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Here We Go Again

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Goldman Sachs is back in the spotlight.  This time, there is a chorus of disgust being expressed about how Goldman conducts its business.  Back in June of 2009, Matt Taibbi famously characterized Goldman Sachs in the following terms:

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.

The latest episode of predation by the Vampire Squid concerns an August 16 report prepared by Alan Brazil, a member of Goldman’s trading team.  Brazil prepared the 54-page presentation for the firm’s institutional clients as a guide to the impending economic collapse with some trading strategies to benefit from that event.  Page 3 of the report starts with the headline:  “Here We Go Again”.  The statement was prescient in that the report itself initiated a renewed, consensual effort to condemn Goldman.  Page 4 has the headline:   “The Underlying Problem May Be Structural And Created By the Housing Bubble”.  The extent to which the underlying problem may have been caused by Goldman Sachs had been previously discussed by Matt Taibbi, who explained Goldman’s propensity to act the way it always has:  

If America is circling the drain, Goldman Sachs has found a way to be that drain  .  .  .

Shah Gilani of Forbes reacted to the publication of Alan Brazil’s report with the following statement, which was used for the title of his own article:

In my opinion, Goldman isn’t just a travesty of a mockery of a sham, it is a criminal enterprise and worthy of being stepped on itself.

Susan Pulliam and Liz Rappaport broke the story on Goldman’s “Dark View” for The Wall Street Journal:

The report, released by the Hedge Fund Strategies group in Goldman’s securities division, provides a glimpse into the trading ideas that are generated for hedge funds through strategists, such as Mr. Brazil, who are part of Goldman’s trading operation rather than its research group.

Such strategists sit alongside the traders who are executing trades for their clients.  Unlike analysts in firms’ research divisions—who are supposed to be walled off from information about the activity of the firm’s clients—these desk strategists have a front-row seat for viewing the ebb and flow of clients’ investment plays.

They can see if there is a groundswell of interest among hedge funds in taking bearish bets in a certain sector, and they watch trading volumes dry up or explode.  Their point of view is informed by more, and often confidential, information about clients than analysts’ opinions, making their research and ideas highly prized by traders.

The report itself makes note that the information included isn’t considered research by Goldman.  “This material is not independent advice and is not a product of Global Investment Research,” the report notes.

The idea that such a gloomy assessment had not been shared with the general public has become a frequently-expressed complaint.  Michael T. Snyder wrote a piece for Seeking Alpha, which provided this explanation for the lack of candor:

As I wrote about the other day, the financial world is about to hit the panic button.  Things could start falling apart at any time. Most of these big banks will not publicly admit how bad things are, but privately there is a whole lot of freaking out going on.

*   *   *

You aren’t going to hear the truth from the media or from our politicians, because keeping people calm is much more of a priority to them than is telling the truth.

Henry Blodget of The Business Insider dissuaded the “little people” from getting any grandiose ideas after reading Brazil’s briefing:

Unfortunately, lest you think your knowledge of this semi-secret report will finally allow you to out-trade hedge funds, it won’t. The hedge funds got the report on August 16th.  As usual, you’re the last to know.

Beyond that, there is Goldman’s longstanding reputation for “front running” its own clients, which must have inspired this remark in a critique of Alan Brazil’s report, appearing at the Minyanville website:

Coincidentally, he had some surefire trading strategies for clients interested in capitalizing on this trend.  Presumably, Goldman’s own traders began bidding the various recommended hedges up some time earlier, a possibility Goldman discloses up front.

So this is what the squid is down to these days:  peddling the obvious to the bottom-feeders below it in the financial food chain.

By now, those commentators who had criticized Matt Taibbi for his tour de force against Goldman (such as Megan McArdle) must be experiencing a bit of remorse.  Meanwhile, those of us who wrote items appearing at GoldmanSachs666.com are exercising our bragging rights.


 

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Geithner Kool-Aid Is All The Rage

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Treasury Secretary Tim Geithner’s “charm offensive”, began one year ago.  At that time, a number of financial bloggers were invited to the Treasury Department for an “open discussion” forum led by individual senior Treasury officials (including Turbo Tim himself).  Most of the invitees were not brainwashed to the desired extent.  I reviewed a number of postings from those in attendance – most of whom demonstrated more than a little skepticism about the entire affair.  Nevertheless, Secretary Geithner and his team held another conclave with financial bloggers on Monday, August 16, 2010.  The second meeting worked more to Geithner’s advantage.  The Treasury Secretary made a favorable impression on Alex Tabarrok, just as he had done last November with Tabarrok’s partner at Marginal Revolution, Tyler Cowen.  Steve Waldman of Interfluidity provided a candid description of his own reaction to the August 16 event.  Waldman’s commentary exposed how the desired effect was achieved:

First, let me confess right from the start, I had a great time.  I pose as an outsider and a crank.  But when summoned to the court, this jester puts on his bells.  I am very, very angry at Treasury, and the administration it serves.  But put me at a table with smart, articulate people who are willing to argue but who are otherwise pleasant towards me, and I will like them.

*   *   *

I like these people, and that renders me untrustworthy. Abstractly, I think some of them should be replaced and perhaps disgraced.  But having chatted so cordially, I’m far less likely to take up pitchforks against them.  Drawn to the Secretary’s conference room by curiosity, vanity, ambition, and conceit, I’ve been neutered a bit.

More recently, a good deal of attention has focused on a November 4 article from Bloomberg News, revealing that back on April 2, Turbo Tim paid a call on Jon Stewart.  The disclosure by Ian Katz raised quite a few eyebrows:

Geithner and Stewart, host of Comedy Central’s “The Daily Show,” held an off-the-record meeting at Stewart’s office in New York on April 2, according to Geithner’s appointments calendar, updated through August on Treasury’s website.

Since that time, we have heard nothing from Jon Stewart about his meeting with Geithner.  I expect that Stewart will continue his silence about that topic, focusing our attention, instead, on the controversy concerning a book, which should have been titled, Pedophilia For Dummies, while referring to Amazon.com as “NAMBLAzon.com”.  If he uses that joke  – remember that you saw it here, first.

The November 13 New York Times article by Yale economics professor, Robert Shiller, raises the question of whether Professor Shiller is the latest victim of the Geithner Kool-Aid.  Shiller’s essay reeks of the Obama administration’s strategy of approaching the nation’s most pressing crises as public relations concerns — a panacea for avoiding the ugly task of actually solving those problems.  The title of Shiller’s article, “Bailouts, Reframed as ‘Orderly Resolutions’” says it all:  spin means everything.  The following statement is a perfect example:

Our principal hope for dealing with the next big crisis is the Dodd-Frank Act, signed by President Obama in July.  It calls for bailouts of a sort, but has reframed them so they may look better to taxpayers.  Now they will be called “orderly resolutions.”

Yves Smith of the Naked Capitalism website had no trouble ripping this assertion (as well as Shiller’s entire essay) to shreds:

Huh?  It’s widely acknowledged that Dodd Frank is too weak.  In the Treasury meeting with bloggers last August, Geithner didn’t argue the point much, but instead contended that big enough capital levels, which were on the way with Basel III, were the real remedy.

It’s also widely recognized that the special resolution process in Dodd Frank is a non-starter as far as the institutions that pose the greatest systemic risk are concerned, the really big international dealer banks.  A wind-up of these firms is subject to the bankruptcy proceedings of all the foreign jurisdictions in which it operates; the US can’t wave a magic wand in Dodd Frank and make this elephant in the room vanish.

In addition, no one has found a way to resolve a major trading firm without creating major disruption.

*   *   *

Shiller’s insistence that the public is so dumb as to confuse a windown with a bailout reveals his lack of connection with popular perceptions.  The reason the public is so angry with the bailouts is no one, particularly among the top brass, lost his job, and worse, the firms were singularly ungrateful, thumbing their noses at taxpayers and paying themselves record bonuses in 2009.

Bill Maher’s Real Time program of November 12 is just the most recent example of how Bill Maher and most of his guests from the entire season are Geithner Kool-Aid drinkers.  The show marked the ten-trillionth time Maher claimed that TARP was a “success” because the banks have “paid back” those government bailouts.  Bill Maher needs to invite Yves Smith on his program so that she can debunk this myth, as she did in her June 23 piece. “Geithner Yet Again Misrepresents TARP ‘Performance’”.  Ms. Smith is not the only commentator who repeatedly calls out the administration on this whopper.  Marshall Auerback and almost everyone else at the Roosevelt Institute have said the same thing.  Edward Harrison of Credit Writedowns wrote this piece for the Seeking Alpha website, in support of Aureback’s TARP critique.  Will Wilkinson’s October 8 essay in The Economist’s Democracy in America blog presented the negative responses from a number of authorities in response to the claim that TARP was a great success.  With all that has been written to dispute the glorification of TARP, one would think that the “TARP was a success” meme would fade away.  Nevertheless, the Geithner Kool-Aid is a potent brew and its effects can, in some cases, be permanent.


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