CLIP)

SEN. CARL LEVIN, (D) OVERSIGHT COMMITTEE CHAIRMAN: As we speak, lobbyists fill the halls of Congress hoping to weaken or kill legislation aimed at reforming these abuses. Wall Street is on the wrong side of this fight. It insists that reining in those excesses would unduly restrict a free market that is the engine of American progress, but this market of ours isn't free of self-dealing or conflict of interest. It isn't free of gambling debts that taxpayers end up paying.

I hope the executives before us today and their colleagues on Wall Street will recognize the harm that their actions have caused to so many of their fellow citizens, but whether or not they take responsibility for their role, I hope that this Congress will follow the example of another Congress eight decades ago and enact the reforms that will put a cop back on the Wall Street beat.

SEN. CLAIRE MCCASKILL, (D) MISSOURI: All of you were lemming- like. You were chasing each other. What you worried about most was a bad article in the "Wall Street journal" not a regulator. You were chasing compensation. You were chasing your colleagues and other investment banks, and you were trying to make a killing. Let me just tell you, you think it's so complicated and you think you're so smart. Any street gambler would never place a bet with a bookie or a house with the record that is revealed in the documents this committee has gathered.

(END VIDEO CLIP)

HARRIS: Wow! It's going get hot today. Look, if at first you don't succeed, try, try again, right? That is the plan for Senate Democrats after an expected setback in the push for financial reform in an effort to start the debate came up short.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: On this vote, the yeas are 57. The nays are 41. Three-fifths of the senators duly chosen and sworn not having voted in the affirmative, the motion is not agreed to.

(END VIDEO CLIP)

HARRIS: Congressional correspondent, Brianna Keilar, live from Capitol Hill where all of the action is today. Brianna, good to see you. Let me start here, when do Democrats plan to hold another one of these test votes?

BRIANNA KEILAR, CNN CONGRESSIONAL CORRESPONDENT: 4:30 p.m. eastern time, we've heard that from Senate Majority Leader Harry Reid. And the thing, Tony, that's kind of interesting, we're not expecting the vote breakdown to be any different. We're expecting this to fail as well so why are they doing this, you might ask? This is part of Senate Democrat strategy to keep the pressure on Republicans, to paint them essentially as standing by Wall Street instead of Main Street as they force them to take these votes that are expected to fail.

Why? Well, behind the scenes, what you have is the top Democrat and the Top republican on the banking committee. They're trying to negotiate to work out a deal, but top Democrats feel that Republicans are dragging their feet. They're not going quickly enough about this, and so, they're going to keep putting the pressure on this promising to have votes not just today, Tony, but there's also another one that's expected to take place tomorrow.

Now, Republicans on their side, they say wait. We want some changes. We're not going to sign on to something that we don't like, and we think this can be made better, and this is really our one shot because the only other shot in legislating, Tony, that they would have would be the process of amendments. We need 60 votes to pass an amendment. Clearly, Republicans don't have that. So, they're holding out their negotiation position right now trying to get some of these changes that they want.

HARRIS: Let's talk about changes. What are some of the points here of the legislation that Republicans don't care for?

KEILAR: Let's talk about a couple. One is how do you end a bailout? Democrats, in this bill, what they have is a $50 billion fund. The money from this fund would come from Wall Street firms, not from taxpayers. So, Wall Street firms would be paying for it and then when the government, if one of these big companies were to fail, winds down, has a new ability to wind down one of these companies. It would be paid for with this fund instead of taxpayers. Well, Democrats say that that's kind of -- pardon me, Republicans say that's kind of a self-fulfilling prophecy because you're giving these companies maybe this promise of a painless wind down, they say.

And so, you're kind of encouraging them saying there's a safety net and you can go ahead and take it, and then, they also say it could go a step further. Maybe the government could read into it even more and use it as a bailout fund instead of just a wind down fund and the other issue how to do it, how do you protect consumers? There are things in this bill that are supposed to protect consumers from things like predatory lending and the like. The Republicans say the entity that would be given the power to do that is just going to be too far reaching. It's going to be unchecked power.

HARRIS: All right. Briana Keilar on Capitol Hill for us. Brianna, appreciate it. Thank you.

Going after Goldman, the Wall Street powerhouse already facing fraud charges. Today, executives faced some tough questions from lawmakers and our guests drilled down on the allegations. Let's get started here right now. There is Ryan Mack and John Bogle joining us.

And Ryan, let me start with you. The allegations here against Goldman, is there any there there?

RYAN MACK, PRESIDENT, OPTIMUM CAPITAL MANAGEMENT: Well, they really don't have that strong of a case. You know, the SEC will essentially say that, you know, essentially that Paulson and Company helped to assist and to create this portfolio that Goldman went out and essentially started to sell to investors, but then Paulson was essentially shorting the market and so therefore, Goldman was shorting the market, but then Goldman would say look, you know, we lost $1.2 billion in 2007 and 2008 in the subprime market. So, we have a duty to our shareholders in order to hedge our bets. I think the larger picture really is the fact that in terms of moral, you don't allow an arsonist to sell fire insurance. You know, so while they might not have a strong case and I don't think it's really going to hold water for the long run, I just think that the public perception of what Goldman really hatches the gold through in terms of how individual's view potentially selling the securities that you're shorting against is just not morally sound and the simple fact that it's illegal. I mean, we can do that and the glaring conflict of interest really points to the lack of regulatory and the necessity for financial and regulatory reform.

HARRIS: And John, let me come to you on the same point. What the FCC is alleging took place at Goldman? Is it just simply bad PR or is it illegal?

JOHN BOGLE, FMR. CHAIRMAN, THE VANGUARD GROUP: Well, to begin with, if it's still true that where there's smoke, there's fire. There's an awful lot of smoke that's been created out there, and it's possible that before this is all over, there will be some fire burning down underneath everything. I don't think we have nearly enough facts to decide whether it's illegal or dare I say, merely unethical, but unethical behavior is going to get you into a lot of problems even though it's not technically illegal.

If I had to take a guess in all this, I would guess that at the end of a long and expensive process with Goldman's ability to hire the most expensive lawyers and most of them in the U.S., there'll probably some king of a settlement with the SEC, although, nobody could even be talking about that now.

HARRIS: Yes. Ryan, tell me what you mean when you say Goldman Sachs is essentially a master at manipulating the system. What do you mean?

MACK: Well, Goldman is one of the best traders out there. Essentially, you know, if you're looking at the differences between, you know, standardized derivatives versus customized derivatives. That comprises 80 percent of the market. They're able to create these collateralized debt obligations. These specialty products that essentially go beneath the radar. So, they're good at making money, and they're one of the best at it.

So, when you look at it, they find ways and the problem if you don't have that proper infrastructure, that necessary regulatory reform that really allows, you know, to watch the chicken coop and make sure that nobody was escaping, then what they're going do is essentially to take full advantage of that and make a tons of money doing it. So, we just have to rewind and say, you know what, what sort of rules can we set in place in order to make these things illegal.

I mean, I can't agree with Mr. Bogle any more. We have to make sure that these unethical things are eliminated completely so they're not allowed to take advantage of these loopholes in the system at which are really tremendously great at doing. HARRIS: Hey, John, last question for you, if you were in the hearing room, I mean, you know this inside out, both of you do. What question would you ask and help the viewer here with this. What question would you want asked and what kind of an answer, an honest answer do you think you would get to your question?

BOGLE: Well, let's take one example. Let's take this -- I think it's called abacus securities that were created so that John Paulson could be short then. Somebody has to be long them and my question would be, assuming I've got the name right at abacus, would they have shown abacus, recommended abacus to their very best and most important clients. If the answer to that question is yes, they would. I think a lot of the ethical question disappears, but I'm going to guess they wouldn't dream of offering that kind of merchandising, that kind of merchandise to their best clients.

HARRIS: And the same question to you, Ryan. In the hearing room, what's the question you want answered today?

MACK: Well, essentially is do you really care about your clients? Do you really care about your bottom line? Do you have an obligation to your clients or to your shareholders? If you're out there selling securities that you're knowing that you're shorting against, then essentially, you're putting your bottom line over the basic interest of your clients. You're not supposed to just sell securities just for the sake of increasing your revenue.

You're supposed to sell securities in order to increase the benefit of those who have purchasing these securities. So, if you're shorting against them to increase your bottom line, that's essentially the most glaring conflict of interest that is out there. We really need to crack down on that.

HARRIS: Ryan Mack, John Bogle. Gentlemen, appreciate it. Thank you both.

We're going to keep track of Goldman Sachs executives and their testimony on Capitol Hill more right after this.

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HARRIS: All right. Let's get you caught up on top stories now. A big turnaround for Ford Motor Company from this time last year. My goodness. The automaker is reporting a surge of profits for the first quarter. Net profits around $2 billion. In the first quarter of last year, Ford lost $1.4 billion. Ford says the reason for the turnaround, strong sales in the United States and around the world.

The world-famous Hollywood sign saved from the wrecking ball and Hugh Hefner is a big reason why. The playboy founder has donated about $900,000 needed to save the sign. The fund raising effort raised more than $12 million. The money will be spent to buy land around the sign to prevent developers from building luxury homes.

Manuel Noriega is now in France to face money laundering charges. The former dictator of Panama was extradited from the U.S. where he spent more than 20 years in prison on a federal drug conviction. Noriega was ousted from office in Panama in the U.S. invasion in 1989.

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HARRIS: Executives from Wall Street powerhouse Goldman Sachs on Capitol Hill right now. They are defending against allegations the company bet against the housing market and made billions in the process. In addition, the SEC accuses Goldman of fraud. A financial and legal expert talked about the case with our Dr. Sanjay Gupta filling in last night on "AC 360."

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ALEXIS GLICK, FINANCIAL EXPERT: The issue here, the real crux of the problem is they went out and sold the specific instrument precisely the way one person wanted it created, and not only did they go out selling something that was sold as a AAA-rated piece of debt, but at the same time, they went out and bought insurance on what they thought would be the failure of this instrument. So, it was that simultaneous transaction which is what a lot of people are calling into question and whether or not in fact, they were betting against the ultimate buyer of this structured product.

DR. SANJAY GUPTA, CNN CHIEF MEDICAL CORRESPONDENT: And that's a very good description. One of the best I've heard.

GLICK: Complicated.

GUPTA: But some -- you're a former prosecutor. You've worked on security cases like this. Now these e-mails have surfaced as Joe Johns pointed out, in which Goldman executives essentially acknowledged betting against the real estate bubble. Is that illegal? Is it immoral? How damaging is this?

GLICK: Well, it certainly looks fraudulent, and I think that's really what the bottom line is. Everyone says that this is a very complicated case for the SEC. It really isn't. When you do something like this, you sell junk to investors and you tell them it's something else, just either a material omission. You didn't say it or just plain vanilla fraud. So, I really don't think that this is a difficult case for the SEC.

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HARRIS: Boy, how about this next story? A good Samaritan is stabbed after he went to help a robbery victim, but no one helps him. He's left to die. This story really checks your moral compass. We're back in a moment.

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HARRIS: I need you to reach out to the program. I need you to talk to me directly. A couple of ways that you can do that. First of all, CNN.com/Tony takes you directly to this, bam, our blog page. If you'd like to send us your thoughts on Facebook, here's what you do. TonyHarrisCNN. Here's my twitter address, TonyHarrisCNN. Call us. Pick up the phone, 1-877-742-5760. Let's have more of your thoughts on the program. CNN NEWSROOM with Tony Harris.

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HARRIS: OK. So as Congress turns up the heat on investment banks and their role in the financial crisis, why not take a harder look at who handles your money and how much of it they themselves get to keep. Ines Ferre is in New York. Ines, good to see you. All right. Where do we start here?

INES FERRE, CNN CORRESPONDENT: OK, Tony, watch out for those 401(k) fees. Fees and expenses paid by your retirement plan can significantly reduce your nest egg. For example, a 1 percent difference in fees and expenses each year would reduce your account balance at retirement by 28 percent. We're talking day-to-day operating costs. Also, look at investment fees and individual service fees associated with some plans.

Check with your plan administrator to find out what fees you're paying, and if you're not sure who to contact, go to your payroll department and ask to talk to the right person. And you can also go to brightscope.com where you can compare your company's 401(k) with other 401(k)s. The bottom line, you would like to keep those fees to 1 percent or less, Tony.

HARRIS: Yes. OK. So, let's talk about those financial planners. What should you look for if you're looking for one?

FERRE: Well, financial planners can get paid by commission, and that's where they -- they're compensated for the products that they sell to you or they can make their money by establishing a set fee or a combination of both. It's worth your while to check out fee-only advisers so you don't have to worry about whether they're selling you something because it's the best investment for you or may be the best for them.

Some advisers charge a percentage of your assets under management. So, when you do well, they benefit. And to find certified planners in your area, you can go to napfa.org or Garrettplanning.com. Your financial planner should provide the full picture, one who tells you the good stuff as well as possible risks. And you can check on your adviser's track record, by the way, and view any complaints at cinra.org, Tony.

HARRIS: Hey, Ines, one last one for you here. What if you're just not happy with your bank?

FERRE: Well, we all know that doing business with a bank is getting more expensive, rising ATM surcharges, higher minimum balances, increasing fees. So, it's more important than ever to get as much as you can when it comes to your bank. Compare what other banks are offering at bankrate.com and while switching banks isn't always easy, ask about switch kits. It's a way for a new bank to switch your account without having to set up your online bill pay or your direct deposit from scratch. And if you have any questions, of course, tony, send them to us at CNN help desk at CNN.com. HARRIS: Speaking of questions, Ines, appreciate it. See you next hour. We need your help. Your thoughts really. We want to hear from you on this financial reform issue. Is it still going on? Maybe we can squeeze that somewhere. What are you questions on this issue? What are you questions? If you would, send them to me at CNN.com/Tony or post them at CNN.com/i-report. We will try to address them right here in the CNN NEWSROOM.

And here's what we're working on for the next hour of CNN NEWSROOM, they are among the youngest victims of the deadly tornadoes, a baby girl and two young sisters. Ed Lavandera reports on the heartbreak in Mississippi.

From the sad to the shocking, a good Samaritan has stabbed and collapses on the street. Pictures here. Right. But that's not the worst of it. Wait until you learn how many people passed by without stopping to help.

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