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Volcano Eruption Strengthening; Radical or Right; Goldman Sachs' Deception?

Aired April 19, 2010 - 23:00   ET



ANDERSON COOPER, CNN HOST: Breaking news tonight: just when the experts thought it was calming down, new and stronger eruptions from that volcano that has grounded millions of air travelers. We're going to have the latest on where the clouds of ash are now going and a "360 Dispatch" from Gary Tuchman from deep inside the dangerous clouds.

"Up Close" tonight, they call themselves The Patriot Movement. You'll hear for yourself what members believe about whether 9/11 was a government conspiracy, President Obama's citizenship, even whether FEMA is setting up political internment camps.

And later, new clues in the murder of a school principal who was getting results, winning the respects and the love of his students. Did he know his killer? "Crime and Punishment" tonight.

But first up the breaking news out of Iceland. Tonight, it looks like the volcano that has shut down air travel for days, cost airlines hundreds of millions of dollars, is getting stronger spewing more ash, up to 15,000 feet in the air. Look at those pictures.

To make matters worse -- if this can get worse -- is that new cloud is now spreading south and east toward the United Kingdom.

The new development could complicate a plan to resume flights on a wider scale tomorrow over Europe. It could also pose other dangers. We're going to look at all of that in a moment.

But first, we want to show you what that ash cloud looks like "Up Close" or from inside.

Gary Tuchman is on the ground in Iceland, he's been there since Friday. He actually got caught in the middle of an ash cloud today, take a look.


GARY TUCHMAN, CNN NATIONAL CORRESPONDENT (on camera): Actually it's sunshine but now the day has turned into night. This is the ash plume from the volcano just to the north of us. It is literally raining the ash right now, blowing in our eyes. And you could see here on the ground, the ash is starting to cover the ground. In the western part of Iceland, this direction, life is almost completely normal. In Reykjavik, the capital, the winds haven't blown in that direction they haven't seen any of this ash. But in the south of the volcano, to east of the volcano, this is what's going on right now.

The people who live here, this is a farm, there are farmers who live here. And you can see you can't even see their land, it's covered with ash. It's unknown how much property damage these people will suffer. But the problem is you can't clean it up because they don't know how long the volcano will last.

We visited a farm yesterday. The farmer had ash that turned into mud. He wasn't sure how long it would last before he got more ash. And today this farm is right down the street covered with ash again.

It's unknown how bad these health effects are but certainly the situation is very serious. It's just surreal right now that you can't see anything whatsoever because we are in an ash storm.


COOPER: And Gary Tuchman now joins us on the phone. His live shot actually just went down. But he's on the phone for us.

Gary I mean, it seems pretty dangerous to be driving in that area, to be walking around in that. Did -- I mean, what is this new cloud? How big is it? What are you hearing about it?

TUCHMAN (via telephone): Well, there was like a 20-second span, Anderson, when we were on that street today where visibility literally was less than zero. You would have seen more if your eyes were closed. And we just had to stop our vehicle really quickly. And when the fog lifted a little bit there was a car opposite us, only about ten feet away from us. And thankfully he stopped, too.

So it's a very bad situation. Because you have a combination of the ash on the ground which is slippery, flood waters in the last couple of days from this volcano, and complete darkness. And this is utterly dangerous.

The pictures you're looking at right now, this is where we went up in a helicopter to take a close look. This is the most unbelievable thing. I mean, people thousands of miles away can't travel because of this volcano. We were 300 feet away from it.

The helicopter pilot, very intrepid, said to us, "How close do you want me to get?" And I said let's make sure we're safe. But he got within 300 feet of it. And the reason he could is because we were on the safe side. The winds were blowing to east; we were on the west of it.

But we looked at these clouds. And we saw -- it almost looked like a fireworks show that was out of control. It's like sparklers hurling these -- what looked like stones or actually huge boulders. We saw lightning bolts; we saw shards of glass coming through these clouds. And it was just an unbelievable display of Mother Nature. It was frightening. It was also awe-inspiring, and otherworldly. I mean, you see this right now, it just looks like cotton almost, like powder puffs, or fireworks. But it was just continuous and it was just something that was hard to believe that was real. But it's causing problems all over the world.

But what's unbelievable, Anderson, it's not causing any problems in most of Iceland. Western Iceland, where Reykjavik is, where the capital is, the airport has been open. And that's because the winds have not been blowing in that direction.

COOPER: And when you're inside it, I mean, is it hot? Does it -- what does it feel like?

TUCHMAN: Well, it's so cold outside here. You know Reykjavik in Iceland rarely get over 75 degrees even in July. The wind chill has been like 10 to 15 degrees Fahrenheit every night we're here. So while we were near we had the windows open in the helicopters take the pictures, we didn't feel any heat whatsoever because it so cold at 5,000 feet anyway, being that high.

But I can tell you that if you get out of the helicopter and jump near the crater, if you happen to be hiking, and you can and that's what's amazing you can hike on these craters when the volcano is not erupting. And if you happen to be up there when it would erupting; it would obviously be an inferno. But from where we were we did not feel the heat.

COOPER: And when you were on the ground how far can you actually see through this cloud?

TUCHMAN: Well, that is what was amazing. I mean, we were literally -- it was a beautiful day by Iceland's standards. It's very cold but it's very sunny. And we saw like a great curtain in front of us.

We started driving, we drove into the gray curtain, and then you couldn't see anything. You know what it reminded me of Anderson? It reminded me of a solar eclipse. I haven't been on a solar eclipse but it reminded me of the pictures, it just went completely dark.

But the ash just kept falling like a heavy rain. Got in your hair and got in your eyes. Of course you had to wear those masks. You obviously don't know the health effects of this continuous ash that falls on the ground. So you had to wear the mask. But it was just like being in a funhouse. That's the best way to describe it to you.

COOPER: Gary Tuchman on the ground, Gary thanks very much. Stay safe, keep wearing that mask.

We'll take a closer look at the new developments with Chad Myers. Chad, how big is this thing, where is it headed?

CHAD MYERS, AMS METEOROLOGIST: This is a 15,000-high ash cloud. Now, the first one -- the first of eruption or explosion was 40,000 feet high. So that ash actually got into the jet stream and blew around in different directions. This lower level, even though it's three miles, we still call this lower level ash, will be picked up by lower level winds and also the surface and those winds are blowing right toward the UK.

So even though other countries are opening air space, so to speak, the air space that they're opening is above 35,000 feet. Because that ash that was very high has either blown away or settled out. So the air above 30,000 feet is clean. Clean enough for planes to go through.

The problem is getting to that 30,000-foot level because you have to start from the ground and you can't fly through the dirty layer at 10,000 to 15,000 feet.

So people thought that they were going places, they are not. And anybody who thought this thing was going to be over soon did not study the history of this back in the 1800s. This thing erupted for two solid years just like this. But there were no airplanes to affect and the boats really didn't matter.

But there is an awful a lot of damage being done also, to the terrain and to the surrounding areas --


MYERS: -- because that volcano ash is not fertile. You put ten inches of ash onto a farmland, that farm is ruined for a long time.

COOPER: So I mean, Chad, for folks who are sitting in an airport right now watching this and groaning as you're talking, because their trips are ruined --


COOPER: -- I mean, how -- we don't know how long it's going to be like this. But I mean, in terms of where planes can fly and how we know where planes will be able to fly tomorrow or the day after that, I mean, is it just a day by day thing?

MYERS: It is. It's basically not guesswork so much, but they did fly, they flew airbuses through the air today, they flew F-18s. And one of the F-18s up in the northern part of Finland and Helsinki, that did see ash in the engine when they landed. All right, this is bad, we can't do that again and also they found that -- that glass that occurs when you melt lava.

Again, now remember, the reason why we can't fly this is not because you can't see through it, it's because it's very, very coarse. It's like a pumice stone but in miniature. And then it will melt in the engine. When it melts it turns into obsidian. Remember that glass we used, the black glass we used to look at back in fifth grade geology? The obsidian will deposit itself in the exhaust of the jet and kill the engine itself. You don't want to be running through this. And then all four engines all of a sudden stop at the same time, because that would be disaster. This no-fly is not optional. It's not a precautionary measure, this is -- we can't fly airplanes because they might crash. That's how serious it is.

COOPER: And what do you recommend for folks who are traveling you know, later in the week even? Because I mean, even once this backlog of planes -- once planes can fly there's still this huge backlog of flights to get through the airports before the regularly scheduled flights can take off.

MYERS: Well, they did put down -- they put 80,000 extra seats on the Channel trains that go from London all the way down to the south of France. So Lyon is still open.

And even a producer called me on this Sunday night and said my husband is stuck -- one of our producers from "Situation Room." My producer is my husband is stuck in London, what should I do? I said, get on a train, get him to Venice or get him to Rome. Because those airports are still open and you can get out from there.


MYERS: But by the time that happened, all of those seats were already taken. So, you know, people -- they are trying to scramble. We also heard of a lot of gouging going on with rental car companies. Planes can't fly, rental car companies asking for $1,600 for one-way fares because they have to drop the car off. Literally if you're going to drive to Venice, you're going to leave the car there -- $1,600 to go 500 miles in a rental car.

COOPER: Yes, I read one of the guys from Monty Python, I think it was John Cleese (ph), took like a $5,000 cab ride across Europe just to get out of this thing. Chad I appreciate the update.

We're going to talk with Richard Quest after this commercial break for more on the airline issues. He is also stranded by the way.

Also just ahead tonight, on the anniversary of the Oklahoma City bombing, what members of the far right so-called Patriot Movement think of the president, the government, paying taxes, even enforcing the law. Are they the last true Americans or part of a growing threat? You can decide for yourself. You'll hear from them ahead.


COOPER: The breaking news tonight continuing, fresh plumes of ash erupting from that Icelandic volcano, disrupting airline travel. I want to "Dig Deeper" on the airlines latest cancellations; an estimated eight million air passengers around the world have been affected by the Iceland's volcano so far.

As Chad mentioned economic disaster for airlines. They are losing an estimated $200 million a day or more. Some flights did resume today in European air space but not many. On a normal day there are around 28,000 flights over Europe. Today, there were fewer than 9,000. The European Commission said it would reopen air space on a wider scale tomorrow.

It plans to set up three different flight zones, only one of which will be open to all flights. I want to show you where things stand right now with air travel. Take a look at what it looks like tonight.

Up in the air, you can see the ash cloud outlined here. You can also -- are we showing the ash cloud there? It's hard for me to see on this monitor. There we go. You can also see flights coming into and out of European air space.

Now, look at all those flights on the United States is way down. On a normal night, this map would show much more air traffic. But compared with the past several nights, it's pretty active.

Richard? You certainly look like you want to get in on this.

RICHARD QUEST, CNN INTERNATIONAL CORRESPONDENT: Well, on a normal night, Anderson, the top part -- do you see where those blue lines are on the top of the ground? They are all the tracks that go across the Atlantic, to the UK and to northern Europe. This time of night, Anderson, would be absolutely heaving with planes. There's not a flight there -- there's one going westbound, but look at the southern part --

COOPER: Right.

QUEST: -- going to Spain and Italy, and there you see the only flights that can get into Europe at the moment. That's quite remarkable.

COOPER: So if you're heading to Spain or Italy, it's ok.

QUEST: Yes, but that northern part where most of the transatlantic flights are going, that top bit, nothing at all. You rarely see that.

COOPER: Now, you -- I mean, you were caught up in all of this just like everybody else. You were supposed to be flying what -- to England?

QUEST: Yes, I am tonight, I was supposed to be on a plane that should have been going across to the UK.

COOPER: And what have you been told? Do you have a sense of how long it's going to be?

QUEST: Sunday night, at least. And then I've got --

COOPER: Are you kidding?

QUEST: No. And then, of course, they can't even tell me when I'm going to be flying. But they have protected me on a flight on Sunday night via Frankfurt.

COOPER: Wow. So -- but there's a chance it could happen before Sunday?

QUEST: Well, I wouldn't put money on it.

COOPER: You -- I mean, can't they just fly over this thing or under it or --

QUEST: Yes, right. Now I saw today the instructions and the advice given by Airbus to pilots. Do you know what the instruction was? If you find yourself -- besides making sure you don't get into one of these clouds in the first place.

COOPER: Right.

QUEST: If you find yourself flying into one of these clouds, do 180 degrees and fly in the opposite direction.

COOPER: That's the advice?

QUEST: Besides doing things with bleed (ph) air and a couple of other things. Don't rev the engines. Don't go to maximum thrust, don't pull much as you can in, but basically fly out of it as fast as you can.

The danger and the risk as Chad Myers was saying of that being ingested -- these engines are vast and they are designed to do one thing, to suck in as much air as possible to create the thrust. It will melt in the back of the engines; it will stick on to the vanes both at the front and back.

COOPER: And I want to keep showing the plumes of ash. Because I just to want -- the pictures are just unbelievable. And that's the last thing you obviously want to see as a pilot heading into.

There's a text 360 question tonight from a viewer in Illinois who wants to know, "What's the expected financial strain on the already troubled commercial flight industry?"

QUEST: Roughly at the moment for European airlines, it's about $1 billion give or take.


QUEST: Nobody really knows. It's a number out of the air. They are seeking some compensation from the European Commission, or from European governments, largely on the basis and the same precedent that was set on 9/11 when the U.S. government compensated American carriers.

COOPER: But it's not just the flight -- the hit airlines are taking. I mean, companies are taking hits on both sides --

QUEST: Yes, look, whether you are a flower grower with tulips in Amsterdam or carnations in Kenya. Whether you've got fresh fish that needs to be brought into the United States or to Europe, it doesn't matter. Whether you've got semiconductor chips that you're using as an air bridge across over through Europe the financial implications are billions.

And I've seen one estimate -- and again you can't guarantee these numbers -- one estimate says that the economic effect could knock up to two percent off European growth. If that happens, we're back into double dip.

COOPER: Unbelievable. Richard Quest. I hope you get home soon. Thanks very much.

Just ahead tonight -- inside the so-called Patriot Movement; they call government a threat to their freedom. The question is, are they a threat to public safety? On the 15th anniversary of the Oklahoma City bombing, we'll talk about that ahead.

And later, "Keeping Them Honest": inside details on the banks that's accused of helping a hedge fund billionaire and build himself a deal and made him another billion dollars and made chumps out of other investors. Was it a rip off or business as usual? Or both maybe? Bestselling author Michael Lewis joins us next.


COOPER: Well, it was, up until 9/11, the deadliest terror attack on U.S. soil and it happened exactly 15 years ago today; the Oklahoma City bombing of the Murrah Federal building, 168 people including 19 children killed, 850 others injured.

This morning at exactly 9:02, the time of the bombing, a moment of silence was observed at the memorial after the names of the victims were read aloud. The anniversary of the tragedy comes during a surge of political anger and rhetoric. A lot of Americans are not happy with the government and the direction the nation is heading; and that's everyone's right.

As Frank Keating, the Governor of Oklahoma at the time, said today, told CNN's John King today, to have a group of individuals who have had enough of taxes and are protesting and are angry that is really quintessentially American.

Those individuals were forced -- were out in force today demonstrating in Washington and Virginia. Pro-gun rallies by people who fear their Second Amendment Rights are being taken away or threatened.

As we said, a lot of people are upset with the government, nothing wrong with that. But of course, there are a few fringe groups whose views have become alarming to Washington. The question is, are they a real threat?

"Up Close" tonight, here's Special Investigations Unit correspondent Drew Griffin.

(BEGIN VIDEOTAPE) DREW GRIFFIN, CNN SPECIAL INVESTIGATIONS UNIT CORRESPONDENT (voice-over): Not far from the Texas capital, down a dim staircase, is one of the new faces of a political movement coming to a boil.

(on camera): 9/11, government conspiracy?

CATHERINE BLEISH, LIBERTY RESTORATION PROJECT: I don't know, but everyone should question it.

GRIFFIN: Obama, born or not born in the U.S.?

BLEISH: I don't know but everyone should question that at this point, too.

GRIFFIN (voice-over): We met Catherine Bleish in this subterranean bookstore called Brave New Books, where this leader of the Liberty Restoration Project tries to explain her anti-war, pro- community garden, and extremely anti-Obama conservative movement.

(on camera): Are you necessarily anti-government?

BLEISH: No, I am anti-coercion and I'm anti-force. So I believe that any sort of government should be consensual.

GRIFFIN (voice-over): She believes, we, the people are being unfairly taxed, illegally spied upon, and more and more controlled by a federal government that's starting to look like other governments.

(on camera): Is this the direction?

BLEISH: I don't know.

GRIFFIN: But it sounds like what you're describing.

BLEISH: Possibly. It's sad, isn't it?

GRIFFIN (voice-over): Bleish is not a militant, she is not violent, but she is a Tea Partier, a patriot, and sees nothing wrong with the growing number of gun-toting militias in this country.

BLEISH: It makes me feel safer. If you look around our society, who's actually committing acts of violence right now? Is it the people who are advocating individual gun ownership? Or is it our government?

GRIFFIN (on camera): You tell me.

BLEISH: It's our government.

GRIFFIN (voice-over): Stewart Rhodes is also anxious about government powers. He's a former paratrooper, a Yale-educated lawyer and a former Congressional staffer.

He began a group called Oath Keepers; 8,000 strong now. Its aim, to teach military and police officers, current and retired, to refuse orders they view as violating the Bill of Rights. That's controversial. And many would say a recipe for anarchy, but Rhodes believes it is necessary.

STEWART RHODES, OATH KEEPERS: We don't get sufficient training on the Bill of Rights. We don't get sufficient training on whether or not they should confiscate weapons, whether they should search without warrant, whether they should detain American citizens.

GRIFFIN: Here in upstate New York, an old hand at anti- government views, Bob Shulz, he's been preaching anti-government rhetoric for 30 years and he's gotten in trouble trying to convince people they don't need to pay taxes. He sees the new movement on the right not as a threat but a liberating return to freedom.

BOB SCHULZ, WE THE PEOPLE: It's thrilling after 30 years to see so many individuals and groups springing up and beginning to talk about the Constitution.

GRIFFIN: All three share views that are not mainstream, but Bleish insists the conspiracy theories aren't so wacky if you learn the truth behind them.

(on camera): Is the government preparing FEMA camps?

BLEISH: Yes, HR-645.

GRIFFIN: And you believe, to intern U.S. citizens?

GRIFFIN: I don't know. I hope not.

GRIFFIN (voice-over): That last one, that the government is preparing political internment camps, is growing in popularity. Largely because of this documentary, "Camp FEMA," which examines a now-stalled house bill, HR-645, calling for six FEMA camps to be prepared to hold large populations of Americans.

RHODES: Is it possible? Well, sure. We interned Japanese- Americans back in World War II.

GRIFFIN: What concerns them all is the political left in this country that labels them extremists, potential terrorists and even racists. And what they see as a willing media, including CNN, that goes along with those labels.

(on camera): That includes the often-cited studies by the Southern Poverty Law Center, including the most recent intelligence report by the group called Rage on the Right which these patriot group members say unfairly tries to link them with racists.

(voice-over): "The TEA Parties and similar groups that have sprung up in recent months," the report says, "cannot fairly be considered extremist groups." But -

(on camera): -- they are shot through with rich veins of radical ideas, conspiracy theories and racism. Do you find that true?

BLEISH: No, I don't.

GRIFFIN (voice-over): Bleish says the real danger is the current political climate that is polarizing all Americans. Tea Partiers see conspiracy between left-wing politicians and left-wing media. Liberals see Tea Partiers as potentially violent racists. It is politics as usual says Bleish, dividing us all.

BLEISH: And I think people need to start sitting down, taking a deep breath and understanding that we're all concerned about what's going on in this country. Everyone can feel it. People are hungry, people are scared, and we need to start working together as human beings and stop labeling and dividing.

GRIFFIN: Grew Griffin, CNN, Austin, Texas.


COOPER: Let's "Dig Deeper" into some of these groups. Contributor John Avlon joins me, he's the senior political writer at the Daily Beast and author of the book "Wing Nuts: How the Lunatic Fringe is Hijacking America."

So John you were at the two rallies in Virginia and D.C. today. How are the groups that were rallying today different from the Tea Party Movement which held rallies last week?

JOHN AVLON, CNN CONTRIBUTOR: Well, they are quite different. I mean, these are Second Amendment activists. Primarily, the tax day protests were of a different vein. But they come out of the same broad anxiety we're seeing. Taxes are down and yet the tax day protesters felt that the tax burden was increasing this year.

In this case, actually the reason that one of the armed rallies was able to be held in Virginia on National Parkland was because of a bill signed by President Obama. In many cases what we are seeing is a phantom menace. This is the evidence of fright-wing politics; people very afraid in a time of anxiety and economic distress and willing to believe the worst about their government.

Believing that there are people trying to undermine this constitutional republic and they are being fed a steady diet of fear and hate and politics. And it has a trickledown effect as we learned 15 years ago today.

COOPER: Some saw the fact that they were protesting on April 19th, which is the anniversary of the Oklahoma City bombing, as offensive. But I mean, was this tied to -- this wasn't tied the Oklahoma City bombing, though.


COOPER: There was other -- I mean, there are other events on this day.

AVLON: April 19th has taken on kind of a talismanic importance. It had with the militia movement even before Oklahoma City. But it is also of course the 235th anniversary of Lexington and Concord.

But there is a history, Waco occurred on April 19th. That is what inspired Timothy McVeigh to murder 168 men, women and children in Oklahoma City, and a long series of events. The larger themes are one of resistance, and vulnerability. But we have an obligation to learn from our history.

It's not enough just to say it's a coincidence. It's about accepting responsibility for decisions made and learning from mistakes of our past and realizing the last time we saw a massive increase in militia movements, it did not end well.

So we need to be careful about the forces we are playing with sometimes.

COOPER: But -- but I mean, just for accuracy, they were saying today it was because of Patriots' Day that they were protesting on--

AVLON: That's right.

COOPER: Which as you mentioned is for these battles of Lexington.

AVLON: That's exactly right. And you do see, I mean, that is -- they wrapped themselves up in the American flag, as defenders of the American Revolution, as the true defenders of the American Revolution.

The problem with that of course is that it posits other people as somehow lesser patriots. And I do think that in this time, everybody thinks they're fighting for freedom, but we do need to take a deep breath and take a look with a sense of calm at the rise and the return of the paranoid style on American politics which only has the impact of dividing us, of increasing, kind of pumping up hate and fear.

Conspiracy entrepreneurs are trying to make money off these people. And it all contributes to what's an increasingly toxic political environment and we should know better now. We should learn from this.

COOPER: John Avlon, I appreciate your time. John, thanks very much.

AVLON: Thank you.

COOPER: Coming up next tonight, did Goldman Sachs rip off investors so that a hedge fund billionaire could get even richer? The latest on the lawsuit that says so on the billionaire and the larger effort to regulate Wall Street. We'll talk to author Michael Lewis ahead.

Plus, if it is true, it would be the biggest security breach ever for Apple. A new iPhone prototype reportedly left behind in a bar. Or is it just a prank? We'll try to figure it out ahead.

(COMMERCIAL BREAK) COOPER: Coming up tonight, a new development in the investigation of the Ft. Hood shootings: a senate committee has subpoenaed the Obama administration. We'll tell you why in a moment.

But first, Joe Johns has a "360 News and Business Bulletin" -- Joe.

JOE JOHNS, CNN CORRESPONDENT: Anderson, the two most senior leaders of al Qaeda in Iraq were killed in a joint U.S./Iraqi operation north of Baghdad. The men were reportedly hiding in a safe house. U.S. and Iraqi officials are calling their death a major blow to the militant group.

Toyota has agreed to pay a record $16.4 million fine to settle claims that it hid a gas pedal defect from federal highway safety regulators, but the company denies it did anything wrong. Separately today, Toyota said it will recall more than 9,000 of its 2010 Lexus GX-460 SUVs in the U.S. for possible rollover problems.

Take a look at this. What do you think? Is this an actual iPhone prototype or is it a scam? The tech Web site that posted these photos is not saying how it got a hold of this device. But over the weekend, another Web site said someone found this phone on the floor of a bar in San Jose. Maybe an Apple employee left it behind? Apple hasn't confirmed that a new version of its iPhone even exists.

And a new study shows that women find steady-voiced men more attractive than men whose voices vary in pitch. The researchers said they found men who speak in monotone had more sexual partners possibly because their voices exude authority and confidence. So now we know what Urkel's problem was.

COOPER: Thanks, Joe. Thanks Joe.

Still ahead tonight, "Keeping Them Honest" on Wall Street; the accusations against Goldman Sachs. Did the bank help a hedge-fund billionaire get even richer by ripping off investors? That's next. Michael Lewis joins us for that.

Plus, the investigation into the Ft. Hood shootings heats up. The Obama administration is being subpoenaed. We'll tell you what information the Senate committee is looking for.


COOPER: "Keeping Them Honest" tonight on Wall Street. Did a big Wall Street bank rip people off by selling them toxic securities based on risky mortgages, investments literally designed to fail? Designed largely by a guy who was betting on exactly that: on the mortgages failing, the securities collapsing and the other investors losing their shirts.

We're talking about hedge-fund tycoon John Paulson and, of course, Goldman Sachs. And Goldman is being sued by federal regulators and this week is the poster child in the Obama administration's push to regulate Wall Street. We're going to talk with to best-selling author Michael Lewis shortly, but I want to first go to the wall so I can introduce you to the players and the scheme that's really pretty simple when you get down to it.

Now, first up, this guy, Fabrice Tourre -- it's not a great picture, but it's the one we have -- named along with Goldman in the SEC suit. Now, Fabulous Fab he calls himself, apparently. He's got a math degree from one of France's elite universities, a Masters from Stanford.

Fabulous Fab reportedly pulled down $2 million in 2007 when the deal with Paulson was arranged. Fab Fab was just 29 years old at the time. The lawsuit alleges that he knew John Paulson's role in cherry- picking toxic mortgages for the deal and the fact that Paulson was actually betting against the deal.

Now, the government also presents e-mail evidence that Fab Fab knew the mortgage market was melting down. He was telling a friend, quote, "The CBO business is dead. We don't have a lot of time left." He also brags in an e-mail that, quote, "The only potential survivor is the Fabulous Fab." Fabulous Fab, I should point out, is now on paid leave.

But there's also this guy, his boss, Goldman CEO Lloyd Blankfein, who gave his troops a voice mail pep talk this weekend. He said that "Appropriate steps to defend the firm and its reputation are being taken." And likely to defend also its ability to make money; they make a ton of money. Goldman had profits of more than $13 billion last year and is going to release first-quarter numbers tomorrow.

It will likely be huge. The company expects to hand out $5 billion in bonuses. Lloyd Blankfein got $9 million in Goldman stock as a bonus last year alone. In '07, when Paulson -- when the deal went down he pulled in nearly $68 million.

Now, as for John Paulson, let's talk about him. That's what he looks like. He picked the toxic mortgages, then bet against them. Here's the lowdown on him.

Now, according to "The Wall Street Journal", his firm, Paulson & Company, made $15 billion betting against the housing market in 2007, of which Paulson personally got $4 billion. He made slightly more than $1 billion on the Goldman deal.

But despite being named in the lawsuit, neither he nor his fund are defendants. Officials say there's simply no basis for any charges.

So tonight, what really happened at Goldman? Is the scandal real? Or is the real scandal, like so many others in Washington and on Wall Street, all perfectly legal? Is this an exception or par for the course? And is there something fishy about the timing of the lawsuit, just as the White House is pushing for greater regulation on Wall Street? Joining us now is Michael Lewis. He's got three books on the "New York Times" best-seller list, including at No. 1 -- feel like Casey Kasem here -- "The Big Short", which lays out how the economy crashed, who was responsible and who saw it, and who saw it coming and made a fortune off it.

So Michael, it's interesting. You read Paul Krugman in the "New York Times" who says that this is looting in loafers. You read "The Wall Street Journal" editorial who kind of say, you know, is this all there is? What do you make of it? How big a deal is this?

MICHAEL LEWIS, AUTHOR, "THE BIG SHORT": The SEC case against Goldman I think is a really big deal. Because basically, I think, what they're saying is they're launching a war into what is standard practice. I mean, I don't think there's anybody on Wall Street who didn't know that Goldman Sachs was helping John Paulson create securities that would go bad.

I mean, I heard about this two years ago. And it wasn't just Goldman. Other firms were doing it, too. And so what I think --- I think we're living through a real culture change on Wall Street. What was thought to be normal and acceptable is now -- is now going to be demonized.

COOPER: In terms of the description of this, on Friday everyone was describing this in terms of his selling used cars or selling car parts, which frankly, I found made it even more confusing.

Literally, we did it on our show, and at the end of it, I was like, I still -- I don't understand what this means, in terms of describing what they are accused of doing. I mean, essentially, they were marketing securities that one of their big investors was betting would fail. Is that correct?

LEWIS: Well, worse than that. They essentially collaborated with someone to pick out the absolute worst loans in the subprime market to bet against, packaged them all up in a security and then represented that someone else had vetted this thing, and used them to sell it to investors. So that they -- essentially, they duped people into buying things that they shouldn't have bought.

Now, there is -- it does make you wonder what the people who bought these things were thinking of. And I think this is one of the strange subplots of this whole subprime thing --

COOPER: By the way, the people who bought these, I mean, according to "The Wall Street Journal," weren't Mom and Pop on Main Street. It was -- I mean, these are big firms. These are players who --

LEWIS: It's German state bank. Yes. The German state bank was the biggest buyer of this.

But look, what happened in the subprime market is the only people who were doing the analysis of the loans were the people like John Paulson who were betting against it -- betting against them. It was crazy.

Now I think where Goldman is -- you know, whether what they did is illegal or not, I have no idea, but is it right and proper and a good thing to be helping some guy design bonds that you know are going to go bad? I mean, the people at Goldman knew exactly what they were doing.

And in other instances it's pretty clear they made the same bet that John Paulson did. I mean, they were one of only a couple of firms who didn't end up owning the stuff when it all came crashing down. They had their own bets against the market in place.

COOPER: We're going to have more with Michael -- just stand by. We're going to have more with Michael in just a moment. We'll also talk with David Gergen and financial expert Alexis Glick.

The question is, can and should Washington set new standards for Wall Street? We'll look at that angle and more ahead.

And later, do you like your hamburger well done? If so, a warning tonight. We'll tell you what the possible risks might be.


COOPER: We're talking about a guy, John Paulson, who made a fortune when many Americans were losing their homes. In fact, he made a fortune, in some ways, because they were losing their homes. We're talking about that and the Wall Street company Goldman Sachs, that put the deal together, is now facing a government lawsuit. This, as Senate Democrats are getting ready to start voting on new banking regulations.

We've been talking with Michael Lewis, author of "The Big Short." Now let's bring in senior political analyst David Gergen and financial journalist Alexis Glick, who once worked as an analyst for Goldman Sachs, I should point out.

David, how political is this? I mean, is this just a coincidence that this is happening on the eve of, you know, debate over financial regulation?

DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: I do think it's suspicious. I think the timing is probably not a coincidence. Eliot Spitzer argued just today elsewhere that it was not a coincidence. And it's going to make a big difference in the Senate debate.

But let me go back to something Michael was arguing, because Anderson, the big question to me tonight is Goldman Sachs says, "Yes, OK, we may work with Paulson, but we bet against Paulson, and we lost $90 million doing that."

Michael says, "I don't think that happened." But it does seem to me that's the most material fact to learn because it just would be hard to believe that Goldman Sachs would intentionally defraud itself.

COOPER: For me, and as a layman, the lesson on this, Michael, is "don't give yourself a dumb nickname in an e-mail." You know? This guy -- this guy Tourre, what did he call himself? The Fabulous --

LEWIS: Yes, yes. Look, look, he's -- you know, one of the things I got my hands on in the last 24 hours was the document they used to sell this deal. It's called Abacus (ph). And his name was actually far down on the list of Goldman employees involved with the thing.

And the trader who's at the center of it has been mentioned in the newspaper reports but not in the SEC suit; the guy named Jonathan Egal. And Jonathan Egal was legendary among hedge funds for being -- for structuring deals so -- that enabled him to get short the subprime market.

So -- so it would really surprise me if this deal was structured so he could be long the subprime market in March of 2007. I mean, it's -- the whole thing -- it smells.

But I would say this. It is very important to realize, that this is not a case of an isolated transaction. It was pretty standard practice for -- in this market, for the people who were short the market to, in effect, pick the loans that went into the -- into the bonds.

The weird things about the subprime market is that, when Wall Street went to basically replicate the subprime loans with side bets, they picked the absolute worst ones to replicate and magnified the losses in the system as a result.

COOPER: In terms of regulation, where does regulation -- I mean, the regulation that's being debated now with Chris Dodd, what exactly is he proposing? I mean, how will this change it?

ALEXIS GLICK, FINANCIAL JOURNALIST: You see, Michael brings up a very important point. And that is, how were these instruments put together? What was the regulatory framework like that?

A lot of these derivatives have been trading in what you'd call a black market, a shadow market. They have not been trading on an exchange where people have been able to see the trading and the activity.

And that is one of the biggest movements down in Washington, D.C., in terms of financial reform, is that there's some transparency behind these complex instruments. So that is probably the biggest feather in the cap for the financial regulatory framework here.

But it's also Mary Schapiro and the SEC who fell down on Madoff. This is a big feather in the cap for the likes of the SEC. It shows that they're doing something about it; they're maybe getting a little bit deeper into these complex instruments and understanding who was behind it and why.

COOPER: There's no doubt, David, they've been asleep now for a couple of years. And so maybe this is them waking up. But this will definitely -- I mean, from a PR standpoint, this definitely helps the Democrats in terms of getting some kind of regulation. GERGEN: Anderson, listen, there's no question this helps the Democrats. That's why President Obama is coming to New York on Thursday and to beat up on Wall Street.

And, you know, Chris Dodd, Barney Frank, they've all jumped on this. And they're going to use that. It does add fuel to the question is, did the SEC move at sort of a convenient time?

But I think the other thing, what we also learned today was at the SEC itself, there were five votes. There were three Democrats who voted to bring the charges and two Republicans who opposed that.

Now, when the market heard that today, they began to think, "Well, maybe these charges won't stick." And what I would suggest tonight is -- I think Michael is right. There is something about this that smells. But until we know the facts, until we really get down and deep and understand more of the facts, I think it's unfair to either vilify or to judge Goldman Sachs totally or the whole transaction until we -- we need to know more than we know now.

LEWIS: Well, Anderson, one really obvious thing that needs to be addressed is why on earth should a Wall Street firm be making bets for itself on bonds that it's advising its customers to buy and sell? That the problem in the middle of this is -- is that once they can make money by creating things that can explode, they're going to create things that explode. And so these functions need to be separated.


LEWIS: They should not be taking place under one roof. And that's, you know -- this is essentially what the Volcker rule gets at. I think, you know, it's -- I'm all for -- for wisdom and dispassion and -- and making this whole discussion nonpartisan.

But the fact is that this -- that reform is going to be an act of violence, because you're going to be reforming a culture that has not -- that has not -- essentially, has grown up over the last 30 years. And it's a pretty dramatic social change.

GLICK: And where were the rating agencies? Why aren't we talking about them?

COOPER: The rating agencies were being employed by the --

GLICK: They're being paid by the firms. The firms are paying them to rate them AAA debt.

LEWIS: That's right. It's absolutely right.

GLICK: It's a disaster. Where is the culpability there?

COOPER: Thank you. We've got to leave it there. Alexis Glick, Michael Lewis, David Gergen, thanks very much. Thank you.

As always, you can drill down deeper online at AC360. We've got a kind of Goldman 101, a time line of events in the case.

Coming up next, though, hidden dangers in your food. We're going to tell you why next time you order a steak you may want to avoid getting it well done.

And Friday night's "Shot" was supposed to be Willie Nelson and Larry King. Joe John's reaction was kind of priceless, though, so we're going to show it to you and talk to Joe about it after the break.


COOPER: We're following a number of stories tonight. Joe Johns has the "360 Bulletin" -- Joe.

JOHNS: Anderson, a hate crime conviction on Long Island, New York. A jury has found Jeffrey Conway guilty of manslaughter in the stabbing death of an Ecuadorian immigrant. Prosecutors say Conway and six friends targeted Latinos in November 2008. Several of the other defendants pleaded guilty to various charges.

A Senate committee has subpoenaed the Obama administration for documents related to last year's shooting spree at Ft. Hood, Texas. Lawmakers want to know if the Defense Department or Justice Department could have prevented the shootings. The accused gunman, Major Nidal Hasan, an Army psychiatrist, faces 13 counts of murder.

And for those of you who like meat well done, take note: researchers at the University of Texas say eating lots of overcooked meat increases the risk of bladder cancer. They warn charred meat can generate cancer-causing chemicals.

And a Florida family has adopted a wild deer. They say the young deer named Bucket got attached to 8-year-old Hunter Brosio. The boy and the deer even share meals together. The two of them have gotten together for a long time now. The family has spent something like $3,000 getting licensed as a state game preserve, and they've even built a pen for Bucket to live in.

Now that is really sweet. But I don't know about the deer at the dining room table.

COOPER: Yes. That's a pretty animal, though.

JOHNS: It doesn't sound healthy.

COOPER: So tonight "The Shot", Joe. It's an encore performance of the best reaction shot of all time.

JOHNS: Oh, no.

COOPER: Yes. I was thinking about this all weekend. Basically on Friday night, we kind of re-edited a Larry King interaction with Willie Nelson. Willie, by his own admission, I guess, had smoked a little pot beforehand. Larry -- well, Larry was not stoned. TV magic followed. Take a look. JOHNS: I don't believe this.


LARRY KING, HOST, "LARRY KING LIVE": You smoked today?

WILLIE NELSON, COUNTRY MUSICIAN: You mean, did I smoke cigarettes?

KING: Did you smoke pot today? Today, this day?

NELSON: Yes, sure.

KING: You did. Before you came here?


KING: Never saw the sun shining so bright, a memory of love's refrain.

Love you, Willie.

NELSON: Good night. Love you too.


JOHNS: That's kind of extraordinary. I mean the long pause there.

COOPER: We re-edited it. It didn't actually happen. Yes, we made that up. We edited all the pauses together.

JOHNS: I got it.

COOPER: Yes, yes.

I love that you believed it, Joe, too.

JOHNS: I know. I totally fell for it.


COOPER: I can't believe you thought that's what actually happened.

JOHNS: I -- hook, line and sinker. I could not -- I mean, it was very well edited, now. You've got to give them credit.

COOPER: Well-edited. They did a very good job on that. But yes, I love that you were so naive.

JOHNS: Well, you know. That's me.

COOPER: Extraordinary. Rather extraordinary. So, Joe, you're not going to live that down for a while.

Johns: I've been hearing about this all day, by the way.

COOPER: I'll bet. You're a good sport about it.

Joe thanks very much.

Hey that's it for 360, thanks for watching.

"LARRY KING" starts now.

I'll see you tomorrow.