Inside Job Page #8

01:
47:22.04

CHARLES FERGUSON: So this pattern of behavior, you think, extends to the senior

management of the firm.

Inside Job transcript – Sony Pictures – September 2010

36

JONATHAN ALPERT:
Absolutely does, yeah. I know for a fact that it does. It extends

to the very top.

01:
47:36.19

{ALLAN SLOAN

SENIOR EDITOR:

FORTUNE MAGAZINE}

ALLAN SLOAN:
A friend of mine, who, who's involved in a company that has a big

financial presence, said: Well, it's about time you learned about subprime mortgages.

So he set up a session with his trading desk and me; and, and a techie, who, who did all

this – gets very excited; runs to his computer; pulls up, in about three seconds, this

Goldman Sachs issue of securities.

It was a complete disaster. Borrowers had borrowed, on average, 99.3 percent of the

price of the house. Which means they have no money in the house. If anything goes

wrong, they're gonna walk away from the mortgage.

01:
48:11.17 This is not a loan you'd really make, right? You've gotta be crazy.

But somehow, you took 8,000 of these loans; and by the time the guys were done at

Goldman Sachs and the rating agencies, two-thirds of the loans were rated AAA, which

meant they were rated as safe as government securities. It's, it's utterly mad.

01:
48:33.18

NARRATOR:
Goldman Sachs sold at least 3.1 billion dollars' worth of these toxic CDOs

in the first half of 2006. The CEO of Goldman Sachs at this time was Henry Paulson,

the highest-paid CEO on Wall Street.

01:
48:49.19

{MAY 30, 2006}

GEORGE W. BUSH:
{COUGH} Good morning, welcome to the White House. I am

pleased to announce that I will nominate Henry Paulson to be the secretary of the

Treasury. He has a lifetime of business experience; he has an intimate knowledge of

financial markets; he has earned a reputation for candor and integrity.

01:
49:04.08

Inside Job transcript – Sony Pictures – September 2010

37

NARRATOR:
You might think it would be hard for Paulson to adjust to a meager

government salary. But taking the job as Treasury secretary was the best financial

decision of his life.

Paulson had to sell his 485 million dollars of Goldman stock when he went to work for

the government. But because of a law passed by the first President Bush, he didn't have

to pay any taxes on it. It saved him 50 million dollars.

01:
49:30.24

{IN 2007, ALAN SLOAN PUBLISHED AN ARTICLE ABOUT

THE CDOs ISSUED DURING PAULSON'S LAST MONTHS AS CEO.}

ALLAN SLOAN:
The article came out in October of 2007. Already, a third of the

mortgages defaulted. Now, uh, most of them are goin'.

01:
49:49.16

NARRATOR:
One group that had purchased these now-worthless securities was the

Public Employees Retirement System of Mississippi, which provides monthly benefits to

over 80,000 retirees. They lost millions of dollars, and are now suing Goldman Sachs.

{AVERAGE ANNUAL RETIREMENT BENEFITS

FOR A MISSISSIPPI PUBLIC EMPLOYEE: $18,750

AVERAGE ANNUAL COMPENSATION OF A

GOLDMAN SACHS EMPLOYEE: $600,000

HANK PAULSON'S COMPENSATION IN 2005: $31,000,000}

01:
50:19.27

NARRATOR:
By late 2006, Goldman had taken things a step further. It didn't just sell

toxic CDOs; it started actively betting against them at the same time it was telling

customers that they were high-quality investments.

01:
50:35.02 By purchasing credit default swaps from AIG, Goldman could bet against

CDOs it didn't own, and get paid when the CDOs failed.

01:
50:45.26

ALLAN SLOAN:
I asked them if anybody called the customers, and said, you know, we

don't really like this kind of mortgage anymore, and we thought you ought to know, you

Inside Job transcript – Sony Pictures – September 2010

38

know. They, they didn't really say anything; but, you know, you could just feel the

laughter coming over the phone.

01:
51:01.11

NARRATOR:
Goldman Sachs bought at least 22 billion dollars of credit default swaps

from AIG. It was so much that Goldman realized that AIG itself might go bankrupt; so

they spent 150 million dollars insuring themselves against AIG's potential collapse.

Then, in 2007, Goldman went even further. They started selling CDOs specifically

designed so that the more money their customers lost, the more money Goldman Sachs

made.

{GOLDMAN SACHS' CEO AND ALL OF ITS SENIOR

EXECUTIVES DECLINED TO BE INTERVIEWED FOR THIS FILM.}

{BUT IN APRIL 2010, THEY WERE FORCED

TO TESTIFY BEFORE CONGRESS.}

01:
51:36.08

SEN. CARL LEVIN:
Six hundred million dollars; Timberwolf Securities is what you sold.

Before you sold them, this is what your sales team were tellin' to each other.

Boy, that Timberwolf was one shitty deal.

01:
51:51.27

{DANIEL SPARKS

FORMER MORTGAGES DEPARTMENT HEAD}

DANIEL SPARKS:
This was an e-mail to me in late June.

SEN. CARL LEVIN:
Right. And you're callin' Timberwolf –

DANIEL SPARKS:
After the transaction.

SEN. CARL LEVIN:
No no; you sold Timberwolf after as well.

DANIEL SPARKS:
W-, we did trades after that.

SEN. CARL LEVIN:
Yeah, okay. The next e-mail; take a look; July 1, '07; tells the sales

force, "the top priority is Timberwolf."

Inside Job transcript – Sony Pictures – September 2010

39

01:
52:10.04 Your top priority to sell is that shitty deal. Uh, if you have an adverse

interest to your client, do you have the duty to disclose that to your client; to tell that

client of your adverse interest? That's my question.

DANIEL SPARKS:
M-, Mr. Chairman, just tryin' to understand -

SEN. CARL LEVIN:
No, I think you understand it; I don't think you want to answer it.

01:
52:25.28

SEN. SUSAN COLLINS (R-ME): Do you believe that you have a duty to act in the best

interests of your clients?

{FABRICE TOURRE

EXECUTIVE DIRECTOR,

STRUCTURED PRODUCTS GROUP TRADING

GOLDMAN SACHS}

FABRICE TOURRE:
Again, uh, uh, Senator, I, I will repeat, you know, we have a, a duty

to, to serve our clients by showing prices on transaction where they ask us to show

prices for.

01:
52:43.01

SEN. CARL LEVIN:
What do you think about selling securities which your own people

think are – crap? Does that bother you?

{LLOYD BLANKFEIN

CHAIRMAN & CEO

GOLDMAN SACHS}

LLOYD BLANKFEIN:
I think they would, again, as a hypothetical?

SEN. CARL LEVIN:
No. This is real.

LLOYD BLANKFEIN:
Well then I don't –

SEN. CARL LEVIN:
We heard it today.

LLOYD BLANKFEIN:
Well –

SEN. CARL LEVIN:
We heard it today: this is a shitty deal, this is crap.

LLOYD BLANKFEIN:
I, I, I heard nothing today that makes me think anything, um, went

wrong.

Inside Job transcript – Sony Pictures – September 2010

40

01:
53:08.09

SEN. CARL LEVIN:
Is there not a conflict when you sell something to somebody, and

then are determined to bet against that same security; and you don't disclose that to the

person you're selling it –

LLOYD BLANKFEIN:
In the –

SEN. CARL LEVIN:
Do you see a problem?

LLOYD BLANKFEIN:
In the context of market-making, that is not a conflict.

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