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Matt Taibbi Deserves An Award

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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.

Understanding The Creepy Bailouts

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March 26, 2009

The voting, taxpaying public had no trouble understanding the outrageousness of AIG’s use of government-supplied, bailout money to pay $165 million in bonuses to its employees.  As we all saw, there was a non-stop chorus of outrage, running from letters to the editors of small-town newspapers to death threats against AIG employees and their next-of-kin.  However, what most people don’t really understand is how this crisis came about and what the failed solutions have been.  Some of us have tried to familiarize ourselves with the alphabet soup of acronyms for those government-created entities, entrusted with the task of solving the most complex financial problems of all time.  Nevertheless, we are behind the curve with our own understanding and we will remain behind the curve regardless of how hard we try.  It’s no accident.  Opacity is the order of the day from the Federal Reserve, the Treasury, the Securities and Exchange Commission and the Commodity Futures Trading Commission.  In other words:  You (the “little people”) are not supposed to know what is going on.  So just go back to work, pay your taxes and watch the television shows that are intended to tie-up your brain cells and dumb you down.

This week, Wall Street was excited to learn the details of Treasury Secretary “Turbo” Tim Geithner’s latest version of what, last week, was called the Financial Stability Plan.  In order to make the unpopular plan sound different, it was given a new name: the PPIP (Public-Private Investment Partnership or “pee-pip”).  Those economists who had voiced skepticism about the plan’s earlier incarnations were not impressed with the emperor’s new clothes.  As Nobel laureate and Princeton University Professor Paul Krugman explained in The New York Times:

But the real problem with this plan is that it won’t work.  Yes, troubled assets may be somewhat undervalued.  But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem.  They lost that bet.  And no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.

The plan’s supporters now claim that Professor Nouriel Roubini, an advocate for “nationalization” (or more accurately:  temporary receivership) of insolvent banks now supports the “new” plan.  As one can discern from the New York Daily News op-ed piece by Dr. Roubini and fellow New York University Professor Matthew Richardson, they simply described this plan a “a step in the right direction”.  More important were the caveats they included in their article:

But let’s not have any illusions.  The government bears the risk if and when the investors take a bath on the taxpayer-provided loans.  If the economy gets worse, it could get very ugly, very quickly.  The administration should be transparent in making clear that there is still a wealth transfer taking place here – from taxpayers to investors and banks.

*    *    *

Moreover, there’s the issue of transparency – or lack thereof.  No one knows what the loans or securities are worth.  Competing investors will help solve this by promoting price discovery.  But be careful what you wish for.  We might not like the answers.

James K. Galbraith (the son of famed economist John Kenneth Galbraith) has a PhD in Economics from Yale and is a professor at the University of Texas at Austin.  His reaction to the PPIP appears on The Daily Beast website in an article entitled:  “The Geithner Plan Won’t Work”:

The ultimate objective, and in President Obama’s own words, the test of this plan, is whether it will “get credit flowing again.”  (I have dealt with that elsewhere.)  Short answer:  It won’t.  Once rescued, banks will sit quietly on the sidelines, biding their time, until borrowers start to reappear.  From 1989 to 1994, that took five years.  From 1929 to 1935 — you get the picture.

*    *    *

And the reality is, if the subprime securities are truly trash, most of the big banks are troubled and some are insolvent.  The FDIC should put them through receivership, get clean audits, install new management, and begin the necessary shrinkage of the banking system with the big guys, not the small ones.  It should not encumber the banking system we need with failed institutions.  And it should not be giving CPR to a market for toxic mortgages that never should have been issued, and certainly never securitized, in the first place.

Back in May of 2006, Dr. Galbraith wrote an article for Mother Jones that is particularly relevant to the current economic crisis.  Many commentators are now quoting Galbraith’s observations about how “the predator class” is in the process of crushing the rest of us:

Today, the signature of modern American capitalism is neither benign competition, nor class struggle, nor an inclusive middle-class utopia.  Instead, predation has become the dominant feature — a system wherein the rich have come to feast on decaying systems built for the middle class.  The predatory class is not the whole of the wealthy; it may be opposed by many others of similar wealth.  But it is the defining feature, the leading force.  And its agents are in full control of the government under which we live.

The validity of Galbraith’s argument becomes apparent after reading Matt Taibbi’s recent article for Rolling Stone, called “The Big Takeover”.  Taibbi’s article is a “must read” for anyone attempting to get an understanding of how this mess came about as well as the sinister maneuvers that were made after la mierda hit the fan.  It’s not a pretty picture and Matt deserves more than congratulations for his hard work on this project, putting the arcane financial concepts and terminology into plain, easy-to-understand English.  Beyond that, he provides the Big Picture, which, for those who read Galbraith’s discourse on predation, is all too familiar:

People are pissed off about this financial crisis, and about this bailout, but they’re not pissed off enough.  The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d’etat.  They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grace:  Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess.  And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — “our partners in the government,” as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

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.

Let’s hope I haven’t scared you out of reading Matt’s article.  Besides:  If you don’t — you are going to feel really stupid when you have to admit that you don’t know what the ABCPMMMFLF is.