[ExI] Matt Taibbi takes on Goldman Sachs

Damien Broderick thespike at satx.rr.com
Sat Jul 4 06:08:10 UTC 2009

[my financial advisor comments: "I'm glad to see 
someone talking about this publicly."]

Great American Bubble Machine: How Goldman Sachs 
Has Engineered Every Major Market Manipulation
Jul 02, 2009 8:38 AM - Rolling Stone

In Rolling Stone Issue 1082-83, Matt Taibbi takes 
on "the Wall Street Bubble Mafia" - investment 
bank Goldman Sachs. The piece has generated 
controversy, with Goldman Sachs firing back that 
Taibbi's piece is "an hysterical compilation of 
conspiracy theories" and a spokesman adding, "We 
reject the assertion that we are inflators of 
bubbles and profiteers in busts, and we are 
painfully conscious of the importance in being a 
force for good." Taibbi shot back: "Goldman has 
its alumni pushing its views from the pulpit of 
the U.S. Treasury, the NYSE, the World Bank, and 
numerous other important posts; it also has 
former players fronting major TV shows. They have 
the ear of the president if they want it." Here, now, are excerpts
The first thing you need to know about Goldman 
Sachs is that it's everywhere. The world's most 
powerful investment bank is a great vampire squid 
wrapped around the face of humanity, relentlessly 
jamming its blood funnel into anything that smells like money.

Any attempt to construct a narrative around all 
the former Goldmanites in influential positions 
quickly becomes an absurd and pointless exercise, 
like trying to make a list of everything. What 
you need to know is the big picture: If America 
is circling the drain, Goldman Sachs has found a 
way to be that drain - an extremely unfortunate 
loophole in the system of Western democratic 
capitalism, which never foresaw that in a society 
governed passively by free markets and free 
elections, organized greed always defeats disorganized democracy.

They achieve this using the same playbook over 
and over again. The formula is relatively simple: 
Goldman positions itself in the middle of a 
speculative bubble, selling investments they know 
are crap. Then they hoover up vast sums from the 
middle and lower floors of society with the aid 
of a crippled and corrupt state that allows it to 
rewrite the rules in exchange for the relative 
pennies the bank throws at political patronage. 
Finally, when it all goes bust, leaving millions 
of ordinary citizens broke and starving, they 
begin the entire process over again, riding in to 
rescue us all by lending us back our own money at 
interest, selling themselves as men above greed, 
just a bunch of really smart guys keeping the 
wheels greased. They've been pulling this same 
stunt over and over since the 1920s - and now 
they're preparing to do it again, creating what 
may be the biggest and most audacious bubble yet.

Goldman Sachs' Role in the Housing and Internet Busts

The basic scam in the Internet Age is pretty easy 
even for the financially illiterate to grasp. 
Companies that weren't much more than pot-fueled 
ideas scrawled on napkins by up-too-late 
bong-smokers were taken public via IPOs, hyped in 
the media and sold to the public for 
megamillions. It was as if banks like Goldman 
were wrapping ribbons around watermelons, tossing 
them out 50-story windows and opening the phones 
for bids. In this game you were a winner only if 
you took your money out before the melon hit the pavement.

It sounds obvious now, but what the average 
investor didn't know at the time was that the 
banks had changed the rules of the game, making 
the deals look better than they actually were. 
They did this by setting up what was, in reality, 
a two-tiered investment system - one for the 
insiders who knew the real numbers, and another 
for the lay investor who was invited to chase 
soaring prices the banks themselves knew were 
irrational. While Goldman's later pattern would 
be to capitalize on changes in the regulatory 
environment, its key innovation in the Internet 
years was to abandon its own industry's standards of quality control.

Goldman's role in the sweeping global disaster 
that was the housing bubble is not hard to trace. 
Here again, the basic trick was a decline in 
underwriting standards, although in this case the 
standards weren't in IPOs but in mortgages. By 
now almost everyone knows that for decades 
mortgage dealers insisted that home buyers be 
able to produce a down payment of 10 percent or 
more, show a steady income and good credit 
rating, and possess a real first and last name. 
Then, at the dawn of the new millennium, they 
suddenly threw all that shit out the window and 
started writing mortgages on the backs of napkins 
to cocktail waitresses and ex-cons carrying five bucks and a Snickers bar.

And what caused the huge spike in oil prices? 
Take a wild guess. Obviously Goldman had help - 
there were other players in the 
physical-commodities market - but the root cause 
had almost everything to do with the behavior of 
a few powerful actors determined to turn the 
once-solid market into a speculative casino. 
Goldman did it by persuading pension funds and 
other large institutional investors to invest in 
oil futures - agreeing to buy oil at a certain 
price on a fixed date. The push transformed oil 
from a physical commodity, rigidly subject to 
supply and demand, into something to bet on, like 
a stock. Between 2003 and 2008, the amount of 
speculative money in commodities grew from $13 
billion to $317 billion, an increase of 2,300 
percent. By 2008, a barrel of oil was traded 27 
times, on average, before it was actually delivered and consumed.

Goldman Sachs Graduates in the Government

The history of the recent financial crisis, which 
doubles as a history of the rapid decline and 
fall of the suddenly swindled-dry American 
empire, reads like a Who's Who of Goldman Sachs 
graduates. By now, most of us know the major 
players. As George Bush's last Treasury 
secretary, former Goldman CEO Henry Paulson was 
the architect of the bailout, a suspiciously 
self-serving plan to funnel trillions of Your 
Dollars to a handful of his old friends on Wall 
Street. Robert Rubin, Bill Clinton's former 
Treasury secretary, spent 26 years at Goldman 
before becoming chairman of Citigroup - which in 
turn got a $300 billion taxpayer bailout from 
Paulson. There's John Thain, the asshole chief of 
Merrill Lynch who bought an $87,000 area rug for 
his office as his company was imploding; a former 
Goldman banker, Thain enjoyed a 
multibillion-dollar handout from Paulson, who 
used billions in taxpayer funds to help Bank of 
America rescue Thain's sorry company. And Robert 
Steel, the former Goldmanite head of Wachovia, 
scored himself and his fellow executives $225 
million in golden-parachute payments as his bank 
was self-destructing. There's Joshua Bolten, 
Bush's chief of staff during the bailout, and 
Mark Patterson, the current Treasury chief of 
staff, who was a Goldman lobbyist just a year 
ago, and Ed Liddy, the former Goldman director 
whom Paulson put in charge of bailed-out 
insurance giant AIG, which forked over $13 
billion to Goldman after Liddy came on board. The 
heads of the Canadian and Italian national banks 
are Goldman alums, as is the head of the World 
Bank, the head of the New York Stock Exchange, 
the last two heads of the Federal Reserve Bank of 
New York - which, incidentally, is now in charge of overseeing Goldman.

But then, something happened. It's hard to say 
what it was exactly; it might have been the fact 
that Goldman's co-chairman in the early Nineties, 
Robert Rubin, followed Bill Clinton to the White 
House, where he directed the National Economic 
Council and eventually became Treasury secretary. 
While the American media fell in love with the 
story line of a pair of baby-boomer, 
Sixties-child, Fleetwood Mac yuppies nesting in 
the White House, it also nursed an undisguised 
crush on Rubin, who was hyped as without a doubt 
the smartest person ever to walk the face of the 
Earth, with Newton, Einstein, Mozart and Kant running far behind.

Rubin was the prototypical Goldman banker. He was 
probably born in a $4,000 suit, he had a face 
that seemed permanently frozen just short of an 
apology for being so much smarter than you, and 
he exuded a Spock-like, emotion-neutral exterior; 
the only human feeling you could imagine him 
experiencing was a nightmare about being forced 
to fly coach. It became almost a national cliché 
that whatever Rubin thought was best for the 
economy - a phenomenon that reached its apex in 
1999, when Rubin appeared on the cover of Time 
with his Treasury deputy, Larry Summers, and Fed 
chief Alan Greenspan under the headline the 
committee to save the world. And "what Rubin 
thought," mostly, was that the American economy, 
and in particular the financial markets, were 
over-regulated and needed to be set free. During 
his tenure at Treasury, the Clinton White House 
made a series of moves that would have drastic 
consequences for the global economy - beginning 
with Rubin's complete and total failure to 
regulate his old firm during its first mad dash for obscene short-term profits.

Goldman Sachs' Powerful Influence

After the oil bubble collapsed last fall, there 
was no new bubble to keep things humming - this 
time, the money seems to be really gone, like 
worldwide-depression gone. So the financial 
safari has moved elsewhere, and the big game in 
the hunt has become the only remaining pool of 
dumb, unguarded capital left to feed upon: 
taxpayer money. Here, in the biggest bailout in 
history, is where Goldman Sachs really started to flex its muscle.

It began in September of last year, when 
then-Treasury secretary Paulson made a momentous 
series of decisions. Although he had already 
engineered a rescue of Bear Stearns a few months 
before and helped bail out quasi-private lenders 
Fannie Mae and Freddie Mac, Paulson elected to 
let Lehman Brothers - one of Goldman's last real 
competitors - collapse without intervention. 
("Goldman's superhero status was left intact," 
says market analyst Eric Salzman, "and an 
investment-banking competitor, Lehman, goes 
away.") The very next day, Paulson greenlighted a 
massive, $85 billion bailout of AIG, which 
promptly turned around and repaid $13 billion it 
owed to Goldman. Thanks to the rescue effort, the 
bank ended up getting paid in full for its bad 
bets: By contrast, retired auto workers awaiting 
the Chrysler bailout will be lucky to receive 50 
cents for every dollar they are owed.

Immediately after the AIG bailout, Paulson 
announced his federal bailout for the financial 
industry, a $700 billion plan called the Troubled 
Asset Relief Program, and put a heretofore 
unknown 35-year-old Goldman banker named Neel 
Kashkari in charge of administering the funds. In 
order to qualify for bailout monies, Goldman 
announced that it would convert from an 
investment bank to a bank-holding company, a move 
that allows it access not only to $10 billion in 
TARP funds, but to a whole galaxy of less 
conspicuous, publicly backed funding - most 
notably, lending from the discount window of the 
Federal Reserve. By the end of March, the Fed 
will have lent or guaranteed at least $8.7 
trillion under a series of new bailout programs - 
and thanks to an obscure law allowing the Fed to 
block most congressional audits, both the amounts 
and the recipients of the monies remain almost entirely secret.

Converting to a bank-holding company has other 
benefits as well: Goldman's primary supervisor is 
now the New York Fed, whose chairman at the time 
of its announcement was Stephen Friedman, a 
former co-chairman of Goldman Sachs. Friedman was 
technically in violation of Federal Reserve 
policy by remaining on the board of Goldman even 
as he was supposedly regulating the bank; in 
order to rectify the problem, he applied for, and 
got, a conflict-of-interest waiver from the 
government. Friedman was also supposed to divest 
himself of his Goldman stock after Goldman became 
a bank-holding company, but thanks to the waiver, 
he was allowed to go out and buy 52,000 
additional shares in his old bank, leaving him $3 
million richer. Friedman stepped down in May, but 
the man now in charge of supervising Goldman - 
New York Fed president William Dudley - is yet another former Goldmanite.

The collective message of all of this - the AIG 
bailout, the swift approval for its bank-holding 
conversion, the TARP funds - is that when it 
comes to Goldman Sachs, there isn't a free market 
at all. The government might let other players on 
the market die, but it simply will not allow 
Goldman to fail under any circumstances. Its edge 
in the market has suddenly become an open 
declaration of supreme privilege. "In the past it 
was an implicit advantage," says Simon Johnson, 
an economics professor at MIT and former official 
at the International Monetary Fund, who compares 
the bailout to the crony capitalism he has seen 
in Third World countries. "Now it's more of an explicit advantage."

Fast-forward to today. It's early June in 
Washington, D.C. Barack Obama, a popular young 
politician whose leading private campaign donor 
was an investment bank called Goldman Sachs - its 
employees paid some $981,000 to his campaign - 
sits in the White House. Having seamlessly 
navigated the political minefield of the bailout 
era, Goldman is once again back to its old 
business, scouting out loopholes in a new 
government-created market with the aid of a new 
set of alumni occupying key government jobs.

Gone are Hank Paulson and Neel Kashkari; in their 
place are Treasury chief of staff Mark Patterson 
and CFTC chief Gary Gensler, both former 
Goldmanites. (Gensler was the firm's co-head of 
finance.) And instead of credit derivatives or 
oil futures or mortgage-backed CDOs, the new game 
in town, the next bubble, is in carbon credits - 
a booming trillion- dollar market that barely 
even exists yet, but will if the Democratic Party 
that it gave $4,452,585 to in the last election 
manages to push into existence a groundbreaking 
new commodities bubble, disguised as an 
"environmental plan," called cap-and-trade. The 
new carbon-credit market is a virtual repeat of 
the commodities-market casino that's been kind to 
Goldman, except it has one delicious new wrinkle: 
If the plan goes forward as expected, the rise in 
prices will be government-mandated. Goldman won't 
even have to rig the game. It will be rigged in advance.

E-mail message checked by Spyware Doctor (
Database version: 6.12750

More information about the extropy-chat mailing list