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Fareed Zakaria GPS

Interview With Lloyd Blankfein

Aired May 02, 2010 - 10:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

FAREED ZAKARIA, HOST: Welcome to GPS, THE GLOBAL PUBLIC SQUARE. I'm Fareed Zakaria.

This week on the program, the man at the center of the storm, the chairman and CEO of Goldman Sachs, Lloyd Blankfein.

Last week, I began the show with a commentary about Goldman Sachs. I also wrote my "Newsweek" column on it, and can't remember the last time I've written something that has occasioned so much debate, with most of you disagreeing with me.

Now, many of you felt that the issues I talked about last week were of strict legality and that there were lots of ethical issues that the case raised, issues of what's right, what's reasonable, what should be standard business practice. And I share many of your concerns in those areas. I actually wrote as much last week.

The future of the financial industry has become a huge subject of public policy and private interest, and Goldman Sachs is now at the center of the story. It is the most successful firm on Wall Street, a 140-year-old company that made a profit of over $13 billion last year. It has managed to come out of the financial crisis not simply intact, but, in many ways, stronger than ever.

And now, it is charged with fraud by the SEC. It's under criminal investigation by the U.S. Attorney's Office, and was at the center of a Senate hearing this week that focused on its business practices.

I spoke to Lloyd Blankfein about the Senate hearings, the SEC investigation, Goldman's profits. I also asked him if he understood how all of this, the financial crisis, the recession, affected ordinary Americans.

(BEGIN VIDEO CLIP)

LLOYD BLANKFEIN, CHAIRMAN AND CEO, GOLDMAN SACHS: I grew up in public housing and I remember one of my earliest memory -- memories is my own dad being unemployed and the insecurity I felt.

(END VIDEO CLIP)

ZAKARIA: Let's get started.

(BEGIN VIDEOTAPE) ZAKARIA: Lloyd, thank you for joining us.

BLANKFEIN: Thank you, Fareed.

ZAKARIA: When you were at the Senate committee, did you feel as though the senators understood your business?

BLANKFEIN: I think, you know, clearly aspects of our business that are very hard and they're very arcane, and some of those aspects turn out to be critical when you think of some of the different back and forth we had on some issues. Of course, for a practitioner like myself, those technicalities had great, great consequences.

ZAKARIA: How did you react when you heard those e-mails of Goldman Sachs employees saying these securities are -- are terrible, or bad, or "shitty". You know, that -- that word must have been repeated twenty times in the hearings. So how did you feel?

BLANKFEIN: It was one e-mail --

ZAKARIA: About the Timberwolf deal.

BLANKFEIN: It is one e-mail where they used a line, "shitty", which was -- which was written months after the -- the deal went through and when somebody who was writing back and -- and saying, in hindsight, that was a shitty -- that was a shitty deal. The deal didn't perform.

And then there were other -- so -- and then, listen --

ZAKARIA: But there were some -- there were (INAUDIBLE) time that, you know, there were people saying this stuff is not -- this is not good stuff.

BLANKFEIN: You know, there are -- again there were a market -- look, there're markets for those securities today, as poor as they performed. In these markets, there was always -- at any given moment, there were people who sought, risked and people who didn't want risk.

We had people even in our own organization who thought transactions were bad and others who were sitting at adjacent desks who thought the transactions were good. At the end of the day, we accumulated -- in 2008, for example, we lost $1.7 billion on residential securities because even though some of these securities had gone down in value and the crisis had -- we thought it ran its course and we were prepared for a rebound, we were wrong.

But there's no doubt that there was -- and getting back to your question, that there were observations made by certain people -- look, 20 million pieces of paper -- 20 million pieces of paper were taken from Goldman Sachs where people were making observations at the time that we didn't like this security, or this one was weak, but other people fought it (ph).

And, again, with the investors that we're dealing with, and, you know, we want to make this clear, we're not dealing with -- with a client base of ordinary people consumers. This is a professional -- a professional market with not just sophisticated, but dedicated -- people who were dedicated to managing assets in the mortgage space who frankly were making their own decisions about what they wanted -- what they wanted to own.

ZAKARIA: There are many who listen to -- to this but still feel that this stuff shouldn't -- shouldn't exist. Why do these CDOs exist? Why do derivatives upon derivatives exist? Why do synthetic CDOs exist?

It does feel -- John McCain said this -- it does feel a little bit like gambling, like you're --

BLANKFEIN: Well --

ZAKARIA: -- taking bets on the direction of the security. No one is getting a loan because of a synthetic CDO that you are creating.

BLANKFEIN: You know, I'm not sure -- let me -- let me explain, and at the end of this explanation I'll say one can still decide as a matter of policy not to do certain of these things. But -- because the risks may outweigh the benefits. But these synthetic CDOs are not without -- not without benefits.

So, for example, if an institution like a bank is holding a portfolio of mortgage securities and decides that its risks is too skewed to California or Florida or this rating or that rating or this kind of client instead of that kind of client, you could go and sell your portfolio by other things, but that's a very difficult transaction to do and you have to kind -- kind of look for the securities and it might be inefficient and expensive to do.

If you do it in the form of a derivative, you can name the exact risk you want, so long as you could find the other side of the transaction, who, for a price, will take the opposite risk.

That serves a purpose because unless you allow people the liquidity to be able to shake their risks, people wouldn't buy the positions in the first place. And I don't think anybody's arguing that the mortgage market or the business of aggregating mortgage markets into securities is a bad thing. That's a very high, social purpose.

But, at the same time, if the securities get -- get created, become themselves too liquid or risky, as a matter of social policy, notwithstanding the value of the device for being able to manage risk in your portfolio, you may decide we're not going to let people do this.

ZAKARIA: And didn't -- didn't all this get out of hand by 2007?

BLANKFEIN: I think it got -- I think that by the end of 2007, people realized it had gotten -- and maybe it had gotten out of hand earlier, but it just wasn't appreciated. There are a lot of things that because the housing market moved as much as it did, that people realized in hindsight were not wise to have done. And, going forward, people are going to have to realize that the market can do things that they can't contemplate, and so you're going to have to contemplate more -- you know, wilder things happening than you can think of in a moment.

But to get back to the other issue of how I feel, I feel, you know, in -- locked into this back and forth about what we were thinking and did you know the housing market -- listen. In 2007, in the early 2007, everybody saw the housing market was falling and at any given moment a lot of people thought it was going to fall more, and a lot of people thought it was going to rebound. You just didn't know.

In hindsight, today, people are turning back the clock and said, you must have known.

ZAKARIA: Everyone thinks you guys were the smartest people on the street. You -- you minimized your own exposure, so you did know. Or you did -- you were -- you were making a very informed bet.

BLANKFEIN: What -- you know what our informed bet was? Our informed bet was to manage our risks, to neutralize our risk, not to make sure we weren't too long and to make sure we weren't too short. As it came out in the hearing, we were a little short, but every time we got shorter, we made people buy it back.

Our revenues for the year 2007, in that space, residential real -- residential mortgages, was less -- was less than 1 percent of the revenue of the firm. And in 2008, in the same asset class, little bit higher credit, but in residential -- in residential mortgages, we lost $1.7 billion.

By the way, that was a great performance, when you think of the tens of billions of dollars that other people were losing. But we were gearing ourselves to avoid taking big risk, not to acquire big risk.

And as far as in hindsight, what people know, do you recall when the highs of the stock market were in 2007? When you think of the market, and the cracks in housing and what people knew and when did they know it? I think the high in the -- in the equity market was in October, 2007. We're talking about the spring, March of 2007.

Let me tell you, in hindsight, which is --

ZAKARIA: So you (INAUDIBLE) stocks who kept going -- stock market get going up.

BLANKFEIN: Everything. People didn't know that it was going to fall off a cliff till it fell off a cliff. In hindsight, everybody is thinking I knew this or that. Everybody --

You know, there's a book -- the book out, "The Big Short". There were a few people who saw it. They were atypical people, and I'm not even sure, but for the benefit that they've been proved right, how -- what would it -- if it didn't happen, how -- how -- how would they have looked.

Now, look at all the people who they were so much smarter than. We were so expert. We didn't know. Look at all those firms that failed because of the housing risk. Did they know? Look at all those smart investors.

Nobody really knew and some people really thought it and nobody could have been that sure. Otherwise, it never would have been the bubble in the first place.

ZAKARIA: But the bubble was created in part by the wild leverage off the whole of the street. Do you regret your part at Goldman Sachs in contributing to what was probably the largest bubble in -- in history?

BLANKFEIN: Well, I don't know if it was the largest bubble in history, but let me give -- let me answer your question succinctly. Yes.

We made a contribution to the bubble. How do we make a contribution? We were -- we're a lender. We lent money to companies, we lent -- we financed real estate ventures that had too much leverage. We made a contribution to leverage.

The official sector made also a contribution to leverage by keeping interest rates as low as they were. States and local governments took on debts and deficits. The federal government took on big deficits. All made a contribution to the overleverage -- and consumers overleveraged themselves.

But did we play a role in that? Absolutely, we did. Did we think we were doing that at the time? No. In hindsight, yes.

Should it have been more clear, we beat ourselves up for that.

ZAKARIA: Let's talk about the human aspect of this crisis. So we've had this huge financial crisis and we talked about synthetic CDOs and CDOs and CDSs, but underlying it, what's happened is you've had millions of people lose their houses, go out of work.

Do you -- do you feel like, sitting on top of Goldman Sachs, you understand that human cost?

BLANKFEIN: I didn't always live on this -- I didn't always live on this -- on this perch. My -- I grew up in -- I grew up in public housing. My dad, for most of my life, worked for the post office, which was a terrific job to get because you couldn't lose your job.

But before he got that job, he had lost his job, and I remember, one of my earliest memory -- memories is my own dad being unemployed and the insecurity I felt. I think about -- I think about it all the time.

I -- well, first of all, I look in my mirror -- in the mirror, and the older I get the more I look like my dad every day. My dad passed away about 20 years ago, but I now look like he looked, as I remember him looking, and I think about my dad who worked at the post office but worked nights at the post office because you got a 10 percent night differential for doing it.

And I think about getting -- you know, when we got moved into, you know, the projects in Brooklyn and getting the apartment we got and trying to get upgraded to another apartment. I -- I think of all these -- of course I think of all -- I think of all these elements.

I think -- I think on the -- I think on the better -- I think that's been a huge advantage to me in my life, to have that. I think it's been a huge advantage to me in my life to have come up through that kind of -- those kinds of stresses and strains.

ZAKARIA: And yet, 2007, the midst of this terrible crisis, you made $68 million. What do you say to Americans who look at that and say -- and gasp?

BLANKFEIN: Well, I would tell you, there was nothing about growing up in it, or for those Americans, that make -- should make people necessarily apologize for doing well, if in fact you really are doing well and working honorably and being successful. I think the big gaffe that were done for Wall Street were the gaffes that were done for people who did not seem to earn the money that they were getting.

In other words, the -- the companies weren't making money, the shareholders weren't receiving money, and, notwithstanding, they paid themselves well. The firm only paid out a percentage of what it earned, and, through this period, the firm earned -- earned the money and then paid the money to the people it needed to make based upon competition and aspects -- and competition and -- and the market practice at the time.

In '08, the bonus was zero. In '09, the bonus was a much -- you know, a much, you know, much, much smaller amount in small -- you know, relative to what CEOs in recognition of what had gone -- you know, what had -- you know, what --

ZAKARIA: It's $9 million, which to many Americans will seem, you know --

BLANKFEIN: Of which to every American, except for a few, but you understand -- you know, but you know what these standards are and what my, you know, competitors were.

ZAKARIA: And we will be back with Lloyd Blankfein of Goldman Sachs in a moment.

(END VIDEOTAPE)

(BEGIN VIDEO CLIP)

ZAKARIA: The way it's been analogized to me, just to give you -- makes you understand how people feel is you want to sell your house, you find a buyer, but you don't tell them that the innards are rotten. You don't tell them that --

BLANKFEIN: Right.

ZAKARIA: -- you know, that the whole thing is crumbling and you've -- you pawn the house off on them.

BLANKFEIN: What was in the transaction is not a house with innards where you have to look inside. They were a list of securities --

(END VIDEO CLIP)

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

ZAKARIA: So, let's look at the -- the specifics of, you know, the exchange between you and Senator Levin. And at the heart of it, what Senator Levin was saying is you're selling securities to somebody, to this German bank, IKB, and, at the same time, another arm of Goldman Sachs is betting against those securities, betting that the housing market will fail.

So how can you in good conscious be selling securities to somebody, selling a CDO, a collateralized debt obligation, while another part of the firm is betting against those and kind of hoping it fails?

BLANKFEIN: So let me -- let me explain.

The basic activity that we would do, which is to -- which is to take loans that originated and turn them into securities and sell those securities. That's a very, very constructive process for the world.

If you think of a community bank that lends out its money, it can only lend out its money once, unless you replace that money. It lends out its money, it takes the mortgages, we buy those mortgages, and give them back money, which they can lend out again, and that's how money gets recycled in the system.

We have to hedge those inventories. That's what prudent practice is.

ZAKARIA: Explain what hedge means.

BLANKFEIN: Hedge means that we have to neutralize the risk. What we would like to do is immediately sell those securities, because if the securities suddenly dropped in value, we could have a big risk, put the firm in jeopardy. And, by the way, if a firm is put in jeopardy, the system could be, you know, could be put in jeopardy.

Think of some of the big institutions that failed when the housing market slumped. Why did that happen? They were accumulating massive and massive amounts of risk related to the housing market. When the housing market failed, they had to suddenly take the losses of billions of dollars and tens of billions of dollars.

Now that not only hurt their own firm, that cast a very, very big risk upon the system because, as those institutions failed, they threatened other institutions as well. So what we -- so the buying and selling and the hedging activity that goes on is a part of our risk management system.

ZAKARIA: And you don't think that there's any conflict -- you don't think you need to disclose to the person you're selling the risk, the security, that, by the way, as a firm, we are sort of betting against this.

BLANKFEIN: You keep using this term, betting against. First of all, we have thousands of traders who are adjusting their position everyday. They may not even know what the risk of the house is.

Let's say, for example, somebody wanted to buy a -- an oil company, a stock of a particular oil company and they asked us -- the person who's buying it doesn't care whether we are negative or positive on the equity market or negative or positive on the price of oil, both of which will impact that security. They just want the service of being able to buy and sell that security.

ZAKARIA: What about the SEC charge that the IKB, the German Bank that bought this security, this CDO, should have known that the guy who wanted to sell the securities, who wanted to go short on them, John Paulson, the hedge fund manager, actually had a hand in selecting the securities.

That this was a case where Paulson said, I want to design the product or I want to help design the product and the guy buying it didn't realize that the guy going short was actually part of the process of selecting the securities that -- that were being offered.

BLANKFEIN: In that particular case -- and, again, these are complex -- you know, these are, you know, this is a specific pattern. In that particular case, the -- excuse me.

ZAKARIA: Sure.

BLANKFEIN: The selection agent with respect to -- that actually in fact did select the securities, the -- the -- so on that basis -- on that basis, the -- Paulson initially proposed a pool of securities of something over 100 securities. The selection agent examined that pool of securities and rejected more than half of it after examining each security.

Then, the selection agent added its own security. Then Goldman Sachs talked about its security and then the only other investor in the transaction suggested its security. Everybody was a professional. Everybody looked at the securities.

At the end of the day, the agent who is responsible for selecting selected it because that deal could not go forward unless they approved what was in it. They started with over 100. More than half of them were kicked out. They added their own choices. And, at the end of the day, they knew what was in the portfolio and they endorsed and ratified it and, at the end of it, they invest -- they were the biggest investor in it.

ZAKARIA: Do you -- do you understand why people think that there -- there is some sense that this is an unfair transaction? That the guy who sold the securities didn't realize that the person who was -- I'm sorry -- that the guy who bought the securities doesn't -- didn't realize that the guy selling it is -- is -- actually had a hand in it.

The way it's been analogized to me, just to give you -- makes you understand how people feel, is you want to sell your house, you find a buyer, but you don't tell them that the innards are rotten. You don't tell them that --

BLANKFEIN: Right.

ZAKARIA: -- you know, that the whole thing is crumbling and you've -- you pawn the house off on them.

BLANKFEIN: What was in the transaction is not a house with innards where you have to look inside. They were a list of securities that were well-known. In other words, that could be analyzed and, in fact, were analyzed.

But when you talk about how it looks, people are thinking of securities or IPO. This was a transaction that specifically -- specifically structured to give two long investors and one short investor the position they wanted.

And, you know, at the end of the day, in order to complete the position, Goldman Sachs had to take a piece of the risk alongside the long investors. And so we ended up with a positive position in the transaction, which obviously we didn't need to do and wouldn't have done unless the -- the transaction was viable and in good shape.

ZAKARIA: In other words, you ended up being on the -- on the long side --

BLANKFEIN: Yes.

ZAKARIA: -- which is buying these securities that eventually collapsed --

BLANKFEIN: Yes.

ZAKARIA: -- and -- and you lost money.

BLANKFEIN: Yes.

ZAKARIA: And we will be back with Lloyd Blankfein of Goldman Sachs in a moment.

(END VIDEOTAPE)

(BEGIN VIDEO CLIP)

ZAKARIA: During this period, the call logs from the Secretary of Treasury, Hank Paulson, suggest that he called you more than any other person. He called you maybe twice as often as he called any other bank CEO, maybe it was even three times as often.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

ZAKARIA: Let's talk about the crisis -- 2007, 2008. When Lehman Brothers was teetering on the brink, did you think this was a seismic moment?

BLANKFEIN: I think no one could have contemplated the consequences of the Lehman event itself, but also the events leading up to it in terms of the intensity and -- and the duration.

ZAKARIA: So you were surprised?

BLANKFEIN: In hindsight, as I look back, I could say I could not have thought it would have gone this far, yes.

ZAKARIA: And after Lehman -- after the fall of Lehman, did you begin to think that Goldman Sachs might go under?

BLANKFEIN: I think after the fall of Lehman, there was great nervousness, and one would have to contemplate that -- that we could have -- that we could have been at risk.

Look, I live in the world of trying to insulate the firm from small probabilities. I -- I spend most of my time in small probabilities and that -- at that point, one would had to have contemplate, my goodness, where can this go.

And so, of course, we were making assessments of liquidity and capital and taking steps. And really, you know, you had to have really given thought to a whole range of possibilities, and that was a real possibility that every institution, every financial institution, every company was at risk and needed to really check into its -- its liquidity, its funding and its capital.

ZAKARIA: During this period, the call logs from the Secretary of Treasury, Hank Paulson, suggest that he called you more than any other person. He called you maybe twice as often as he called any other bank CEO, maybe it was even three times as often.

You know that there's a public perception of that. This is his old firm. He's calling you, that you are providing some special advice to him. He was providing some special favors to you.

Do you think it was inappropriate for him to call you so often?

BLANKFEIN: Again, I don't know how often he was and I'm not sure every time a call was placed we connected with each other, so I -- I don't know what it is relative to others. I can assure you there was nothing untoward or specifically helpful to Goldman Sachs that was made in these calls. I think the secretary of Treasury at that time was very, very careful. Everybody was being very, very careful to be appropriate, but in these times, when you're looking for information from the market, you have to go around and make calls to people to find out what's going on.

ZAKARIA: So, what would a call from Hank Paulson to you sound like?

BLANKFEIN: I can't remember specific because in my mind, it's a bit of a blur and conversations would be, what are you seeing, what are you hearing, what are your clients saying, how do the markets look? Because don't forget, we are big market makers and the way that the regulators have contact with the markets is through the market making group and so they were really, they were really in a position of asking questions.

ZAKARIA: At the end of this process, Paulson decides he's going to recapitalize all the banks with TARP money. Do you think you needed the money from the Federal government to survive?

BLANKFEIN: I would say at the point of the capital injection, getting the capital from TARP was the less important thing for us at that time, but that general embrace and saying that the embrace of the U.S. was critical for the system and maybe critical for us. At the end of the day, you don't, can't go down separate paths and know what to do, but getting the capital wasn't nearly as important for us as making sure that the system was intact and the embrace of the government of the system was I think, critical in accomplishing that.

ZAKARIA: Do you support the Volcker rule?

BLANKFEIN: The Volcker rule, simply, depending on what it says. I'm not sure -- it has a broad definition that invites a study and regulations and depending on what it says, I could.

ZAKARIA: You could?

BLANKFEIN: I could.

ZAKARIA: And if the Volcker rule separated out banks that would be, have some kind of implicit guarantee from the Federal government, but would have limits on what they could do in the trading sphere or banks that are told, you're basically hedge funds. You can do what you want, but don't expect any guarantees from us. Which would Goldman Sachs choose?

BLANKFEIN: I think, I suspect that choice won't be available. I suspect that we're in the throes of regulation. We're going to have to see what comes out. Just like we're going to have to see really what the Volcker rule provides. I think parts of the Volcker rule are warranted and what people are saying about the extreme level of application isn't, but I'm not really sure where it comes out. That's why I say, I could, but I'm not sure. ZAKARIA: Do you worry that the outcome of this financial reform will make American financial firms less competitive in a global marketplace or do you believe as Tim Geithner told us on this program last week, actually these reforms will strengthen the American financial industry and make you more competitive?

BLANKFEIN: If it makes institutions safer, that's good, but if it makes institutions forgo revenue opportunities, that fact by itself is bad. And the question is, which activity -- and this is where I'm getting to on the Volcker rule. The Volcker rule's best applications, if it stopped banks from doing things that were specifically dangerous for them to do or outsized relative to their capital. But if it's otherwise, not a dangerous activity, within the competence of the institution and providing another revenue source, then it's an attractive activity which will be good for American institutions to be able to do it.

ZAKARIA: Now, a lot of people look at your rise and say this is symptomatic of the change that's taking place in the firm. You're a trader. They say you come out of the trading side of the business, not the advisory side. Is it fair to say that your rise represents the rise of the trading business?

BLANKFEIN: I think this firm has always gone back and forth. By the time you get to a medium level at Goldman Sachs -- (INAUDIBLE) the principles of both banking side and the sales and trading side. You just can't avoid in this firm because all of these things are interconnected as I described before. So for example, this is the firm of a Hank Paulson who is a banker, but also Bob Rubin, who is a trader, of a Steve Friedman (ph), who is a banker, but a Jon Corzine who started in trading. By the time you get to my position, you're engaged with clients on every side all the time. By the way, the clients themselves sometimes come to you for advice and sometimes come to you for capital commitment.

ZAKARIA: And we'll be back in a moment with Lloyd Blankfein, is CEO of Goldman Sachs.

BLANKFEIN: We have to regain the trust of the public. We have no choice. We can't survive without people thinking well of us because at the end of our -- our business is a confidence business.

(COMMERCIAL BREAK)

ZAKARIA: We're back with the CEO of Goldman Sachs, Lloyd Blankfein. And finally, when George W. Bush tried to persuade Hank Paulson to become secretary of Treasury, as you know, he tried a couple of times and finally, he got Paulson to agree. It was a great coup to have gotten the chairman of Goldman Sachs, the most storied name in finance, to come to his administration and now, here you are with a very different reputation, particularly in the public's eyes. Do you think you can right, do you think that a few years from now, this will all have passed and Goldman Sachs will still be regarded with the same kind of awe and admiration it was or is that world over? BLANKFEIN: No, no, no. I have to regain, help the firm regain and this is something that's shared by all our partners and employees. We have to regain the trust of the public. We have no choice. We can't survive without people thinking well of us because at the end of our -- our business is a confidence business. Now, I will say that the people that we deal with, that know us best, our core constituency group are employees. Our shareholders, our clients, have been very, very supportive . They know the firm. They know the essence of who we are and frankly, I think we still enjoy a reputation with those -- a good reputation with those key constituent groups.

I think it's the people that are more remote from the real culture and real purpose and real social impact of Goldman Sachs in its financing activities, advisory activities, the way we manage our money, the way we make markets in difficult conditions for the benefit of our clients, I think those groups that know us, frankly, have been quite supportive even in what these challenging times for us. But I can tell you in the past, those were the only groups we had to appeal to. We were an institutional firm. We had no consumer businesses, no branches on street corners. We didn't have to engage with the broader public.

That, for sure, has changed. And when your public has met us, I have to confess, the public hasn't liked what it's seen in the context of this upheaval in finance and the perception of our role in it. And that's something we're going to have to work on with them and that's going to cause us to have to exercise a lot of muscles that we don't have very well developed because our business doesn't cause us to engage directly with individuals.

ZAKARIA: Maybe that's why you're here. Thank you very much.

BLANKFEIN: Thank you very much.

(COMMERCIAL BREAK)

CANDY CROWLEY, CNN CORRESPONDENT: I'm Candy Crowley. We have more on the breaking news out of New York this Sunday morning. We are learning more about the Connecticut license plate found on the Nissan Pathfinder at the center of the Times Square bomb scare. The license plates came from an automobile junk yard near Bridgeport. A law enforcement official told CNN that this morning. Under Connecticut law, plates must be returned to a local department of the motor vehicle branch or to a Connecticut state trooper if a car is to be junked for scrap metal. New York City police describe the bomb as amateurish, but potentially powerful one. Streets were cleared of thousands of tourists from the theater district so authorities could dismantle the device. A T-shirt vendor had spotted a smoking Nissan Pathfinder and alerted police. Homeland Security Secretary Janet Napolitano told me a short time ago that investigators are treating this as a potential terrorist attack.

(BEGIN VIDEO CLIP)

JANET NAPOLITANO, HOMELAND SECURITY SECRETARY: I would say it's more than a lot of nothing, but less than particular suspects. There's a lot of forensic information due in part to the placement of the vehicle, where it was. There's a lot of cameras, a lot of other things in that area that you don't have in some other places. So, the forensics are all being worked intensity and have been worked intensely overnight.

(END VIDEO CLIP)

CROWLEY: No suspects are in custody at this time and now, for the very latest, we want to go to our Kate Bolduan. Kate.

KATE BOLDUAN, CNN CORRESPONDENT: Hey there Candy. It looks like investigators are making some progress this morning at least. A federal law enforcement official telling CNN producer Candy Crowley that a VIN number has been recovered from the green SUV. Earlier this morning, officials said that the VIN number, the vehicle identification number, had been removed from the vehicle. Well, it appears that they were able to locate it from some part of the vehicle. They're not giving that information quite yet. The official adding that investigators are looking at the vehicle and the explosive device for fingerprints and fibers that could provide additional clues. Of course, the goal, leading them to some sort of suspect. As you know Candy, as Homeland Security Secretary Janet Napolitano said, they are taking this very seriously and treating this as a potential act of terrorism.

CROWLEY: And you never know until you get all that information in and as we understand it, they are far from having everything they need to make that kind of statement. Thanks so much Kate Bolduan, appreciate it.

We of course will have much more coverage of this story at the top of the hour, but for now, we want to go back to Fareed Zakaria GPS.

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ZAKARIA: Now for our what in the world segment. What caught my attention this week is a tale of two countries that could lead to the collapse of a currency. It's Germany versus Greece. The form is of course the power house economy of Europe, the latter's debt obtained junk bond status this week. Greece has managed to upset many people around the world this week, but nobody has more anger towards Athens than the Germans. One survey found that 92 percent of Germans were in favor of simply letting Greece go bankrupt. Why? Because if all goes as planned, Germany will soon be paying as much as $32 billion to bail out Greece. That would be the largest contribution from any nation and as this German front page says, the frugal Germans are quote, afraid for their money, end quote. They worry about what their euros will pay for in Greece.

Case in point, this story inside the paper about a little old lady in Greece, a former postal worker, who has a monthly pension of more than $4,600. Now, Greek pensioners get 80 percent of their working salary, while Germans get only 46 percent. The story went on to point out that Greeks get 14 monthly payments a year, extra payments for Easter and Christmas. Germans only get 12 for 12 months. Greeks get a full pension after working for just 35 years. Germans have to work 10 more years before they get theirs. These articles have been splashed across Germany's most popular newspaper, "Bild," which has arguably been the leading, anti-Greek voice.

Remember that former postal worker? She told "Bild" she didn't see why she had to take any cut in her pension. I'm pretty sure the majority of Greeks are against any spending cuts at all. In fact, citizens have been actively protesting against them on the streets of Athens. One Greek worker told "The New York Times," we have the world democracy and we expect the European Union to support us. But accepting those proposed spending cuts is looking more and more important to Greece's long-term fortunes. German Chancellor Angela Merkel said this week that Greece won't get anything out of Germany until Athens shows a sustainable, credible plan to cut its deficit. Merkel is talking tough because there's a regional election in Germany one week from today. At stake is her coalition's majority in the Bundesrat, Germany's upper house of parliament. Politically, she cannot be seen to be going easy on the Greeks.

What happens next? In all likelihood, Germany and other major European powers will have to put up money, much more money. Greece will get a bailout, but will have to agree to very tough reforms. And if that doesn't work, for the first time, one could imagine a country abandoning the euro itself or being kicked out. This crisis has highlighted the original sin in creating the euro. Bringing together countries that are vastly different in their economic strengths, all locked into one currency. It has also highlighted the difference between Europe's leadership and that of the United States. Europe has been hesitant, divided and under resources. During America's financial crisis, Washington, for all its messiness and all its flaws was swift and used overwhelming power. Whenever you're just about to give up on America, you get reminded of the alternatives. We'll be right back.

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ZAKARIA: Now for our question of the week. Here's what I want to know. Now that you've heard a detailed defense of Goldman Sachs' actions from its CEO Lloyd Blankfein, do you trust what you hear? Do you have a better opinion of Goldman Sachs after watching this program? Let me know what you think. And as always, you can go to our website to see some great answers to last week's questions.

Now as I do every week, I'd like to recommend a book. This week it's the "Great Reset" by Richard Florida. The book puts quite a positive spin on the recent recession. It points out that periods of economic stress are oftentimes a great innovation, invention and risk taking. It talks about the new kind of life we will all be living as a consequence of this recession. So if you're looking for a book to brighten your outlook on current events, pick this one up.

And now for the last week, this week something very special. For the first time since photographer Henri Cartier-Bresson died in 2004 at the age of 95, a museum has mounted a retrospective of his work. The exhibit now on at the Museum of Modern Art in New York. It's a tribute to the greatest photo-journalist ever to have lived. Cartier- Bresson or HCB as he was known, was a master of capturing what he called the decisive moment. Once you miss it he said, it's gone forever. So here are some of my personal favorite HCB decisive moments with the captions he wrote for them. The arrival of a boat carrying refugees from Europe reunites a mother and son who have been separated throughout the war, New York, 1946.

Gandhi's funeral pyre, Delhi, January 31, 1948, a rush to retrieve gold from the bank. With the approach of the communist victory, the value of paper money plummeted, Shanghai, December 1948. An African-American student is denied entry to a theater. He keeps his hands in his pockets to demonstrate that his protest is non-violent, Nashville, Tennessee, 1961.

One of HCB's great talents was that these decisive moments didn't necessary focus on the part of the action you might expect. Instead he found a better way to tell the story. On the eve of Indonesian independence, 300 Dutch portraits are removed from the governor's residence, Jakarta, Indonesia, 1949. Political meeting, Parque des Expositions, Paris, 1953. Staff of the Elysee palace watching the inauguration of President Francois Mitterand, Paris, 1981. Make sure you see this show. It's on in New York and several other cities as well. If you want more information or you want to look at the pictures at your own pace, we have a link and a slide show on our website. Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for RELIABLE SOURCES.