black that year. >> it was the big short offsetting the big long which helped us get through the crisis. >> you would have been deeply in the red then. >> if we had not sold any of the long positions, yes, that would have been true. that's why we put it on. >> we are watching live coverage of the senate sub committee hearing on investigations. the senate sub committee on investigations. undergoing this hearing with goldman sachs executives. you are right now watching senator carl levin along with david vidiar, the ceo of goldman sachs. the market has been trading down in the middle of this as we watch the closing bell. about the to ring. the dow jones industrial average near the lows of the afternoon. down 200 points. greece's ratings were cut to junk status. portugal was downgraded as well. and setting the tone for a down day across the board. the closing bell sounding now. financials, i should tell you, are higher. goldman sax is trading up today in the midst of the hearing as we hear the gentlemen explain the trades dwurg the 2007 boom in housing as they were short. i believe partly short. subprime. and part of the housing market. we have watching this live coverage with the market trading down at the close at 10,990. back below 11,000 in the middle of the hearing going on in washington. goldman sachs executives. a dollar treasury is gaining today on greece's weakness and the portugal rating cut and, again, the big story, goldman sachs executives getting grilled. we'll continue to cover this live. we're waiting on lloyd blankfein to testify as well. the ceo of goldman sachs. we'll have that live as well. let's bring in some of our market reporters to tell us other details. sharon epperson and rick santelli joining me now. real quick, what was the important issue today? >> for the second day in a row we ended on lows for the day. that's something we vice president seen in a long time. greece was the major story. sovereign credit rating through a junk status. long term sovereign credit rating also. as for the goldman hearings, it's been a long time. we're not done. here's what's interesting. as you look at financials, this is the only major financial stock that ended the day in positive territory. other stocks that were weak included big consumer discretionary stocks, even though ford made productions. that stock went down notably. down 6%. it's had a terrific run overall. the commodity stocks also weak. dupont ended on the downside. volume has been very heavy here today. 6.5 billion shares if r for the total trading. citigroup is 1.2 billion shares traded in citigroup today. >> sharon epperson, what can you tell us? >> oil prices, commodities across the board that are lower, except for gold. that's really where the action has been. bob outlined the problems in greece and portugal and those factors have created a plight to safety for the gold market. gold prices are rallying in electronic trading after the close up over $17 right now and above a key technical level. in terms of the oil market, we continue to see pressure on oil prices. below $82 a barrel. continue to fall as the equities have declined after the close. and we're also looking at a high level of invenn totoryinventory. we'll get a report to show petroleum supplies increased by 3.1 million barrels. that's significant. we're watching what happened in the midwest. that's pressuring as well. we'll continue to follow that as well as the impact on equity and that the dollar is having as well. maria, back to you. >> sharon, thanks very much. we are continuing to cover the hearings live. one more minute for rick santelli to tell us what's going on today and then back to the hearings live. >> unbelievable day. whether you look at your dollar futures, which may show a stay-cation with short term fending, libor having big moves in the next few days. interest rates down a dozen basis points in yield on a ten-year note. which means rather dramatically as long-term matureties plummeted with all the buying in the plight to safety. whether you're looking at 60% on a two-year in greece or markets in portugal and spain or now it costs over 800,000 to ensure a 10 milli$10 million portfolio. everybody on the investment side was running away from the emerging markets in the more tradition like papers. >> rick santelli, thank you very much. let's get back to washington. senator carl levin leading the hearing for david viniar and craig broderick. back to the hearing. >> we take positions to enhance your return on equity. >> it's hard for me to comment on what he meant in his sel self-evaluation. he did have discretion within the overall limits of the firm of what he kept, how long he kept it, would he buy more than he sold, would he tend to keep the long risk and sell the short risk or vice versa. >> does it make sense to you somebody would tout a filsy saying i'm going to make more money for the firm, yet ignore the information in terms of the mortgage department, what they were seeing and how you were changing positions. is that believable to you? >> i don't know what he did or did not know or why he said what he said. >> okay. in what year did y'all receive your payment from aig? what fiscal year? the settlement on aig? when we bailed them out. what year did you receive? >> main line transaction? i believe that was 2008. $11 billion. there are several. i'm not sure which you're talking about. >> well, in total, you're saying fiscal year 2008. you received $11 billion. >> the number that is -- if this is what you're referring to. >> generally talked about the number is 12.9 billion. i was trained as an accountant before i went to med school. >> me, too. >> that truly represents revenue from 2006, doesn't it? and 2007? in other words, when did aig go belly? >> can i describe to you the pieces of the 12.9 billion? >> you can. i'll give you the time. what i'm trying to get to is an accurate representation of what the positions that you bought, the insurance that you bought, that's really what aig sold you, correct? >> that was some of the 12.9. >> well, whatever portion it was, in the year it should have been paid, it wasn't. it was paid later. that would have enhanced your revenued by a certain number of billions of dollars. is that correct? >> no. >> you didn't recognize that payoff of those insurance products to you as revenue when you got it from aig? >> no, we did not. they were basically paying us the money they owe us. but that revenue had come in already. and just so you know, those positions again were largely offsetting positions we had sold on the other side. >> i'm not disputing. i have no problem with buying insurance or buying puts or selling costs. i have no problem with that. what i'm trying to do is match revenues with expenses. this point is this was an insurance product that you marked down the real product, and when you got paid, you had to show that as either an offset to the revenue loss in what you were buying insurance for, or you were showing income. >> if it wasn't collectible and aig was bankrupt, there had to be a period in time when you had an impact on your business you had to give notice of. is that correct? >> we had collateral for all of what they owed us. what we didn't, we bought approximate for. although it would have been a very bad thing for the financial markets for our direct exposure to aig at the time, we had either collateral or cds protection, which again was collateralized for virtually the entire -- >> so you doubled basically. >> yes, we did. >> and i told you i would give you an opportunity to explain the 12.9 trillion. >> if you want me to. >> yeah, i do. >> there were three pieces. the first and simplist to understand is securities lending. basically they had a portfolio of highly liquid treasuries and agencies that we had financed. so i believe the number was $4.8 billion of our cash. we had $4.8 billion of their treasuries and agencies. they gave us the cash. we gave them back the securities. so if they had not, we would have just sold them into the market. they were highly liquid. mostly treasuries and agency. there was $2.5 billion over the course from mid-september when the government put the money into aig until december, additional collateral they owed us as markets continued to decline. that was not a one time. that came in overtime. the last roughly 5.6 billion dla dlarz w where they wanted to tear up the transaction. we took most of that. we addsed to that the collateral they had already given us, took most of it. gave it to the counter party on the other side. they giving back the bonds. we give the bonds back to aig. >> okay. >> exhibit five, if you turn to that, please. this is an e-mail. >> got it. in the e-mail, the implication is he felt we should keep the positions for ourselves. do you have any heartburn that when those positions are said it doesn't cut your positions on pro pry tear trading and mortgage assets. >> i don't know what he was referring to here. this was the first time i'm seeing this. >> let me describe the scenario. i work if you and see a good deal. rather than sell it to the royal customers, we get it for us. >> buy things from customers. sell things to them. largely what we want to do is distribute risk. we keep track of things we call aged item inventory to make sure we don't keep it too long. if he kept it for some period of time wouldn't trouble me. if he kept it for a very long period of time, yes, it would trouble me. our job is to make markets, not to hold onto the inventory. >> your job is to also keep customers, isn't it? >> correct. >> if you don't have customers with which to make markets, you're not going to do that. >> that's correct. >> you heard the testimony of mr. sparks and others urging the sales force to sell goldman's long positions it comes back to the ethics of what we're doing here. was it for the benefit of goldman? you had a position. your plan was to get back to zero. >> as close as possible. my question is how do you control that? how do you diviefine the line f the people selling your inventory? how do you weigh out the balance for benefit of gold man versus the detriment for who is buying? >> really, in a way, the way you do that is through price. we may or may not like security. someone else may like it more. so it's not a view of good or bad. it's really a view of do you think the buyer, do they think it will go up? >> what's the value, and do i think there's a future value? >> you know, if we bought something and we still have it and we want to sell it, and we just think our risk is too big, we may have to cut the price and sell it at 80 cents on the dollar. and the other purchaser may not think it's a great security. they may think it's worth 83, which is still not 100. but it's a price at which they'll buy it. >> could you answer this question for me. maybe you can't. i would like for you to try because it concerns a lot of us. how it is that goldman got 100% pay back on collateral dispute with aig? >> all i can say is it was what they owed us. >> typically, we didn't pay off the bondholders at gm. how is it that goldman got 100% back of what was owed from aig, when everybody else didn't? >> i think everybody did from ai aig. >> how is it that you negotiated that? >> i believe we were sent a term sheet, which had the transaction that aig wanted to do, which was to basically unwind the transactions at par. we agreed to do that. >> there wasn't a negotiation between the treasury and goldman on the aig collateral. they made an offer and you accepted it? >> correct. >> thank you. >> senator kaufman. >> thank you, mr. chairman. mr. viniar, let me just ask you a philosophical question. i'm sitting here looking at the segment operating results, and i see that in 2009 -- >> senator, can you tell me where you're looking. >> i don't think you need it. i'm just asking a question. does it concern you, i mean, here's goldman sachs known to be a great investment banker, the greatest. i look at november, december, november 2007, november 2008, december of 2009, earning about $2 billion dollars each year. down to trading and principle investments. you lost 3 billion in 2008. you made 17 billion in 2009. does it concern you more and more of your business in trading and less and less is in investment banking? >> i wouldn't say it concerns me. i would say the segment revenues don't reflect the value of our investment banking business. >> can you explain that? >> sure. it's very much of a customer phasing business. part of that is we deal with our customers based on our relationship, which is developed over many years of giving them advice. just because a transactions revenues end up from a trade of some kind or making a market, doesn't mean that a good part of that value isn't from the investment banking relationship we've had for a number of years. i think it understates the value. and while it is growing, it is growing largely because of the strength of our customer franchis franchise. >> i understand that. should it concern the people on this side that one of the major engines distributed in the country for so many years is the investment banking, the ability to have ipos, the ability to fund major corporate enterprises and now one, if not the biggest inestment banker in america is now making money trading as opposed to investment trading. >> i don't think it should concern you. again, it is based on largely making markets for our complaints and helping the capital markets operate. that's a good thing for the growth of a country. >> why didn't you sell the securities or cancel and cell the cds. >> it's a good question. in some cases we did. that seems to me. i agree with senator coburn, selling short is good. all the other things. i've done it. it's fine. what most people do is you reach a point where you decide is that your long position is risky. and as someone smarter than me once said, the hardest thing is not the decision to buy, it's the decision to sell. >> no question. >> so most people you get into risk position, you have a mismeeting. you say, all of us do in our own personal investing. i have investment in stock a, b, c. i don't like the new earnings on it, sell it. >> it's a risk/reward judgment at the time. you make an assessment of what you could sell it for versus what it could cost to put it in an offsetting position and understanding that putting on an offsetting position is never an exact hedge. and you do have additional risk. and you make the assessment of is the price where you would have to sell that security or is it the price of offsetting. if it's a lower price is it enough to still be worth it or not? you make the judgment at the time. markets at the time if you remember for the securities that were a loan in some cases we did sell some. in some cases we thought it was more prudent for offsetting positions. >> but a liquid in this case means you didn't like the prices being sold. a liquid to me means i go into the market and on certain days, we couldn't sell at any price. you're saying i didn't want to sell it because the price was so low. >> correct. right. >> i got that. i'm trying to figure out. but you mark to market. >> right. we would have marked it down. again, that's just an assessment. which sometimes proves to be right, and sometimes proves to be wrong of what the value of holding that security would be. in the future. where did we think it was going to go versus what the price would be of buying offset security. >> you understand why some people would be concerned. at the same time a number of people from goldman sachs was saying this market is going south. just looking at the housing market. the rental market wuntd growing. classic sign of a bubble. there was incentive. i know you keep -- there is an incentive here to go short. i mean -- especially in 2007. let me put it this way. i personally have a hard time believing that folks as smart as you guys didn't see the housing market was having a bubble. and that the idea of going short was a good decision based on prudent managers looking at a market that was clearly falling apart? >> yeah, as i've said repeatedly is over the course of 2007 we were for the most part somewhat short. we want thod be more on the short side than the long side. it was not large. no one knew where the market was going. >> no one every knows. at that particular point in time -- >> the other thing to remember back in 2007. it's hard to remember back then. but tlfts a very strong point of view that the decline was at the subprime mortgage market. that turned out not to be correct. different people have different views. that was a commonly held view through much of 2007 that the decline was just subprime mortgages. the rest of the mortgage market had not declined much. it did later in the year. the equity markets peaked. there was a lot of pullishness still in the market, other the subprime mortgage market. >> you could have dealt it with that way without going short. the reason we keep coming back to this is because it's hard. it's really hard for me to see -- it's clear when you have a client in a position that you put them in, and you are at the same time selling the position short. i'm not saying it's bad. i'm just saying. if you're selling a compliant something long. you're saying to the client, hey, it's still time to buy these vm we're selling them to you. at the same time you're going short. that causes concern. i'm not saying it's bad or illegal or anything else. it just seems to me it's a tough conflict of interest you have to deal with. you probably have to deal it with every day. that is -- >> i actually don't view it as a conflict. we change -- we sell someone a security, their investment horizon is a fairly long time. we make decisions on a bias of where we want a risk to be, that could be a short-term decision. it could change the next day. so what we do when we sell someone securities we fully disclose what they're buying, what the risks are, and they make the investment decisions -- >> but you were selling the mortgage-backed securities during the sell period. the day after you sold something short, you were then selling something long. >> i don't know. >> so you just stopped selling the mortgage backed securities. >> no, we were still selling things. but as i said to dr. coburn, that just depends on the price you sell it. >> i'm not saying it's wrong. if i'm selling things short, and the same day or the next day i'm sell i selling a client. there's a conflict in there. whether or not it's resolved. that's a tough call in terms of we got into the earlier pattern. what is my responsibility to my client? i know you use the -- and everyone does -- where they're all big boys. they know what they're doing. that doesn't, and while i think that's true in many cases. it doesn't rule out the fact you're doing one thing for yourself and doing something else to a client. >> i don't view it that way. our positions change quite often. >> we can just agree to disagree. >> okay. >> have you heard about the lehman brothers use of repos 105? >> i've heard about it. i've read about it. >> what's your understanding of these transactions? >> from what i read in the newspaper, they treated things as sales that could come back on the balance sheet. i don't know the details. >> why would they be doing that? >> i don't know. >> an accounting device known as repo 105 where by it raised cash by selling assets that were 105% or more of the cash received, allowing them to be treated as a sale rather than financing. that meant for a few days and by the fourth quarter of 2007, that meant end of the quarter. lehman could shuffle off tens of billions of dollars in assets to appear more financially healthy than it really was. not for lehman brothers. what do you think of the concept? >> i think as far as lehman brothers, it's a better question for them. >> suppose there was a firm out there. we're not talking about lehman brothers. would goldman sachs ever doing in like this? >> no. >> you can say they never engaged in transaction near quarter's end to gain -- >> we never gained in repos 105. anything we did at quarter end, it was because we sold it. >> so therefore you never engaged in the quarter's action near the end to improve the balance sheet for investment purposes. >> we would sell things aft quarter's end. then we would have risk. we couldn't buy them back. we would buy things other quarters. >> and did you have any transactions at the end of the quarter or the beginning of the next quarter that you then -- bought them back or sold them again? >> i'm sure we had transactions that we sold and bought back and then sold again. everything was disclosed. we disclosed the quarterly average. anyone can see what we have at any point in time. >> so you never moved things on and off the balance sheet. >> in order to dress up the balance sheet? >> no. >> thank you, mr. chairman. >> thank you. >> thank you, mr. chairman. >> how well do you understand the financial instruments that goldman sachs is offering the ceos and all those things. >> i'm far from an expert. >> you understand basically how they work. >> at the highest levels. you had the experts here this morning. >> we asked this question of the panel this morning, do you feel whether goldman sachs was partially responsible, largely responsible, or had no responsibility in the financial collapse of the united states? >> i think goldman sachs is a major player in the world's financial markets. the financial markets i believe got overlevered. i think lending standards declined. >> do you feel goldman sachs has any responsibility, i'm talking about blame in the financial class of the united states? >> i believe we share responsibility because we are a major player in those markets and we're -- >> i appreciate you taking responsible. this morning's panel would not. >> i want to fallollow along th lines of questions i asked this morning. this gets to the rating agencies and what they were doing. do you understand the modeling they were taking. for instance, these triple -- repackaging and rerating them? >> no, i know nothing about that. >> are you aware of anybody at goldman sachs who was talking? were you aware of your folks talking to the credit rating agencies the to try to convince them and basically kind of sell them. here's why it should be a triple b. here's why it should be a triple a? >> i know the transactions were rated. i wouldn't know who had the conversations or what they said. the ratings of goldman sachs itself were my only concern. >> so you had no knowledge of anybody at goldman sachs doing that type of basically lobbying with the credit rating in. >> i do not. interesting. are you familiar with steve iseman is? have perused through this book? >> i have not. >> i think this goes to one of the -- when you said you had responsible, i'm glad you said that goldman sachs does have some responsibility without fully understanding why the firms were so eager to accept them. he didn't know at the time. at least he thinks he figured it out. the credit default swaps filtered through the cdos were used to replicate bonds backed by actual home loans. there weren't enough americans, and i'm quoting here, so excuse the language, there weren't enough americans with shitty credit ratings taking out loans to satisfy investors appetite for the end product. wall street needed his best in order to synthesize more of them. they weren't satisfied getting lots of unqualified borrowers to buy a house they couldn't afford. they were creating them. 100 times over. that's why the losses in the financial system are so much greater than the subprime loans. even though the subprime market was bad, the collapse of the market wouldn't have been nearly as bad for the rest of the economy if it wasn't for the synthetic instruments that were created by firms like goldman sachs and others. would you agree with that statement? >> i don't know what he meant or anything but -- >> just, the statement that i made. would you agree with your statement? >> just the math is any time you have something that declines in value that's levered, it adds to more losses. that would be the case for anything that declines in value if it has leverage to it. we're dealing with financial regulatory reform right now. what would you do as far as the changes in regulation, not that addresses out there in main street, but just address wall street. what would your big recommendations be to the u.s. congress? >> i'm an internal guy. i worry about goldman sachs. >> but at the same time you said you took responsibility. you don't want to be part of the next financial collapse, so help us, being an insider, help us with at least your advice. we don't have to take it. but we can at least evaluate what we're doing. one thing i do know is the congress doesn't have enough expertise to draft the law right now. >> a couple places that i think are important to focus on. if you look around financial institutions the things that causes more problems than anything are liquidity problems within the institutions. i think more stringent liquidity requirements would be important. and the second thing, it is pretty clear that we need higher capital charges for less liquid assets. i sympathy holding less liquid assets was one thing that got firms in trouble. two things that would be a part of any regulation. >> what about the relationship between a credit rating agency and those of you on wall street as far as how cozy it seems to have been. you guys pay their bills. >> i don't have a view on that. >> thank you, mr. chairman. >> thank you very much, senator ensign. >> between december of 2006 and december of 2006, the var measure of risk was continually over the permanent limit. do you remember that? >> yes, i do. >> and it reached peaks at or near 100, far above the limit. was that something that you approved? >> it's something approved on an ongoing basis. yes. >> all year they were over your permanent limit. at one point they had the majority of your risk tied up in just that one department. were they not? were they at 56 bank account of your v.a.r. at one point? >> i would have to look at the figures? >> approximately? were they a huge percentage? >> they were a large percentage. mr. chairman, let me make one point is that the numbers may this well not include the defective diversification. you get a number that is in excess of total firm wide v.a.r. that gives effect verification. that would understate the impact. but the general point you're making is entirely right. this is a large percentage of the firms that are certainly much larger than it has been historically. >> and the short positions that they were taking during that year were the major contributions to that. is that correct? >> to the mortgage v.a.r., yes. >> to the high mortgage v.a.r.? >> yes. >> the mortgage department's contribution to that firm that firm wide v.a.r. shown over here. let me take a look at 35, if you would, exhibit 5. see it? >> yes. >> the percentage of contribution to the firm wide v.a.r. was shown at 58.3% for structured products. is that correct? >> yes. i'm not positive about this. but i think this relates to the entire mortgage group at the time this report was presented. >> well, this report was a goldman report, right? >> yes. >> it says mortgage structured projects, 53.8% of the firm wide v.a.r. >> correct. >> and that you agreed was a result of their significant short position, is that correct? >> the mortgage v.a.r. was being driven primarily by the short positions at this time. yes. >> now if you look at exhibit 48, this is a presentation which i believe you gave to the goldman tax department in october of 2007. does that look familiar to you? >> yes, it does. >> look at page two. full fourth paragraph. i'm going to read it to you. so what happened to us? a quick word on our own market and credit risk performance in this regard. in market risk you saw in our second and third quarter results that we made money despite our inherently long cash positions because starting in early '07 our mortgage trading desk started putting on big short positions. big short positions. mostly using the avx index, which is a family of indices designed to replicate catch bonds, and did so in enough quantity that we were net short and made money, substantial money in the third quarter, as the subprime market weakened. this is our position today. was that accurate, what he wrote? >> yes, it was accurate. >> that's a good description of what happened. now let me -- go back to mr. viniar. i do have a problem with taking a short position on a security that you're selling to your customer. i'm sure it's true your positions change all the time. you're holding out a security to a customer, and at the same time have decided and are in a short position. you're going to take the opposite position from your own customer. now, you can say that your position might change. i'm talking about the time you're selling that security to the customer. do think that customer has a the right to believe that you want the security to succeed? >> i think that customer has a right to believe that -- it's not a question of succeeding -- >> that's my question. you can say it's not the question. i'm saying from a customer's perspective, when you hold out securities to sell to a customer, do you think that customer has a right to believe that you, goldman sachs, would like to see that security succe succeed? >> i'm not sure what succeed actually means? >> it would be a good security for them to investme in? >> that the customer thinks the value would go up? >> i'm asking does that customer have a right to believe that you, goldman sachs, when you're selling something, believe that that is a solid security? >> does that customer have a right to believe we think the value will go up in that security? >> no, no. i'm asking you whether or not you put your name on that security. you have goldman sachs. you're selling it. does that customer have a right to assume that you would like to see that security succeed? that's my question. put yourself in the customer's mind. do you think the customer has a right to assume that when you put in on a security, that you, goldman sachs, would like to see the security pay off? >> i think when we sell securities to customers, we don't necessarily have a view that they're going to go up or down. so i'm not sure what succeed -- i'm not trying to not answer your question. >> that you're holding out something to them because you think this would be something good. that it's good. it's secure. it's not insecure. it's secure. >> when we -- i'm not confusing that word. i want you to understand what's in the customers' minds. you don't think it's junk. you don't think it's crap. you don't think it's shitty. >> it depends on how you mean it. >> how i mean it? these are your employees who mean it. >> if we sell something to a customer, let's say we owned it and we sell it to them at 20 cents on the dollar. it doesn't mean we think it's a terrific piece of paper, but they think it's worth more than 20 cents. >> if your employee thinks that it's crap, that it's a shitty deal, do you think that goldman sachs ought to be selling that to customers? and when you were on the short side betting against it, i think it's a very clear conflict of interest. and i think we have a deal with it. now you don't, apparently. >> i do not necessarily think that. >> and when you heard that your employees in these e-mails and looking at these deals said, god, what a shitty deal, god what a piece of crap, when you hear your own employees or read about those e-mails, do you feel anything? >> i think that's very unfortunate to have on e-mail. and very unfortunate. >> on e-mails! >> please don't take it that way. i think it's very unfortunate to anyone have said that in any form. >> how about to believe that. >> i think that's unfortunate as well. >> that's what you should have started with. >> you are correct. it is. >> we're going to stand adjourned for ten minutes. >> the hearing is breaking for about ten minutes because the senate has another vote on the financial regulatory bill that's right now, supposed to be at 4:30. it's at 4:40. so this panel will break for ten minutes. they will come back and continue this hearing. of course, this is the senate sub committee on investigations. hearing testimony from the goldman sachs executive, david viniar, the cfo of goldman sachs, as well as craig broderick, the chief risk operator, explaining their positions in terms of shorting subprime and housing related securities. mortgage-backed securities, during the 2007 boom in prices. a number of interesting questions about their feelings about the market. and whether or not they felt a responsibility to tell the person on the other side of the trade that in fact they believed those securities were not worth very much. let's get to scott cohn. that was real interesting. was the exchange about whether or not those products were not very valuable. as they sold them. one thing that viniar did not say was maybe people have a price fors. i mean, obviously the other side of it had a price they were willing to pay. whether it's 20 cents on the dollar or not. even though goldman sachs had owned the product, watched the value decline, and sold it. what are you thoughts? >> that was an amazing exchange, maria. it just gets to the whole point of there are just some things here that look bad even if this is how markets work and maybe a lot of regular folks trying to avert their eyes from them. viniar tried to make the point, yeah, it's unfortunately what they're putting in e-mails. got a lot of laughter out of that. as you allude to. that's what a market is all about. the buyer feels something is worth more than 20 cents on the dollar. they think they're getting a bargain. the seller is trying to unload it. that's the nature of things. it sure doesn't look good when you're selling bundles of people's mortgages in the midst of a housing downturn. it doesn't feel good to people who think this wall street firm is exacerbating the down fall of the economy. >> i don't know if you noticed, but in the hearing room, there are protesters. one of them, while viniar or broderick was talking held up a sign that said shame. there are protesters within the room trying to be seen on camera, just to just to underline the public anger that is associated with obviously the financial collapse as well as the actions out of goldman sachs. the other interesting question there, from carl levin, was how responsible was goldman sachs for the financial collapse of the united states? >> that was an interesting exchange, too. david viniar was very upfront about that, which was in contrast some of the answers from the earlier panel. maybe viniar felt he was in a position to be able to accept some responsibility. that wall street and the world got overleveraged. goldman sachs is a major player in the world. goldman sachs, yes, bears responsibility. that was news to hear him say that. >> now, if you had to gauge or measure how they're doing in terms of the goldman sachs side of things, what would that grade be, scott. carl levin is coming across quite informed about what's happened and certainly about the actual product. he had real knowledge in terms of the structured products. >> he does. he's very well staffed. he knowed the stuff very well. as we've said earlier, this committee, this permanent sub committee to which he's been a ranking member for many years has a lot of experience. as we said at the end of the day, this was going to be a clash of two powerful sides. levin, who is good at this. very good at framing facts in a certain way, and goldman sachs, the most powerful firm on wall street. in a lot of ways, again, just because a lot of people may not like to think about the fact that there's a sell r for every buyer in the markets, goldman sachs is at a disadvantage. i think it shows. >> let me get to david faber and marion thompson also covering this. let pe kick it off with ha shot that we're looking at now of protesters with jail uniforms on. >> they've been in there all day. >> that say "shame". they've been in there all day, mary. they're making themselves visible to the camera. again, underlying the anger that the public has and the outcries for the people, if you will. >> and you usually see not this group but other groups like that, hearings like this. they were a bit vocal. a couple times they hissed when they mentioned -- >> i have to interrupt you, mary. >> my apoll ogies. the recress has ended. david viniar, craig broderick being questioned. >> excuse me, which page of this, again? >> it's page 23. >> thank you. >> the collateral manager and its affiliates may have other clients including certain holders of my class of notes which may invest x directly or indirectly in the same or similar securities or financial instruments as those in which the issuer invests or that would be appropriate for the including in the issuer's holding. and then the final paragraph, the collateral manager may make investment decisions for other clients and for affiliates that may be different from those by the collateral manager on behalf of this year. are you telling people by that disclaimer that you may sell them something long and then go short against it? i mean, what's the purpose of that disclaimer? >> i'm just not familiar with this document or this disclaimer. >> it's been pretty well covered in almost everything you've written. you're an accountant, not a lawyer. neither am i. what does that say to you? as you're telling people in this prospective that you may sell to other clients or affiliates, that you may take a position sa. >> okay. i just wanted to clarify that. now, i wanted to go back to something i asked the young man on panel 1, which was associated with is there a policy at goldman about directing conversations through corporate e-mail and limiting those to things that should not be put in e-mail? is there a policy? >> there's no policy that i'm aware of. >> thank you. mr. broderick, i want to spend some time with you, if i may. would you go to exhibit 63, please? i'll just read it if you've found it. this is from patrick welch to you, mike dinius, robert barry, lee hemphill, willedermouth, and i guess that's rapfrogel. "dear craig, i realize this may be too late, but two comments. just for your information, not for the memo, my understanding is that the desk is no longer buying subprime. we are lowballing on bids." why would this be excluded from the memo? >> i don't think that it implies that it was excluded from the memo. he just is referencing the fact that his comments may be too late for inclusion in the memo. but it doesn't actually say whether it was in the memo or not. >> okay. but the point is the desk was no longer buying subprime. and you knew that. >> it says the desk is bidding lower than it would otherwise do with the effect of not certainly being as aggressive as they were. >> which desk does that e-mail refer to? who were they talking about? >> it does not specify, but it was one of the desks within the mortgage -- >> yeah, one of the desks that would buy subprime mortgages, correct? >> yes. >> and who is mr. patrick welsh? >> he is a gentleman in our credit function. >> does he work within the mortgage -- >> no. he -- >> he works within the risk management? >> he works within the risk management. >> okay. who do you think they were lowballing on bids? clients or customers? >> these would have been clients from whom we buy mortgage product, subprimes -- >> and they're packaged and -- okay. >> correct. but lowballing in this case is not a bidding less than fair or anything -- >> no, no. it's just saying you're going low so it's not as attractive for them to bring them to you and they'll bring them to someone else? >> they'll bring them to someone else. >> i understand. i have no criticism of that and i'm not making any judgment of it. what happened in your opinion in the march time frame for your company to make the determination to no longer buy subprime? you're a risk manager. you're involved in that thought and decision-making. and research. what happened? >> this was entirely consistent with the strategy that -- with the direction provided by david viniar and other senior managers at the firm, that we be less long in our mortgage business generally. >> okay. but as a risk manager what are the inciting events for them to do that? you're sitting there looking at it as a risk manager. what caused them to make that turn? was it as testified in the first panel we started seeing a deceleration in the increase in housing prices or we started seeing subprimes not performing? what was it that led to that conclusion within your firm? >> with the, the meeting itself was chaired and in fact initiated by david, so -- >> he was seeing daily losses, i know, from his testimony. >> that's the feedback that we had as well, which was that this was a business that had long been, you know, a small but relatively stable part of the goldman portfolio of businesses. we went into it willingly on the basis of low risk and comparatively low return. we thought we understood the risks pretty well. and therefore, when we started seeing, as david has talked about in his opening remarks, when we started seeing profit volatility in excess of that which we would normally expect to see, it just raised in our mind the question that maybe we didn't thoroughly understand what was going on in the market and therefore maybe we should start getting shorter. >> can you give me, and for the benefit of those listening, can you give me another scenario in the past five years where goldman has seen the came kind of thing happen where you're looking at voluntary, you're looking at mark-to-market and you're seeing this decline, can you give me another example so that people can see that this is not a single event, it's a multiple event? >> sure. the same thing happened with leveraged loans in 2008. we were long many leveraged loans, unfortunately. and the market clearly started to decline. we were marking things to market, we were marking them down, and we sold them. we sold some at prices that people who bought them, they continued to go down, and we sold some at distressed prices, and since then they've recovered and we've made money on them. but we just felt our risk was too big and our instructions were that we should reduce our risk because that market was in very -- ended up in severe distress. >> now, there's some significant risk factors going on in commercial real estate. do you all have big holdings in commercial real estate mortgages? >> they're not that big anymore. we've either -- >> you've gotten close to home on that? >> not as close as we would have liked, but a lot closer than we were. >> and were there collateralized debt obligations on these, and were there mortgage-backed securities on these as well? >> yes, there were. >> and was it to the same extent that you had involvement in those as you had in the residential mortgage? >> i don't know precisely what the numbers-r but we were active -- >> in both markets? >> we were active in both markets. cdos were very often included. commercial mortgage-backed securities. >> mr. broad-r do you think -- or do you feel? not think, not feel, any of the cdos in the backus transaction had any reputational risk for goldman? >> do i think abacus had any reputation risk for goldman? with the benefit of hindsight, one version certainly did. >> the last? >> the aca 2007, yes. >> how about any of the cdos? >> we structured these products very carefully. we structured them with, you know, the best of the -- the best of intent. they accurately i think reflected the -- in terms of disclosure and so forth, the underlying assets in the portfolios. they were purchased by sophisticated investors who had a great deal of detail on the underlying securities that went into them, the underlying assets that went into them. i think they performed in a manner consistent with that which the market itself performed. >> earlier senator ensign asked the first panel about whether or not they thought the motivational system of payment based on year-end bonuses, production, et cetera, led that a less than ethical -- or compromised an ethical position. i'd just like you to comment for a minute. what is the ethical creed of goldman sachs? how is it manifested? how does the board look at ethics? do they have an ethics department? is