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Mortgage Fraud Climbs; Goldman Sachs: Looking for Answers; Mississippi Grieving
Aired April 27, 2010 - 12:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
TONY HARRIS, CNN ANCHOR: You know what, got to tell you, many economists believe the recession is over, but we are still facing some of the same old problems. A new study shows that mortgage fraud is still rampant. Stephanie Elam is in New York with details. Stephanie, this was a big reason for the whole mortgage mess. Hasn't oversight stepped up over the past few years?
STEPHANIE ELAM, CNN BUSINESS CORRESPONDENT: And you thought what? People star passing out halos and all of a sudden people stop the fraud? No. It doesn't work that way, Tony. And yes, it's true, fraud often changes with the times, so it's hard to completely get rid of it. The number of mortgage fraud cases rose 7 percent last year. That's better than the 26 percent jump we saw in 2008, but economists say this study is only the tip of the iceberg because fraud isn't usually detected until the loan goes bad. When things get bad, that's when we see who's up to the bad stuff, right?
So, there are probably a lot more cases that we don't even know about yet. But here is what people should look for. The most common types of fraud are falsifying information on mortgage applications and inflated appraisals. Also, this idea of a liar loan, that's an issue, that's when a mortgage professional knowingly inflates a borrower's income. That's not good. And Tony, the implications of this are really huge. If your mortgage servicer falsifies your information, that means you're probably getting a loan you can't afford. That will hit you later.
And that's one of the big reasons that we have so many foreclosures right now. And here's the proof, look at the states that have the highest number of fraud cases, if you take a look at those states, they might just look familiar to you because we talk about them all the time. They have some of the highest foreclosure rates in the country, Tony. So, that's why we keep our eyes on them. Also, I just want to really tell you, the market is selling off right now because of Greek debt being downgraded by S&P. So, we're off 153 points on the Dow.
HARRIS: Wow!
ELAM: Just want to show you that.
HARRIS: Whoa!
ELAM: I know. Quick sell-off, but I wanted to explain it.
HARRIS: Greek debt and --
ELAM: Their debt being downgraded.
HARRIS: Yes. And Germany raising questions about the --
HARRIS: In Greece. In Greece. And this is about Greece again, with that whole issue there. So I just wanted to let you know simply because it was a quick sell-off in the last 30 minutes.
HARRIS: Yes. OK. Stephanie, appreciate it. Thank you.
Hi, everybody. I'm Tony Harris.
Top of the hour, right here in the CNN NEWSROOM, where anything can happen. Here are some of the real people behind today's biggest stories.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: We did have to scale back the operation of the library system, and to look more carefully at all the things that we're doing.
(END VIDEO CLIP)
HARRIS: How secret bets on Wall Street impacted so many areas around your street. Executives of investment giant Goldman Sachs answering now for their actions.
Plus, a deadly street.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: All I can say, she was a happy baby. She was so precious. I will always, always miss her. I love her.
(END VIDEO CLIP)
HARRIS: Mourning the youngest victims of Mississippi's killer tornadoes. It just breaks your heart.
Let's do this -- let's get started this hour.
Lawmakers demanding answers from Wall Street's most profitable firm, Goldman Sachs. It is accused of helping to create the housing meltdown which sparked the nation's financial crisis.
Millions of Americans are struggling with that fallout. More than eight million jobs lost. Upwards of seven million homes in foreclosure.
It's why we care and why many are push for financial reform.
Our Allan Chernoff explains how Goldman Sachs allegedly bet against you and your neighbors.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN SR. CORRESPONDENT (voice-over): This is the house Jack bought, Jack Booket (ph), an Aberdeen, New Jersey, heating repairman. Jack fell behind on his mortgage, so far behind that he lost the house to a foreclosure.
On Monday, it was put up for auction at the Monmouth County Hall of Records.
JOHN PAULSON, HEDGE FUND MANAGER: Thank you for inviting me to appear today.
CHERNOFF: This is hedge fund manager John Paulson. He bet that Jack and thousands of other Americans would not be able to pay their mortgages.
Paulson bet right and made a billion dollars.
This is Goldman Sachs, the nation's most prestigious investment firm. Goldman Sachs set up the bet for John Paulson. Jack's house was one of the cards, and Goldman Sachs was supposed to be shuffling the deck.
German bank IKB bet that Jack and thousands of other homeowners could pay their mortgages. IKB bet wrong and lost $150 million.
This is the U.S. Securities and Exchange Commission. It says Goldman Sachs committed fraud by letting Paulson pick the cards at the gambling table without telling IKB.
JOHN COFFEE, COLUMBIA UNIVERSITY BUSINESS SCHOOL: Allegations against Goldman Sachs are that they sort of loaded the dice, stacked the deck by designing a portfolio that was weaker than average.
CHERNOFF: The SEC says IKB was a victim, but IKB is not considered a victim in King County, Washington, home to Seattle. King County bought one of investments IKB was selling. It lost more than $20 million.
And these are King County's libraries, also victims of that losing bet.
BILL PTACEK, DIRECTOR, KING COUNTY LIBRARY SYSTEMS: We did have to scale back the operation of the library system, and to look more carefully at all of the things that we're doing
(END VIDEOTAPE)
CHERNOFF: King County is suing IKB, the very company that the SEC says was a victim of Goldman Sachs. The county is also suing Standard & Poor's and Moody's. Those rating agencies told King County its bet on mortgages was AAA safe.
Now, what if Jack's house it failed to generate any bidders at Monday's foreclosure auction? So it goes back to the foreclosure bank, another German firm, Deutsche Bank. And the big gamblers in this mortgage market, IKB lost so much that the German taxpayers had to bail it out.
And over here in the U.S., you know what happened. The mortgage melt down forced American taxpayers to provide the nation's biggest banks with bailout money, including $10 billion for Goldman Sachs, which the firm has since repaid -- Tony.
HARRIS: Wow. All right, Allan. Let's sort of drill down and bring this home to this Senate committee hearing on investigations right now, hitting Goldman for allegedly betting against the mortgage market and making big bucks on that collapse when Goldman claimed it was not benefiting.
Right? That's what's at issue here.
CHERNOFF: That's what's at issue with regard to the Senate hearing, yes. The Senate is making a big deal over the fact that Goldman was able to benefit while the mortgage market was in decline. They made a lot of right bets, they claim that they didn't make all that much, and that hey actually lost in this specific deal we were referring to.
Now, the SEC, you know, they're charging something very different. That fraud charge, that just has to do with omitting information, not telling IKB that Mr. Paulson and his hedge fund were picking some of the instruments that they would be betting on, and that Paulson was betting against those instruments.
HARRIS: Terrific. Clearer lines there. Allan, appreciate it.
CHERNOFF: Two different things.
HARRIS: Two different things. Good to keep them straight in your head.
Allan Chernoff in New York for us.
Why should you care about these hearings today? All right, it's a good question. We put that question to our CNN Money team.
(BEGIN VIDEOTAPE)
ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: I'm Ali Velshi on Capitol Hill, where all this afternoon sparks are flying as U.S. senators grill executives from Goldman Sachs.
They say they're using Goldman Sachs as a case study to find out what role, if any, investment bankers had in the collapse of the financial system. Well, we don't know if any charges will come out of this. But more importantly, what the senators say they're trying to do is figure out what can be changed so that this kind of a meltdown doesn't happen again.
(END VIDEOTAPE)
(BEGIN VIDEOTAPE)
POPPY HARLOW, CNNMONEY.COM: I'm Poppy Harlow in New York. Goldman Sachs executives getting grilled today by lawmakers. And you should care because this all comes at a time when financial reform is being hotly debated and the future practices of banks are on the line. Wall Street's biggest players today testifying about the decisions they made as the U.S. economy was falling apart and millions of Americans lost their jobs.
Should bankers have to change their ways, or is this just the way the free market works? It all matters to you.
(END VIDEOTAPE)
(BEGIN VIDEOTAPE)
PAUL LA MONICA, CNNMONEY.COM: I'm Paula La Monica at CNNMoney.com.
One of the things we'll be focussing on with the Goldman Sachs hearings is this -- is this just a case of business as usual and an overreaction in Washington, D.C., or did something criminal or fraudulent actually take place?
(END VIDEOTAPE)
HARRIS: I love it.
All right. Let's get to the subcommittee hearing right now. Senate lawmakers take on Goldman Sachs.
There she is. Christine Romans is on Capitol Hill.
And Christine, if you would, give us a bit of an update here. What are the executives saying?
CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: Well, still talking to Dan Sparks, formerly of Goldman Sachs, used to run that mortgage trading desk for a couple of years. We've seen a lot of the e-mails from him, and he's being grilled by senators over just what happened.
The senator you're seeing right there, he was just recently saying, look, "All I'm hearing" -- Ted Kaufman saying, "All I'm hearing is that somehow this happened," that just somehow, the housing bubble popped and then all of these things were there and it all just happened, but it wasn't caused by Goldman Sachs or any of these products. And he obviously is not buying that.
John McCain said their behavior was immoral. Claire McCaskill said, you know, a Vegas pit boss has more oversight than you do. You were just more worried about what a newspaper was going to write about you. You had no regulators to worry about. I mean, so from Republican to Democrat, getting hammered here, Tony.
And I'll tell you that we've been told a couple of times -- Senator Levin has made it very clear that some of these answers are long, some of them are very complicated. There's a lot of going back and forth over specific details of deals. And he said, "We will be here as long as it takes to find out everything we need to know." So he has put these Goldman Sachs executives on notice that they can take their own sweet time answering the questions and finding out -- you know, and coming to the point that he wants them to make, but that he will -- we will be here for a very long time doing that.
I want you to listen to something, an exchange between Senator Levin and Dan Sparks from Goldman Sachs -- Tony.
(BEGIN VIDEO CLIP)
SEN. CARL LEVIN (D), MICHIGAN: Did you not have a responsibility when you were asked point blank, how do you get comfortable in this kind of a situation when there's so much exposure to new century mortgages, did you not then at least have an obligation to disclose, hey, we're not comfortable, we're going -- selling this thing short, we're going on the short side? That's my question. You understand the question?
DANIEL SPARKS, FMR. PARTNER, HEAD OF MORTGAGES, GOLDMAN SACHS: Mr. Chairman, I understand the question. I haven't gone through all the e-mails, but what clients who did not want to participate in that deal did not.
LEVIN: And the client asked you a question, how do you guys get comfortable? It's a question. What was your answer?
SPARKS: Mr. Chairman --
LEVIN: Did you tell them --
SPARKS: -- we would have had the sales force get on the with deal team and walk through each security that they had exposure to and answer any questions that they had about that security.
LEVIN: Don't you also have a duty to disclose an adverse interest to your client? Do you have that duty? Do you? If you have an adverse interest to your client, do you have the duty to disclose that to your client?
SPARKS: The question about how the firm is positioned or our desk (ph) is positioned?
LEVIN: Do you have an adverse interest to your client when you are selling something to them? Do you have the responsibility to tell that client of your adverse interest? That's my question.
SPARKS: Sure. Mr. Chairman, I'm just trying to understand.
LEVIN: No, I think you understand it. I don't think you want to answer it.
(END VIDEO CLIP)
ROMANS: As you can see, Tony, Senator Levin, he doesn't have a lot of patience really. He wants answers, and he wants answers to specific deals and specific questions and specific e-mails.
And I think what's most interesting about this, Tony, and what it means to all of us is that we are getting an inside look at the inner workings of Wall Street. And what you are hearing from these senators is that they want to know exactly how it was working, and did it work to grow the economy or did it work to hurt the economy? And was that illegal and was it wrong? And that's what they're trying to come to the bottom of.
HARRIS: Yes. Hey, but, Christine, let's take a moment and clarify Senator Levin's question.
ROMANS: Sure.
HARRIS: He's asking, look, as you're promoting this portfolio as something I, as an investor, should buy, do you have an obligation to tell me that you, as Goldman Sachs, are banking against it? Isn't that the heart of the question?
ROMANS: Yes. And he's also talking about a portfolio of New Century Mortgages, which is a subprime lender that eventually went out of business and was one of the first ones to go bankrupt.
And you've heard a lot of questions as well about, didn't you guys know what these mortgages were made out of? I mean, didn't you know what was being packaged and packaged and packaged, and then you were writing other insurance? I mean, didn't you know what was at the core of this?
HARRIS: Yes. Yes. Yes.
ROMANS: So, no, you're absolutely right. And I think that we're going to see throughout the afternoon more specific deals like this that they're going to be analyzing and trying to take to take apart.
HARRIS: Well, Christine, I want Mr. Sparks to answer that question.
Christine, appreciate it.
All right. Thank you, lady.
As a Senate subcommittee questions Goldman Sachs executives, the full Senate continues to fight over new legislation to regulate Wall Street as Senate Democrat Leader Harry Reid says he will make another attempt today to bring the measure to the Senate floor. Democrats need 60 votes to begin floor debate, but yesterday they only collected 57 votes. Republicans say they will continue to block the measure until Democrats agree to a more bipartisan approach.
(BEGIN VIDEO CLIP)
ED LAVANDERA, CNN CORRESPONDENT: What do you remember most about these two young sisters?
UNIDENTIFIED MALE: Their smiles. You never saw them when they weren't smiling.
(END VIDEO CLIP) HARRIS: Heartbreak for a small town in Mississippi. The weekend tornado outbreak killed three young girls, two of them sisters. Now their families are trying to deal with their grief.
(COMMERCIAL BREAK)
HARRIS: Right now for tornado victims in Mississippi, it might be better to laugh than cry. Some have been cracking jokes today to keep from crying as they dig through all the rubble.
Saturday's tornado outbreak damaged or destroyed hundreds of home, businesses and churches. Ten people lost their lives. Among them, a 3-month-old baby and two other young girls.
Here's CNN's Ed Lavandera from Weir, Mississippi.
(BEGIN VIDEOTAPE)
JAWASKI PATTERSON, FATHER OF VICTIM: All I can say, she was a happy baby. She was so precious. And we will always, always miss her. I love her.
LAVANDERA (voice-over): These are priceless pictures for Jawaski Patterson, the only snapshots left of his only child, 3-month-old Nyla (ph).
PATTERSON: Nyla used to always tease me. She looked just like me. And --
LAVANDERA (on camera): A little daddy's girl?
PATTERSON: Yes.
LAVANDERA (voice-over): When the tornado struck, Nyla was inside this shattered mobile home with her mother, Valerie (ph).
PATTERSON: She said everything came down, falling on them, and the trailer came down on them.
LAVANDERA (on camera): So, Valerie had the baby in her hands the whole time?
PATTERSON: Yes. She had the baby. And, actually, she was on top of the baby, to protect her. That's why her back is --
LAVANDERA: All damaged?
PATTERSON: Yes, damaged.
LAVANDERA (voice-over): Nowhere did the Mississippi tornado inflict more town than in the small town of Weir along a small stretch of orange gravel called White Road. It's where three young girls died.
Just up the road from Nyla lived the Jobe (ph) family and their five children, but two daughters didn't survive, 14-year-old Brittney (ph) and 9-year-old Tyann. (on camera): Family and friends tell us that, as the tornado approached, the Jobe family ran out of the house. They wanted to get in their car so they could race away. But, as they got here, the winds had picked up the car and thrown it beyond the house, over here.
They ran back inside. The father grabbed one girl. 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.
What do you remember most about these two young sisters?
GLEN BEARD, PRINCIPAL, WEIR ATTENDANCE CENTER: Their smiles. You never saw them when they weren't smiling, both Brittney and Tyann both. Every day, Tyann would come up to me, and say, "Coach Beard, I love you."
And I would say, "I love you, too, baby."
LAVANDERA (voice-over): That's Glen Beard, the principal of the school where the Jobe sisters were described as vivacious and popular.
(on camera): All five of the Jobe children go to school here at the Weir Attendance Center. This is where people know this family best. the lost of Brittney and Tyann has been a painful blow.
(voice-over): Tyann's chair in her second-grade class will sit empty the rest of the school year.
UNIDENTIFIED FEMALE: They all drew that. That was the first thing they did this morning when they came in. She drew it. She told me it was -- it was her, and this is Tyann. And the heart tells how bad she (INAUDIBLE) miss Tyann so bad.
LAVANDERA (on camera): This is the girl who drew it?
UNIDENTIFIED FEMALE: This is the girl who drew it.
LAVANDERA: And she's crying, right.
UNIDENTIFIED FEMALE: Crying. And she said, I will miss Tyann so bad.
LAVANDERA: Pretty powerful stuff.
UNIDENTIFIED FEMALE: Every year, I have told them that, in this classroom, I have told them that, in this classroom, we're family. You know, we lost a family member. And that's exactly how it feels.
LAVANDERA (voice-over): The last project Tyann Jobe finished at school was watching a caterpillar turn into a butterfly, a poignant final lesson.
UNIDENTIFIED FEMALE: We have, you know, lost one of our friends. I think today will be a special thing to release them in memory of Tyann. What do you all think?
(APPLAUSE)
UNIDENTIFIED FEMALE: There they go.
(APPLAUSE)
(END VIDEOTAPE)
HARRIS: Mississippi Governor Haley Barbour has declared today a day of prayer to remember those killed in the tornado outbreak.
I've got to tell you, oil from the site of last week's offshore drilling rig explosion could reach the Gulf of Mexico by this weekend. As of this morning, the slick covered 48-mile stretch of the Gulf of Mexico, up to 80 miles wide.
Oil is still gushing from a broken pipe. Five thousand feet under water, crews are using robot submarines in a bid to stop the flow, but they don't know whether that will work.
Want to bring in Chad Myers here.
And Chad, my understanding is you've got some pretty amazing pictures of this oil slick.
CHAD MYERS, CNN METEOROLOGIST: Yes, some new pictures from a European satellite, and also from NASA, that will kind of tell the story.
Behind me you are looking at a map there that was going to show the wind. And I'll show you all about that in a little bit. This is from the European Space Agency.
The bottom there, the very bottom, the center of your screen, would be Homa (ph), and then way out toward Grand Isle. So that's the bottom of the Louisiana Delta there. And then that gray spot that's on the bottom right corner, kind of in the shine, in the sheen of the water, that is the oil slick itself. So it has not reached land yet.
There's something good news about that. And they are putting disbursements on the oil slick, flying over it, and also from boats, putting it on so that rather than the oil all staying together, it's broken up into tiny little particles. And those particles actually can float down into the water column and not stay on top, and not eventually wash onshore.
I think eventually we will get this onshore. And let me tell you why.
This is from wright-weather.com. We use this all the time, kind of a raw map, but it tells the story, that there's offshore flow for now. And then all of a sudden, after about 60 hours, which is two and a half days, the winds are red, which means 25 to 35 miles per hour blowing back.
See how those arrows are blowing back onshore? Today, blowing off, and then coming back around from the east. And then, finally, after the 60-hour, two-and-a-half-day period, just really blowing all of that back into the Grand Isle area, and maybe even up toward -- what's up there, Pascagoula, and then all the way back over there, even into Lake Ponchartrain. We'll have to see if it ever gets that far.
The good news is the longer it stays out there, the more it clumps together. And then as it comes on shore, it's just a tar ball. That's OK, better than an oil slick like the Exxon Valdez. And the longer it's out there, the more disbursements they can put on it getting, getting it to be down into the water column and sink to the bottom of the ocean, eventually, and be eaten by microbes out there that can actually do that.
HARRIS: Yes. Let's hope for that outcome. All right, Chad. Appreciate it, sir. Thank you. Good explainer, as always.
Arizona has drawn a line in the sand on illegal immigrants, but are state lawmakers the ones who crossed it? We will show you nationwide reaction to what some call the toughest immigration law in the land.
(COMMERCIAL BREAK)
HARRIS: It has been five days since Arizona passed their controversial illegal immigration law, but anger and outrage continues to spread miles away from the desert.
Ines Ferre joining me live from New York right now.
And Ines, it's another city where a protest and protesters are organizing, I guess right now, even, for a rally.
INES FERRE, CNN CORRESPONDENT: Yes, right now they are, Tony. And reactions are coming from all parts of the country -- Kansas City, San Francisco, San Diego. These are some of the cities where rallies have been held over the last couple of days.
Arizona, of course, has seen some of the larger ones. Yesterday, protesters gathered in Tucson, where the governor was talking about jobs.
And also, take a look at this. In Phoenix, refried beans were used to smear swastikas on the state capitol. One of the writings said, even, "AZ," or Arizona, "Equals Nazi." Police were looking into this, investigating these writings -- Tony.
HARRIS: Yes. And Ines, we're starting to hear calls for an economic boycott of Arizona?
FERRE: Yes, we are hearing those calls. San Francisco's city attorney wants city officials to boycott business with the state of Arizona, or businesses or companies that are based there. His office has offered to go through city contracts and see which ones are tied to Arizona.
Listen to this.
(BEGIN VIDEO CLIP)
DENNIS HERRERA, SAN FRANCISCO CITY ATTORNEY: I think that the only way to spur folks to appreciate how draconian this law is, is for there to be a tangible price to pay for instituting what is no doubt a draconian and discriminatory law.
(END VIDEO CLIP)
FERRE: Now, any boycott measure would need approval of the board of supervisors and mayor of San Francisco. And others have called for boycott boycotting tourism, conventions and meetings in Arizona. And Tony, one hotel and lodging association said yesterday, "Don't punish 200,000 tourism employees for politics."
HARRIS: Yes. And I guess we've got a comment, some kind of a statement from Homeland Security Secretary Janet Napolitano. She's weighed in on this as well?
FERRE: She did. Just this morning, in front of the Senate Judiciary Committee, she said she has deep concerns with the law, fearing that it would siphon away resources that would otherwise be used to go after people who commit major crimes while they're here illegally. And she also noted that the Justice Department is also looking into this Arizona law -- Tony.
HARRIS: OK. Ines Ferre --
FERRE: So a lot of factors weighing in.
HARRIS: A lot going on.
All right, Ines. Appreciate it. Thank you. And I believe you're actually going to head out to that rally that's organizing and getting under way here shortly in New York City.
Still to come in the NEWSROOM, they are top executives at a Wall Street powerhouse. Today, they're testifying before a Senate committee.
Poppy Harlow will have a who's who of the power players at Goldman Sachs in today's breakdown.
(COMMERCIAL BREAK)
TONY HARRIS, CNN ANCHOR: OK. Of course, CNN is your source for money news. Check us out at cnnmoney.com. The big headline there, page one, my goodness, "Wall Street under fire" as the subcommittee hearing continues on Capitol Hill. Goldman Sachs executives being grilled. Got to find another word. Everyone's saying grilled today. On the hot seat. OK.
Let's take a look at the big board. The New York Stock Exchange right now. Three hours into the trading day. And look at this sell-off, spurred by some real doubts over the bailout package that's being proposed for Greece right now. Serious questions about that package being raised by Germany today. And look what's happening. The Dow is down 167 points. The Nasdaq, let me check here, is down 44. We're going to keep a close eye on these numbers throughout the day for you right here in the CNN NEWSROOM.
So the spotlight is on Goldman Sachs today as senators give company executives the business on Capitol Hill, but what exactly do we know about these guys? Cnnmoney.com's Poppy Harlow is with us with a breakdown from New York.
And, yes, Poppy, who are these players?
POPPY HARLOW, CNNMONEY.COM: That's exactly right. I mean some we've heard from, some we haven't. We're going to go through the top folks at Goldman Sachs that are testifying here today, Tony, but you just showed the markets. The Dow down 171 points.
HARRIS: Yes.
HARLOW: I'm looking at live trading of Goldman Sachs. That's the one bank right now of the big banks that's trading higher by about 0.5 percent. Wondering what Wall Street is thinking about this testimony.
And they're waiting to hear from this man, Lloyd Blankfein, the chairman and CEO of Goldman Sachs. He's held that title since 2006, right before the economy started to tank. A lot of questions about his compensation, $9.8 million when you look at last year. But to be fair, he took no bonus in 2008. But in 2007, and this is really the crux of when these questionable trades were made at Goldman Sachs, Lloyd Blankfein took home a record, about $68 million.
Now let's get into this, because if you talk to a lot of people about Lloyd Blankfein, they have different opinion of him. I talked to Bill Cohn (ph). He's a "Fortune" contributor. And he talked about the importance that we should look back at Blankfein's history, Tony. This is a guy that was a trading. He traded in precious metals and other things. This was a guy that knew all about hedging, being on both sides. The long and the short position of a trade and what that means for a firm. He says that really instilled a short-term consciousness within Goldman Sachs, making and betting on certain trades, not looking at the long-term effects. That's one opinion.
But I can tell you that the question that he had for Lloyd Blankfein, we'll see if lawmakers ask it this afternoon, is just because you can do something, just because you can bet on it, does it mean that you should? And that's a moral question, not a legal question. But America still wants to know what he has to say to that.
Another key player in this is a guy by the name of David Viniar. You may not know his name. You may not be as familiar with him. But this guy is the CFO, the chief financial officer, at Goldman Sachs and he's been in that role for more than 10 years, since 1999. He is in charge of risk management at Goldman Sachs. And that is what Goldman says they were doing with this questionable move, is that they were hedging their risk. They said we think the mortgage market may fall or it may rise. We're going to be on both sides of that. This guy is at the helm of risk management.
And I want to read you part of an e-mail that was released over the weekend from the Senate investigation committee because it shows, and this is in response to the firm making more than $50 million in one day, betting against the housing market. He said, quote, "tells you what might be happening to people who don't have the big short." I.e. that they will lose money. Goldman Sachs lost money on mortgages, but they made more of it by betting on the other side of the housing market. And that's why these two key players are central to all of this.
HARRIS: Wow. Good stuff. Poppy Harlow with the breakdown for us. Good to see you, Poppy. Thank you.
HARLOW: You got it.
HARRIS: Of course, you can follow today's hearing with Goldman Sachs executives at cnn.com.
You know, a lot of what's being discussed in these congressional hearings can be awfully confusing. It's just the truth of it. We are breaking it down for you the best we can with the help of Josh Levs.
Josh.
JOSH LEVS, CNN CORRESPONDENT: All right, Tony. So we know where we are today, right? You know what we're looking at today and what's going on with Goldman. But there have been all these hearings already. So we're breaking that down for you. What has happened so far?
And what I want to do is start off with that big picture for you. The idea behind today as lawmakers have laid it out is to now focus on the role of investment banks in creating this crisis and using Goldman Sachs as what officials are calling a case study. But as we all know, there were a lot of moving parts that led to this crisis.
So there have been hearings up until now and they focus on a few other key players. They looked at reckless mortgage lending, weak regulatory agencies, and also misleading credit ratings. And the agencies that were producing those misleading credit ratings.
And, Tony, Senator Carl Levin, who's overseeing these hearings, he actually said that if he had to choose just one thing as the immediate trigger of this crisis in 2007, it would be when credit agencies suddenly downgraded virtually all, 91 percent, of AAA rated mortgage securities to junk status.
(BEGIN VIDEO CLIP)
SEN. CARL LEVIN (D), MICHIGAN: When the credit agencies realized that their AAA ratings wouldn't hold, finally stopped labeling toxic mortgages as safe investments, those mass downgrades hit the markets like a hammer, making it clear the investment grade ratings had been a colossal mistake.
(END VIDEO CLIP)
LEVS: And that was a major highlight from what's happened so far.
And, Tony, there's a slew of internal e-mails from the leading credit rating agencies showing that employees at these firms knew of dangers in subprime mortgages, but gave them the seal of approval anyway. I'm going to show you a couple right here.
HARRIS: Great.
LEVS: Look at this one. "Let's hope we are all wealthy and retired by the time this house of cards falters." With a little sort of smiley face. A Standard & Poor's employee back in 2006.
And here's another one. "This is like another banking crisis potentially looming." From another Standard & Poor's employee in September of 2006.
Now, there are a bunch of other highlights from the hearing so far. I'm going to mention one because it was significant. This is former Washington Mutual CEO, Kerry Killinger, him testifying. He ran that company for 18 years until he was forced out just weeks before WAMU was seized by regulators in the biggest U.S. bank failure. He complained the bank was unfairly seized. But in our story at cnnmoney.com, I encourage you to check it out, is from "Fortune" magazine. It calls him a forgotten villain of the crisis and notes that he took home more than $100 million between 2003 and 2008, even while the policies that were being run by his company basically were sewing seeds for investors and the bank to be wiped out.
HARRIS: Wow.
LEVS: So, Tony, all of that leads up to today. Now you have this focus on Goldman Sachs as an example of this other leg of what came together basically to all fall apart and cause this financial crisis.
HARRIS: So many of us on Wall Street just never had a chance. Just --
LEVS: Right. And the thing is, there are people along the way who spotted little bits of it, right? Did anybody understand the extent to which all these elements would fall apart?
I know we've got to go, but I'm just going to tell you, I looked up in the thesaurus for you. You said you're getting tired of saying grilled. You can say sharply questioned or interrogated if you makes you happy.
HARRIS: OK, Josh, need something else. All right, Josh, appreciate it. Thank you.
Heated hearings on Capitol Hill. Lawmakers accuse Goldman Sachs' executives of creating the housing bubble, then profiting from the bust to the tune of billions. Josh is back to bring us some of the responses from Goldman's big wigs.
You're in the CNN NEWSROOM.
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HARRIS: And let's get you caught up on top stories now.
Goldman Sachs feeling the heat on Capitol Hill. Top executives with the investment firm are defending the company and its role in the economic meltdown as they get peppered with questions at a hearing. Regulators accuse Goldman Sachs of misleading investors about investments tied to subprime mortgages.
An about face by General Motors. The company isn't bleeding jobs this time, it is creating new ones. GM is announcing today that it is adding 1,600 jobs as part of an upgrade at four plants in the United States and one in Canada.
Ford Motor Company celebrates a big turnaround. The automaker is reporting a surge in 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 abroad.
As the economy recovers, jobs will follow. Now that means workers need to be trained and at the ready. Manufacturing has become so advanced, companies are actually paying to train employees on the factory floor and in the classroom. Tune in to our report "Apprentice For Hire." That's tomorrow at noon. It's part of our series on the future of the job market.
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HARRIS: Got to tell you, all morning we've been hearing senators criticize those at the top of Wall Street's top firm. And they have been firing back. Josh Levs is keeping an ear to it all. Especially your comments. Anything particularly striking so far, Josh?
LEVS: A lot of anger, Tony. I'll just -- I'm going to show you these because this is a lot of what a lot of people are feeling out there. Not just Goldman Sachs, but about the major players. A lot of people very frustrated. Let's just go through a few of these quotes coming in at the blog, cnn.com/Tony, also FaceBook and Twitter.
First one. "When they catch wrong doing the guilty should be given jail time to set an example that crime no longer pays from Wall Street."
Here's another one. "The truth is Goldman Sachs and other investment banks are big scams, and only a fool would invest with these lying thieves. Jail them all, make an example of them."
I'll show you one more. "A measure of leadership is following your principles. I would argue that Goldman Sachs has given lip service to a core principle and as a consequence they are morally bankrupt."
Now I want to tell you all, those of you who support Goldman Sachs or who don't feel that way, we definitely want to hear from you.
HARRIS: Yes.
LEVS: What you're seeing there is what we keep getting, a lot of that. Now, we're also getting a lot of people who are feeling very frustrate with the government and questioning whether there's ever really some ownership of what happens here, protecting people. And I want to show you one last quote here that comes to us from Theo on Twitter. He said, "I'd like to know how people who are wholly unfamiliar with the world of finance plan to effectively regulate it."
And I'll tell you quickly. I spoke earlier this morning in our 10:00 hour with someone from "The Wall Street Journal" who's following this very closely. And he said, you know what, the frustration with the SEC makes all the sense in the world. They have been missing a lot. But he also had a little bit of optimism for us. Let's listen to this.
(BEGIN VIDEO CLIP)
GREGORY ZUCKERMAN, SPECIAL WRITER, "THE WALL STREET JOURNAL": I do think there could be some progress here. I mean, I do have to say, the SEC bringing this case does send a message to people on Wall Street that maybe even if it's legal, it may not be proper. And there are -- there is a lot of talk with this reform bill of making some improvements. It's not just talk down in Washington right now. That's not to say that it's all going to be better or they're going to take care for the next time, but there is reason for hope.
(END VIDEO CLIP)
LEVS: And, Tony, we all hope that's the case. We all hope that in the future we will see steps taken by the government to prevent this from happening again.
HARRIS: Terrific. All right, Josh, thank you.
LEVS: Thanks, Tony.
HARRIS: You know, you send in your tough money questions and we get answers. Now that the economy is starting to grow again, how can you take advantage? Our Stephanie Elam is standing by at "The Help Desk" with the money team.
STEPHANIE ELAM, CNN CORRESPONDENT: Time now for "The Help Desk," where we get answers to your financial questions. Joining me this hour, Doug Flynn, he's a certified financial planner and founder of Flynn Zito Capital Management, and Rod Kurtz is executive editor of AOL Small Business.
All right, our first question, gentlemen, is coming in from an anonymous person. But the question is, "where can I store my extra money and expect to yield a good return right now?"
What do you say, Rod.
ROD KURTZ, EXECUTIVE EDITOR, AOL SMALL BUSINESS: These days you might want to consider your mattress. I mean rates are pretty low right now. I was talking with a long time financial adviser this week and he said there are no good rates of return right now. You know, not necessarily true.
But, you know, the thing you have to keep in mind, especially if you're looking at conservative investments like CDs, things like that, that the rates are low but they're not going to stay like that forever. So I think the key here is, regardless of what avenue you pursue, you don't want to get locked into anything to long term at the current rates because things will get better and you'll be stuck in, you know, sort of these post-recession interest rates or whatever it may be. So rates will go up. Make sure that your portfolio is nimble enough that you can adapt when times get better.
ELAM: Yes, definitely. That's what you want to do. All right. Our next question comes from Michael in Pennsylvania. And he writes in, "I have been teaching science in a public high school for the last 12 years. I have been paying off my student loans religiously for that entire time. Do I have any chance of getting out of those loans with the new college aid bill?"
What do you say, Doug?
DOUG FLYNN, CERTIFIED FINANCIAL PLANNER: I hope he's not saying he wants to get out of something that he used to help him get this great job that he's been working on for 12 years, because that would be really bothersome. But let's talk about what this new school aid bill does.
What it does do is, if you're low or middle income, it will increase the amount of grants that you can take advantage of which will help you go through college. It will also change the limit and lower the limit on what percentage of your income can be used toward your student loan. So if you don't make a lot of money or if you have a hard time, it will -- right now it's at 15 percent. It will go down to 10 percent. That will help a lot of people. But if you have a good job and you have those loan, I don't think it's going to get you out of them.
ELAM: OK. So that's not going to change that whole situation there.
FLYNN: No.
KURTZ: As much as he'd like it to.
ELAM: All right. Well, thanks, gentlemen.
"The Help Desk" is really all about getting your answers. So send an e-mail to cnnhelpdesk@cnn.com. We might just have the answer to your question here next week. You can also pick up the latest issue of "Money" magazine. It's on newsstands now.
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HARRIS: How good is your moral barometer? Whether they were aware of it or not, some people in New York may have turned theirs off when they passed by a dying man earlier this month. Our Dr. Sanjay Gupta has the disturbing story.
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DR. SANJAY GUPTA, CNN CORRESPONDENT, (voice over): Overlooking a sidewalk in Queens, New York, a security camera records a woman walking along the street. Police say she's about to be the victim of a violent mugging. The attacker, wearing dark pants and a green hat, approaches her. He's armed with a knife.
Police say a man comes to her aid. He is Hugo Alfredo Kaliax (ph), a homeless day laborer. The attacker turns on him and police say stabs him several times in the chest. Kaliax turns to chase the man who's just stabbed him. But after only a few steps, he collapses on the sidewalk.
What happens next is difficult to comprehend. People walk by without stopping to help him. They come and go. More than 20 of them. Some glance over at the dying man. Others stare.
These two men stop nearby. They stand there. Before one of the men takes out his cell phone and takes a picture. Another turns Kaliax over, presumably sees his wounds, but, like the others, walks away.
For more than an hour, dozens of pedestrians and bystanders walk past this hero who saved a life, apparently without ever calling 911. Finally, firefighters respond to the scene, but it is too late. Hugo Alfredo Kaliax is dead.
Dr. Sanjay Gupta, CNN, reporting.
(END VIDEOTAPE)
HARRIS: Man.
A child psychologist has an explanation for why so many people walked past that dying man. He says our brains have been desensitized to violence. Here's that discussion with our chief medical correspondent Dr. Sanjay Gupta.
(BEGIN VIDEOTAPE)
MICHAEL BRADLEY, CHILD PSYCHOLOGIST: When we look at it, we see a couple of things. Like you said, there's the bystander effect and then there's something called the fusion of responsibility. We've known about those for a while. I don't think that's what we're looking at in this, Sanjay. I think what we're seeing is this new phenomenon. This desensitization to violence that -- where we are actually changing brain structures in a way where people don't get it when they look at it now.
DR. SANJAY GUPTA, CNN CORRESPONDENT: You're saying, as a result of what, because of movies, video games? I mean I've heard that before. Is that -- is it as simple as that?
BRADLEY: Yes, it is as simple and as complex. We pound -- particularly our children -- we pound them 24/7 with what I call prompts. They're violent scenarios, they're lyrics in a song, they're scenes in a movie. All sorts of suggestions about violence to the point where the brain is now changing and these kids, in the way it responds to real violence, is that brains can't discriminate between real violence and pain and cyber violence. (END VIDEOTAPE)
HARRIS: President Obama trying to rev up supporters for the midterm elections. A look at the president's political strategy.
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HARRIS: Got to tell you, his name is not on the ballot, but President Obama has a lot at stake in the midterm elections. White House correspondent Dan Lothian reports on the president's midterm strategy.
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DAN LOTHIAN, CNN CORRESPONDENT, (voice over): The political climate has changed since President Obama was ushered into office. A storm of sorts with angry protesters and promises to oust congressional Democrats has raised the stakes in the upcoming midterm elections.
LOTHIAN (on camera): Is there's deep concern of losing a lot of seats and losing control of Congress?
ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: Well, look, we'll have plenty of time to debate what the outcome of or what the -- why those elections went whatever way they went. They're many months away. Obviously more campaigns are gearing up and the president wanted to speak directly to his supporters.
LOTHIAN (voice-over): Directly with a video aimed at rallying the troops, telling them that the special interests and others are looking to undo his administration's accomplishments.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: It will be up to each of you to make sure that the young people, African-Americans, Latinos, and women who powered our victory in 2008 stand together once again.
LOTHIAN: The president touts progress on the economy, health care reform, and how America is now viewed on the global stage, even as he calls on supporters to find fresh faces.
OBAMA: If you help us do that, if you help us make sure that first- time voters in 2008 make their voices heard again in November, then together we will deliver on the promise of change.
LOTHIAN: But it's unclear whether his video pep talk will have the desired effect. Since his own election, President Obama has been unable to deliver several key races. He jumped in during the Massachusetts Senate race and two gubernatorial contests in New Jersey and Virginia.
LOTHIAN (on camera): Organizing for America, which is part of the DNC, is also sending around an e-mail to supporters reminding them that there are only 190 days until the midterm elections. Also telling them that while some Republicans might, quote, "be measuring the drapes for their new offices," they can avoid that electoral nightmare that some of these Republicans already think will happen.
Dan Lothian, CNN,
