five and three-quarters we could have gotten even more. i do not know whether the system would have gone completely out of kilter if they had not been done, but it was too much of a risk. and i really glad, and -- and i'm really glad and we were beneficiaries of what happened. the >> i appreciate that. i can tell you there are some things in my job as a u.s. senator from montana that do not make a lot of sense. one of the things that does not make a lot of sense to me is why these synthetic -- and i know you have an answer for me, but why these synthetic instruments came about with nothing in them. and claire is right. it is just like betting on a sports event come out on whether it is going to rain. it is not -- it does not make any sense. this is just playing around from my perspective and part of this playing around is why taxpayers had to bail out what went on on wall street. i have some issues with that. i think you could add some to the equation as long as we can bore down and make -- and get to the facts. transparency is critically important in making sure that consumers are protected. i think we lost all sorts of other things while folks that got bailed out are making hundreds of millions of dollars. >> sir, i agree, and i would like to be helpful. and i will be helpful. and i would like to say one other thing. i can tell you what the purpose is in people being able to take long or short synthetically. even at the end of the day, if the -- if they are too complicated and too risky and generate the kind of risk that apparently these did, then what -- finding a social purpose in them or a hedging purpose in them is not withstanding. they've maybe something -- they may be making a defense. clearly, the world needs more regulation. >> as i look at this thing as a regular person, you have got a guy by the name of paulson that is picking out and had a role in it. he may not have been the only person, but he had a role in picking out these securities. and by purposely -- and i believe he picked them so they would fail, so he could pick them short. thank you for being here. >> let me just pick up where senator tester if left off. these credit default swaps that you engaged in, these synthetics are, in my judgment -- in most people's minds there is no social purpose. it is a bet for it is not about whether you have a particular interest. it is a bet on something where you have no interest, no collateral involved, no interest or risk taken by collateral. where people are betting on whether or not some event will occur. what happened here is you one that bet. you wanna bet with aig. >> we lost money in that aca deal. aggregator i'm not saying that cured the only reason -- >> i'm not saying that. the only reason you lost money on the aca deal is because you ended up with a piece of that that you did not have -- that you did not intend to have. >> with all due respect, that misses the point. >> you said you lost money on it. >> we did, but listen to what i'm saying. >> you intended to sell that piece of the long and could not do it. >> right. >> you invested in that deal. >> we intend to sell everything. >> you did not intend to sell your short positions in everything, did you? you insisted on keeping short positions even when a client preferred that short position. you put your own interests ahead of your client when your client wanted a short position in one of these deals. you were doing that for your own proprietary interest in those other deals. you wanted to go short. and you did want to go short, i understand that. a. i geode you that money -- aig 0 du that money, am i right? -- owed you that money, and my right? >> aig -- yes, a ig potus margin, most of which we had collected. -- a i g owed us a margin, most of which we collected. >> did they pay the debt? >> i do not know whether those worked sharp funds. >> you got -- you do not know whether those were tarp funds that flow through to you? >> i do not know what pocket those came from. literally, the cash flow has been reported and i think they even went through this. it went to $12.9 billion. they gave us stuff and we gave them back stuff. >> what was it that flowed to you net? of those funds through aig. crux of what we gave them back? -- >> of what we gave them back? >> yes, just give me a dollar figure, if you would. >> the only thing that flowed through to us is $2.5 billion on the margin. >> the government did not owe you $2.5 billion, did we? >> know, you did not. >> but you ended up with $2.5 billion from the taxpayers. >> we were not looking to get it from the taxpayers. >> but you got it from the taxpayers. the cracks in lieu of what would come from the insurance -- >> in lieu of what would come from the insurance company. >> we did not owe you any money. two private parties owe you that money. why did you end up with $2.5 billion of taxpayers' money in your pocket when we do not owe you the money? aig zero do the money or -- aig owed you the money or the insurance company owed you the money. >> because the government decided not to let a i g d fall. >> why do you end up with -- because the government decided not to let notdefault. >> and you could have gotten that money from a private insurance company. >> correct. >> now you have money from the taxpayers in your pocket. >> we got money from aig. >> that was tax payer money. yes? >> aig got money from the government -- >> taxpayers' money. >> then paid it over to us. >> i know, we are going round and round. the facts still are that you got to $1.5 billion of taxpayer money on a private -- you got $2.5 billion of taxpayer money on a private deal. does that bother you? why don't you go after the insurance company? >> because it was the insurance against the the fault of aig by the u.s. government intervening. aig did not the fault. we were going to get it from aig, or upon their the fall from the insurance. one way or another we would get the $2.5 billion. >> right, but you would not have gotten it from the taxpayers' money. did you have any conversations with anyone at the treasury department about that? >> about? >> whether aig would get money and then pay it to you. >> no. at the time of the announcement, i was asked by all of my regulators, are you ok? in other words, do you have an exposure? and i said, no, we do not. and by the way, $2.5 billion would not have caused us that much -- in other words, that is not necessarily an unmanageable number. >> if it is not unmanageable for you, it is disgraceful from the taxpayers' point of view that you end up with taxpayers' money that we did not owe you. >> only because aig owed it and the government did not want them to fail. they honor their obligations and paid us. without that, we would have gotten our insurance. >> i understand you would have gotten it from a private source. you have said that a number of times. there was a senate investigation during the great depression -- did you hear my opening statement this morning by any chance? what they said was that investors must believe that their investment banker would not offer them bonds unless the bank believed them to be safe. it ended up saying that while the baker made mistakes, he must never made the mistake of offering investments to his clients that he does not believe in. you turn that idea, which is a pretty fundamental idea, offering to clients' investments that the bigger does not believe in -- you said you should not have to make, to be sure that investment is good for a client. i agree with that. but that is not the issue. you cannot guarantee of an investment is going to be good for a client. the question is, if you believe it is a bad investment for that client because you are going short against it at the same time you are selling it, that is what the investors in the 1930's were saying was one of the causes of the great depression. bankers were selling things, making money for themselves, but selling things they did not believe in. and that is what happened here. you were selling things that you did not believe in. what was the sure test of that? you were betting against them at the same time that you were selling them. you were intending and -- you were taking and intending to keep a short position. that is a very different thing from what you said 20 minutes ago. you should not have to make sure that an investment is good for the client. no one is saying that. of course, you cannot make sure. youan make sure that someone you sell an investment to and you know and believe is a bad investment and at the same time betting against that investment. i will leave it at that. you obviously do not see that. it troubles me that you do not see that is complication. it troubles me that you do not see your client as yourself, but that is what this has turned into too often. goldman sachs has turned itself into its own client and has taken advantage of the relationship by doing what you did in so many of these cases. and that is, another thing you did, you took stuff from your own inventory in massive amounts which you did not believe in. ok, sold it -- that is okay. but you did more than that. you bet against your own cesale. that is troubling to me. there is another problem that is a broader issue that you made a major decision to bet against the housing market. we can spend a lot more time on that if you want to. let's put a couple of charts very quickly to show you what they mean by that. -- what i mean by that. it put up the chart of delong sales -- of the long sales. what number is that? 163. . . >> there was a letter: sent to the sec in november 7. you said what your investments more in november of 2006 -- this is on the long side. that's what happened to your investments. that is what you did on the long side. it also went short big-time. you don't acknowledge its big- time, you said it was small net short. you used the word small. >> because the one fact and it the way you can tell -- >> lets look at how small they were. we put up another chart based on your numbers. this chart shows how net short you were. that is taking everything into consideration. that is the chart number of weekend news here. 162. ok, i got it here. 162, take a look at this chart. this chart was taken from information from the mortgage department's top sheets which were supplied by goldman, listed the department of short positions several times per month. we gave you an example of this top sheets. you are looking at 162. do you see that? >> not yet. i am doing the best i can. it is up top. i got it. clear >> this is your short positions. this is based on your top sheets. small net shorts. every single day you are net short, so that is not sometihng sporadic until december when you sold -- everything until december 20 you had a net short as high as $13 billion. it back the sheets are attached. is that a small net short? >> you cannot go by the gross amounts -- the way you can tell whether you are short -- the best way -- if you were short early in the crisis -- i am doing the best i can. >> the answer is yes. >> this did not act like the $12 billion position. you can say our entire pnl from residential was under $500 million. you can have growth headline numbers, but if you are long, the better credit, and short, the slightly worse credit. the positions short could move more and they could reverse. in these complicated portfolios you can have numbers that were long or short, but the portfolio didn't react that way. that is why people who testified said you had to look a how they behave. when the market went down, he did it make money? >> let's look at the pnl. [unintelligible] >> 55b. we talked about this today. this is the performance evaluation, extraordinary profits, $3 billion as of september 2007. extraordinary profits, 55b. >> ic tavis 65 and it goes to 56. -- i see tab 55 and then to 56. >> we will get you that. is 55b. >> is there a tab? >> is inside 55. they talked about tremendous profits -- >> where am i looking? >> [unintelligible] >> i see it now. what page number? >> page two. do you see that? >> i am on page two. >> see where it says tremendous profits? is $3 billion a tremendous profit? >> i see the contributions for a $3 billion. >> do you consider that a tremendous profit? >> for that trading desk, and the guy writing this is bragging about his local business. it was adjacent to other businesses. i would never even see this. >> i am showing it to you right now. is that a big problem? >> that is a big number just like the loss in his jason number is a big loss. -- his adjacent number is a big loss. you want to deduct the long positions from that. the question is, did you bet against the housing mortgage business? you did. >> we did not. >> you went big and short. >> no, we did not. >> let's look at what you told your board. quote to exhibit 18. -- go to exhibit 18. this is from sparks. this is just the synthetics. >> everything is local. i will get to the major shift in a minute. you told your report there was a major shift. let's talk about what made up that major shift. >> i am looking at it. >> in it is the synthetic space. >> yes. >> they started a quarter with long and shifted the position to net short $10 billion by reducing the longs and increasing shorts. that was one piece of your operations, the shift from long to short. then you told the sec on page 54 -- this is dated september 20. exhibit 54. >> yes, sir. >> page 3 second paragraph, net revenues and mortgages were significantly higher despite deterioration in the market environment. significant losses on non-prime loans were more than offset by gains on short positions. ok? your significant losses in a non-prime loans or more than offset by gains. that was some of your net short positions. look at exhibit 46. page three. the bottom. perhaps there. it is important to note we are active traders of loans and with any instruments we trade we may choose to take a directional view of the market. that is what you deny and will express that through loans and derivatives. therefore although we did not have long balance sheet exposure in the past three years, our net risk position was long or short depending on our changing view of the markets. this is your own filing. during most of 2007 we maintained a net prime position band-aid withstood the benefit from declining prices. take a look at your tax presentation, exhibit 48. october 2007, exhibit 48. here on page two. right in the middle. what happened to us? credit risk performance in this regard. you saw in our second quarter results that we make money despite our long cash positions. inherently long. >> inherent. >> it was inherited and inherent. starting early in 2007 our mortgage trading desk started putting on big shosrt positions. those are not my words. big short positions, mostly using abx. it did sell enough quantity we were a net short and made money in the third quarter. as the subprime market weakened. that remains our position. you made substantial money in the third quarter. that was the chief risk officer who said this in an internal presentation to gold and's tax department. -- goldman's tax department. you did very well because you had a big short. then -- exhibit 45. that is the conference call in the third quarter of 2007. our risk bias was to be short, and that position was profitable. no hedge there. profitable because of our short position. here is the september conference call. what had happened is that you had a meeting with your board of directors, i assume you would have been there in march of 2007. he made a decision -- you made a decision. that shows on page 8 of the exhibit 22. first quarter long position grows with increased market activity. this is back in 2006. see that arrow? >> what page? >> eight. >> and the first and second quarter. your long position grows. then you start scaling back purchasing of riskier loans. you reduce your cdo activity, marked down to reflect market deterioration, and lookey here, goldman sachs reduces positions through reductions of abx. you are reversing your long market position. that is a direction for most people. you don't like to use the word direction in your public statements. you told the board you were first and long market positions. when you had the next board meeting in september you told your board -- this is exhibit 41 on page four. got it? >> i do. >> this is what you told your board. you were -- you will see the first quarter. you shut down all mortgages, increased protection, shut down your cdo warehouses, toook mark tp market losses, and here is what you said, you position to the business tactically. businesses taking practice steps to position the firm strategically in the liquidity crisis. perfectly proper what you did. you shorted synthetics, reduced loan inventory, short, short, short. youwere short like crazy. you can say publicly there was no direction here, but your documents show otherwise. you shifted your position from long to short. you told the court what you were doing to focus on the short position. -- you told the board. , it was so sharp you may have been the only bank that made money when a house in bubble burst. -- when the housing bubble burst. maybe it is not the amount you usually make, but it was $1 billion net after all your long losses in that year. you say is half a billion. your records show $1 billion, but we won't quibble. he made out ahead in a market which crashed -- you may end up ahead -- you made out ahead. that is what your own documents show. i am not sure why it is that you are saying these things like there was no directional change. these are big net short positions. i know you are saying those are in that short. if you look at the short side they would be huge. you were up to $13 billion net short indeed there was not a day until the end of december when you actually have anything other than the positive net short. you want folks to trust you. , but here is the way i see it. we have been through this business of selling securities and in that same deal not telling them you were betting against them. >> [unintelligible] >> i want to give you my view of it. you want to be trusted. i am glad you want to be adjusted -- want to be trusted, but there are folks who have doubts when you don't acknowledge the big short, you try to hedge that. when you also over and over again in these documents, you were selling securities to your clients at the same time you were betting against those same securities. you can argue people know that and i am saying people expect that bankers would be selling things that they would expect or believe would be ok, not that they are betting against. that is what we have shown. we are in a unique position that because of your big size but because of the big short. it puts your bank in a position where you were one of the rarer banks that came out ok. the other banks that did not engage in the big short like you did lost big time. it is not the fact that you made a profit, it is not the fact that you went short, it is the conflict that is troubling to me, between changing direction, nothing could be clearer. you told your report you were changing direction, but in that process in securities you were selling to customers that against those securities simultaneously with the sale as part of the security distribution. that is what is -- that is the part that troubles me the most. not just the language, the bleeps that your salespeople had that they were selling junk. -- the beliefs taht your salespeople have. you said nothing you heard was traveling. -- was traveling -- troubling. if that did not concern you that people who were selling securities under your name believed that they are selling crap, if that doesn't concern you it concerns me and with concern a lot of people in this country, you should not be selling crack. you should not be betting against your own -- you should not be selling crap/ that is creating a necessity that we take regulatory texts -- regulatory steps as an amendment to introduce today -- introduced to the dodd bill. i think you or another representative today acknowledged in the area of credit rating there is the appearance of a conflict of interest because you are paying the credit raters to rate securities you are selling. it is in your interest that they be triple lead. do you remember at -- that they be aaa. do you remember being asked the question -- >> have we move past -- >> you can't comment on what i have just said. -- you can comment. >> the language did change whether an isolated individual is characterizing his pnl in isolation. the one fact that is in the past tha is audited is the net of all these positions yielded less than $500 million worth of revenue in the residential space and lost $1.7 billion in 2008. >> the bubble burst in 2007. >> in the context of the chaos of the market, all the market making we were doing wioth all that was going on, getting withink $500 million of flat in 2009 -- 2007 reflects an accomplishment to get closer to home. i just wanted to respond to you. >> he may not think a half a billion dollars is a lot, but the fact that you were able to get through 2007 is because you went with it a big short. 56% of your value at risk. >> because -- >> it was higher because of the volatility. >> let's talk about the credit agencies. we asked you whether or not -- i'm sorry, i don't know if we have an exhibit on this. he will probably remember your words. -- you will probably remember. we will get you a copy. >> thank you. >> take a look at page 46. >> 46. got it. >> line 25, based on your own knowledge for what you are a senior executives may have expressed, how critical it goldman believe the ratings 00 -- how critical were those ratings to the successful selling of cdo's? why don't know what drove the business. i don't know how important they were to investors. we do. next question, --but did you understand there were certain investors who could only invest in certain products? your answer, i never thought of it. that is strange that you never thought that there are classes of investors that can only invest in aaa products. is that something you never knew? >> i never thought of it. >> you never thought of the importance of aaa. there are folks that can only invest in aaa? you're not aware that those bbb turned into the aaa -- the reason is to have more aaa securities? you're not aware of all that? >> i never marketed that. if you ask me whether i would think it would be more desirable to have aaa, i would say for sure. if you ask me whether i knew some category was barred from buying it unless it had aaa, it was not within my scope. >> look at the top question. either based on your own knowledge and opinions of senior executives, how critical did goldman believe the ratings given were is successful marketing and selling of cdo's? how important is it? your answer, i don't know what drove the business. i don't know how important they were to investors. you are telling us you don't know aaa ratings are important to investors? >> you are using different language. >> i am reading it exactly. >> i don't know what drove the business. >> i don't know how important they were? you don't know how important -- >> i am being asked a question about a and line of business tha t i never personally was in. i never did this, and there are so many people who could answer this with precision, i am not one of them. i don't know how important they were to investors. >> you know that they are important? >> yes, i know they are important and indeed they are preferred, but i don't know the extent to which those investors for a lower rating are capable of buying them. i don't know. >> the deposition was taken by staff and not me. when i said i ask you something it was not me, it was the staff. i didn't say we. >> i'm sorry. >> i said i. let me just close with a brief statement. we had a debate going on on hell congress should respond to the abuses we have looked at -- how congress should respond. those abuses include the conveyor belt of toxic mortgages that into the system, the huge demand that came in all whole lot of places. we focus on a case history. wamu dumps billions of dollars of toxic mortgages into the system, goldman and other banks provided lenders with more money to issue that loans. there is evidence from the documents that goldman was very much aware they were buying loans from companies that were selling bad loans. then the financial engineering comes along and turns mortgages into safe investments, taking bbb's and other things that are not solid and turning them into safe investments selling them. now the poison spreads further. then we have the synthetic securities which magnified all of that. the mortgage system begins to buckle under the weight of these loans and then we have this situation where a cold and bets against the war itch market -- where goldman that's against the mortgage market -- bets agains the mortgage market. despite the losses you took you were able to make a profit because of your huge investment on the short side. i believe in a free-market, but if it will be truly free it cannot be designed for just a few people to reap enormous benefits while passing the risks on to the rest of us. it passed to be free of conflicts of interests. senator don's bill is an important beginning -- senator dodd's bill is an important beginning. that is what we saw evidence of today. that addresses the synthetic instruments that magnify risk while gambling under the demise of companies. that ends these reckless lending practices and negatively advertising loans. that gives stronger enforcement tools for regulators to protect consumers. that is what we have to do to rebuild the defense, to protect the main street from the excesses of wall street. and i hope these hearings provide strength to the reform effort. law of us will be working on legislation to stop the abuses exposed. -- lots of us will be working on legislation. we thank your staff for working very long. i know this is true of senator coburn's staff, have spent untold hours of digging through these documents. i love the way some of your folks tell the press they were chary picked. -- cherry-picked. of those documents reflect the history of what happened here. you obviously have to select some you think represent a reality. we did that. it is a reality that has an unseemly aspects to it, but we are hoping whether or not we can get the support of wall street firms and you indicated some willingness to support reform, whether we get support for a strong reform bill we have to have the backbone to do just that. we thank our witnesses and mr. blank fine, we thank you. particularly we thank -- mr. blankfein. stand adjourned. -- we stand adjourned. ho[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> now more of today's senate hearing on goldman sachs. member's question the chief financial officer. this part of the hearing is an hour and a half. >> good morning everybody. the subcommittee holds the fourth of the hearings to explore the consequences of the financial crisis. these are the culmination of nearly a year and a half of the investigations. the freezing of financial markets and the collapse of financial institutions are not a their jobs and businesses. it sparked the worst economic decline since the great depression. behind every number we cite our american family is still suffering the effects of a man may collapse. our goal is to construct a record of the facts in order to deepen understanding of what went wrong, to inform the legislative debate about the need for financial reform and provide a foundation for building better defenses to protect main street from the excesses' of wall street. our first hearing dealt with the impact of high risk mortgage lending and the focus on a case study of washington mutual bank. . leaders embarked on a reckless strategy to pursue higher profits by emphasizing high risk loans. they did not just make loans that were likely to fail, creating hardship for borrowers, it also built a conveyor belt that fed toxic loans into the financial system like a polluter dumping poison into a river. the poison was packaged in mortgage-backed securities they sold to get the risk of those loans and default rates off its own books, dumping that risk into the financial system. our second hearing examined how federal regulators saw what was going on but failed to rein in a reckless behavior. regulation by thrift supervision should have been conducted at arm's length was done on an arm with -- done arm and arm with wamu. our third hearing dealt with credit rating agencies, specifically case studies at standard and poor's and moody's. while wamu dumped their loans into the river of commerce, the credit rating agencies assured everyone poisoned water was safe to drink, slapping aaa ratings on bottles of high risk products. . . one of thelma oldest and most successful firms on wall street. those activities contributed to the economic collapse that came full blown the following year. goldmansachs and other investment banks, when acting property lawyer -- acting properly, played an important role. they create jobs and make economic growth possible, bringing together investors and businesses for helping save for a child's education. it is not hard to echo the conclusion of another committee that found, the results of the unregulated activities of bankers were disasters. that conclusion came in 1934 as the senate looked into the reason for the great depression. goldmansachs claims response ability for our community to support and fund our ideas and facilitate growth. the evidence shows goldman repeatedly put its own interest in profits ahead of the interests of its clients and our communities. it's miss us help spread toxic mortgages, and when the system finally collapsed, goldman profited from the collapse. the evidence also shows repeated statements by the firm and executives provide inaccurate portrayal of goldman 's actions during 2007, the critical year when the housing budget -- housing bubble burst. the firm's own documents show it was placing large bed against the u.s. mortgage market. the firm has repeatedly -- large bets against the u.s. mortgage market. the firm has repeatedly denied that. why does that matter? surely there is no law against profit. goldmansachs did not just make money. it profited by making money off the expectation that it would not sell profits, that it did not want to succeed, and that was -- there was no conflict of economic interest between the firm and the customers it had pledged to serve. those were reasonable expectations of its customers, but goldman's actions demonstrated often saw its clients not as valuable customers but as object to its own profit. this matters, because instead of doing well when its clients did well, goldman did well when its clients lost money. if conduct brings into question the whole function of wall street, which has been seen as an industry of growth, betting on america's successes and not failure. to understand how the change in investment banks helped bring on the financial crisis, we need to understand first how wall street turned bad mortgage loans into economy-wrecking financial issuances. the story begins with mortgage lenders. washington mutual loaned money to home buyers and then sought to move those loans off its own books. the activities fondant ever more complex market in mortgage- backed security -- that activity spawned an ever more complex market in mortgage-backed security. then things turned upside down. the fees were so large bases to be a means to keep capital flowing to housing markets. mortgages began to be produced for wall street instead of main street. they generated large bonuses for themselves. demand for security prompted lenders to make more riskier mortgage loans making and packaging loans became so profitable but credit standards plummeted and mortgage lenders began making risky loans for people with little chance of making the payments on those loans and mortgages. wall street designed increasingly complex financial products that produced a triple a rating for high risk products that flooded the financial system. as long as home prices kept rising, they posed problems. those who could not pay off their loans could refinance or sell their homes, and the market for mortgage-related products flourished, but the party could not last, and we all know what happened. housing prices stop rising, and the bubble burst. investors started having second thoughts about the mortgage-buy securities wall street was churning out. in july of 2007, two offshore test runs specializing in mortgage-related securities suddenly collapsed. the same month the credit rating agencies downgraded hundreds of some prime securities, and the sub prime market when cold korean the region went cold. they were left holding unmarketable mortgage-debt securities, values were plummeting. america began filling the consequences of the economic assaad. goldmansachs was an active player in building this machinery. leading up to 2008, goldman made a lot of money and packaging mortgages and selling securities backed by loans from notoriously poor quality lenders such as washington mutual, fremont, and new century. of special concern was goldman costs marketing of what are known as synthetic financial instruments. ordinarily, the financial risk of the market and the economy at large is limited because the assets traded are finite. there are only so many houses, mortgages, shares of stock, or barrels of oil in which to invest, but as synthetic instrument has no real asset. it is simply of debt on the performance that if references. that means the number of synthetic instruments is limitless, and so is the risk they present to the economy. synthetics structures, referencing high risk mortgages, and garnered hefty fees for goldmansachs and other investment banks. they assumed an ever larger share of the financial market and contributed greatly to the severity of the crisis by magnifying the amount of risk in the system. increasingly, synthetics became deaf made by people who had no interest in the assets. synthetics became the ships in a giant casino, one that created -- the chips and a giant casino, one that created no economic growth and then helped throttle the economy when the casino collapse, but goldmansachs did more than earned fees from the synthetic instruments. goldman also bet against the mortgage market and earned billions in an -- when that market crashed . in september of 2006, goldman decided to move away from its long positions in the mortgage market in what began as a prudent hedging against a large exposure for that market, exposure that sparked concern on behalf of the senior executives. after a december 14, 2006 meeting, they decided, get closer to home, meaning, i get to a more neutral and risk position, but by early 2007, a company flew past neutral risk and began betting heavily on its decline, often using complex financial instruments, including synthetic, collateralized debt obligations or cdo's. coleman took net short positions through 2007. the charge we're going to put up his face on data supplied to the subcommittee by goldmansachs. it tracks a huge short positions throughout the year. those represent approximately 53% of the firm's to risk, as measured by the most relied upon measure, and those short positions throughout that year, 2008 until they cash those positions in at the end, the black line in the middle represents a neutral line, balance. the line below -- nas of brown numbers and lines below the back line represents the short position of goldman during the entire year, and you can see it was not the short during the entire year of 2007. those short positions in more than avoid big losses for goldman. they generated a large profit for the firm. goldman says these were just a reasonable hedge, but internal documents show it was more than a reasonable heads. it was what one goldman executive described as a big short. listen to a top goldman mortgage trader, who touted his success in 2007, what he called his proudest year, because avanti's called extraordinary profits. now $3 billion as of sept. 2007. he told his superiors, i was able to identify key locations that led to tremendous profits. another mortgage trader wrote in his performance evaluation of of the billions of dollars in profit earned in 2007, betting against the mortgage market. "the prevailing opinion was that we should just get close to home and tear down -- tear down our loss." he then touted the fact that he urged goldmansachs not to get flat but to get very short period he wrote that after convincing his superiors to do just that, "we implemented the plan by hitting almost every single cdo buying opportunity to " he said much of the plan began by february as the market dropped 25 flav -- 25 points and are profitable year was under way. when the mortgage market collapsed in july, he said, we had a blowout profit last month, making over $1 billion that month. those should and the pretense that goldman's actions were part of its efforts to operate as a mere market maker, bringing buyers and sellers together. those short positions did not represent customer service or necessary hedges against risk as goldman made a market for customers. those purchases represented major events of the mortgage securities market, a market goldman helped create. goldman continues to deny it shortened the mortgage market for profit, despite the evidence. why deny it seventh? my best estimate is it is because the firm cannot successfully continue to portray itself as working on behalf of its clients if is selling mortgage-related products to those clients while it was betting its own money against those same products it was selling to its clients, or betting against the mortgage market as a whole. the scope of this conflict is reflected in a company e-mail sent on may 17, 2007, discussing the collapse of two mortgage- related incidences' tied to mortgages goldman helped assemble and sell. "the bad news is the firm lost $2.5 million on the collapse, but the good news is the company had set the securities would collapse" and they made $5 million on that bet, so they lost money on the mortgage- related product is still held, and the client's face of those products to lost big time, but goldmansachs made out dave -- made out big-time, because it vetted against its own products and clients -- it bet against its own products and clients. coleman's c.e.o. said, of course we lost money, then made more than we lost because of shorts. the conflict of interest behind the statement is frightening. the securities and exchange commission has filed a civil complaint, alleging in another transaction goldman violated security laws by misleading investors about the mortgage- related financial institute. the complaint alleges goldmansachs in effect helped stack the deck against the buyers of the instruments it sold. the hedge funds that bought the short position in the transaction -- id at the product would not perform well -- that helped select the mortgages that were to be referenced in the product goldman sold to if investors. the sec alleges goldmansachs knew about the role and failed to disclose it to the other investors, who thought the package had been designed to succeed, not failed. we learned in last week's hearing that goldman also failed to disclose the hedge fund possible to the credit rating agency said raided the deal. the man who oversaw the ratings process but moody's testified before the subcommittee. "it changes the whole dynamic of the structure when the person who is putting it together want it to blow off." the sec and the courts will resolve the legal question of whether goldman's factions broke the law. the question for us is one of ethics and policy, where goldman -- ethics and policy. were goldman's action is appropriate chairman and -- actions of prue. ? -- actions appropriate? this is a synthetic products assembled by goldman. according to documents, a goldman client expressed interest in taking a short position in the transaction, but an executive noted that stands barks, the head of goldman's mortgage department -- dan sparks, the head of goldman's mortgage department might want to preserve for goldman purine -- goldman. it wanted to make the bet badly enough that it took the vet for itself -- the vet for itself and set of letting an interested client have it. -- the bet for itself instead of letting an interested client have it. it then disclosed it would profit if those securities suffered no losses. client loyalty fell so far that one goldman employees cited his refusal to assist goldman clients facing losses from a financial product is a performance he felt should be rewarded. he wrote the securities -- "i said note to clients who demanded goldman should support it." goldmansachs's sub prime mortgage-backed security program -- you wrote that saying no to clients who asked goldman to support a security it has sold them were "unpopular positions" but they saved the firm millions of dollars. most investors make the assumption people selling the securities want the securities to succeed. that is how our market ought to work, but they do not always work that way. the senator, who in the 1930's, investigated the causes of the great depression, stated the principle clearly. "investors must believe their investment banker would not offer them the bonds unless the banker believed them to be safe." this drove a heavy responsibility on the banker. he may and does make mistakes. there is no way he could avoid making mistakes because he is human and in this world things are on a relatively secure. there's no such thing as an absolute certainty, but those senators said, looking at the great depression of two years afterwards, while the break now -- the banker may make mistakes, he must never make the mistake of offering investment to his clients which he does not believe to be good. government documents make clear in 2007 it was betting heavily against the housing market while it was selling investments in that market to its clients. it sold those clients high risk, mortgage-backed securities enand cdo's it wanted to get off its books. these findings are deeply troubling. they show a wall street culture that, while they want to focus on serving clients and promoting commerce, is now too often simply self-serving. the ultimate harm here is not just a client poorly served by their investment bank. it is the toxic mortgages and related instruments these firms inject into our financial system have done incalculable harm to people who have never heard of a mortgage-backed security and you have no defenses against the harm such exotic wall street creations could cause. running through our findings is a thread that connects the reckless actions of mortgage brokers at washington mutual with market-driven credit ratings agencies and with wall street executives designing the next synthetic. the thread is unbridled greed. as we speak, lobbyists filled the halls of congress, hoping to weaken or kill legislation aimed at reforming this abuse. wall street is on the wrong side of this fight. it insists that reining in those excesses would unduly restrict the free market that is the engine of american progress common and but this market of ours is not free of -- progress, but this market of ours is not free of self interest. it is not free of gambling debt that taxpayers and of paying. -- taxpayers end up paying. i hope the executives will realize thickness region realize the harm they have caused. whether or -- the executives will realize the harm they have caused. whether or not they take responsibility, i hope this congress will enact the reforms that will put a top on the wall street deal. i want to thank you again, senator coburn, who is holding responsibility of the white house, and i want to thank him for his support, and i welcome the acting member, senator collins. we welcome her remarks. >> mr. chairman, thank you for leading this investigation into the root causes of the great recession of 2008. you and the ranking member, senator coburn, have flashed a bright light into the dark corners of financial institutions that helped inflate the housing bubble and then break billions of dollars when it first, leaving millions of americans in -- when it burst, leaving millions of americans in debt with the story of dreams and financial insecurity. -- with destroyed the dreams and financial insecurity. first, we must recognize the dynamic innovation of our capital markets can have a down side. it can produce pain rather than prosperity. financial markets require an updated and effective regulation to help prevent excesses' that can inflict great harm on innocent americans, be they workers, retirees, or small- business owners. the lack of regulation of the trillions of dollars in credit defaults swaps is a prime example, and that is why it is so critical financial regulatory reform legislation include a council of regulators whose job it would be to assess systemic risk and to identify regulatory staffs. i recognize even measured regulation needs limits of potential benefits that unfettered markets can produce. the question however, is whether those benefits are outweighed by the terrible harm such unfettered markets can cause. recent history certainly suggests that is the case, that the combination of lax regulation or have some regulation plus unbridled greed can produce devastating results -- or absence of regulation was unbridled greed can produce devastating results. even legal practices may raise ethical concerns. assuming goldman's role and its desire to hedge its risk provided legal justification for some of its practices, a question that also must be decided by the court, there is something unseemly about goldman betting against the housing market at the same time is selling to its clients securities containing toxic loans, and it is unsettling to read e-mails of goldman executives celebrating the collapse of the housing market when the reality for millions of americans is lost homes and disappearing jobs. this especially in light of goldman's decision to secure benefits effectively under written, at least in part by the same americans. during its previous hearings on the financial crisis, this subcommittee reveals the reckless and at times hereditary landing -- predatory lending behavior of some mortgage brokers and banks like washington mutual. these started decades of reliable and pragmatic lending -- destroyed decade of reliable and pragmatic lending processes. instead they decided to offer high risk loans to borrowers they knew could not pay them back. traditionally, that would have exposed the thanks to high levels of unacceptable risk. -- exposed thanks to high levels of unacceptable risk. they would have paid dearly for their own errors. with the advent of securitization during the past decade, lenders have been able to insulate themselves by selling off toxic loans, and pitching them as assets to investment takes. those investment banks bundle of the toxic loans inside mortgage- backed securities, which were then bought and sold by investors. the cash that flowed back to the bay from investors buying these securities -- back to the banks from investors buying these securities only made matters worse. this was akin to throwing fuel on greed and recklessness. the inflow of dollars encouraged loan originators to put that money to work again and again, turning over a loan applications as quickly as possible, applying little scrutiny, because ultimately they have no stake in the outcome of the loans. this cycle was based on a dangerous and false assumption that the housing market would always moved upward. it was based on the fantasy, the myth that what goes up stays up and never would come crashing down. when it collapsed like a house of cards, and we realized too late how incredibly fragile and tragically interconnected the system had become. the fallout was not limited. the debris was not contained. the damage was widespread, profound, and nearly catastrophic. the architects of this scheme entangled neighborhood banks of large brokerage firms across america. there toxic negligence and their borrowers and investors from main street to wall street. they deluded themselves into believing the basic principles could be defied and ignored, and when that deletion met reality, the bubble burst -- that delusion that reality, the bubble burst. look at the top tier of this system, a major investment bank, and examine how trading practice amplified the rise and fall of the housing market. today's witnesses are all from goldmansachs, which was one of the few wall street firms to actually profit from the financial crisis. this hearing is not to celebrate that. rather, it is to examine how the trading practices of goldman during that time made such profits profitable. it is to examine how goldman sold financial products tied to the health of the housing market, even while goldman itself was a thing the housing markets would collapse. the securities and exchange commission accuses goldmansachs of marketing a toxic product while allegedly failing to disclose that the same company that selected the components also planned to bet on its failure. goldman sold the product too long time trusting companies allegedly without disclosing this fact. the vets paulson made earned him $1 billion, -- doesn't b -- the bets paulson made earned $1 billion, while at least one bank went bankrupt. it lead to billions of dollars in the mortgage market as of volcker reagan while the market was on the verge of collapse, goldman decided to go short end earn billions from that strategy. some have alleged goldman did while continuing to sell investments in the mortgage markets. while some conflicts of interest might not been illegal, they are certainly questionable, and these appeared to be rooted in the fact brokers do not have a fiduciary obligation to their clients. that is the issue we will be considering. this system must be reformed so wall street banks are not seen and do not act as some scrupulous operator who seeks to profit from the public misfortune, even as they are pitching toxic investments and even as hard-working, struggling taxpayers are left to pick up the tab. thank you, mr. chairman, and i congratulate you for this investigation. >> thank you. senator kaufman i believe is next in line. >> thank you for all your work on these hearings. you have been very significant. >> i want to thank you and ranking member coburn for having these three days of hearings. i think we looked at washington mutual. then we looked at the regulators. then we looked at ratings agencies. it was a pretty ugly picture. repeatedly, conflict of interest and in some cases, outright fraud. all of the fingers of those three days of hearings points to wall street, which created and sold these toxic investments to clients. today i am looking forward to talking about the behavior of goldmansachs during this time. thank you. >> thank you. senator mccain. >> i thank the witnesses for coming today. i do not know if goldmansachs has done anything illegal. that is going to be the discussion today, but from the readings of these e-mails and information this committee has uncovered, there is no doubt their behavior was unethical, and the american people will render a judgment as well as the courts. >> thank you very much, senator mccain. >> in the good old days of investment banking, they were considered very honorable and proud institutions. they provided financial services, investment of capital in businesses, helping government issue bonds to build the great infrastructure of our nation. then you fast forward to the public offering of all these companies and the risk of these companies shifted to nameless, faceless shareholders, and you fast forward a little further, and you then right at the feet of synthetic cdo's. i have to be honest. i think we -- if we have put thoughts on this hearing today, you would have odds in your favor -- if we put on during today, you would have the odds in your favor because it is complicated. you have relied on the complicated nature to avoid a lot of scrutiny. we have spent a lot of time going over these documents, and let me explain in simple terms what synthetic cdo's are. they are instruments created so people can bet on them. it is the lala land of ledger entries. it is not a good idea. it is not assisting governments in building infrastructure. it is gambling. pierre and simple gambling. -- tour and simple gambling. they are called synthetic because there is nothing there. you are the bookie. you are the house. you have less oversight and regulation as you began this wild west of equity, residual warehousing, as you began all that, you have less oversight. i have got to tell you -- it is not just you. unfair you were chasing each other -- you were chasing each other. you were chasing compensation. you were chasing your colleagues and other investment banks, sphere, and -- and you were trying to make a killing. you think it is so complicated, and you think you're so smart. any street gamblers would never place a bet with a bookie with the record revealed in the documents this committee has gathered. thank you. >> thank you, senator smith castle region m-- senator. >> i know you have been working on this for a year-and-a-half, and for your dogged determination, you have uncovered a lot of e-mails, a lot of documentation that raises a lot of serious questions, and mr. chairman, i know the nation appreciates your commitment to provide the oversight congress should be providing, so i want to thank you for that, and i may not understand everything about everything on wall street, but i do understand people are not here to listen to me. they are here to listen to the witnesses, so thank you for having this hearing today, and i look forward to this hearing. >> thank you, senator pryor. let me say we are going to have three panels today, and each of these panels are going to take some time, because this is a subject that needs real exploration and detailed to cut through those technical words and concepts. let me now welcome our first panel of witnesses for this morning's hearing. daniel sparks, a former partner at goldmansachs, joshua birnbaum, a former marketing director at goldmansachs, michael swenson, a managing director at the structure profits trading-said goldmansachs, and the executive director in structured group trading at goldmansachs. we appreciate all of you being with us this morning. we have a rule that all witnesses to testify before the subcommittee are required to be sworn, so at this time, i would ask all of you to please stand and raise your right hand. do you swear the testimony you're about to give will be the truth, the whole truth, and nothing but the truth, so help you god 7? we will use -- not so help you god? we will use of having systems. we ask that you limit your time to 5 minutes. you will be given a yellow light of minutes before. mr. sparks, we are going to have you go first, followed by mr. birnbaum and then swenson. afterwards, we will have questions. please proceed. >> my name is den sparks, and from late 2006 until mid 2008, i was head of the mortgage department at goldmansachs. the three men who are with me today all reported up to me during that time. i joined goldmansachs in 1989 as an analyst after graduating from college. my intention was to stay for two years, and i ended up staying for 19 years. i would not have stayed if the people i work with did not have high ethical standards. the culture at goldmansachs was wanted which this is expected. the business of the mortgage -- was one in which this is expected. the business of the mortgage department involves underwriting and trading of mortgage-backed properties including loans, securities, and derivatives. all these activities involve clients and risk. the business was competitive, and goldman participated without a significant residential mortgage origination platform. i know the subcommittee is focusing on the events of late 2006 end 2007, so i will as well. near the end of 2006, goldman was generally long in its exposure to residential mortgages. i had concerns about our exposure, and senior management knew about these concerns. the markets showed signs of stress, and our department was experiencing losses. in mid-december, c f zero called a meeting and asked me to comprehensively review -- the c.f.o. call the meeting and asked me to comprehensively review business risk. the take away of the meeting was to read whose risk region reduce risk. i was not instructed to go along -- the take away of the meeting was to reduce risk. i was not extinstructed to go long or short. we had to change business approach is constantly . we were diligent in marking our position daily, as painful as that was. that gave us real-time feedback and help make important risk decisions. these included reducing our loan purchases, buying junk risk protection, shutting down our cdo warehouse activities at significant losses, and covering our shorts. knowing whether we were long or short was often difficult, as the market moved erratically. there were times when our analytical brith measurements told us one thing and my experience end -- analytical risk measurement told me one thing in my experience and knowledge told me something else. sundays we did actions to reduce risk only to see -- some days we took action to reduce risk, only to see it freeze. the constant theme from senior management was to reduce risk. fifth off -- throughout 2007, the mortgage department work with our clients and managed our risk. i left goldmansachs in mid 2008 to spend more time with my family and my community and to pursue other interests. when i left, i was proud of what the people in the markers department had accomplished during a difficult time, -- in the mortgage department had accomplished during a difficult time, and there remain so. at the same time, i understand the events contributed to the crisis of 2008 and the recession. i also understand congress has a duty to explore the causes of the crisis and to adopt sound reforms. to that end, i look forward to helping this morning. >> thank you. mr. birnbaum. >> good morning . thank you for offering me this opportunity to discuss my work and the mortgage department at goldmansachs in 2006 and now 2007 and as a managing director of the structured products group. i began working at goldman shortly after graduating from the university of pennsylvania. i went to work in march, 2008. i take great pride for having worked with goldmansachs for almost 15 years and greatly admired the integrity, commitment to client service, and ethics. during 2006 and 2007, i worked on the asset-backed securities in the structured product groups -- product group. my job was to make profits for clients who shot -- who sought exposure to property syrian -- property. the primary products are traded were the asset-backed security index and credit defaults swaps and individual securitizations. we were continually asked to provide liquidity. they required the firm to participate on the other side of transaction on a principal basis. when a client wanted to buy protection on a particular securitization, we would offer price to sell the period of the client chooses to execute transactions at that price, we would choose to trade. we would then have a decision to make, whether to offset that with another client who wanted to sell that to us, or keep it on our books as part of our inventory. from time to time as a result of client-driven trade, our teams accumulated long and short positions. from the inception of the index in january, 2006 until november of 2006, a customer's interested in selling the index outnumbered buyers. the trades we made to meet client demands caused the book to develop a long position in the index and a small or short position in the single name cdf 's. we had the discretion to hedge positions through trade with other clients or keep them on our folks -- our books. whenever inventory got significantly long or short, risk-management directed us to cut our risk and get closer to on or to flatten the books. when our division became long in late 2006, we were told to offset our wrists, which we dayan region which we did. -- offset are risks, which we did. we were directed to cover our short positions to reduce risk, and we did so. in 2006 and into early 2007, i directed a negative view of the direction of the seven prime market. traders often develop a short or long bias based on personal views of the market. not everyone in the mortgage department agreed with my view at the time. in fact, it was a vigorous debate of the future direction of the market korean in line with my view, our guests began to accumulate -- direction of the market. in line of my view, our guest began to accumulate shorts. there was no risk involved in accumulating these positions, as no one could be certain which direction the market would go. these physicians became profitable as the market deteriorated. when the short divisions bounce, my group was expected to cover them. in both cases c'mon -- both cases, the firm insisted we reduce our position, and we did so. no one from senior management told me to take a directional bets against the sub prior market region -- subprime market. the consistent theme was to reduce risks and get closer to home. we provided significant liquidity to our customers and a difficult and challenging market while also managing to profit during this time. thank you for inviting me to testify today. i am happy to answer any questions the committee may have. >> thank you very much. >> been morning. -- good morning. i am a managing director in the mortgage department at goldmansachs, where i have worked since 2002 reagan let me begin by discussing my role with the firm in 2006 sent -- in 2007. i was the managing director and co-manage the group. i was primarily responsible for the asset-backed securities for the desk that was responsible for making markets in derivatives for our customer franchise. we traded consumer ads, credit defaults swaps, and doesn'the ax indices. throughout 2006, numerous clients wanted to sell vithe adx to express a negative view of the housing market. as a result, we took on a long positions as principal. in order to heads those positions, we began to increase -- to head of those positions, we began to increase our short position. -- to hedge those positions, we began to increase our short position. because those did not match identically with the basket of securities, the positions moved at different rates and even different directions, resulting in losses. on december 14, 2006, the c.f.o. called a meeting to go over the mortgage department position and risks. i attended a portion of that meeting, during which we discussed the position and the need to reduce the risk in the book. we were instructed to reduce risk and get the position closer to home. we were not told what direction to take, just to get there. and the first quarter of 2007, we sold adx where possible and increase our single name positions. however, the desk continue to lose money with the value declining faster than our offsetting hedges. the decline spawned a wave of short-covering and new long interest. as a result, they further reduced the long position, thus reducing our short position. in the second quarter of 2007, we covered -- purchase hundreds of billions of long positions. as the index recovered, these transactions reduced the short position, in effect bringing the debts to a more balanced position. later, they increased the short position after it undertook the warehouse inventory from that origination group. the inventory added several billions in exposure at a time when the market was deteriorating. in order to manage this newly assumed risk, we increase our position in single names. at the end of the third quarter, we engaged in large block trade, purchasing several billion in risk while concurrently selling down a portion of our single name positions, again bringing it closer to home. from 2006 until much of 2007, we executed the market-making functions at principle, and our trade also reflected the views we have of the market. we did not only a short positions, and indeed, took many positions that ultimately reduced profits that the mortgage department might have otherwise realized. by reducing short positions, we left money on the table, but that is the nature of reducing risk while continuing to perform our duties as market maker. thank you for your consideration, and i am happy to answer any questions members of the subcommittee may have. >> thank you. mi5 pronouncing your name correctly? >> -- m i denouncing your name correctly? >> yes. -- am i pronouncing your name correctly? >> yes. thank you for having me. i have worked at goldmansachs since 2001. between 2004 and 2007, my job was to make markets for clients. and in markets by connecting clients who wish to take a long exposure to an asset, meaning they anticipated it would rise, with clients who wished to take a short exposure to that asset, meaning the diva -- the value would fall. i was intermediary between investors. none of my clients were individual retail investors. the structured products on which i worked still an important need for these sophisticated financial institutions. to the average person, the utility of these products may not be obvious, but they permit sophisticated institutions, customize exposure they wish to take in order to better manage their credit and mortgage risks to the investment holding. mr. chairman, the security and exchange commission recently filed a civil suit alleging i failed in certain material information. i deny categorically these allegations, and i will defend myself in court against these false claims. since the suit was filed, there have been many questions raised about the transaction and my role in it. i appreciate you asking these questions, and i want to make a few points clear. first, this was for those with extensive experience in the market. . i'd do not ever recall them asking if paulson was an equity fund partner. quite frankly, i am surprised that ac could have believed that they were an equity partner in the deal. third, the ac-1 was not designed to fail. this was bought -- one of the more important clients at my desk. they did not under 4 -- under before the other ratings. all those securities performed poorly because the subprime mortgage market suffered a broad collapse. goldman sachs had no economic motive to design the transaction to fail. quite the contrary, we had exposure in the position. when the securities referenced declined in value, we lost money, including nearly $8 million. finally they collected a transaction. ac 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 be reference in the debris the sec complaint says they rejected most of paulson subsection by accepting other. both had references, but ac alta malloch analyzed and approved each security in the transaction. thus when goldman sachs represented to agency that ac had selected to represent a portfolio, that statement was absolutely correct. the last week has been challenging for me and my family, being the target of unfounded attacks on my character and motives. i appreciate the ability to come before you to lead to these charges. i did not do this and i would be pleased to answer any questions the subcommittee may have. >> thank you very much, mr. tourre. what we will do is in previous hearings, there will be 20 rounds for each of us. and then there will be around for the subsequent panels as well. could you to turn to your exhibit, please. >> all set? this is a series of the e-mails concerning the deal called anderson that goldman put together in march 2007. anderson was up $300 million synthetic cdo, referencing certain other securities. this reference subprime or mortgage-backed securities. many of those securities were originated by new century, a subprime lenders notorious for poor quality loans. goldman participated as one of the short investors. you can see from the exhibit. they bought the short side for $100 million, about 50% of the short side, 50% of the reference assets. from the beginning of the deal, right from the beginning, goldman was selling anderson securities to clients, but it is betting against that cdo. it got in the words there, protection that pays off. if the cdo-reference assets start losing money. so if you will take a look at the following e-mail. goldman's clients rejected the deal, first of all, because it had so much for quality, new century mortgages. for example, look at the third page of the exhibit through a class and asked how goldman got "comfortable" with all the new century collateral. in particular, the new century deals. take a look at the internal response at the top of the page. what it is is getting goldman sales people on the phone to lay the client concerns about new century collateral. but that does not work. the next three e-mails tell the same story. three more clients reject the deal. internally the drive to sell anderson continues, keep pushing the plans to buy. but to the top of page six. are they officially dead now? the goldman is ask a question by a potential customer -- what did you guys do to get comfortable with all the new century collateral? how can you get comfortable with that collateral, asked a well- known company that has a very bad record. what is your response to that? the responses, hey, we're going short. we've got half of the short side. we are betting against the steel. you are asked a specific question, how do you guys get comfortable with this. instead of saying, hey, we are betting against it and taking half the short side, what you do is you tell your sales people, try to sell this bill. you do not answer that question and respond to a direct question. so to continue to push hard, finally there is a sale. it unloads $20 million in anderson notes. paid seven of that same exhibit, the goldman supervisor responds with a single word after you do this -- profit. your recap. -- eureka. that is my word. now your client did not want to buy anderson cdo's, but that exposure to news century mortgages, but you still pushed hard. why did you not inform your clients that goldman for short on nearly 50% of the anderson cbo's -- cdo's when selling anderson security to them? that is my question. >> mr. chairman there are about eight e-mails here. i did not see the eiffel suggesting that we were short and i was trying to find that. -- the e-mail suggesting that we were short and always try and define that. >> 92. 93 -- take a look at document 93. >> within this exhibit? >> no, document number 93. and 94 together, showing the shorts. see where it shows the counterparty, the short side of the deal? goldman sachs, goldman sachs, goldman sachs -- see all of that? >> yes, mr. chairman. now answer my question. the lawyers i believe this shows the counterparty. but that does not mean that goldman sachs wasn't doing that trade with another client. it is very difficult for me to say i am looking at this whether we were short run not. >> assuming that you're going short, let me ask you the question -- should you have told the client when they ask how you're getting comfortable with this? should you have told them you're going short if you work? >you are asked a question -- how do you guys get comfortable with these kinds of mortgages, but this kind of a mortgage broker? >> again, i do not know if -- >> i know that. assuming that you went short and intended to stay short on that deal, should you have been told a customer asking you the direct question, how can you get comfortable with this, it was your intention to go short 50% of the shortsighted and stayed that if that was the fact? that is my question. >> again -- >> answer my . >> i don't understand the question. >> you are buying 50% for somebody else coming use said. if you were buying 50% -- that is my question -- if you are buying that short, 50% of the short for yourself, for your question, my question is, when asked how you can be selling the security, how'd you get comfortable with the source of the security, was there an obligation at that time if you were going and intended to stay short with half the short side, was it your responsibility to actor that correct question, we're going short and staying short? that is my question. how do you view your responsibility under those circumstances? >> mr. chairman, this is a static synthetic which meant that the assets could change. anyone participating in it should look at the assets themselves. >> aren't those assets -- are those assets open to everyone who buys that synthetic? this pacific asset, or are they protecting? are they not commercially protected, the specific source? >> that is a legal question. i do not have access to the affirmation, mr. chairman. >> apply here is raising a question with you about these assets. he is asking a direct question, how can you get comfortable with these assets from the source? how do you guys get comfortable? your answer is not, hey, under my hypothetical -- which is factual -- but assuming you're going to take half the short position and keep it, did you not have a responsibility to answer a direct question -- how can you get comfortable with these products from that source -- by saying we're going short, half of this sort is what we're buying? had you view your ethical responsibility? >> mr. chairman, the question that investors should ended focus on was whether the names that they had risk to was something they actually wanted at that price. >> my question, mr. sparks, is of very direct question. you were asked a question. goldman was asked the question -- how do you get comfortable with the source of these securities? instead of saying -- disclosing right at that time -- and you ought to disclose any time but we will get into that. instead of disclosing, you had half the other side of this deal, you did not tell them that. instead you told your salespeople, peep -- keep pushing this bill. you had 3 people turn it down because of the source and you kept pushing it. now answer my question. when you are asked the question, how you get comfortable with the securities given the dubious source of the security, given the amount of how much -- how dubious this was because of the source -- you've got clients, they don't want to buy the security with so much exposure to the new century mortgages. those new century mortgages had had problems. i am gaon asking for the last time. if you don't want answer coming you say you don't want to answer. but clearly you must understand that you have a responsibility when you ask -- when you're asked point-blank when how'd you get comfortable with this it's a wasted when there is so much exposure to new century mortgages, did you not then have the obligation to disclose, hey, we're not comfortable, we're selling this short and going on the short side. that is my question. do you understand the question? >> i understand the question. i have not gone through all the e-mails, but what clients did not want to participate in the bill did not. >> the client ask you a question. have you guys get question. what was your answer? >> we would get with the deal team and a walk through each security that they had exposure to an answer any question that they had about that security. >> don't you also have a duty to disclose an adverse interest to your client? you have that duty. you do -- you have an adverse duty to your client and you had a duty to disclose it to your client. >> the question about how the firm is positioned? >> you have an adverse position to your client when you're selling something to them, if you have a responsibility to tell the client about it. that is my question. i understand that you do not want to answer it. how did you get comfortable with all the new century collateral? >> mr. chairman -- >> you're not going answer the question, it is obvious. keep going on that exhibit. considering that you are holding the equity -- the you see that, in that e-mail chain? march 13, 2007. >> yes, sir. >> they thought you were actually held in the equity which would be on the long side, right? >> yes, in this e-mail, that is what this looks like. >> so they thought you were on alongside, and actually you are on the short side of the same time, when they specifically as to the question how you got comfortable, not just buying the equity. let me go on. by the way, that anderson deal was downgraded from aaa to jump in seven months. did you make money on the deal? on the short position? >> on the long's that we took, we lost money. >> i am asking about the shorts. >> i do not know how much of that we had, if any, so i just don't have that number. >> you want to check your records and tell us how much money man on that? >> i will, i will have to get back to you. >> mr. sparks, turn to exhibit 173. two goldman sachs employees and sales talking about a fund, and one says to the other, the client's explanation of why they do not want by the security. fremont refused to make any forward-looking statements, so we really got nothing from them on the crap polls. the craft polls that are out there now appear the sales person wrote, they are concerned about all the fremont exposure that they already have and they're going to put frmont in a box for the time being. were you aware of the reputation of fremont, the highest default rates in the country, were you aware of that at the time? >> mr. chairman, can i just read the e-mail? >> 173, you see it? fremont refuse to make any for looking statements, so we really got nothing from them on the crap pools. >> i haven't read the whole thing. >> look at the bottom paragraph there. the last two lines. do you see that? >> yes, sir. >> now were you aware of fr emont's poor reputation at the time? that is my question. do you remember? >> whether they had a poor reputation in november? >> yes, the high default rate. >> fremont originated subprime loans and people understood that. >> were you aware of the poor reputation? you sold about $700 million of subprime residential mortgage- backed securities, helping fremont to do that, downgrading it to john status. you immediately bought protection through a cds on the securities. you are betting against the securities at the same time you are selling those crap pools to your clients. you know how much money you made on the shores? do you remember? >> at one point about this e- mail, it looks like the customer had the chance to evaluate the investment and decided not to invest. >> i am just telling you how much you sold of the security, and informed you that goldman sold -- helped package and sell $700 million in subprime residential mortgage-backed securities. i am asking you -- you also took out a short position, do you know how much you mad? >> no, sir, i do not. >> take a look at timber wolwol. exhibit number 105. this is of billion dollar hybrid cdo, squared, which you under road in the first quarter of 2007. in excess of a variety of assets including $15 million from an abacus cdo and more from washington mutual. goldman sachs it is updated in this deal was one of the short buyers. remember that? you see that from there? [unintelligible] you'll have to assume that my statement is accurate for the time being. you are stated in the deal was one of the protection buyers. you do not remember timberwolf? >> i remember it. >> do you remember if you are on the short side? >> i remember a few things. we likely what it provided a number of shorts. i don't recall if we cover them and not. >> that means you would have sold them down the line. would you have stood to gain in- depth timberwolf's assets declined in value or if there was a credit downgrade? do you remember? >> we lost hundreds of millions of >dollars. >> i am talking about the shorts. it could make up for what you lost on the lawn. >> on that particular deal, i would be surprised if that is true with respect to the game- lost out compared >> your sales teams sold $600 million in timberwolf securities. take a look at 155. do you see that? ok? do you see that? >> i see a list of sales. >> take my word for it, 600 made in >>. take a look exhibit 105. >> mr. chairman, on exhibit 155 -- >> i will come back to it. >> there were sales to two counterparties, one was a timberwolf and the other was bear stearns. >> i ask you to look at 105. ok? now before you sold all of that stuff that we just described in 166, $600 million of timberwolf securities which sold, before you sold them, this is what your sales team was telling to each other. got it? 105? >> yes, mr. chairman. >> look what they were saying about timberwolf. boy, that timberwold was one shitty deal. they sold that. >> this was from the head of the division, not the sales force. >> whatever it was, it is an internal goldman document. >> this was an e-mail to meet in late june. >> and use sold timber wolf after as well. >> we did so after $3 that trades after -- >> that context might be helpful. >> june 22 is the date of this e-mail. boy, that timberwolf was one shitty deal. how much of that shitty deal did you sell to your clients after june 22, june -- 2007 from r. >> mr. chairman, i do not know the answer to that. that would been a level that they want to invest at $3 you did not tell them that it was a shitty deal you knew that it was a shitty deal and that is what the e-mails shows. >> i think that context -- the message that i took was that my performance on that deal was not good. and i think the fact that we have lost money related to that. >> how about the fact that you sold hundreds of millions of that deal after that your people knew that it was a shitty deal? does that bother you at all? >> i don't recall selling hundreds of millions of that deal after that. >> let's take a look, exhibit 166. a series of the males, the first is june 26, 2007, that is after june 22. july 1, 2007 -- the top priority is timberwolf, your top prior to sell is that shitty deal. got it? >> it's what we were trying to sell. >> you're trying to sell a shitty deal, and it is your top priority. come on, mr. sparks. goldman sachs was trying to sell -- and they sold a lot of it after that date. should goldman sachs be trying to sell a shitty deal? can you answer that one? can you answer that yes or no? >> there are prizes in the market and people want to be exposed to it. i did not use that term. >> who is staying as part? the board that is me. >> who is tom? >> he was head of the division at the time. >> he was telling you on june 26, that was one shitty deal and then you have one exhibit 166, a series of e-mails pushing the sales force to sell timberwolf securities, the first is june 26, from t.s. in ticket, that is your sales force -- they are told in 106, please focus on the cdo, one of which is timberwolf. the next is the one telling the sales force, the top priority is timberwolf. the next, timber wolf is again listed as one of the top priorities. next is an e-mail on july 3, still after the shitty deal assessment, one of the sales team leaders what rights that i am all over these guys three the last the mill, august 22, highlighting timberwolf as a top priority. if you cannot give a clear answer to that one, i don't think we will get too many clear answers from you. we will come back to you and to the others on the second round. i want to turn to senator collins. >> thank you, mr. chairman. i want to start my questioning by asking each of you a fundamental question. investment advisers have a legal obligation to act in the best interest of their clients. mr. sparks, when you were working and goldman, did you consider yourself to have a duty to act in the best interests of your client? >> senator, i have a duty to act in a very straightforward way and a very open way with my clients. i'd technically with respect to investment advice, we were a market maker in that regard. but with respect to being a prudent to and a responsible participants in the market, we do have a duty to do that. >> you're not really answering my question. i understand the difference between some standards that you had the fall of versus fiduciary obligation to act in the best interest of your client. i understand that you do not have a legal fiduciary obligation. but does the firm expect you to act in the best interests of your client as opposed to acting in the best interests of the firm? >> well, when i was at goldman sachs, clients are very important and were very important. >> it could buy it -- i'm sorry to it -- on starting to share the chairman's frustration already and i am only 30 seconds into my time. could you give me a yes or no as to whether a night you consider yourself to have a duty to act in the best interest of your client? >> i believe we have a duty to serve our clients well. >> i guess, mr. chairman, that i am not going to get an answer to my question any more than you did with yours. mr. birnbaum, i'm going as did the same question. do you have a duty to act in the best interest of your client? the board not only do i believe that we'll -- that we do, but i believe that we did. >> mr. swenson. >> i believe our responsibility as market makers to provide the market and our clients. and to serve our clients in helping them transact at levels that are fair market prices. >> your clients are not paying you big fees just to efficiently conduct transactions. i have never seen an investment bank run ads that brag about its facility with conducting transactions. they are paying you for judgment as well. >> coming up next on c-span, homeland security secretary janet napolitano testifies on capitol hill about her agency's operation and border security. president obama talks about the national debt, followed by the first meeting of the national debt commission. and later, "washington journal." on tomorrow's "washington journal," congressman jan schakowsky talks about the debt commission. we will talk to darrell issa of about fraud charges against goldman sachs. also shareen arent of the american diabetes association. "washington journal" is live at 7:00 a.m. on c-span. the oilers sunday on "in debt," television analyst and columnist and three-time presidential candidate pat buchanan on conservative ideology in today's political climate. he will take your calls, e- mails, and tweeds. three hours with pat buchanan on c-span2. >> c-span -- our public affairs content is available on television, radio, and online. you can also connect with us on twitter, facebook, and youtube. sign up for schedule alert e- mails at c-span.org. >>: security secretary janet apollo, was on capitol hill today to discuss the department. members of the senate judiciary commission questioned her. this is 2.5 hours. >> i know that we have several senators and the back coming in. we appreciate this and i welcome secretary napolitano back to the judiciary committee. delighted that you're here. last year ended with an attempted terrorist bombing aboard a commercial aircraft bound for detroit, michigan. exposed to inefficiencies in interagency coordination and information sharing, and other countries screening. as a result of that incident, congress and the administration took steps to understand existing weaknesses and that sent them -- in that system and help -- and how best to correct them. this committee heard testimony from officials from the department of homeless security, the federal department -- the federal bureau of investigation, and the state department, each of whom recognized the need to do better. i am encouraged by the department's recent strengthening of airline passenger screening policies and the decision to move away from a country-specific screening policy in favor of a smarter, more flexible approach. i hope that today will hear more about the department's efforts to improve airline security as well as its coordination with the state department. no longer our southern border, we are experiencing historic levels of drug-related violence that must be brought under control. families being murdered, law enforcement being murdered, officials being murdered, and brazen shootouts. we sought the brutal murders of two u.s. state department employees in mexico and a u.s. citizen in arizona. americans are rightly concerned about the impact the situation in mexico is having here at home. the department is also involved in aiding the people of haiti following the devastating earthquake in january. incidentally, madam secretary, i commend your decision to provide haitian nationals in the united states with temporary protected status. the reconstruction effort will take years, but tps status will enable haitians in the united states to work and send money home to their families and be secure in the meantime. i also want to recognize the u.s. citizenship and immigration services for granting humanitarian parole to haitian orphans. i worked with senator lugar to advance the return of talent at, which will allow all lawful permanent resident to return for a limited time to his or her native country in order to assist with preconstruction efforts following a natural disaster or armed and can -- on conflict. this will encourage haitian nationals to get -- give back to haiti without suffering adverse consequences toward gaining u.s. citizenship. the committee also acted recently to assist refugees who wish to serve our government or military overseas. again i worked with senator lugar to advance the refugee opportunity act, which would enable refugees to serve our nation overseas without losing time earned toward agreed to our -- toward a green card. i hope we can work together to enact these by park -- this legislation. marking the 30th anniversary of the 1980 refugee act, authored by senator kennedy, i recently introduced the refugee protection act. it seeks to improve the law where it falls short in meeting our obligations under the refugee convention. i remain concerned about several areas within the department's jurisdiction. the backlog of refugee cases caught up in the overly broad material support and terrorism bars needs to be resolved. the so-called 287(g) program, which in stages state and local law enforcement in the execution of immigration laws, continues to be a source of concern. president obama said recently that we should not undermine basic notions of fairness that we cherish as americans, as well as the trust between police and our communities that is so crucial to keeping us safe. i agree. madam secretary, un i both have the privilege of serving in a law enforcement capacity. one law enforcement breaks down, rather than seeing them as protectors and friends and cooperating with them, so we have to have proper oversight to prevent racial profiling and ensure that local law enforcement has the cooperation of the local community. police officers have but not that -- a tough and not a job as is -- have a tough enough job as is to get the support and the information that they need. and i recognize that the department has recently made positive changes and i look for during that period border issues affect us all, but they do take on particular importance to those of us from border states. what we normally think of border states as being our southern states, and california, i hear from many vermonters about measures taken by your department to alter border policies and towns like derby line. i regularly hear from them about freeway checkpoints and about federal use of private land. i think you'll find that vermont farmers are a sensitive to their property rights as texas ranchers are. federal cooperation and outreach at the local level can go a long way toward achieving a mutual understanding. the citizens of border states share a great burden. and finally a i want to thank you for your that fast commitment to comprehensive immigration reform. i share that commitment, i've worked with president george bush on that, i shared his commitment to that, and i will hope to see a bill enacted this year. senator sessions. >> we're delighted to have you with us. there are a host of departments that have different heritages and yet the challenges to meld them together. that takes years and determined leadership. i know that you're focused on that and you have to be because it is essential and the whole purpose of creating homeland security is to gain better cooperation, better cohesion, better effectiveness. i am sure a lot of people do not realize how many decisions you have to make and how many spats you have to assuage to keep that department going well. i do remain concerned about a number of issues, and he mentioned to that i will be asking you about, one dealing with one of your agents understanding is within -- with the potential are rest of the terrorist somewhere in the united states or in the united states come are they going to be treated as civilian criminals and will they be provided, apparently, right such as miranda and funded attorneys and that kind of thing. what the policy is. there is some confusion, it seems to me, and i believe that we have got to get this clear. or it would be a big mistake if we treat these individuals as normal criminals entitled to the appointment of all lawyer, entitled not to speak, and not to be taken to military custody if they meet the standards. and so i hope we can work on that. our main concern about our border, violence as you know it is increasing and it is a serious threat to law-abiding people. in arizona and other places along our southern border, the power of these drug cartels is very real. the power of the coyotes to bring people in is very real and it has to be confronted and a very serious way. a lot of people might not recognize how much progress has been made in the last 10 years. in 2000, 1.6 million people were arrested at the border. last year, i understand 500,000 were arrested at the border. that indicates, i believe, that the flow is down. it may not be perfect proof of that but i believe it does indicate that the number of people entering the country illegally is down to a degree. and the question to me is how we follow up on that and allow all lawful immigration flow into this country that serves our national interest consistent with the rule of law and that allows us -- people who wanted to enter a proper process to enter, and if they do not qualify, they do not qualify. a couple of things i have concerns about three and february of this year, the ice director encourage the government to increase its deportation numbers. they promoted -- they noted that they had removed criminals from the u.s., and however he went on to detail that the removal was insufficient to meet the fiscal 2010 goals. that's a result, the memo suggested a number of steps to achieve that goal, such as increased detention space, increased sweeps or removal people from jail around the country, to identify people who should be an moot -- removed, increase focus on identifying aliens and other forms of the said application. and on offaly -- those who had unlawfully entered the united states. i think he should have been commended for making recommendations. instead, it appears that when the "washington post, "reported that the administration might intensify deportation efforts for those that it entered illegally, the administration entered -- -- issued a statement basically saying that they had no intention to do so. i know you earlier indicated that you are not favorable to sweeps of businesses who might have people in large numbers working illegally. but that approximately 8 million people who are illegally in the country working today, and we have a substantial amount of unemployment and our country. these are matters that i do believe need clearer leadership from you. i am glad to see in your testimony that you have submitted that you expect to increase support from state and local law enforcement. and we will also talk about the arizona law and precisely what it is that you disagree with in that. that is certainly one thing that we need to be doing. but i was disappointed to hear that the administration's plan is to make it tougher for state and local law enforcement agencies, in effect, to insist in enforcing our immigration laws through the program. they are now prohibited from asking aliens about their legal status. most are required to relieve -- release people who are here illegally because they do not want to fill of detention space. we've got a real challenge. i've always believed law enforcement, and the normal course of their duties to apprehend people who are not lawfully in the country, should turn those people over to the federal officials and they should be processed. i have not felt and not advocated that they should take the primary role in immigration enforcement, but i do believe that in the case of lack of commitment to enforcing our immigration laws when we basically tell local law enforcement, even if you know you have apprehended someone here illegally, nothing is going to be done about that. those and other questions will be important to our discussion today. you have a big challenge. the decline in number puts us on a path to make dramatic improvement, continued dramatic improvement in immigration enforcement. we have to get away from the virtual fence, complete the fencing that we're required to do, make sure we have enough people at the border to enforce the law. if we do that, i think people would be surprised how much continued progress we can make. and it is only in doing that that we will then be able to have a decent, good discussion about what to do about people who have been in our country for a long time and how to handle them. thank you, mr. chairman. >> thank you very much secretary -- thank you very much. secretary napolitano, it is all yours. i look forward to addressing some of the issues that you raised in your own opening statements. let me begin by reiterating that anyone who is work directly on the border knows the enormous challenges presented there. we had the murders of the personnel connected with the u.s. as well as the recent murder of a longtime rancher and southern arizona. all those things are tragic reminders of the need to support mexico's fight against the cartels within mexico, but also the need that senator sessions recognized to keep up our efforts on the southern border. we now have more manpower and technology at the border than at any time before. and the challenge however is deep and complicated. we are responding with a partnership among the departments of common security, the department of justice, the department of state, with the mayor that initiative. this partnership focuses -- with the merida initiative. this focuses on helping mexico with their fight across the border. for every apprehension that dhs makes, doj is responsible for prosecution. in this effort, manpower is important. it is more than just about numbers. we need to help investigate and prosecute the cartels, prevent them from for a rating. we also must, as senator sessions recognize, as the state and local law enforcement's with problems emanating from the border. now as a result what i believe to be focused, strategic, and consistent pressure along the southwest border over the past months, we'll shut down more and more keep trafficking routes used by the cartels. that is what i hope that we can review today, the significant steps taken today in the past 15 months as part as our southwest border initiative. the results of those measures and what more can be done. first, over the past 15 months, as i mentioned, we have mobilized an unprecedented level of resources at the southwest border. this is due in no small part to congress's own action to dedicate resources to it -- resource system order. the borders that is better staffed than at any point in its history. since 2004, the number of boots on the ground along the southwest border has increased by 80%. u.s. immigration and customs enforcement has dedicated over 25% of all of its personnel to the southwest border region, the most ever. we also have more personnel than ever, strategically dedicated to southbound inspections, intelligence, an interagency drug smuggling task forces. we have programs searching for illegal cache of weapons, and we're scanning 100% of southbound rail traffic. we've doubled the number of people assigned to task forces, and with quintuple the number of border liaison officers assigned to the southwest border. we have deployed more proven and effective technology than ever before producing good record numbers of the backscatter mobile x-ray units. that is that our points of entry and some deployed between the points of entry. we have increased other resources available, such as aerial resources. this means more fixed wing aircraft, helicopters, and predator b's than ever before. we have low energy imaging systems, and weakened by a metrical the identified individuals entering the u.s. for domestic lines. we have for physical infrastructure there than ever before. we continue to make critical improvements to the port of entry into the checkpoints between the points of entry. we have finished all of the vehicle sensing that was provided for by congress bird we have fewer than 6 miles of fencing for a total 652 miles. i've also asked for cbp to examine their current budget to reinforce fencing and key areas. the me pause a moment to speak about partnerships with mexico. they are unprecedented in the history of our country. and i say that as someone who is a former u.s. attorney, attorney general, and governor of a border state. i've been working border issues for a long time. i have never seen this kind of partnership with mexico and its federal government and federal agencies. among historic agreements i signed just in the past month, agreements on sharing cartel- related intelligence and sharing the criminal history of individuals who are being deported back to mexico from the united states. in addition, our partnership with state and local tribal law enforcement are key, and we continue to help them combat border crime. one of the primary tools we have used for that is operation stonegarden, which received $90 million from the congress and funding last year. that was $30 million more than originally planned. we deployed the full 85% of the stonegarden funding to the southwest border, and not only that, we brought into -- broa dened the kinds of ways those findings could be used for local law enforcement. and if i might, we can look at some of the numbers because we are producing results. we have seized 14% more in cash along the border this year than last year. we have increased by 39% this seizures of illicit cash going southbound this year over last year. we have increased 15% this seizure of illegal drugs coming in, and we have increased by 29% this seizure of illegal firearms going out. as was noted, apprehensions are down. apprehensions are down 23% between 2009 and 2008. that indicates you are people are trying to emigrate here illegally or to cross the border illegally. and just a few weeks ago, ice agents' conduct of the largest operation of its kind, stopping the smuggling ring that had transported 80,000 people into the united states illegally. much has been done, much of it the result of actions taken by this congress and the congress immediately before it. but there is much work still to be done. we will continue our efforts to make the most of the resources that we have. we look forward to working with the congress for further strengthening the border in the weeks and months ahead. and chairman leahy, senator sessions, i look forward to addressing other concerns you may have, not just long -- along the southwest border but the northern border in terms of worksite enforcement as well. and i thought i would use my introductory time just to review all of the things that have happened a long that critical part of our southwest border. and thank you very much for this opportunity to appear before you. >> thank you, madam secretary. i know we will have a lot of questions, so let me at the risk us the south -- the risk of sounding parochial, let me go to the northern border. i live about 45