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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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Money Falling From The Sky

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November 17, 2008

The debate concerning a possible bailout of the “big three” automakers (General Motors, Ford and Daimler Chrysler) has now reached the House of Representatives.  House Minority Leader, John Boehner (Republican from Ohio) has voiced his opposition to this latest bailout, indicating that it will not receive much support from Congressional Republicans.

In the words of Yogi Berra, we are experiencing “déjà vu all over again”.  This process started with the plan of Treasury Secretary Henry Paulson, to bail out banks and other financial intuitions holding mortgages of questionable value, at a price to the taxpayers in excess of $700 billion.  Back on September 22, when that bailout bill (now known as TARP) was being considered, Jackie Kucinich and Alexander Bolton wrote an article for TheHill.com, discussing Republican opposition to this measure.  Their article included a prophetic remark by Republican Congressman Cliff Stearns of Florida:

“Bailout after bailout is not a strategy,” said Stearns, who said that taxpayers could be left with a huge bill.

Yet, “bailout after bailout” is exactly where we are now.  On November 15, T-Bone Pickings appeared on NBC’s Meet the Press.  Tom Brokaw asked T-Bone Pickings for his opinion on the proposed “Big Three Bailout”.  The response was:

I wonder what you’re going to do about the next industry.  Is it going to be the airlines or what if Toyota and Honda want some help, too?  I don’t know.  I don’t know where it stops.

Once again, we are presented with the need to bail out yet another American industry considered “too big to fail”.  However, this time, we are not being asked to save an entire industry, just a few players who fought like hell, resisting every change from rear-view mirrors, to fuel injection, seat belts, catalytic converters, air bags and most recently, hybrid technology.  Later on Meet the Press, we heard the BBC’s Katty Kay quote a rhetorical question from unidentified “smart economists” that included the magic word:

Can it withstand the shock to the economy if GM were to go?

Later on the CBS program, Face The Nation, Massachusetts Congressman Barney Frank, Chairman of the House Financial Services Committee, used similar logic to that expressed by Katty Kay, when he stated:

When you talk about the negative shock that would result from bankruptcies of these companies, right now  …

The magic word “shock” is once again playing an important role for the advocates of this newest rescue package. I was immediately compelled to re-read my posting from September 22, concerning the introduction of the Paulson bailout plan, entitled:  “Here We Go Again”.  At that time, I discussed Naomi Klein’s 2007 book, The Shock Doctrine: The Rise of Disaster Capitalism.  Klein’s book explained how unpopular laws were enacted in a number of countries around the world, as a result of shock from disasters or upheavals.  She went on to suggest that some of these events were deliberately orchestrated with the intent of passing repugnant laws in the wake of crisis.  She made an analogy to shock therapy, wherein the patient’s mind is electrically reformatted to become a “blank slate”.  Klein described how advocates of “the shock doctrine” seek a cataclysmic destruction of economic order to create their own “blank slate” upon which to create their vision of a “free market economy”.  She described the 2003 Iraq war as the most thorough utilization of the shock doctrine in history.  Remember that this book was released a year before the crises we are going through now.

Ms. Klein’s article, “In Praise of a Rocky Transition” appeared in the December 1, 2008 issue of The Nation.  She discussed Washington’s handling of the Wall Street bailout, characterizing it as “borderline criminal”.  Would the financial rescue legislation (TARP) have passed if Congress and the public had been advised that the Federal Reserve had already fed a number of unnamed financial institutions two trillion dollars in emergency loans?  Naomi Klein expressed the need for the Obama Administration to stick with its mantra of “Change You Can Believe In” as opposed to any perceived need to soothe the financial markets:

There is no way to reconcile the public’s vote for change with the market’s foot-stomping for more of the same.  Any and all moves to change course will be met with short-term market shocks.  The good news is that once it is clear that the new rules will be applied across the board and with fairness, the market will stabilize and adjust.  Furthermore, the timing for this turbulence has never been better.  Over the past three months, we’ve been shocked so frequently that market stability would come as more of a surprise.  That gives Obama a window to disregard the calls for a seamless transition and do the hard stuff first.  Few will be able to blame him for a crisis that clearly predates him, or fault him for honoring the clearly expressed wishes of the electorate.  The longer he waits, however, the more memories fade.

When transferring power from a functional, trustworthy regime, everyone favors a smooth transition.  When exiting an era marked by criminality and bankrupt ideology, a little rockiness at the start would be a very good sign.

The Obama Administration would be wise to heed Ms. Klein’s suggestions.  It would also help to seriously consider the concerns of Republicans such as John Boehner, who is apparently not anxious to feed America another “crap sandwich”.

Here We Go Again

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September 22, 2008

Exactly one year ago, we saw the release of Naomi Klein’s book, The Shock Doctrine: The Rise of Disaster Capitalism.  Klein’s book explained how unpopular laws were enacted in a number of countries around the world, as a result of shock from disasters or upheavals.  She went on to suggest that some of these events were deliberately orchestrated with the intent of passing repugnant laws in the wake of crisis.  She made an analogy to shock therapy, wherein the patient’s mind is electrically reformatted to become a “blank slate”.  Klein described how advocates of “the shock doctrine” seek a cataclysmic destruction of economic order to create their own “blank slate” upon which to create their vision of a “free market economy”.   She described the 2003 Iraq war as the most thorough utilization of the shock doctrine in history.  Remember that this book was released a year before the crisis we are going through now.

You may recall former Senator Phil Gramm’s recent appearance in the news for calling the United States a “nation of whiners” and positing that the only recession going on in the United States these days is a “mental recession”.  Gramm is a longtime buddy and mentor to a certain individual named John McCain.  Gramm is the architect of the so called “Enron Loophole” allowing speculators to drive the price of oil to absurd heights.  (Gramm’s wife, Wendy, was a former member of Enron’s Board of Directors.)  Gramm was most notorious for his successes in the deregulation of Wall Street (with the help of McCain) that facilitated the “mortgage crisis” as well as the current economic meltdown.  He sponsored the 1999 bill that repealed the Glass-Steagall Act.  The repeal of that law allowed “commercial” and “investment” banks to consolidate.  Gramm’s face appears in many campaign videos with McCain, taken earlier this year.  As a result of the outrage generated by Gramm’s remarks, McCain formally dismissed Gramm as his campaign’s economic advisor.  Despite the fact that Gramm no longer has a formal role in the McCain campaign, many believe that he would be McCain’s choice for Secretary of the Treasury in the event that McCain should win the Presidential election.  On September 21, MSNBC’s David Shuster grilled McCain campaign spokesman, Tucker Bounds, about the possibility that McCain is planning to appoint Phil Gramm as his Secretary of the Treasury, should McCain win.  Tucker Bounds squirmed all over the place, employing his usual tactic of deflecting the subject of the current economic crisis back to the Obama campaign.  Most noticeably, Mr. Bounds never made any attempt to deny that McCain plans to put Gramm in charge of the Treasury.

Our current Treasury Secretary, Henry Paulson, is on the covers of this week’s newsmagazines, pushing for uncritical acceptance of his (and hence, the Bush Administration’s) solution to the current economic crisis.  This basically amounts to a three-page “bailout” plan for banks and other financial intuitions holding mortgages of questionable value, at a price to the taxpayers of anywhere from $700 billion to One Trillion Dollars.  The Democrats are providing some “pushback” to this plan.  Barack Obama was quoted by Carrie Brown of Politico.com as saying that the Bush Administration has “offered a concept with a staggering price tag, not a plan”.  Obama went on to insist that the “American people must be assured that the deal reflects the basic principles of transparency, fairness and reform”.

As reported by Stephen Labaton in the September 21 New York Times, House Speaker Nancy Pelosi complained that:

… the administration’s proposal did “not include the necessary safeguards. Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive executive compensation.

Senator Chris Dodd of Connecticut was quoted in that article as saying:  “We need to offer some assurance to the American taxpayer that Congress is watching.”  Dodd went on to explain:

One of the things that got us into this mess was the lack of accountability and the lack of oversight that was occurring, and I don’t think we want to repeat those mistakes with a program of this magnitude.

The Times article then focused on the point emphasized by Republican Senator Arlen Specter:

I realize there is considerable pressure for the Congress to adjourn by the end of next week  . . .   But I think we must take the necessary time to conduct hearings, analyze the administration’s proposed legislation, and demonstrate to the American people that any response is thoughtful, thoroughly considered and appropriate.

Nevertheless, Treasury Secretary Paulson made the rounds of the Sunday talk shows to advocate pushing this bailout through quickly, without the safeguards and deliberation suggested by the Democrats and Senator Specter.  As Zachary Goldfarb reported in the September 21 Washington Post:

Paulson urged Congress not to load up the legislation with controversial provisions. “We need this to be clean and quick,” he said.

“Clean and quick”  . . .   Is that anything like “Shock and Awe”?  As usual, there is concern about whether Congressional Democrats will have the spine to resist the “full court press” by the Bush Administration to get this plan approved by Congress and on the President’s desk for signature.  As Robert Kuttner reported in The Huffington Post:

One senior Congressional Democrat told me, “They have a gun to our heads.” Paulson behaved as if he held all the cards, but in fact the Democrats have a lot of cards, too. The question is whether they have the nerve to challenge major flaws in Paulson’s plan as a condition of enacting it.

Here we go again.  Will the Democrats “grow a pair” in time to prevent “the shock doctrine” from being implemented once again?  If not, will we eventually see the day when Treasury Secretary Phil Gramm basks in glory, while presiding over his own manifestation of economic utopia?