GREG GORDON, INVESTIGATIVE REPORTER, MCCLATCHY NEWSPAPERS: I'm Greg Gordon of McClatchy Newspapers. Former Treasury secretary Henry Paulson has been widely praised for helping avoid a global financial meltdown in 2008. But there's another part of the Paulson story. Before he migrated to Washington as chief executive of the Wall Street giant Goldman Sachs, Paulson presided over the firm's plunge into the risky mortgage market. When he divested nearly $600 million in Goldman stock and joined the cabinet in July 2006, subprime mortgage defaults were beginning to soar and cracks were forming in the US housing market. Former savings and loan industry watchdogs say that as Treasury secretary, Paulson had to know that his former firm still had huge mortgage exposure. Here's former thrift industry senior regulator William Black.

WILLIAM BLACK, FMR. SENIOR FEDERAL THRIFT REGULATOR: No one was better positioned when he became Treasury secretary than Mr. Paulson to understand exactly what the implications of him moving against the bubble would have been for Goldman Sachs, because he knew what the Goldman Sachs positions were, and he knew that if he acted the way he should, that he would burst the bubble.

GORDON: In Paulson's first 18 months in office, without federal intervention Goldman sold off over $30 billion in risky mortgage securities and made billions of dollars in profits by betting against the housing market. Paulson has told congressional panels that he couldn't have prevented the financial crisis because too many bad loans had already been issued. But Black, who gained fame during the 1980s savings and loan crisis and now teaches law and economics at the University of Missouri–Kansas City, says firm action could have contained it.

BLACK: He's the Treasury secretary, so he can simply say, you know, these assets are insane, and there's a massive bubble, and we need to stop it immediately. More precisely, or, you know, how do you implement that, both the Office of the Comptroller of the Currency and the Office of Thrift Supervision are bureaus within the Treasury Department. The Office of Thrift Supervision was the regulator of the largest non-prime lenders who had federal deposit insurance. These are the Countrywides, the IndyMacs, the WaMus [Washington Mutuals] of the world. And so they could have, within an hour, issued an order saying, you're not going to do any more subprime lending, you're not going to purchase any of these assets.

GORDON: A spokesman for Goldman says the firm has no knowledge of any contact with Paulson's office regarding its decision to get out of the subprime mortgage business. Paulson declined comment. However, he's testified to congressional panels that he didn't recognize the depth of the problems in the housing market until the subprime mortgage markets froze up in the summer of 2007. Black says that firm action by the secretary could have contained it.

BLACK: At no point does Paulson take effective action. He doesn't even warn about it. He doesn't warn about bubbles. Meanwhile, Goldman is busy in essence shorting the toxic waste market that he's touting.

GORDON: Goldman Sachs was the only major Wall Street firm to safely exit the housing market before it crashed. I'm Greg Gordon of McClatchy Newspapers.

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