Matt Taibbi « TheCenterLane.com

The Dishonesty Behind The Bernanke Vote

January 28th, 2010 Posted in Uncategorized

Jan, 28 2010

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January 28. 2010

While reading a recent Huffington Post piece by Jason Linkins, wherein he criticized President Obama’s proposed spending freeze, I was struck by Linkins’ emphasis on the notion that this proposal signaled a return to “institutionalized infantilism”:

One of the most significant things that Obama promised to do during the campaign was to simply level with the American people — deal with them in straightforward fashion, tell the hard truths, make the tough choices, and go about explaining his decisions as if he were talking to adults.

Linkins referred to a recent essay about the freeze, written by Ryan Avent of The Economist, which underscored the greater, underlying problem motivating politicians such as Obama to believe they can “slip one by” the gullible public:

This is yet another move toward the infantilisation of the electorate; whatever the gamesmanship behind the proposal, Mr. Obama has apparently concluded that the electorate can’t be expected to handle anything like a real description of the tough decisions which must be made.

Matt Taibbi made a similar observation about our President, while pondering whether the announced reliance on the wisdom of Paul Volcker meant an end to Tim Geithner’s days as Treasury Secretary:

Obama, as is his nature I think, tried to take the fork in the road all year, making nice to his base while actually delivering to his money people, not realizing the two were perpetually in conflict. His failure to make a clear choice, or rather to make the right choice, is what has doomed him everywhere politically.

It will be interesting to see what comes next, whether this is just for show or not.

We are now witnessing another example of this “infantilisation of the electorate” as it takes place with the dishonest maneuvering to get Ben Bernanke’s nomination to a second term past a filibuster. Here’s how this scam was exposed by Josh Rosner at The Big Picture website:

Sources have suggested that Senator Barbara Boxer (D-CA) intends to vote “yes” on Chairman Bernanke’s cloture vote and “no” on the floor. The cloture vote requires 60 “yes” votes to approve and really is THE vote to confirm. The floor vote only requires a simple majority to pass and therefore is a less important vote requiring fewer “yes” votes.

Get it? These Senators believe they can go back to their constituents with a straight face and tell the chumps that they voted against Bernanke’s confirmation when, in fact, they facilitated his confirmation by voting for cloture to give Bernanke a boost over the potentially insurmountable, 60-vote hurdle. This sleight-of-hand comes along at the precise moment when we are learning about Bernanke’s true role in the AIG bailout. As Ryan Grim reported for The Huffington Post:

A Republican senator said Tuesday that documents showing Federal Reserve Board Chairman Ben Bernake covered up the fact that his staff recommended he not bailout AIG are being kept from the public. And a House Republican charged that a whistleblower had alerted Congress to specific documents provide “troubling details” of Bernanke’s role in the AIG bailout.

Sen. Jim Bunning (R-Ky.), a Bernanke critic, said on CNBC that he has seen documents showing that Bernanke overruled such a recommendation. If that’s the case, it raises questions about whether bailing out AIG was actually necessary, and what Bernanke’s motives were.

Yves Smith of Naked Capitalism disclosed that Congressman Darrell Issa, who has been investigating the AIG bailout in his role as ranking Republican on the House Oversight and Government Reform Committee, “believes there is evidence that says Bernanke overruled his staff and authorized the rescue”. Ms. Smith explained how Issa is pushing ahead to investigate:

Rep. Darrell Issa of the House Oversight Committee has asked to Committee Chairman Towns to subpoena more documents from the Fed regarding its decision-making process in the AIG bailout.

* * *

In addition, Issa has noted that the Fed had failed to comply in full with previous subpoenas, and has not released any documents relative to AIG prior to September 2008 or after May 2009, even though they fall within the scope of previous subpoenas.

Congressman Issa’s letter can be viewed in its entirety here.

You may recall that the fight against the Fed for release of the AIG bailout documents became the subject of an opinion piece in the December 19 edition of The New York Times, written by Eliot Spitzer, Frank Partnoy and William Black.

There are plenty of reasons to oppose confirmation of Ben Bernanke to a second term as Fed chair. Senator Jim Bunning did a fantastic job articulating many of those points during the confirmation hearing on December 3. Beyond that, economist Randall Wray gave us “3 Reasons to Fear Bernanke’s Reappointment” at the Roosevelt Institute’s New Deal 2.0 website. Dr. Wray concluded his essay with this statement:

To be clear, I would prefer to replace Bernanke with someone who actually understands monetary policy and who advocates regulation and supervision of financial institutions.

The really pressing issue at this point is whether the withheld AIG bailout documents, which are the subject of Congressman Issa’s latest inquiry, might actually reveal some malefaction on the part of Bernanke himself. A revelation of that magnitude would certainly kill the confirmation effort. If Bernanke is confirmed prior to the release of documents indicating malfeasance on his part, I’ll be wishing I had a dollar for every time a Senator would say: “I just voted for cloture –but I voted against confirmation.”

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This Fight Is Far From Over

December 24th, 2009 Posted in Uncategorized

Dec, 24 2009

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December 24, 2009

On November 26, I mentioned how apologists for controversial Wall Street giant, Goldman Sachs, were attempting to characterize Goldman’s critics as “conspiracy theorists” in the apparent hope that the use of such a term would discourage continued scrutiny of that firm’s role in causing the financial crisis. The name-calling tactic didn’t work. Since that time, my favorite reporter for The New York Times — Pulitzer Prize winner, Gretchen Morgenson — has continued to dig down into a dirty, sickening story about how Goldman Sachs (as well as some other firms) through their deliberate bets against their own financial products, known as Collateralized Debt Obligations (or CDOs) caused the financial crisis and ruined the lives of most Americans. Ms. Morgenson had previously discussed the opinion of derivatives expert, Janet Tavakoli, who argued that Goldman Sachs “should refund the money it received in the bailout and take back the toxic C.D.O.’s now residing on the Fed’s books”. Although the Goldman apologists have been quick to point out that the firm repaid the bailout money it received under TARP, the $13 billion received by Goldman Sachs as an AIG counterparty by way of Maiden Lane III, has not been repaid.

On December 23, The New York Times published the latest report written by Gretchen Morgenson and Louise Story revealing how Goldman and other firms created those Collateralized Debt Obligations, sold them to their own customers and then used a new Wall Street index, called the ABX (a way to invest in the direction of mortgage securities) to bet that those same CDOs would fail. Here’s a passage from the beginning of that superb Morgenson/Story article:

Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc., an investment company whose parent firm was overseen by Lewis A. Sachs, who this year became a special counselor to Treasury Secretary Timothy F. Geithner.

Wait a minute! Let’s pause for a moment and reflect on that. “Turbo” Tim Geithner has retained a “special counselor” whose responsibilities included oversight of Tricadia’s parent company. Tricadia has the dubious honor of having helped cause the financial crisis by creating CDOs and then betting against them. What’s wrong with this picture? Our President apparently sees nothing wrong with it. At this point, that’s not too surprising.

Anyway . . . Let’s get back to the Times article:

How these disastrously performing securities were devised is now the subject of scrutiny by investigators in Congress, at the Securities and Exchange Commission and at the Financial Industry Regulatory Authority, Wall Street’s self-regulatory organization, according to people briefed on the investigations. Those involved with the inquiries declined to comment.

While the investigations are in the early phases, authorities appear to be looking at whether securities laws or rules of fair dealing were violated by firms that created and sold these mortgage-linked debt instruments and then bet against the clients who purchased them, people briefed on the matter say.

We can only hope that the investigations by Congress, the SEC and FINRA might result in some type of sanctions. At this juncture, that sort of accountability just seems like a wild fantasy.

Janet Tavakoli did a follow-up piece of her own for The Huffington Post on December 22. She is now more critical of the November 17 report prepared by the Special Inspector General of Tarp (SIGTARP) and she continues to demand that Goldman should pay back the billions it received as an AIG counterparty:

The TARP Inspector General’s November 17 report missed the most damaging facts. Intentionally or otherwise, it was evasive action or just plain whitewash. The report failed to clarify Goldman’s role in AIG’s near collapse, and that of all the settlement deals, the U.S.taxpayers’ was by far the worst.

* * *

Goldman paid mega bonuses in past years subsidized by selling hot air. Now it proposes to again pay billions in bonuses based on earnings made possible by taxpayer dollars.

Now that the crisis is over, we should ask Goldman Sachs — and all of AIG’s other trading partners involved in these trades — to buy back these mortgage assets at full price. Alternatively, we can impose a special tax. Instead of calling it a windfall profits tax, we might label it a “hot air” profits tax.

It was refreshing to read the opinion of someone who felt that Janet Tavakoli was holding back on her criticism of Goldman Sachs in the above-quoted piece. Thomas Adams is a banking law attorney at Paykin, Kreig and Adams, LLP as well a former managing director of Ambac Financial Group, a bond insurer that is managing to crawl its way out from under the rubble of the CDO catastrophe. Mr. Adams obviously has no warm spot in his heart for Goldman Sachs. I continue to take delight in the visual image of a Goldman apologist, blue-faced with smoke coming out of his ears while reading the essay Mr. Adams wrote for Naked Capitalism:

. . . Ms. Tavakoli stops short of telling the whole story. While she is very knowledgeable of this market, perhaps she is unaware of the full extent of the wrongdoings Goldman committed by getting themselves paid on the AIG bailout. The Federal Reserve and the Treasury aided and abetted Goldman Sachs in committing financial and ethical crimes at an astounding level.

* * *

But Ms. Tavakoli fails to note that the collapse of the CDO bonds and the collapse of AIG were a deliberate strategy by Goldman. To realize on their bet against the housing market, Goldman needed the CDO bonds to collapse in value, which would cause AIG to be downgraded and lead to AIG posting collateral and Goldman getting paid for their bet. I am confident that Goldman Sachs did not reveal to AIG that they were betting on the housing market collapse.

* * *

Goldman goes quite a few steps further into despicable territory with their other actions and the body count from Goldman’s actions is so enormous that it crosses over into criminal territory, morally and legally, by getting taxpayer money for their predation.

Goldman made a huge bet that the housing market would collapse. They profited, on paper, from the tremendous pain suffered by homeowners, investors and taxpayers across the country, they helped make it worse. Their bet only succeeded because they were able to force the government into bailing out AIG.

In addition, the Federal Reserve and the Treasury, by helping Goldman Sachs to profit from homeowner and investor losses, conceal their misrepresentations to shareholders, destroy insurers by stuffing them with toxic bonds that they marketed as AAA, and escape from the consequences of making a risky bet, committed a grave injustice and, very likely, financial crimes. Since the bailout, they have actively concealed their actions and mislead the public. Goldman, the Fed and the Treasury should be investigated for fraud, securities law violations and misappropriation of taxpayer funds. Based on what I have laid out here, I am confident that they will find ample evidence.

The backlash against the repugnant activities of Goldman Sachs has come a long way from Matt Taibbi’s metaphor describing Goldman as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” With three investigations underway, the widely-despised icon of Wall Street greed might have more to worry about than its public image.

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Damage Control

December 17th, 2009 Posted in Uncategorized

Dec, 17 2009

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December 17, 2009

Matt Taibbi hit another grand slam with his recent Rolling Stone article: “Obama’s Big Sellout”. It was another classic work in his unique style. The ugly truth it drove home was that Barack Obama used a “bait and switch” tactic in his Presidential campaign: promising to reform Wall Street — until the day after he got elected — at which time he immediately jumped into bed with the culprits of the financial crisis. The reaction of the Obama apologists to the Rolling Stone piece involved the usual tactic of attacking the messenger (in this case: Taibbi himself). It didn’t work. The best way to see how this played out should begin with a reading of Taibbi’s retort to a critique appearing in The American Prospect — a feeble attempt to demonstrate that Taibbi got his facts wrong. A neutral judge, Felix Salmon of Reuters, then stepped in and ruled in favor of Taibbi. The online responses to Felix Salmon’s essay are a great read. At the Open Left website, David Sirota upbraided Taibbi’s critics, who spanned the political spectrum — many of whom expressed condescension at the “naïve” decision of an outside-the-beltway reporter to expose the breach of a campaign promise:

It’s certainly true that a lot of politicians’ words mean nothing – but if reporters start treating that as a non-newsworthy assumption in their coverage, then the whole journalistic system becomes a joke – a miasma of personality profiles and puff pieces that assumes that the only thing that must be valued in politics is personal intangibles like “charisma” and “charm” and “toughness” and all those other incessant cliches. And what a joke that makes of our democracy. In a republic where we only get to vote our politicians in or out every few years, all we have to go on are their promises. If we now must assume their promises aren’t true, and attack people for being “naïve” for daring to try to hold them to their promises, then we’ve made a joke of our whole political system.

Matt Taibbi’s article immediately forced the White House into a damage control mode. Another softball interview was immediately set up with Steve Croft of 60 Minutes, wherein Obama attempted to redeem his false image as an adversary of the Wall Street investment banks. The President took advantage of that opportunity to present himself as an antagonist of those he described as “fat cats”. On the following day, Obama held a meeting in the White House cabinet room with some banking representatives who found the event important enough to attend. Immediately afterward, Charlie Gasparino revealed the backstory behind Obama’s meeting with the bankers. After informing us that the administration provided the bankers with Obama’s “talking points” in advance of the meeting, Gasparino disclosed this:

. . . people with first-hand knowledge of the sitdown said, it was a heavily scripted affair — with none of the fireworks Obama displays in public.

* * *

Said one CEO who attended: “I expected to be taken to the woodshed, but the tone was quite the opposite.”

Said another senior exec with knowledge of the meeting: “The whole thing was so telegraphed that not much was accomplished, other than giving Obama a PR stunt. . . . He might have sounded mean on ‘60 Minutes,’ but during the meeting he was a hell of a lot nicer.”

Many commentators were quick to point out that by the time Obama started talking tough about “fat cats”, he had already given them all they wanted by allowing them to pay back their TARP loans on an expedited basis. As Henry Blodget explained for The Business Insider:

And in case you missed what is really going on here, the banks that repaid TARP are now getting all the benefits of government help with none of the drawbacks. They just ditched the bad stuff — namely, pay caps — and kept the good stuff (implicit bond guarantees, subsidized super-low interest rates, no obligation to do anything for anyone). Obama can jawbone all he wants about “fat cats,” but that’s all he can do.

At The Washington Post, Steven Pearlstein bemoaned the fact that the TARP beneficiaries had been “let off their leash”. Pearlstein expressed concern that this move created the potential for more problems in the future:

By rushing to cash in their chips, however, the administration not only gave up political leverage and additional profit, but took the risk that one or more of the banks may find that it can’t make it on its own. While the financial system has rebounded faster than anyone could have imagined, potential threats still loom — a further collapse of commercial real estate, for example, or a string of sovereign debt defaults. And bank profits, while having rebounded, remain significantly dependent on the availability of cheap funding from the Federal Reserve and other central banks that cannot be expected to last indefinitely.

The administration’s damage control effort turned out to be worthless. With his centerpiece healthcare reform effort floundering in the Senate, Obama the President is appearing to be significantly less effective than Obama the candidate. The President’s critics have been quick to pounce. George Will noted that Obama has “seen his job approval vary inversely with his ubiquity”. The New York Post’s Michael Goodwin alleged that Obama “doesn’t look like he cares that big chunks of the country, left, right and center, are giving up on him.” However, the best analysis of the confidence crisis afflicting the Obama Presidency came from Dan Gerstein of Forbes.com. Gerstein observed that the new Preisdent’s leadership style was to blame — something Gerstein described as “the Reverse Roosevelt: Talk boldly and carry a toothpick.” While debunking the administration’s claim that it had lost the leverage it had over Wall Street with the TARP paybacks, Gerstein argued that such an excuse “doesn’t pass the laugh test” because the banking industry is the most regulated industry in the country. The task Obama faces is to cultivate a leadership style that will be useful in confronting the challenges he undertook when he assumed office:

For those center dwellers, the issue is not that Obama is too liberal or too pragmatic (the chief complaints of the noisemakers on the left and right), but that he is not effective enough. They question whether he has what it takes to get results: to find the right balance on health care, to admit and fix the inadequacies of the stimulus, to begin taming the deficit without impeding growth. It is a crisis of confidence that at its heart is, as Brookings scholar and former Clinton adviser Bill Galston points out, a crisis of competence.

* * *

But regardless of the reasons, Obama signed up for these missions, and his ability to succeed in them will largely hinge on whether he can grow as a leader. Can he overcome his inhibitions, whatever their cause, and learn from the legacies of our most effective presidents about how to wield the full power of his office? He clearly knows how to don the velvet glove (often with substantial impact) — will he come to understand when to unleash the iron fist?

Obama’s pattern so far is far from encouraging. But I would not give up hope for growth.

It appears as though we are back to the themes of “hope” and “change”. This time we’re hoping that Obama will change.

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No Free Pass For The Disappointer-In-Chief

December 14th, 2009 Posted in Uncategorized

Dec, 14 2009

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December 14, 2009

The election of Barack Obama to the Presidency was hailed by many as an event that “transcended race”. Ever since Obama’s primary election victory in lily-white Iowa, the pundits couldn’t stop talking about the candidate’s unique ability to vault the racial barrier before Hillary Clinton could break through the glass ceiling. As we approach the conclusion of Obama’s first year in the White House, it has become apparent that the Disappointer-in-Chief has not only alienated the Democratic Party’s liberal base, but he has also let down a demographic he thought he could take for granted: the African-American voters. At this point, Obama has “transcended race” with his ability to dishearten loyal black voters just as deftly as he has chagrined loyal supporters from all ethnic groups.

Charles Blow’s recent opinion piece for the December 4 edition of The New York Times, entitled: “Black in the Age of Obama” shed some light on the racist backlash against the black population as a result of the election of our nation’s first African-American President. Mr. Blow then focused on Obama’s approach to his sinking poll numbers:

This means that Obama can get away with doing almost nothing to specifically address issues important to African-Americans and instead focus on the white voters he’s losing in droves. This has not gone unnoticed. In the Nov. 9 Gallup poll, the number of blacks who felt that Obama would not go far enough in promoting efforts to aid the black community jumped 60 percent from last summer to now.

* * *

The Age of Obama, so far at least, seems less about Obama as a black community game-changer than as a White House gamesman. It’s unclear if there will be a positive Obama Effect, but an Obama Backlash is increasingly apparent. Meanwhile, black people are also living a tale of two actions: grin and bear it.

As Silla Brush reported for The Hill on December 2, ten members of the Congressional Black Caucus had threatened to withhold their votes on the financial reform bill, because the President had not been “doing enough to help African-Americans through the bleak economy”.

It has been easy to understand the dissatisfaction with Obama expressed by the Democratic Party’s liberal base. In a piece entitled “The Winter of Liberal Discontent”, Louis Proyect incorporated the umbrage expressed by such notables as Tom Hayden and Michael Moore, while providing a thorough assessment of Obama’s abandonment of the Left. He concluded the piece with a quoted passage from an essay written for The Huffington Post by Elizabeth Warren, chair of the Congressional TARP Oversight Panel. Mr. Proyect quoted Ms. Warren’s reference to some brutally unpleasant statistics, raising the question of whether America will continue to have a middle class. The theme of Mr. Proyect’s discussion was based on this point:

The chorus of disapproval is louder than any I have heard from liberal quarters since 1967 when another very popular Democrat did an about-face once he was in office. When LBJ ran as a peace candidate, very few people — except unrepentant Marxists — would have anticipated a massive escalation in Vietnam. It was well understood a year ago that Obama was committed to escalating the war in Afghanistan, but the liberal base of the Democratic Party was too mesmerized by the mantras of “hope” and “change” to believe that their candidate would actually carry out his promise.

There is a tendency to regard right-wing Republican presidents being replaced by idealistic-appearing Democrats who betray their supporters, thus enabling a new Republican candidate to take over the White House, as a kind of Western version of karma. We are compelled by universal law in some way to undergo an endless cycle of suffering without hope of redemption short of Enlightenment.

The criticism of Obama expressed by African-American commentators underscores the President’s unique ability to alienate those who might support him on the basis of ethnic solidarity, just as thoroughly as he can antagonize the melanin-deficient “limousine liberals” of Park Avenue. On December 11, Edward Harrison of Credit Writedowns made a point of letting us know that the complete text of Matt Taibbi’s recent Rolling Stone article, “Obama’s Big Sellout” is now available online. Before quoting some of the discussion in Matt Taibbi’s essay, Mr. Harrison provided some hard-hitting criticism of the Obama administration’s financial and economic policy shortcomings. You may note that the administration’s abandonment of the African-American base was not discussed. It wouldn’t do justice to Mr. Harrison’s great work to quote a snippet of this because it’s too good. I have to give you the whole thing:

As you probably know, I have been quite disappointed with this Administration’s leadership on financial reform. While I think they ‘get it,’ it is plain they lack either the courage or conviction to put forward a set of ideas that gets at the heart of what caused this crisis.

It was clear to many by this time last year that the President may not have been serious about reform when he picked Tim Geithner and Larry Summers as the leaders of his economic team. As smart and qualified as these two are, they are rightfully seen as allied with Wall Street and the anti-regulatory movement.

At a minimum, the picks of Geithner and Summers were a signal to Wall Street that the Obama Administration would be friendly to their interests. It is sort of like Ronald Reagan going to Philadelphia, Mississippi as a first stop in the 1980 election campaign to let southerners know that he was friendly to their interests.

I reserved judgment because one has to judge based on actions. But last November I did ask Is Obama really “Change we can believe in?” because his Administration was being stacked with Washington insiders and agents of the status quo.

Since that time it is obvious that two things have occurred as a result of this ‘Washington insider’ bias. First, there has been no real reform. Insiders are likely to defend the status quo for the simple reason that they and those with whom they associate are the ones who represent the status quo in the first place. What happens when a company is nationalized or declared bankrupt is instructive; here, new management must be installed to prevent the old management from covering up past mistakes or perpetuating errors that led to the firm’s demise. The same is true in government.

That no ‘real’ reform was coming was obvious, even by June when I wrote a brief note on the fake reform agenda. It is even more obvious with the passage of time and the lack of any substantive reform in health care.

Second, Obama’s stacking his administration with insiders has been very detrimental to his party. I imagine he did this as a way to overcome any worries about his own inexperience and to break with what was seen as a major factor in Bill Clinton’s initial failings. While I am an independent, I still have enough political antennae to know that taking established politicians out of incumbent positions (Joe Biden, Janet Napolitano, Hillary Clinton, Rahm Emanuel, Kathleen Sebelius or Tim Kaine) jeopardizes their seat. So, the strategy of stacking his administration has not only created a status quo bias, but it has also weakened his party.

The magic of the Obama candidacy has vanished with the disappointments of the Obama Presidency. His supporters have learned, the hard way, that talk is cheap. The President’s actions during the next three years will not only impact the viability of his administration — they could undermine the careers of his fellow Democrats.

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A Look Ahead

December 7th, 2009 Posted in Uncategorized

Dec, 07 2009

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December 7, 2009

As 2010 approaches, expect the usual bombardment of prognostications from the stars of the info-tainment industry, concerning everything from celebrity divorces to the nuclear ambitions of Iran. Meanwhile, those of us preferring quality news reporting must increasingly rely on internet-based venues to seek out the views of more trustworthy sources on the many serious subjects confronting the world. On October 29, I discussed the most recent GMO Quarterly Newsletter from financial wizard Jeremy Grantham and his expectation that the stock market will undergo a

“correction” or drop of approximately 20 percent next year. Grantham’s paper inspired others to ponder the future of the troubled American economy and the overheated stock market. Mark Hulbert, editor of The Hulbert Financial Digest, wrote a piece for the December 5 edition of The New York Times, picking up on Jeremy Grantham’s stock performance expectations. Hulbert noted Grantham’s continuing emphasis on “high-quality, blue chip” stocks as the most likely to perform well in the coming year. Grantham’s rationale is based on the fact that the recent stock market rally was excessively biased in favor of junk stocks, rather than the higher-quality “blue chips”, such as Wal-Mart. Hulbert noted how Wal-mart shares gained only 14 percent since March 9, while the shares of the debt-laden electronics services firm, Sanmina-SCI, have risen more than 600 percent during that same period. Hulbert pointed out that the conclusion to be reached from this information should be pretty obvious:

As an unintended consequence, Mr. Grantham said, high-quality stocks today are about as cheap as they have ever been relative to shares of firms with weaker finances.

It’s almost a certain bet that high-quality blue chips will outperform lower-quality stocks over the longer term,” he said.

My favorite reaction to Jeremy Grantham’s newsletter came from Paul Farrell of MarketWatch, who emphasized Grantham’s broader view for the economy as a whole, rather than taking a limited focus on stock performance. Farrell targeted President Obama’s “predictably irrational” economic policies by presenting us with a handy outline of Grantham’s criticism of those policies. Farrell prefaced his outline with this statement:

So please listen closely to his 14-point analysis of the rampant irrationality at the highest level of American government today, because what he is also predicting is another catastrophic meltdown dead ahead.

At the first point in the outline, Farrell made this observation:

If Grantham ever was a fan, he’s clearly disillusioned with the president. His 14 points expose the extremely irrational behavior of Obama breaking promises by turning Washington over to Wall Street, a blunder that will trigger the Great Depression 2.

Farrell’s discussion included a reference to the latest article by Matt Taibbi for Rolling Stone, entitled “Obama’s Big Sellout”. The Rolling Stone website described Taibbi’s latest essay in these terms:

In “Obama’s Big Sellout”, Matt Taibbi argues that President Obama has packed his economic team with Wall Street insiders intent on turning the bailout into an all-out giveaway. Rather than keeping his progressive campaign advisers on board, Taibbi says Obama gave key economic positions in the White House to the very people who caused the economic crisis in the first place. Taibbi also points to the ties Obama’s appointees have to one main in particular: Bob Rubin, the former Goldman Sachs co-chairman who served as Treasury secretary under Bill Clinton.

Since the article is not available online yet, you will have to purchase the latest issue of Rolling Stone or wait patiently for the release of their next issue, at which time “Obama’s Big Sellout” should be online. In the mean time, they have provided this brief video of Matt Taibbi’s discussion of the piece.

The new year will also bring us a new book by Danny Schecter, entitled The Crime of Our Time. Mr. Schecter recently discussed this book in a live interview with Max Keiser. (The interview begins at 16:55 into the video.) In discussing the book, Schecter explained how “the financial industry essentially de-regulated its own marketplace. They got rid of the laws that required disclosure and accountability …” and created a “shadow banking system”. Shechter’s previous book, Plunder, has now become a film that will be released soon. In Plunder, he described how the subprime mortgage crisis nearly destroyed the American economy. The interview by Max Keiser contains a short clip from the upcoming film. Danny also directed the movie based on (and named after) his 2006 book, In Debt We Trust, wherein he predicted the bursting of the credit bubble.

It was right at this point last year when Danny’s father died. The event is easy for me to remember because my own father died one week later. At that time, I was comforted by reading Danny’s eloquent piece about his father’s death. Danny was kind enough to respond to the e-mail I had sent him since, as an old fan from his days at WBCN radio in Boston, during the early 1970s, my friends and I tried our best to provide Danny with any leads we came across. These days, it’s good to see that Danny Schechter “The News Dissector” is still at it with the same vigor he demonstrated more than thirty-five years ago. I look forward to his new book and the new film.

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Compare And Contrast

November 26th, 2009 Posted in Uncategorized

Nov, 26 2009

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November 26, 2009

We have seen and heard so much discussion during the past week concerning the dismal performance of Treasury Secretary “Turbo” Tim Geithner while testifying before the Joint Economic Committee — I won’t repeat it. At this point, there appears to be a consensus that Turbo Tim has to go. The scary part comes when pundits start tossing around names for a possible replacement. One would expect that President Obama might be wise enough to avoid the appointment of another “Wall Street insider” as Treasury Secretary. Rumors are circulating that The Dimon Dog (Jamie Dimon, CEO of JP Morgan Chase) is being considered for the post. This buzz gained more traction when bank analyst, Dick Bove, recently voiced support for Dimon as Treasury Secretary. The handful of Geithner supporters deny that Turbo Tim ever was a “Wall Street insider”. This assertion is contradicted by the fact that Geithner was the President of the New York Federal Reserve at the time of the financial crisis, when he served as architect of the more-than-generous bailouts of those “too big to fail” financial institutions — at taxpayer expense.

These days, the most vilified beneficiary of government largesse resulting from the financial crisis is the widely-despised investment bank, Goldman Sachs — often referred to as the “giant vampire squid” — thanks to Matt Taibbi’s metaphor, describing Goldman as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

For whatever reason, a number of commentators have chosen to help defend Goldman Sachs against what they consider to be unfair criticism. A recent example came to us from James Stewart of The New Yorker. Stewart had previously written a 25-page essay for that magazine, entitled “Eight Days” — a dramatic chronology of the financial crisis as it unfolded during September of 2008. Last week, Stewart seized upon the release of the recent SIGTARP report to defend Goldman with a blog posting which characterized the report as supportive of the argument that Goldman owes the taxpayers nothing as a result of the government bailouts resulting from that near-meltdown. (In case you don’t know, a former Assistant U.S. District Attorney from New York named Neil Barofsky was nominated by President Bush as the Special Investigator General of the TARP program. The acronym for that job title is SIGTARP.) In his blog posting, James Stewart began by characterizing Goldman’s detractors as “conspiracy theorists”. That was a pretty weak start. Stewart went on to imply that the SIGTARP report refutes the claims by critics that, despite Goldman’s repayment of the TARP bailout, it did not repay the government the billions it received as a counterparty to AIG’s collateralized debt obligations. Stewart referred to language in the SIGTARP report to support the spin that because “Goldman was fully hedged on its exposure both to a failure by A.I.G. and to the deterioration of value in its collateralized debt obligations” and that “(i)t repaid its TARP loans with interest, bought back the government’s warrants at a nice profit to the Treasury” Goldman therefore owes the government nothing — other than “a special debt of gratitude”. One important passage from page 22 of the SIGTARP report that Stewart conveniently ignored, concerned the money received by Goldman Sachs as an AIG counterparty by way of Maiden Lane III, at which point those credit default obligations (of questionable value) were purchased at an excessive price by the government. Here’s that passage from the SIGTARP report:

When FRBNY authorized the creation of Maiden Lane III in November 2008, it lent approximately $24.6 billion to the newly formed limited liability company, and AIG provided Maiden Lane III approximately $5 billion in equity. These funds were used to purchase CDOs from AIG counterparties worth an estimated fair value of $29.6 billion at the time of the purchases, which were done in three stages on November 25, 2008, December 18, 2008, and December 22, 2008. AIGFP’s counterparties were paid $27.1 billion, and AIGFP was paid $2.5 billion per an agreement between AIGFP and FRBNY. The $2.5 billion represented the amount of collateral that AIGFP had previously paid to the counterparties that was in excess of the actual decline in the fair value as of October 31, 2008.

FRBNY’s loan to Maiden Lane III is secured by the CDOs as the underlying assets. After the loan has been repaid in full plus interest, and, to the extent that there are sufficient remaining cash proceeds, AIG will be entitled to repayment of the $5 billion that the company contributed in equity, plus accrued interest. After repayment in full of the loan and the equity contribution (each including accrued interest), any remaining proceeds will be split 67 percent to FRBNY and 33 percent to AIG.

On November 21, one of my favorite reporters for The New York Times, Pulitzer Prize winner Gretchen Morgenson, wrote an informative piece concerning the recent SIGTARP Report. Compare and contrast Ms. Morgenson’s discussion of the report’s disclosures, with the spin provided by James Stewart. Here is some of what Ms. Morgenson had to say:

The Fed, under Mr. Geithner’s direction, caved in to A.I.G.’s counterparties, giving them 100 cents on the dollar for positions that would have been worth far less if A.I.G. had defaulted. Goldman Sachs, Merrill Lynch, Societe Generale and other banks were in the group that got full value for their contracts when many others were accepting fire-sale prices.

On the question of whether this payout was what the report describes as a “backdoor bailout” of A.I.G.’s counterparties, Mr. Barofsky concluded: “The very design of the federal assistance to A.I.G. was that tens of billions of dollars of government money was funneled inexorably and directly to A.I.G.’s counterparties.” The report noted that this was money the banks might not otherwise have received had A.I.G. gone belly-up.

*   *   *

Finally, Mr. Barofsky pokes holes in arguments made repeatedly over the past 14 months by Goldman Sachs, A.I.G.’s largest trading partner and recipient of $12.9 billion in taxpayer money in the bailout, that it had faced no material risk in an A.I.G. default — that, in effect, had A.I.G. cratered, Goldman wouldn’t have suffered damage.

*   *   *

Rather than forcing the banks to accept a steep discount, or “haircut,” the Fed gave the banks $27 billion in taxpayer cash and allowed them to keep an additional $35 billion in collateral already posted by A.I.G. That amounted to about $62 billion for the contracts, which the report describes as “far above their market value at the time.”

* *   *

As Goldman prepares to pay out nearly $17 billion in bonuses to its employees in one of its most profitable years ever, it is important that an authoritative, independent voice like Mr. Barofsky’s reminds us how the taxpayer bailout of A.I.G. benefited Goldman.

* *   *

The inspector noted in his report that Goldman made several arguments for why it believed it was not materially at risk in an A.I.G. default, but he is skeptical of the firm’s reasoning.

So is Janet Tavakoli, an expert in derivatives at Tavakoli Structured Finance, a consulting firm.

*   *   *

Ms. Tavakoli argues that Goldman should refund the money it received in the bailout and take back the toxic C.D.O.’s now residing on the Fed’s books — and to do so before it begins showering bonuses on its taxpayer-protected employees.

“A.I.G., a sophisticated investor, foolishly took this risk,” she said. “But the U.S. taxpayer never agreed to be the victim of investments that should undergo a rigorous audit.”

After reading James Stewart’s November 19 blog posting and Gretchen Morgenson’s November 21 article from The New York Times, ask yourself this: Are Gretchen Morgenson and Janet Tavakoli “conspiracy theorists” . . . or is James Stewart just a tool?

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Offering Solutions

October 22nd, 2009 Posted in Uncategorized

Oct, 22 2009

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October 22, 2009

Many of us are familiar with the old maxim asserting that “if you’re not part of the solution, you’re part of the problem.” During the past year we’ve been exposed to plenty of hand-wringing by info-tainers from various mainstream media outlets decrying the financial crisis and our current economic predicament. Very few of these people ever seem to offer any significant insight on such interesting topics as: what really caused the meltdown, how to prevent it from happening again, whether any laws were broken that caused this catastrophe, whether any prosecutions might be warranted or how to solve our nation’s continuing economic ills, which seem to be immune to all the attempted cures. The painful thorn in the side of Goldman Sachs, Matt Taibbi, recently raised an important question, reminding people to again scrutinize the vapid media coverage of this pressing crisis:

It’s literally amazing to me that our press corps hasn’t yet managed to draw a distinction between good news on Wall Street for companies like Goldman, and good news in reality.

* * *

In fact the dichotomy between the economic health of ordinary people and the traditional “market indicators” is not merely a non-story, it is a sort of taboo — unmentionable in major news coverage.

That quote inspired Yves Smith of Naked Capitalism to write a superb essay about how “access journalism” has created a controlled press. What follows is just a small nugget of the great analysis in that piece:

So what do we have? A media that predominantly bases its stories on what it is fed because it has to. Ever-leaner staffing, compressed news cycles, and access journalism all conspire to drive reporters to focus on the “must cover” news, which is to a large degree influenced by the parties that initiate the story. And that means they are increasingly in an echo chamber, spending so much time with the influential sources they feel they must cover that they start to be swayed by them.

* * *

The message, quite overly, is: if you are pissed, you are in a minority. The country has moved on. Things are getting better, get with the program. Now I saw the polar opposite today. There is a group of varying sizes, depending on the topic, that e-mails among itself, mainly professional investors, analysts, economists (I’m usually on the periphery but sometimes chime in). I never saw such an angry, active, and large thread about the Goldman BS fest today. Now if people who have not suffered much, and are presumably benefitting from the market recovery are furious, it isn’t hard to imagine that what looks like complacency in the heartlands may simply be contained rage looking for an outlet.

Fortunately, one television news reporter has broken the silence concerning the impact on America’s middle class, caused by Wall Street’s massive Ponzi scam and our government’s response – which he calls “corporate communism”. I’m talking about MSNBC’s Dylan Ratigan. On Wednesday’s edition of his program, Morning Meeting, he decried the fact that the taxpayers have been forced to subsidize the “parlor game” played by Goldman Sachs and other firms involved in proprietary trading on our coin. Mr. Ratigan then proceeded to offer a number of solutions available to ordinary people, who would like to fight back against those pampered institutions considered “too big to fail”. Some of these measures involve: moving accounts from one of those enshrined banks to a local bank or credit union; paying with cash whenever possible and contacting your lawmakers to insist upon financial reform.

My favorite lawmaker in the battle for financial reform is Congressman Alan Grayson, whose district happens to include Disney World. His fantastic interrogation of Federal Reserve general counsel, Scott Alvarez, about whether the Fed tries to manipulate the stock markets, was a great event. Grayson has now co-sponsored a “Financial Autopsy” amendment to the proposed Consumer Financial Protection Agency bill. This amendment is intended to accomplish the following:

– Requires the CFPA conduct a “Financial Autopsy” of each state’s bankruptcies and foreclosures (a scientific sampling), and identify financial products that systematically led to a large number of bankruptcies and foreclosures.
– Requires the CFPA report to Congress annually on the top financial products (the companies and individuals that originated the products) that caused consumer bankruptcies and foreclosures.
– Requires the CFPA take corrective action to eliminate or restrict those deceptive products to prevent future bankruptcies and corrections

– The bottom line is to highlight destructive products based on if they are making people “broke”.

From his website, The Market Ticker, Karl Denninger offered his own contributions to this amendment:

This sort of “feel good” legislative amendment will of course be resisted, but it simply isn’t enough. The basic principle of equity (better said as “fairness under the law”) puts forward the premise that one cannot cheat and be allowed to keep the fruits of one’s outrageous behavior.

So while I like the direction of this amendment, I would put forward the premise that the entirety of the gains “earned” from such toxic products, when found, are clawed back and distributed to the consumers so harmed, and that to the extent this does not fully compensate for that harm such a finding should give rise to a private, civil cause of action for the consumers who are bankrupted or foreclosed.

It’s nice to know that bloggers are no longer the only voices insisting on financial reform. Ed Wallace of Business Week recently warned against the consequences of unchecked speculation on oil futures:

Is today’s stock market divorced from economic reality? Probably. It is a certainty that oil is. We know that because those in the market are still putting out the same tired and incorrect logic that they used successfully last year to push oil to $147 a barrel while demand was plummeting.

Because oil is not carrying a market price that fairly reflects economic conditions and demand inventories, overpriced energy is siphoning off funds that could be used for corporate expansion, increased consumerism and, in time, the recreation of jobs in America.

Did you think that the “Enron Loophole” was closed by the enactment of the 2008 Farm Bill? It wasn’t. The Farm Bill simply gave more authority to the Commodity Futures Trading Commission to regulate futures contracts that had been exempted by the loophole. In case you’re wondering about the person placed in charge of the Commodity Futures Trading Commission by President Obama — his name is Gary Gensler and he used to work for … You guessed it: Goldman Sachs.

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Spread The Word

September 29th, 2009 Posted in Uncategorized

Sep, 29 2009

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September 29, 2009

I’ve seen quite a few articles and broadcasts from “mainstream” news sources during the past few weeks that have actually made me feel encouraged about the public’s response to the financial crisis and our current economic predicament. Six months ago, the dirty picture of what caused last year’s near-meltdown and what has continued to prevent the necessary reforms, was something one could find only by reading a relatively small number of blogs. Michael Panzner wrote a book entitled Financial Armageddon in 2006, predicting what many “experts” later described as unforeseeable. Mr. Panzner now has a blog called Financial Armageddon (as well as another: When Giants Fall). At his Financial Armageddon website, Mr. Panzner has helped ease the pain of the economic catastrophe with a little humor by educating his readers on some novel measurements of our recession level — such as the increased use of hair dye and “The Hot Waitress Index”. (He ran another great posting about the increasing number of disastrous experiences for people who tried to save money by cutting their own hair.) Meanwhile, Matt Taibbi has continued to serve as a gadfly against crony capitalism. Zero Hedge keeps us regularly apprised of the suspicious activities in the equities and futures markets, which are of no apparent concern to regulatory officials. Some bloggers, including Jr Deputy Accountant, have criticized the manic money-printing and other inappropriate activities at the Federal Reserve — which resists all efforts at oversight and transparency. One no longer experiences the stigma of “conspiracy theorist” by accepting the view that our financial and economic problems were caused primarily by regulatory failure.

On September 23, Dan Gerstein wrote a piece for Forbes, about the impressive, 25-page article concerning last year’s financial crisis, written by James Stewart for The New Yorker, entitled: “Eight Days”. At the outset, Mr. Gerstein noted how the New Yorker article provided the reader with some shocking insight on someone we all thought we knew pretty well:

But the biggest eye-opener was that the most incisive and damning questions raised by any of our leaders during this existential crisis came from none other than the era’s top free-market cheerleader in Washington, George W. Bush.

* * *

Paulson and Bernanke alerted Bush that AIG was about to fail, warned of the massive ripple effect AIG going bust would have on the global economy, and explained why the Fed could not intervene with an insurance company to stop this systemic threat. In response, Bush asked “How have we come to the point where we can’t let an institution fail without affecting the whole economy?”

The question raised by President Bush is still tragically apt, since nothing has been accomplished in the past year to break up or downsize those institutions considered “too big to fail”. Mr. Gerstein’s experience from reading the New Yorker article helped reinforce the understanding that our current situation is not only the result of regulatory failure, but it’s also a by-product of something called “regulatory capture” — wherein the regulators are beholden to those whom they are supposed to regulate:

Once disaster was averted and the system stabilized, Paulson, Geithner and Bernanke had no excuse for not laying down the law to Wall Street — figuratively and literally — in the ensuing weeks. By that I mean restructuring the deals we struck with the banks to get far better returns for taxpayers and rewriting the rules governing the financial system to prevent them from ever thinking they could gamble risk-free with our money again.

* * *

There’s no apparent sense of apartness or independence between regulator and regulated. To the contrary, there’s a power imbalance in the wrong direction, with the regulators dependent on and even at the mercy of the regulated. What does it say about the integrity and even the sanity of this system when the doctors have to ask the inmates how to restructure their treatments?

I was particularly impressed by Dan Gerstein’s closing remarks in the Forbes piece. It was encouraging to see another commentary in a mainstream media source, consistent with the ranting I did here, here and here. Mr. Gerstein expressed dismay at the lack of attention given to the unpleasant truth that we live in a plutocracy which won’t be changed until the people demand it:

That’s why I was so disappointed to find Stewart’s epic article buried in the elite pages of the New Yorker. It should have been serialized on the front pages of every newspaper in the country last week, so every American would be reminded in full detail of just how warped and rigged our financial system has been — and why it still is. Maybe then it might sink in that getting mad won’t get us even in the power struggle with the financial elites for control of our economy, and that change won’t happen until taxpayers demand it. You want public accountability for Wall Street? Let’s start with an accountable public.

Each time an article such as Dan Gerstein’s “Too Close For Comfort” gets widespread exposure, we move one step closer to the point where we have an informed, accountable public. It’s unfortunate that his commentary was buried in the elite pages of Forbes. That’s why I have it here. Spread the word.

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The Big Lie Gets Some Blowback

September 3rd, 2009 Posted in Uncategorized

Sep, 03 2009

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September 3, 2009

My favorite “blowback” story of the week resulted from the ill-advised decisions by people at The New York Times and the Financial Times to trumpet talking points apparently “Fed” (pun intended) to them by the Federal Reserve. Both publications asserted that the TARP program has already returned profits for the Untied States government. The Financial Times claimed the profit so far has been $14 billion. The New York Times, reporting the amount as $18 billion, claimed that “taxpayers have begun seeing profits from the hundreds of billions of dollars in aid that many critics thought might never be seen again.” So where is my check? Anyone with a reasonable degree of intelligence, who bothered to completely read through either of these articles, could quickly recognize yet another rendition of The Big Lie. The blowback against these articles was swift and harsh. Matt Taibbi’s critique was short and sweet:

This is sort of like calculating the returns on a mutual fund by only counting the stocks in the fund that have gone up. Forgetting for a moment that TARP is only slightly relevant in the entire bailout scheme — more on that in a moment — the TARP calculations are a joke, apparently leaving out huge future losses from AIG and Citigroup and others in the red. Since only a small portion of the debt has been put down by the best borrowers, and since the borrowers in the worst shape haven’t retired their obligations yet, it’s crazy to make any conclusions about TARP, pure sophistry.

* * *

The other reason for that is that it’s only a tiny sliver of the whole bailout picture. The real burden carried by the government and the Fed comes from the various anonymous bailout facilities — the TALF, the PPIP, the Maiden Lanes, and so on. . . .

And there are untold trillions more the Fed has loaned out in the last 18 months and which we are not likely to find out much about, unless the recent court ruling green-lighting Bloomberg’s FOIA request for those records actually goes through.

Over at The Business Insider, John Carney also quoted Matt Taibbi’s piece, adding that:

We simply don’t know how to value the mortgage backed securities the Fed bought. We don’t know how much the government will wind up paying on the backstops of Citi and Bear Stearns assets. And we don’t know how much more money might have to be pumped into the system to keep it afloat.

At another centrist website called The Moderate Voice, Michael Silverstein pointed out that any news reporter with a conscience ought to feel a bit of shame for participating in such a propaganda effort:

I’ve been an economics and financial writer for 30 years. I used to enjoy my work. I used to take pride in it. The markets were kinky, sure, but that made the writing more fun.

* * *

That’s not true anymore. Reportage about the economy and the markets — at least in most mainstream media — now largely consists of parroting press releases from experts of various stripes or government spokespeople. And the result is not just infuriating for a long-term professional in this field, but outright embarrassing.

A perfect example was yesterday’s “good news” supposedly showing that our economic masters were every bit as smart as they think they are. A few banks have repaid their TARP loans, part of the $4 trillion that government has sunk into our black hole banking system.

* * *

The $74 billion the government has been repaid is less than two percent of the $4 trillion the government has borrowed or printed to keep incompetent lenders from going down. Less than two percent! Even this piddling sum was generated by a manipulated stock market rally that allowed banks shares to soar, bringing a lot of money into bank coffers, almost all of which they added to reserves before paying back a few billion to the government.

Rolfe Winkler at Reuters joined the chorus criticizing the sycophantic cheerleading for these claims of TARP profitability:

A very dangerous misconception is taking root in the press, that in addition to saving the world financial system, the bank bailout is making taxpayers money.

“As big banks repay bailout, U.S.sees profit” read the headline in the New York Times on Monday. The story was parroted on evening newscasts.

* * *

Taxpayers should keep that in mind whenever they see misguided reports that they are making money from bailouts. The truth is that the biggest banks are still insolvent and, ultimately, their losses are likely to be absorbed by taxpayers.

As the above-quoted sources have reported, the ugly truth goes beyond the fact that the Treasury and the Federal Reserve have been manipulating the stock markets by pumping them to the stratosphere — there is also a coordinated “happy talk” propaganda campaign to reinforce the “bull market” fantasy. Despite the efforts of many news outlets to enable this cause, it’s nice to know that there are some honest sources willing to speak the truth. The unpleasant reality is exposed regularly and ignored constantly. Tragically, there just aren’t enough mainstream media outlets willing to pass along the type of wisdom we can find from Chris Whalen and company at The Institutional Risk Analyst:

Plain fact is that the Fed and Treasury spent all the available liquidity propping up Wall Street’s toxic asset waste pile and the banks that created it, so now Main Street employers and private investors, and the relatively smaller banks that support them both, must go begging for capital and liquidity in a market where government is the only player left. The notion that the Fed can even contemplate reversing the massive bailout for the OTC markets, this to restore normalcy to the monetary models that supposedly inform the central bank’s deliberations, is ridiculous in view of the capital shortfall in the banking sector and the private sector economy more generally.

Somebody ought to write that on a cake and send it over to Ben Bernanke, while he celebrates his nomination to a second term as Federal Reserve chairman.

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More Bad Press For Goldman Sachs

July 16th, 2009 Posted in Uncategorized

Jul, 16 2009

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July 16, 2009

They can’t seem to get away from it, no matter how hard they try. Goldman Sachs is finding itself confronted with bad publicity on a daily basis.

It all started with Matt Taibbi’s article in Rolling Stone. As I pointed out on June 25, I liked the article as well as Matt’s other work. His blog can be found here. His article on Goldman Sachs employed a good deal of hyperbolic rhetoric which I enjoyed — especially the metaphor of Goldman Sachs as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”. Nevertheless, many commentators took issue with the article, especially focusing on the subtitle’s claim that “Goldman Sachs has engineered every major market manipulation since the Great Depression”. I took that remark as hyperbole, since it would obviously require over 120 megabytes of space to document “every major market manipulation since the Great Depression” — so I wasn’t disappointed about being unable to read all that. Some of Taibbi’s critics include Megan McArdle from The Atlantic and Joe Weisenthal at Clusterstock.

On the other hand, Taibbi did get a show of support from Eliot “Socks” Spitzer during a July 14 interview on Bloomberg TV. Mr. Spitzer made some important points about Goldman’s conduct that we are now hearing from a number of other sources. Spitzer began by emphasizing that because of the bank bailouts “Goldman’s capital was driven to virtually nothing — because we as taxpayers gave them access to capital — they made a bloody fortune” (another vampire squid reference). Spitzer voiced the concern that Goldman is simply going back to proprietary trading and taking advantage of spreads, following its old business model. He argued that, a result of the bailouts:

. . . their job should be, from a macroeconomic perspective, to raise capital and put it into sectors that create jobs. If they’re not getting that done, then why are we supporting them the way we have been?

This sentiment seems to be coming from all directions, in light of the fact that on July 14, Goldman reported second-quarter profits of 3.44 billion dollars — while on the following day, another TARP recipient, CIT Group disclosed that it would likely file for bankruptcy on July 17. On July 16, The Wall Street Journal ran an editorial entitled: “A Tale of Two Bailouts” comparing Goldman’s fate with that of CIT. The article pointed out that since Goldman’s risk is subsidized by the taxpayers, the company might be more appropriately re-branded as “Goldie Mac”:

We like profits as much as the next capitalist. But when those profits are supported by government guarantees or insured deposits, taxpayers have a special interest in how the companies conduct their business. Ideally we would shed those implicit guarantees altogether, along with the very notion of too big to fail. But that is all but impossible now and for the foreseeable future. Even if the Obama Administration and Fed were to declare with one voice that banks such as Goldman were on their own, no one would believe it.

If there is a lesson in this week’s tale of two banks, it’s that it won’t be enough to give the Federal Reserve a mandate to “monitor” systemic risk. Last fall’s bailouts are reverberating through the financial system in a way that is already distorting the competition for capital and financial market share. Banks that want to be successful will also want to be more like Goldman Sachs, creating an incentive for both larger size and more risk-taking on the taxpayer’s dime.

Robert Reich voiced similar concern over the fact that “Goldman’s high-risk business model hasn’t changed one bit from what it was before the implosion of Wall Street.” He went on to explain:

Value-at-risk — a statistical measure of how much the firm’s trading operations could lose in a day — rose to an average of $245 million in the second quarter from $240 million in the first quarter. In the second quarter of 2008, VaR averaged $184 million.

Meanwhile, Goldman is still depending on $28 billion in outstanding debt issued cheaply with the backing of the Federal Deposit Insurance Corporation. Which means you and I are still indirectly funding Goldman’s high-risk operations.

* * *

So the fact that Goldman has reverted to its old ways in the market suggests it has every reason to believe it can revert to its old ways in politics, should its market strategies backfire once again — leaving the rest of us once again to pick up the pieces.

At The Huffington Post, Mike Lux reminded Goldman that despite its repayment of $10 billion in TARP funds, we haven’t overlooked the fact that Goldman has not repaid the $13 billion it received for being a counterparty to AIG’s bad paper or the “unrevealed billions” it received from the Federal Reserve. This raises a serious question as to whether Goldman should be allowed to pay record bonuses to its employees, as planned. Didn’t we go through this once before? Paul Abrams is mindful of this, having issued a wake-up call to “Turbo” Tim Geithner and Congress.

As long as we keep reading the news, each passing day provides us with yet another reminder to feel outrage over the hubris of the people at Goldman Sachs.

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