TheCenterLane.com

© 2008 – 2019 John T. Burke, Jr.

More Bad Press For Goldman Sachs

Comments Off on More Bad Press For Goldman Sachs

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 beforePaul 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.

Matt Taibbi Deserves An Award

Comments Off on Matt Taibbi Deserves An Award

June 25, 2009

Like many people, I found out about Matt Taibbi as a result of his frequent appearances on HBO’s Real Time with Bill Maher.  Last spring, Matt appeared on Real Time to discuss his research into the global economic crisis and the resulting scheme of numerous bailouts engineered in response to each sub-crisis of this economic catastrophe.  My March 26 piece: “Understanding The Creepy Bailouts“, quoted from Matt’s fantastic article for Rolling Stone magazine, entitled: “The Big Takeover”.  (At that time, the “Big Takeover” link led to the complete article.  Rolling Stone now provides only abbreviated versions of its published articles on line.)  One important theme of Matt’s commentary was evident in this passage:

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class.  But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

Matt has a unique way of discussing the extremely complicated, technical issues involved in the financial crisis, by breaking them down into understandable, plain-language points.  Unfortunately, most mainstream journalists lack either the understanding or the courage (or both) to discuss our financial predicament in such a frank, informative manner.  Take for example:  Fareed Zakaria’s discussion of the economic catastrophe as it appeared in Newsweek under the title “The Capitalist Manifesto”.  Nobody could to a better job of ripping that thing to shreds than Matt Taibbi himself.  With his June 24 blog entry, he did just that:

Zakaria works hard to tell the crisis story minus these outrageous details.  Then he goes on to argue that, basically, nothing should be done.  We mostly just need a “gut check”; we, all of us, need to rediscover that little voice in all of us that says, “if it doesn’t feel right, we shouldn’t be doing it.”  I mean, that is actually what he wrote.  No one needs to go to jail, we don’t need to worry about who’s to blame, we just need, you know, do a better job using our trusty moral compasses to navigate the seas of life.  It’s classic Zakaria in the sense that he attacks ugly political phenomena with tired cliches and hack pablum until you’re almost too bored to keep your eyes open, then in the end reduces it all to a dumbed-down t-shirt that carries us forward to another cycle of political inaction: Laissez-faire capitalism doesn’t rip off people, people rip off people!

Matt’s previous blog entry on June 18, focused on one of my favorite subjects:  the hideous monster we have come to know as Goldman Sachs.  I had written a piece about that entity on May 21, discussing how Paul Farrell of MarketWatch and John Crudele of the New York Post had been voicing the same suspicions I had been harboring about Goldman.  After reading Matt Taibbi’s June 18 article, I enthusiastically sent the link to my friends.  This stuff was just too good!  Matt was laying it on the line in a way few others had the courage or the skill to do.  I doubt whether many in the mainstream media will follow his lead.  Here is one of the highlights from that piece:

Any way you slice it, Goldman was responsible for putting tens of billions of toxic mortgages on the market, resulting in mass foreclosures, mass depletion of retirement funds, and a monstrously over-leveraged financial system that we will now all be bailing out for the next half-century or so.  All of this so that Goldman could make a few billion bucks acting as the middleman in all of these deadly transactions.

If that weren’t enough, Matt pointed out that the upcoming issue of Rolling Stone would feature another of his reports  —  this one focused exclusively on Goldman Sachs.  That issue (#1082-83, with the Jonas Brothers on the cover) is now on the newsstands.  Matt’s article:  “The Wall Street Bubble Machine” is best explained in the subtitle:

From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression  — And they’re about to do it again.

In case you are wondering how they’re going to do it again  . . .  Matt reports that it will be by way of the “Cap and Trade” program.  Goldman has already positioned itself to serve as one of our government’s premier carbon credit pimps.  Matt offered this explanation:

Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot.  Will this market be bigger than the energy-futures market?

“Oh, it’ll dwarf it,” says a former staffer on the House energy committee.

Matt’s “bottom line” paragraph at the conclusion of the essay underscores what I believe are America’s biggest problems:  “lobbying” and “campaign contributions” (our tradition of legalized graft).  Our government is not just one of laws . . . it is one of loopholes, exemptions and waivers.  Those things cost money.  The people who have the money to “invest” in such machinations, usually find themselves rewarded handsomely  . . .  at the expense of the taxpayers.  Here’s how Matt wrapped it up:

But this is it.  This is the world we live in now.  And in this world, some of us have to play by the rules, while others get a note from the principal, excusing them from homework until the end of time, plus 10 billion free dollars in a paper bag to buy lunch.  It’s a gangster state, running on gangster economics, and even prices can’t be trusted anymore; there are hidden taxes in every buck you pay.  And maybe we can’t stop it, but we should at least know where it’s all going.

Amen.