Return to Transcripts main page
QUEST MEANS BUSINESS
Thousands of Flight Grounded by Volcanic Ash; Goldman Sachs Facing Fraud Charges; Interview with Hank Greenberg
Aired April 16, 2010 - 14:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Going nowhere fast, thousands of flights grounded by ash and now way of knowing how soon it will clear.
A darling of Wall Street in deep trouble today, Goldman Sachs facing charges of fraud.
I'm Richard Quest, we also tonight, hear from Hank Greenberg the former chief of AIG.
We're on Wall Street, where yes, QUEST MEANS BUSINESS tonight.
Good evening to you.
Tonight we will be considering the full ramifications for what these charges against Goldman Sachs mean; the headquarters of which just down the road from me here. Is this the break that everybody had been wondering was going to happen? Has New York and the SEC finally found a smoking against the darling of the Street. We'll deal with Goldman Sachs in just a moment.
Tonight, though, we do need to start with travelers woes and misery. From Asia, across the Americas, there is one part of the world you can no longer fly. It is the Continent of Europe, where thousands of flights have, once again, been delayed. This time it is not airlines woes, industrial strike. It is quite simple. Mother Nature continuing to wreak havoc from the volcano in Iceland.
You might well ask, how can one volcano cause so much trouble? Thousands, 10s of thousands, 100s of thousand s of passengers this weekend, asking that very same question. How do you get round if you are stranded. CNN's Jim Boulden joins me now to put it into perspective.
Jim, before we talk about the alternatives of travel, tell me how bad it actually is?
JIM BOULDEN, CNN INT'L. CORRESPONDENT: Well, Richard, frankly, we just heard, for instance, from Ryan Air, Europe's largest airline. They decided to suspend almost every flight until Monday after lunch. Ryan Air is saying, for instance, they just don't want to have people hanging on wondering whether they could get a flight on Sunday, wondering whether they can get a flight on Saturday. They just decided just wipe out the entire weekend schedule for most of their flights out of the U.K. and Ireland into Northern Europe and back. And they said, basically, that is the decision they decided to make even before we know whether any air space will be opened up in places like England.
British Airways still not sure what is going to happen in the next couple of days. There will be some flights coming out of the U.S. tonight. But as you said, even though, we know of course that it is not the airlines' fault. The airlines are the ones who are going to be spending and paying a lot of money and losing a lot of money because of this, Richard.
QUEST: Jim, let's talk about those losses for airline stocks at the moment. Now, if we take a look at the airline stocks, give me an idea of the sort of damage that we have been seeing. Because, by my reckoning, $200 million a day, give or take, is what AARTA estimates, but surely in the totality of that that is understandable and that can be dealt with.
BOULDEN: Yes, $200 million a day for the airlines in total. That is just the revenue, however, some experts have been telling us, of course, that doesn't count costs such putting passengers up overnight in hotels, that doesn't add other ancillary costs. For instance, British Airways tomorrow will be busing people for nine hours from Glasgow, back down to London. And earlier I did talk to one of those experts who talked about just how incredible this is.
(BEGIN VIDEO CLIP)
JAMIE BOWDEN, AIRLINE ANALYST: I have been in this business for more than 30 years and I've known Heathrow Airport to be this quiet. This kind of disruption is unprecedented. I think that this will be going on for at least another eight to 10 days before it starts settling back to normal.
(END VIDEO CLIP)
BOULDEN: Eight or nine days, Richard. The important point here for passengers of course, is even if the restrictions are lifted, as they have been lifted in places like Scotland and Northern Ireland, the doesn't mean the airlines can just pick up where they left off. And that is why people are saying it could be days and days and days.
Sure, airlines are paying less money now. They are not paying for fuel for instance, and we are seeing some train lines they are expanding trains in German for instance. Euro Star in and out of the U.K., very full, so they'll be making some money out of this. But because we don't know when it will end, we don't know whether some of the restrictions that are lifted could be put back on. That is why we have absolutely no idea how much the final bill is going to be.
QUEST: OK, one very quick question, a straightforward, up and down question for you. Does anyone have an idea, because I tell you tourists around here who will be heading back to Europe over the weekend, have been saying to me, Jim, will they get out and home this weekend. Is that a question for you or for Guillermo later in the program?
BOULDEN: Sorry, Richard, I really couldn't understand what you were saying. I apologize for that.
QUEST: All right. I was basically asking whether you were able to tell me when the air travel and the air traffic will open up again. All right, Jim Boulden, I'll ask Guillermo later in the program.
The other big story that we are following for you, tonight, it comes of course from here, in Wall Street. Goldman Sachs has been charged by the Securities and Exchange Commission. It has been charged with fraud. The case surrounds the selling of subprime mortgages and other CDOs. Felicia Taylor joins me now to talk about this. All right. It is frighteningly complicated.
FELICIA TAYLOR, CNN FINANCIAL CORRESPONDENT: It is frightening, yes.
QUEST: The gist of what they did, or alleged to have done?
TAYLOR: OK. Not to get this wrong. The Securities and Exchange Commission is accusing Goldman and one of its vice presidents, most significantly, with creating and selling a mortgage investment that was secretly designed to fail. So what does that mean? On the one end, they are selling it to their clients, but on the other end they are shorting the investment intending that it would fail so that they are making money on both ends. That is the crux of what this is. That the fraud that they would have committed.
QUEST: Now, the one thing that I've not been able to understand is why would they want to short an investment that they were going long on?
TAYLOR: Because they were making money on both ends. Most significantly, you've got to remember, this was a particular hedge fund. That was John Paulson & Company, that was choosing the securities, allegedly, on both ends to make money on both sides.
QUEST: Look, I know we maybe going into areas that neither of us can necessarily answer, but how do they make money if the security failed?
TAYLOR: If a security fails, what you are doing is you are shorting a security. So, if it fails, you are making money on the spread of that security. Does that makes sense to you?
QUEST: It does.
QUEST: So, what does Goldman say tonight-today?
TAYLOR: Goldman hasn't come out and said anything as of yet, but the stock itself has certainly reacted. When this news came out, of fraud, the investigation of fraud, the difference is that there is one thing to be investigated, the actual accusation is different. So, now the spread was across Wall Street. Wall Street went down 140 just within a few minutes, dropping below 11,000. Goldman Sachs was off about 12 percent, quite significantly. All banking stocks were affected, down between 3 and 6 percent.
The question is how pervasive is this? Is this investigation going to continue with other banks? Or is this the other shoe to drop of the financial crisis? Or possibly, as one trader put it to me, is this a bit of a payback to Goldman Sachs? If you remember, way back when, when this whole financial crisis began, there was a internal e-mail that Goldman Sachs, again, allegedly distributed, that Bear Stearns, they would no longer back up their derivative deals. That was significant. Two days later, Bear Stearns went belly up.
QUEST: OK. What I need to know, though, and this I think is the key question. This idea, Goldman Sachs has been the one, if you like, company, that everybody has looked at. They have become the-
TAYLOR: Big Daddy of Wall Street.
QUEST: Well, or it is the Evil Empire.
QUEST: I'm trying to remember that famous quote. The octopus, or evil octopus, or whatever that phrase was. But I'm trying to work out-is this the other-is this the shoe? Is this the smoking gun? Is this what everybody is looking for?
TAYLOR: It could be. It remains to be seen. I spoke to another trader and he said, listen, it is not. Is this going to put a chink in the armor of Wall Street's run up? Absolutely. It is a blip. However, the point is, Goldman Sachs can afford to pay whatever damages there are. It is not going to go out of business.
QUEST: You stay where you are.
TAYLOR: I'll stay here.
QUEST: You stay where you are, because we need to talk to Allan Chernoff. I want you update me on the markets in just-
TAYLOR: You got it.
QUEST: Let's first of all, talk to Allan Chernoff, to join us.
Allan, as we look at this Goldman Sachs issue, today, what do we make of it? Do we-are we-or is the Street saying that this is a serious incident, or is it not?
ALLAN CHERNOFF, CNN SR. CORRESPONDENT: Oh, well, certainly, you know, Goldman Sachs is the most envied firm on Wall Street, so them being charged with fraud by the Securities and Exchange Commission, obviously it is a very serious, serious matter.
And I heard you talking a little bit with Felicia, I'm sorry I didn't hear everything.
But you know, clearly they are saying that Goldman Sachs was not revealing all the facts to its investor clients. Not revealing that on the other side of these investments, made in the mortgage securities, was a hedge fund, betting against those very securities and actually selecting the securities that the first group of investors would be buying into, essentially. And the failure to disclose, that is where the fraud is, according to the SEC.
Goldman Sachs, by the way, is denying that they did anything wrong. I have a statement from them, quote, "The SEC's charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation."
QUEST: OK, Allan, one quick question. Does this expand and go wider, do you think? You have been looking at these things for many years. Do you get the feeling not only that it expands with Goldman but it expands to other financial institutions?
CHERNOFF: The SEC does say that it is investigating other banks in this area. We should point out this actually the first case that a new division of the enforcement group at the SEC is bringing. They recognize that as part of the financial collapse there was a huge problem with these new structured derivatives. All these alphabet soups of investments and so they are now reviewing lots of transactions and they are seeing, in fact, whether other firms were engaged in fraud or other misdeeds.
QUEST: All right. Allan Chernoff, joining us from another part of the CNN empire covering this story. We are all over it, as they say, like a cheap suit.
Turning to-you've never heard that?
TAYLOR: Like white on white, how's that?
QUEST: Even better. Felicia Taylor, for the next part of this, how is the market taking this? Remind us, give us Goldman Sachs, and the Dow, and the main markets.
TAYLOR: Goldman Sachs, for the better part of the day was down about 12 percent. It is now down 11 percent, but coming back a little bit. As soon as we heard the news the Dow was down fractionally. Not a lot, but when we heard at the Dow it went down about 145 points. It is coming back a little bit. Now off about 110.
QUEST: Off 110, that is our 11,000 gone!
TAYLOR: Well, but you have to remember we have had great corporate earnings all week long. JP Morgan, Intel, today we had Bank of America, up better by $3 billion.
You know, things are good for the financial sector, overall. Except for this one little, little blip.
QUEST: Stock indexes. Lovely to see you. See you next week, when I'll be over there. You'll be here.
TAYLOR: I'll still be here.
QUEST: Many thanks indeed.
The Euro markets, now, demand our attention. And they saw their own version of a European sell off. News of the fraud charges broke just about and hour before the close. Shares immediately headed sharply lower. Most of these markets have been pretty much flat, but until that point, and looking at pocketing some modest gains, on a weekly basis.
You are up to date with how the European markets traded. Now we bring you up to date with the news headlines. Becky Anderson is at the CNN News Desk.
QUEST: When we come back, in just a moment, so Goldman Sachs might be in some trouble. What does this gentleman think of it? He is the New York City comptroller. Not only will we talk about that, we will about the economy of the Big Apple. How tasty is it looking? In just a moment.
JOHN LUI, NYC COMPTROLLER: Good to see you, Richard.
QUEST: And warm welcome back, QUEST MEANS BUSINESS, we are live in New York. Actually down on Wall Street, corner of Wall and Broad, just outside the New York Stock Exchange. Joining me now, John Lui, who is the comptroller of New York City.
I suppose the best way to describe you, sir-please do be careful you don't fall over.
JOHN LUI, NYC COMPTROLLER: I won't fall over.
QUEST: It would be deeply regrettable to lose you, at this point, because you are effectively the chief financial officer.
LUI: I've had the honor of 106 days, in this position.
QUEST: Oh, 106 days? In that position?
LUI: That's right.
QUEST: So, how concerned are you, sir, at the news tonight that one of your biggest taxpayers might be in deep trouble. Or what do you make of what's happened with Goldman Sachs.
LUI: Well, it has all-the news is only a few hours old. Let's wait to see exactly what happens. But obviously, the issue is one of great concern. It is possible the SEC is stepping up its vigilance on a number of issues, but this particular issue has been out there in the marketplace for a number of-for quite sometime now. And this may not be the only inquiry into this kind of issue.
We have a number of concerns. Obviously, Goldman Sachs and Wall Street, in general, is a very important sector to our financial well-being in the Big Apple. But on the other hand, we are also major investors as pensioners, as shareholders.
QUEST: You see now, this is the fascinating part, because you see this now from both sides, don't you? On the-I mean, but in all cases Wall Street is a crucial part of your economy. How big a part of New York's economy is Wall Street?
LUI: Wall Street is substantial.
QUEST: Or the financial community?
LUI: It makes up about a quarter all of our tax revenues in NYC. So, it is sizable. I mean, it is not the only thing that we rely upon, and we are working to diversify the economy here in New York City. But of course, Wall Street and the financial sector is important.
QUEST: And when we hear about the sort of things that alleged with Goldman, or elsewhere, does this-how tarnished do you think the financial community has been by what has been put forth (ph)?
LUI: You know, obviously the financial community, the financial sector has been through quite a bit of turmoil over the last couple of years. You know, there is a lot of action being undertaken by the SEC and in Washington, and also across different states, to really figure out exactly what is going on, on Wall Street and in the financial sector. And whatever happens to stabilize this sector will be ultimately beneficial to New York City in the long term.
QUEST: Let's talk about New York City. Your tax base tourism, financial services, all things that have been hit by the financial crisis that has taken place. What sort of deficit do you think you are going to end up with.
LUI: We're right now looking at a municipal deficit of $4 billion that has to be bridged within the next couple of months. A gargantuan number, that is on top of a New York State deficit of $9 billion. We are working towards making sure that there will be no deficit.
QUEST: So-you know, look, famously Mr. Micawber, you know, Charles Dickens, you spend more than you earn, you end up with misery. You have only got two things you can do. You can either cut, cut spending or raise taxes.
QUEST: What are you going to do?
LUI: Yes, I think at the end of the day, there will be a combination. There will be severe expense reductions on the part of the government services here. But there will also be some revenue increases.
QUEST: You've 106 days in the job?
LUI: Yes, loving every minute of it.
QUEST: That was my next question! That was my next question.
QUEST: You're loving every minute of it?
LUI: Absolutely. Look, there are challenges but I have not doubt that New York City will rebound and rebound in a big, big way. It will be a very shiny apple for you to chew on.
QUEST: And when I'm next standing here, will you come and join me?
LUI: Absolutely. I'll even bring a basket of apples.
QUEST: Hey, hey, that can always be (UNINTELLIGIBLE) of an apple. Many, thanks. Many thanks in deed.
LUI: Thanks, Richard.
QUEST: When we come back, in just a moment, we're going to look at a unique job in the world of work. We're taking a ride on the Staten Island Ferry and seeing New York from a different view. QUEST MEANS BUSINESS, we're live in New York.
QUEST: Welcome back, QUEST MEANS BUSINESS, we are live in New York City, on Wall Street, on a day, of course, when Goldman Sachs is charged by the SEC on allegations of fraud in the sub-prime mortgage CDO market. We'll talk more about that in just a moment.
It is, they say, the best free trip in the world. It goes from Manhattan across to Staten Island. It is the Staten Island Ferry. It is the way you get to see the Statue of Liberty and get a full view of the harbor. But what about the men and women who cross it thousands of times a year. No, not the consumers, I'm talking about the ferry captains. They are people that you have got to meet it you want to understand a New York "World at Work".
CHRISTOPHER COVELLA, CAPTAIN, STATEN ISLAND FERRY: Ferry Boat Spirit of America departing St. George, northbound for the Statue of Liberty.
I've been a Staten Ferry captain for approximately 15 years. I started back, in actually 1976, when my brother, Charlie, introduced me to the tug boats and tankers and he got me started in the industry.
Just with the State Island Ferry alone I made over 35,000 trips, round trips. The traffic varies at times, every trip is different. I would say the most challenging, when you have reduced visibility. In the summer time there is a lot of pleasure boat traffic. In which they don't pay much attention to the rules of the road, and they tend to get in our way, at times.
For this double-ended ferry class, we don't use the terminology as port and starboard, and bow, and stern. So, we use the terminology, Jersey side, Brooklyn side, New York end, Staten Island end. There is a pilot house like this on the other side of the ferry. If you would use the word, on the portside, with a double-ended vessel you can get confused.
We communicated with bridge-to-bridge communications with this tug in tow here, and I was asking him permission, if it was OK that I overtake him.
The knack of being a captain is to never let your guard down. Always be alert. Always be ready to react, to make a decision.
On this job we try our best to stay to the right side of the channel, sort of just like driving on the street.
This skyline here, isn't it beautiful? New York City? The Statue?
I'm proud to be a ferry captain. It is an honor to wear this uniform. I represent the City of New York. I'm proud of it.
It is not just a job, it's an adventure. I love it.
QUEST: The Staten Island Ferry, as I say, the best free ride with the best view in the world.
When we come back in just a moment or two, now look, the one thing about the volcanic eruption in Iceland, it is no respecter presidents, chief executives or tourists. Whoever you are, you are stranded, as we'll hear from the head the Sony Ericsson, and he'll join me after the break. This is QUEST MEANS BUSINESS, good evening.
QUEST: Hello, I'm Richard Quest. QUEST MEANS BUSINESS, this is CNN.
Good evening to you tonight from the heart of the financial world, here on Wall Street, where we are this evening, for our Friday edition of the program.
One of the major stories we're looking at tonight, Goldman Sachs, of course, charged by the SEC on allegations of fraud. We will be talking about that in just a moment.
The other major story around the world, people grounded, passengers stranded, planes not flying, and all because of a volcano. The volcano in Iceland has lead to millions of people's travel plans being disrupted. It doesn't just affect the little people. It affects chief executives and presidents as well. And the Chief Executive Bert Nordberg, of Sony Ericsson joins me.
Where should you be tonight?
BERT NORDBERG, CEO, SONY ERICSSON: Well, I should have been in London, with my wife.
QUEST: You should have been in London?
QUEST: Instead you are here on this step (ph) with me.
NORDBERG: Yes, yes. It's not to bad.
QUEST: So, basically, you're stranded?
NORDBERG: I'm stranded, yes.
QUEST: When these sort of things happen, you are a chief exec of a big company-how many employees?
QUEST: Your word is law, and yet the-
NORDBERG: Well, it is not law, but I hope they listen to me.
QUEST: But these things must be very frustrating for somebody like yourself?
NORDBERG: Yes, well, I've been the traveling the world for 20 years, and if I get stranded Manhattan is the place to get stranded.
QUEST: Absolutely-don't say that, your wife may be watching.
QUEST: Your Sony Ericsson phone will be ringing.
QUEST: You'll get a-let's talk about your results today.
QUEST: Your results came out, now they were very good, the market liked them. You shipped 10.5 million units. But the question is whether you did it through cost cutting or better performance?
NORDBERG: I think it is divided, of course. It is 50/50; 50 percent was cost-cutting and 50 percent was much, much better portfolio, with higher margin firms.
QUEST: But the ability to come out with a phone now, that people want, is it more difficult than it was a few years ago, do you think?
NORDBERG: Well, more and more companies are entering this market.
QUEST: But the margins then, are what?
NORDBERG: Well, the margins are squeezed, but the are mostly squeezed in the low-end segment. There is actually good margins in the high-end segment where we are focused.
QUEST: You brought out a new phone, and this is it, of course, we have it.
NORDBERG: The X1.
QUEST: The X1? Well, you may not go home with this one, of course.
QUEST: One thing I do see is that they all very much resemble the iPhone. Is it difficult for anyone in the business now to actually compete against the iPhone?
NORDBERG: Well, I think if you are only focused on that, I think it is a mistake. You have to have your own story. And we have our own story and we work a lot with parents on converting the home environment, which Sony. And we work with the latest technology. So, I think that if you get obsessed by competing with Apple, I think you would fail.
So, if you find our own way forward I think you can be successful.
QUEST: The interesting thing is that competition with Apple has dominated, maybe, the media's view...
QUEST: But people like you have to just get on with your own business.
NORDBERG: Absolutely. And I think, also, that our model is more open. It's a partnership with Operator L.A. (ph). It's not a closed world. So -- so I think we -- there is a -- a market, also, for us.
QUEST: Excellent. Well, here's your phone back.
NORDBERG: Thank you.
QUEST: Before we finish, when do you expect to get home?
NORDBERG: Well, I expect to get home maybe not this week or next week, because, actually, I'm planning to be in California on Thursday so...
QUEST: So you're not going home, you're just getting...
NORDBERG: Oh, no, no. Instead, I've asked my wife to fly out to California...
QUEST: Now, that...
NORDBERG: -- and we'll spend a weekend there.
QUEST: -- that is what I call -- that's just trying to curry favor.
QUEST: Well done.
Many thanks to you.
NORDBERG: Thank you.
QUEST: Many thanks.
(INAUDIBLE) Guillermo, Mr. Nordberg has abandoned his plans because he thinks he's not going to get back to Europe. He's going to California. I suspect, weather-wise, that might be the right decision.
GUILLERMO ARDUINO, CNN METEOROLOGIST: Yes. Definitely. Because California is not going to be affected.
Now, your question before, you were asking, when is this going to end, I have to tell you that it's impossible to know right now. On the one hand, the problem that we have is that the volcano continues to be active. So if it stops its action, then things would be much easier to forecast. So we have to look at the second element, which is the jet stream. This highland -- this highway that is not actually moving much right now, but it may weaken into the forecast. So the winds may not be as severe or as strong to bring the ash into Europe.
I'm going to show you now a satellite picture of the plume -- the ash plume. You see it, how it's coming in here into the Baltic Sea, the northern parts of Europe. Now, when you see a satellite picture, don't get confused between the plume, the ash and the clouds, because remember that this gets dispersed as it moves inland.
So, again, let me -- let me touch this subject of the -- of the jet stream. If it weakens its speed, then more particles will eventually fall. But this is cloud right here. Maybe this is -- this brownish color that we see in here, very difficult to understand, may be the plume.
I'm going to show you now the state of the flights, Richard. So I'm going to use this Web site, Flightradar24.com that anybody can go to. And it's showing that the air space is shut down in Northern Europe. We saw, a couple of hours ago, one plane out of Orly Airport in France, mostly here in Italy. We don't know about Spain and Southern France because there -- there are no transponders there for us to get information.
But you see that mostly the action is into the Terranean Sea, Italy, the Balkan Peninsula and Turkey. And, of course, you know, planes can take any other route from here to the south and in the south there's -- it's not a problem.
The problem is for those who are stuck in the northern airports. And as the time progresses, it gets spread into farther south into Europe.
Now, when is this going to end?
We don't know.
What are we going to look at?
The winds, we know what's going to happen. They're going to remain steady, maybe weaker. The jet stream is not moving.
The question is, what's going to happen with the volcano?
And nobody knows the answers for that -- Richard.
QUEST: And that, I'm afraid, Guillermo, is exactly what, of course, everybody wants to know.
QUEST: But we appreciate that that is the unknown.
Many thanks, Guillermo, at the World Weather Center.
ARDUINO: Thank you.
QUEST: We thank you.
You have duty to do over the weekend, no doubt.
When we come back in just a moment, we're going to revisit Goldman Sachs and the charges -- alleged allegations of fraud against the company.
And we're going to talk to the former chairman of world -- what was the largest insurance company, AIG. Hank Greenberg will be on the program.
(BEGIN VIDEO CLIP)
HANK GREENBERG, CHAIRMAN, STARR INTERNATIONAL & COMPANY: It's wrong. I want to throw up. It's wrong. It's just plain wrong.
(END VIDEO CLIP)
QUEST: The bonus culture -- Hank Greenberg will be talking about that in just a moment.
QUEST: The Dow Jones Industrials off nearly 100 points, just a fraction off that. It had been down much more, largely on the back of the announcement by Goldman or from Goldman Sachs that it was being charged with allegations of fraud.
Good evening to you.
I'm Richard Quest, tonight live from New York, where we're following that particular story.
And Goldman Sachs' shares themselves were down more than 12 percent at one point. But they have pulled back slightly -- or at least they've trimmed the losses, I think is the, perhaps, best way to describe it.
Let's talk about the allegations against Goldman Sachs.
Colin Barr is with me, senior editor at "Fortune" magazine and Fortune.com.
Colin, the allegations against Gold -- against Goldman Sachs, they are serious, but the question we are all wondering is are they -- are these the allegations or are -- is there more to come, do you think?
COLIN BARR, SENIOR WRITER, FORTUNE.COM: Well, I -- I think these are -- these are important allegations because people have been wondering when the other shoe was going to drop on Wall Street. It's pretty wide knowledge, I think, that -- that Wall Street played some pretty fast and loose games during the housing bubble. And they did a lot of things that - - that they should not have done.
And I -- this -- this allegation seems to go to the heart of that. It's early yet and we obviously don't know exactly what Goldman Sachs' defense is going to be. This is only a civil case...
QUEST: All right...
BARR: There's no crime involved. But it -- this is a very big moment.
QUEST: Right. Colin, briefly -- and I know this is a really impossible question, they sold these securities to the same company that was also shorting them.
Why was that company shorting them and where was the alleged fraud?
BARR: Well, the alleged fraud here is -- is that they -- they told investors, I believe the SEC is -- is alleging -- they told investors that -- that they were -- they were selling them securities that would allow them to -- to bet on the housing market. And they did not tell the investors, the SEC is alleging, that they knew that they had a party that was -- that was making the opposite bet on the securities.
And as the -- as someone selling securities, you have a duty to disclose any conflicts of interest that you know of. So what the SEC is saying is that Goldman Sachs knew of a conflict and did not disclose it to the investors and the investors ended up losing a billion dollars on these things. The investors are people like...
BARR: -- German banks.
And -- and furthermore, the -- the party that went short the securities ended up walking away with a billion dollars in -- in nine months. You can't beat that.
QUEST: No. Well, I -- and there we were -- I have to leave it, I'm afraid.
Colin -- Colin Barr, joining me from Fortune.com.
We will talk more about this, Colin, in the weeks ahead, as we get more details about this.
One man in New York knows a great deal about legal proceedings as a result of what can happen. He's Hank Greenberg, Morris Greenberg. He's the former chairman of AIG, insurance company that was very much at the heart of the financial crisis.
Now, Mr. Greenberg has long since left the company. He was ousted in 2005. But if you want to talk to somebody who really has an understanding of today's Wall Street and some of the practices that perhaps have returned -- for instance, the bonus culture on Wall Street, the bankers who seem to be back to the races so quickly, one wonders -- Mr. Greenberg is exactly the man to hear from.
QUEST: We look now at how this all transpired.
Let's talk about the bankers themselves.
First of all, I -- I've got to ask you, you know, because just about everybody in the world and their wife is interested in the question -- the whole question of bankers' bonuses and the -- the indecent haste with which the financial community has justified returning to very high levels of reward.
GREENBERG: Look, my own experience is I ran a pretty big company. We didn't have anything like there's -- the topic you're -- that you're discussing. And the maximum salary for anybody was a million dollars, because that's what you got a tax deduction for. Bonuses were very, very modest. There was stock options and stock grants that -- and the most important plan, you couldn't take the stock until you retired.
GREENBERG: So we were in complete harmony with shareholders.
QUEST: Now, as you're -- as you move it to one side and you look at the activities that have taken place over the last six to nine months...
GREENBERG: Well, I...
QUEST: What's your own gut feeling?
GREENBERG: I want to throw up. It's wrong. It's just plain wrong. I mean it's -- it's going back to the way things were.
QUEST: But that brings me to my question, which is which part of the failure of morality in the banking or financial industry doesn't see that?
QUEST: Has their moral compass become so skewed that they can self- justify a return to that sort of behavior?
GREENBERG: You can't do away with innovation and rewards for innovation or you destroy the -- the direction of any company. But there's going to be a balance. And that's really start -- it has to start with the company itself and its board.
If you have to have a third party tell them, you know, you're -- you're over paying your people, there's an incentive to shortcut, that's got to be within the company.
QUEST: But you're still involved in the insurance industry?
GREENBERG: I am. And investments.
Why didn't you retire?
I enjoy doing what I'm doing. Having -- I'm having a -- I'm having a ball.
QUEST: Are you enjoying it?
GREENBERG: Very much so. I wouldn't do it if I didn't enjoy it.
QUEST: What is it...
GREENBERG: I can only play so much tennis and -- and skiing. But I love doing what I'm doing. I love building.
QUEST: Which must make it even harder seeing what's happened. I mean whichever way we slice it, to see something you've built up dismantled when you love building must be difficult.
GREENBERG: Well, listen, AIG was the largest insurance company in history. There was no company -- insurance company ever larger than AIG throughout history. And, of course, it's -- it's disturbing. Very much so. On the other hand, I'm not dwelling on that. I'm too busy doing what I'm doing.
QUEST: Many thanks, indeed.
(END VIDEO TAPE)
QUEST: Hank Greenberg talking to me.
And on Monday, you can hear the other part of our discussion, when we talk about financial regulation -- what needs to be done here on Wall Street.
And that is QUEST MEANS BUSINESS for this Friday edition.
I'm Richard Quest live in New York.
If you're stranded somewhere in the world, I wish you luck in getting to your destination.
And as always, whatever you're up to over the weekend, I hope it's profitable.
I'll see you back in London next week.