Matt Taibbi on "Wall Street's Big Win"

The New Financial Crisis, Same as the Old One?

Don't have time to read thousands of pages of (purposefully) arcane legislation, to figure out whether the financial reform bill Congress passed this Summer really reforms how Wall Street does business? (I guarantee you that few if any members of Congress read the bill in its entirety, either).

Here are the Cliff's notes, courtesy of Matt Taibbi (now infamous for calling Goldman Sachs “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells of money") :

What happened to our economy over the past three years, and is still happening to it now, was not an accident or an oversight, but a sweeping crime wave unleashed by a financial industry gone completely over to the dark side. The bill Congress just passed doesn't go after the criminals where they live, or even make what they're doing a crime; all it does is put a baseball bat under the door and add an extra lock or two on the doors. It's a hack job, a C-minus effort. See you at the next financial crisis.

--Matt Taibbi, "Wall Street's Big Win"; The Rolling Stone (8/19/2010)

In damning (and depressing) detail, Taibbi lays bare how senior members of both parties gutted the so-called "Volcker Rule" and the "Lincoln Rule" -- the bill's two provisions aimed at shutting down proprietary trading and derivatives trading, respectively.

As Taibbi, Michael Lewis, Barry Ritholtz and numerous others have now chronicled in great detail, it was precisely those two activities that lay at the foundation of the financial melt-down that started in 2008 and is still plaguing our economy.

Here is Taibbi's sum-up:

Over a long year of feverish lobbying and brutally intense backroom negotiations, a group of D.C. insiders fought over a single question: Just how much of the truth about the financial crisis should we share with the public? . . . Do people need to know the real version, in all its majestic whorebotchery, or can we get away with some bullshit cover story? In passing Dodd-Frank, they went with the cover story.

--Matt Taibbi

Besides the sheer skulduggery of what transpired on Wall Street, what I find most dismaying is that the most vocal and impassioned critics -- still -- are people like Jon Stewart, Matt Taibbi, and Ritholtz.

In other words, entertainers, journalists, and bloggers far removed from the actual levers of power.

It's as though we're living through a financial Watergate, but this time the Woodward's and Bernstein's are being muscled aside.

Comparing the U.S. and Iceland

Quick Quiz: Who Said It? (Keep Reading)

[Almost two years after the financial melt-down] precious little has changed about Wall Street's massive gravitational pull in the U.S. and the world.

Our banks are still too big to fail, their boards are still poorly composed, we have no Consumer Financial Protection Agency, no systemic regulator, no resolution authority, and no reform of mortgage securitization or ratings agencies, two of the institutions that most enabled the crisis to occur.

We've been distracted from the task of preventing another crisis from happening by the task of minimizing the current one, and as a result, we've done neither, while allowing our other domestic problems to snowball.

My sentiments -- and many others' -- exactly (sadly).

So, in which lefty, rabble-rousing rag did the above quote appear?

A. Mother Jones
B. The Nation
C. Rolling Stone
D. Fortune

Answer: D.

And just in case you didn't know, Fortune magazine is about as left-wing as Dwight D. Eisenhower (make that Ronald Reagan).

The excerpt above is from an article titled, "Welcome to the United States of Iceland."

Taibbi on Wall Street, Addicts & Con Men

Guess Who the Addict Is?

No, Matt Taibbi hasn't mellowed since his infamous Rolling Stone article last summer ("Inside the Great American Bubble Machine").

Here's an excerpt from the sequel:

Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures.

Instituting a bailout policy that stressed recapitalizing bad banks was like the addict coming back to the con man to get his lost money back.

--Matt Taibbi, "Wall Street's Bailout Hustle"; Rolling Stone

Elsewhere in the piece, Taibbi poses a question that I've also addressed on this blog ("Dealing with the Devil: Why be a Goldman Sachs Client?"):

Why big institutional investors like pension funds continually come to Wall Street to get raped is the million-dollar question that many experienced observers puzzle over.

I think my explanation is still the most plausible:

Presumably, Goldman Sachs' clients have decided that it is better to be on the inside of whatever scam(s) Goldman is running -- presumably benefiting from them -- than being on the outside, victimized like everyone else.

--Ross Kaplan, "Dealing with the Devil"; City Lakes Blog (9/25/2009)

Key word from the above: 'presumably.'

Even if you don't like Taibbi, read his piece for his primer on street scams and hustles.

Defending Sodom & Gomorrah

Goldman Sachs: 'Bad, But Not the Worst'

Based on the drivel I've read the last six weeks, I'm convinced that if Matt Taibbi had chosen to rail against, say, the mayor of Sodom & Gomorrah -- instead of Wall Street and its undisputed kingpin, Goldman Sachs -- the same pack of apologists would have jumped to the mayor's defense.

Who are these people? Seriously.

Consider the latest non-defense defense:

What about Taibbi's charge that Goldman engaged in "laddering," or promising shares of hot IPOs to insiders or "friends and family" who would buy more later? And "spinning," or giving company executives super-cheap shares in exchange for the promise that they would buy more?

Yes, Goldman may have been involved in something like that. It helps, however, to point out that the class-action lawsuit on laddering included 55 underwriters as defendants. Including Goldman, yes, but also Morgan Stanley, Credit Suisse, Deutsche Bank, Salomon Brothers, Robertson Stephens, and literally every bank on Wall Street. The lawsuit -- launched in 2001 --was just settled this year, and it was all of $586 million for all of the banks as well as 300 of the failed companies they took public. That was an amount those banks and companies earned before afternoon tea on tech stocks during the boom year. The whole point of the lawsuits, however, is that the banks and companies were in it together-at least 355 entities in all. To single out one bank of 355 as particularly rapacious is ridiculous. What were the other 354 doing, then?

--Heidi Moore, "Matt Taibbi is Just Plain Wrong"; The Big Money (8/6/09)

Where to start . . .

How about with, "Yes, Goldman may have been involved in something like that"??

There's really no need to continue.

Just because Goldman wasn't the ringleader, just because it didn't invent the egregious practices described, isn't really a defense. It's an indictment of the entire Wall Street culture -- one which, if you don't recall, made billions off the Internet bubble before it blew up in investors' faces and tanked the economy.

Sound familiar?

Which raises point #2: they got away with it.

Moore is certainly right about one thing: $586 million is a small amount to pay for the aforementioned misdeeds.

Hmm . . . huge profits, nominal civil fine imposed almost a decade later -- "Let's do it again!" And they did.

The only real difference I see is that the resulting conflagration grew so big that it consumed practically all of Wall Street.

Except for . . . you guessed it: Goldman Sachs.

Why? Because it effectively built itself a bomb shelter. Namely, it bet against the same toxic mortgage-backed securities that it sold its customers.

To Moore, this isn't the height of deceit, or fraud, or breach of fiduciary duty, it's . . . prudence.

In fact, we should be grateful that Goldman's bets against their own customers paid off so prodigiously because if they hadn't, U.S. taxpayers would have had to have given the firm an even bigger bailout.

Sadly, amazingly, infuratingly -- she's probably right.

So, there you have it: Goldman Sachs, looking out for the best interests of the U.S. taxpayer.

Great Legs: Taibbi on Goldman Sachs

Taibbi's Article: Great 'Legs'

If online articles were ranked the same way as newly-released (music) singles, Matt Taibbi's scathing attack on Goldman Sachs in the current issue of Rolling Stone (yup, Rolling Stone) would be number one -- with a bullet.

If it were a new movie, you'd say Taibbi's article has 'legs.'

If you haven't read it, Taibbi lays bare how the company has done something even worse than break the rules: it has tailored them -- rather skillfully -- to suit its (financial) interests.

In the two weeks since the article appeared, it has precipitated literally thousands of blog posts commenting on it (here's mine: "Goldman Sachs, Culprit").

The comments seem to split into two categories: the "retail" posts, from little guys like me, who are lavishing "atta-boy's" on Taibbi, and want him to run for something; and the "wholesale" posts from financial columnists, the so-called Main Stream media, and Goldman Sachs itself.

By sheer quantity, I'd put the split at 90-10. But of course, the two groups' power splits 10-90 (more like 1-99).

What I find most interesting is the most common adjectives emanating from the latter camp: 'hysterical' (Goldman Sachs' term), 'outrageous,' 'hyperbolic,' 'irresponsible,' 'simplistic and ill-informed,' etc.

The one term I haven't heard used in connection with Taibbi's piece?

"Factually wrong."

P.S.: Best blog post on the subject (besides mine)? The one suggesting that Goldman Sachs was going to put out a hit on Taibbi -- but only after buying a life insurance policy on him first.

Goldman Sachs, Culprit

Regulatory Capture -- Exhibit A

Goldman Sachs made out on the housing bubble twice: it f---ed the investors who bought their horsesh-t CDO's by betting against its own crappy products, then it turned around and f---ed the taxpayer by making him pay off those same bets.

--Matt Taibbi, "The Great American Bubble Machine"; Rolling Stone (July 9-23, 2009)

Too subtle for you? Try this one, from Taibbi's blog:

Imagine a meat company that bred ten billion rats, fattened them on trash and sewage, ground their bodies into chuck, and then sold it all as grade-A ground beef to McDonald’s and Burger King, right under the noses of the USDA. [Securitized subprime mortgages] are exactly the same thing, only with debt instead of food. We’re eating it, they’re counting the money.

Looking for a culprit for today's financial mess? (plus today's oil price roller coaster, plus the '90's Internet stock bubble, plus AIG's black hole for taxpayer dollars -- plus a lot more).

Taibbi makes a damning -- and compelling -- case that Wall Street's fingerprints -- and specifically, Goldman Sachs' --are everywhere.

The piece reads like the stuff of conspiracy novels, which even Taibbi acknowledges at the end.

However, much of what he alleges -- the players, their business practices, the regulations they lobbied for (and thwarted), who profited -- is a matter of public record.

The more I see and read, the more I'm convinced that slow, creeping regulatory capture is the meta-problem at the root of all our other financial problems. Taibbi's piece is Exhibit A.

Read it, and decide for yourself.

AIG Explained

Hollywood Couldn't Come Up With This Stuff

"The AIG bailout, in effect, was Goldman [Sachs] bailing out Goldman [Sachs]."

--Matt Taibbi, "The Big Takeover"; Rolling Stone (3/19/09)

"Here's the dirty little secret . . . most of the stuff that got us into trouble was perfectly legal. And that is a sign of how much we've got to change our laws."

--President Barack Obama

Taibbi's article is apparently the buzz of the blogosphere this weekend. Warning: it makes dark, corporate conspiracy movies like Michael Clayton seem like Snow White.

My advice: read it on an empty stomach. It would be a shame to waste a nice meal as you see how all the pieces fit together (at least according to Taibbi).

Quick summary: the dollars are bigger (much) than you think, the process worse and more opaque.