Inside Job Page #9

01:
53:27.20

{DAVID VINIAR

EXECUTIVE VICE PRESIDENT AND CFO

GOLDMAN SACHS}

SEN. CARL LEVIN:
When you heard that your employees, in these e-mails, said, god,

what a shitty deal; god, what a piece of crap; do you feel anything?

DAVID VINIAR:
I f-, I think that's very unfortunate to have on e-mail.

SEN. CARL LEVIN:
Are you b-

DAVID VINIAR:
And, and, and very unfortunate – I don't, I don't –

SEN. CARL LEVIN:
On e-mail?

DAVID VINIAR:
[UI] –

SEN. CARL LEVIN:
How about feeling that way?

DAVID VINIAR:
I think it's very unfortunate for anyone to have said that, in any form.

{SEN. TOM COBURN (R-OK)

RANKING MEMBER:

GOVERNMENTAL AFFAIRS SUBCOMMITTEE

ON INVESTIGATIONS}

01:
53:48.26

SEN. TOM COBURN:
Is it your understanding that your competitors were engaged in

similar activities?

LLOYD BLANKFEIN:
Uh, yes. And, and to a greater extent than us, in most cases.

Inside Job transcript – Sony Pictures – September 2010

41

01:
53:58.12

NARRATOR:
Hedge fund manager John Paulson made 12 billion dollars betting against

the mortgage market. When John Paulson ran out of mortgage securities to bet against,

he worked with Goldman Sachs and Deutsche Bank to create more of them.

01:
54:12.24 Morgan Stanley was also selling mortgage securities that it was betting

against, and it's now being sued by the government employees retirement fund of the

Virgin Islands for fraud.

The lawsuit alleges that Morgan Stanley knew that the CDOs were junk. Although they

were rated AAA, Morgan Stanley was betting they would fail. A year later, Morgan

Stanley had made hundreds of millions of dollars, while the investors had lost almost all

of their money.

{GOLDMAN SACHS, JOHN PAULSON,

AND MORGAN STANLEY

WEREN'T ALONE.

THE HEDGE FUNDS TRICADIA AND MAGNETAR MADE

BILLIONS BETTING AGAINST CDOs THEY HAD DESIGNED WITH

MERRILL LYNCH, J.P. MORGAN, AND LEHMAN BROTHERS.

THE CDOs WERE SOLD TO CUSTOMERS AS "SAFE" INVESTMENTS.}

01:
54:56.19

CHARLES MORRIS:
You would have thought that pension funds would have said,

those are subprime; why am I buying them? And they had these guys at Moody's and

Standard and Poor's who said, that's a AAA.

01:
55:09.04

{BILL ACKMAN

HEDGE FUND MANAGER}

BILL ACKMAN:
None of these securities got issued without the imprimatur, you know,

the Good Housekeeping Seal of Approval, of the rating agencies.

NARRATOR:
The three rating agencies — Moody's, S&P, and Fitch — made billions of

dollars giving high ratings to risky securities. Moody's, the largest rating agency,

quadrupled its profits between 2000 and 2007.

01:
55:32.02

Inside Job transcript – Sony Pictures – September 2010

42

BILL ACKMAN:
Moody's and S&P get compensated based on putting out ratings

reports. And the more structured securities they gave a AAA rating to, the higher their

earnings were gonna be for the quarter.

Imagine if you went to the New York Times, and you said, look, if you write a positive

story, I'll pay you 500,000 dollars. But if you don't, I'll give you nothing.

01:
55:48.03

{JEROME FONS

FORMER MANAGING DIRECTOR

MOODY'S RATING AGENCY}

JEROME FONS:
The rating agencies could have stopped the party, and said: We're

sorry – you know – we're gonna tighten our standards. This is – a-, and, and

immediately cut off a lot of the flow of funding to risky borrowers.

FRANK PARTNOY:
AAA-rated instruments mushroomed from just a handful to

thousands and thousands.

01:
56:09.09

JEROME FONS:
Hundreds of billions of dollars, uh, were being rated. You know – and

–

CHARLES FERGUSON: Per year.

JEROME FONS:
Per year; oh, yeah.

01:
56:16.05

FRANK PARTNOY:
I’ve now testified before both houses of Congress on the credit

rating agency issue. And both times, they trot out very prominent First Amendment

lawyers, and argue that when we say something is rated AAA, that is merely our opinion;

you shouldn't rely on it.

01:
56:35.17

DEVEN SHARMA:
S&P's ratings express our opinion.

STEPHEN JOYNT:
Our ratings are, uh, are our opinions. But they're opinions.

RAYMOND McDANIEL: Opinions, and those are, they are just opinions.

STEPHEN JOYNT:
I think we are emphasizing the fact that our ratings are, uh, uh, are

opinions.

Inside Job transcript – Sony Pictures – September 2010

43

{THEY DIDN'T SHARE THEIR OPINIONS WITH US.

THEY ALL DECLINED TO BE INTERVIEWED FOR THIS FILM.}

01:
56:54.18

DEVEN SHARMA:
They do not speak to the market value of a security, the volatility of

its price, or its suitability as an investment.

01:
57:02.25 {PART III: THE CRISIS}

01:
57:20.16

{JULY, 2005}

NEWSWOMAN:
We have so many economists coming on our air, and saying, oh, this is

a bubble, and it's going to burst, and this is going to be a real issue for the economy.

Some say it could even cause a recession at some point.

What is the worst-case scenario, if in fact we were to see prices come down

substantially across the country?

01:
57:38.03

BEN BERNANKE:
Well, I, I guess I don't buy your premise. It's a pretty unlikely

possibility. We've never had a decline in house prices on a nationra-, ba-, a nationwide

basis.

NARRATOR:
Ben Bernanke became chairman of the Federal Reserve Board in

February 2006, the top year for subprime lending. But despite numerous warnings,

Bernanke and the Federal Reserve Board did nothing.

{BEN BERNANKE DECLINED

TO BE INTERVIEWED FOR THIS FILM.}

01:
58:03.28

NARRATOR:
Robert Gnaizda met with Ben Bernanke and the Federal Reserve Board

three times after Bernanke became chairman.

ROBERT GNAIZDA:
Only at the last meeting did he suggest that there was a problem,

and that the government ought to look into it.

Inside Job transcript – Sony Pictures – September 2010

44

CHARLES FERGUSON: When? When was that? What year?

ROBERT GNAIZDA:
It's 2009; March 11th, in D.C.

CHARLES FERGUSON: This year.

ROBERT GNAIZDA:
This year we met, yes.

CHARLES FERGUSON: And so for the two previous years you met him; even in 2008?

ROBERT GNAIZDA:
Yes.

01:
58:31.21

NARRATOR:
One of the six Federal Reserve Board governors serving under Bernanke

was Frederic Mishkin, who was appointed by President Bush in 2006.

{FREDERIC MISHKIN

GOVERNOR, FEDERAL RESERVE (2006-2008)}

CHARLES FERGUSON: Did you participate in the semiannual meetings that, uh,

Robert Gnaizda and, and, uh, Greenlining had with the Federal Reserve Board?

FREDERIC MISHKIN: Yes I did. I was actually on the committee that, uh, that was

involved, involved with that; the Consumer Community Affairs Committee.

01:
58:53.18

CHARLES FERGUSON: He warned, in an extremely explicit manner, about what was

going on; and he came to the Federal Reserve Board with loan documentation of the

kind of loans that were frequently being made. And he was listened to politely, and

nothing was done.

FREDERIC MISHKIN: Yeah. So, uh, again, I, I don't know the details, in terms of, of,

uh, of, um – uh, in fact, I, I just don't – I, I – eh, eh, whatever information he provide, I'm

not sure exactly, I, eh, uh – it's, it's actually, to be honest with you, I can't remember the,

the, this kind of discussion. But certainly, uh, there, there were issues that were, uh, uh,

coming up. But then the question is, how pervasive are they?

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