The deal contributed to the more than $14 billion that over 18 months was handed to Goldman Sachs, whose former chairman, Stephen Friedman, was chairman of the board of directors of the New York Fed when the decision was made. Friedman, 71, resigned in May, days after it was disclosed by the Wall Street Journal that he had bought more than 50,000 shares of Goldman Sachs stock following the takeover of AIG. He declined to comment for this article.

In his resignation letter, Friedman said his continued role as chairman had been mischaracterized as improper. Goldman Sachs spokesman Michael DuVally declined to comment.

AIG paid Societe General $16.5 billion, Deutsche Bank $8.5 billion and Merrill Lynch $6.2 billion.

~ via New York Fed’s Secret Choice to Pay for Swaps Hits Taxpayers — Bloomberg.com

It’s kind of amazing that with all the uproar over the Galleon business, nobody is making much hay over the recent revelations about the AIG bailouts, which make former Goldman chief and former New York Fed chairman Stephen Friedman look every bit as guilty of insider machinations as Raj Rajaratnam of the Galleon fund.

It’s impossible to grasp the totality of Friedman/Goldman’s grossness with regard to the AIG story without a little context. Remember the basic timeline. In the middle of the mortgage bubble, Goldman Sachs found a patsy-buffoon named Joe Cassano at a little corner of AIG called AIG Financial Products, or AIGFP. Cassano was recklessly writing hundreds of billions of dollars worth of credit default swaps for banks like Goldman and Deutsche, essentially insuring certain investments for these banks, including extremely risky mortgage-backed deals.

Goldman took out billions of these CDS positions with Cassano, who had written upwards of $440 billion of these CDS without having even a fraction of the money he would have needed to cover that bet in the event of a disaster of the type that actually ended up taking place, specifically a downgrade of AIG’s credit rating that forced Cassano to pony up wads of cash to cover those positions.

The important thing to remember about all of this is that just because Goldman was buying “insurance” from Cassano, that doesn’t mean they were being responsible. On the contrary: Goldman was creating well over ten billion dollars worth of exposure to a guy that they must have known was an absolute idiot. Now, in a world where actual capitalism existed, Goldman should then have been highly invested in making sure that AIG did not go under. A dead and bankrupt AIG should not have been good news to a company like Goldman Sachs, which had billions of dollars riding on AIG’s financial health.

But if anything Goldman behaved throughout the runup to AIG’s collapse like it couldn’t care less if the company died. In fact Goldman accelerated AIG’s demise by making margin calls against AIG, for both the CDS deals and for deals it had done with Win Neuger, who was running AIG’s securities lending business. What really sank AIG was the fact that the downgrade of its credit rating permitted companies like Goldman to demand large sums of money from AIG in the form of these margin calls, and AIG could not get its hands on enough cash to meet its demands, resulting in the death spiral situation we all witnessed last September. Of all the firms making such demands against AIG, Goldman was the most aggressive (I have more on this coming out in a forthcoming book) and my sources who were involved in the AIG bailout bunker scene of a year ago almost to a man report that Goldman and its chief Lloyd Blankfein took an extremely hard line with AIG.

Why would it act like that? Well, in a normal capitalistic situation, it wouldn’t. But Goldman, it turned out, had an ace in the hole. It seems that when the state stepped in and decided to bail AIG out, its former director, Stephen Friedman, was among those making the decision that AIG’s counterparties should be paid 100 cents on the dollar for its CDS debts. It never made sense that AIG/AIGFP would decide on its own to pay its creditors 100 cents on the dollar for its debts, but now we know, thanks to reporting from Bloomberg, that it wasn’t AIGFP and its CFO Elias Habayeb who was making that decision.

It was, instead, a group of people from the New York Fed who gave that order, a group that included Tim Geithner and Friedman. Goldman ended up getting almost $14 billion from AIG after the bailout. And Friedman, we later found out, bought 50,000 shares of Goldman stock after this deal was struck. He resigned in May from the Fed, a few days after the Wall Street Journal broke the story about Friedman’s stock purchases.

Friedman surely had information about key moves involving the bank — like Goldman getting paid off at par in the AIG bailout, or Goldman getting a federal bank charter overnight so that a mountain of cheap Fed money could save it from bankruptcy — before the market got it. That he bought 50,000 shares in Goldman after the AIG bailout and is not in jail right now is sort of amazing, until you consider that it will be a cold day in hell before a former head of Goldman Sachs is arrested for insider trading, even when he gets caught doing it red-handed.

All of this matters for two reasons. One, it’s yet another example of how Goldman’s success isn’t attributable to how “smart” the bank and its employees are.

Instead of working something out with a company it had stupidly become overexposed to, Goldman instead hastened AIG’s demise because it was, perhaps, the one way it could cash in fully on its reckless deals — by forcing it into the arms of the government and getting the taxpayer to pony up for Cassano’s dumb calls.

Had AIG proceeded to an ordinary bankruptcy, had the company’s downfall happened via normal market procedures, Goldman might have gotten 40, 50, maybe 60 cents on the dollar. If that! Instead it got completely paid off, among other things because its connections to the government actually incentivized it to cripple a company to which it was exposed to the tune of billions.

Second, the non-punishment of Friedman just stands out like a hairy, golf-ball-sized mole on the face of the American capital markets. No question about it, it’s interesting that Galleon and Raj Rajaratnam are getting perp-walked by the FBI (note that it’s the FBI, and not the castrated and seemingly completely captive SEC, that’s going to be pushing these enforcement actions). Galleon isn’t small potatoes and from what I understand there are other hedge funds with even higher profiles that may fall later on. These are surprising and meaningful moves and it suggests that the enforcement community is not yet completely corrupted.

But Goldman’s continued impunity leaves a mighty stink-cloud over American business, no matter how many Raj Rajaratnams get dragged off to jail.

Thanks again to Eric Salzman over at MonkeyBusiness, by the way — and good luck with your new thing.

This article originally appeared on True/Slant and is reprinted with permission.

Matt Taibbi is the author of The Great Derangement and Spanking the Donkey.

The Best of Matt Taibbi

The SEC is holding a public round table Tuesday to explore several issues around securities lending, which has expanded into a big moneymaker for Wall Street firms and pension funds. Regulation hasn’t kept pace, some industry participants contend. Securities lending is central to the practice of short selling, in which investors borrow shares and sell them in a bet that the price will decline. Short sellers later hope to buy back the shares at a lower price and return them to the securities lender, booking a profit. Lending and borrowing also help market makers keep stock trading functioning smoothly.

~ via SEC Weighs New Rules for Lending of Securities — WSJ.com.

Later on this week I have a story coming out in Rolling Stone that looks at the history of the Bear Stearns and Lehman Brothers collapses. The story ends up being more about naked short-selling and the role it played in those incidents than I had originally planned — when I first started looking at the story months ago, I had some other issues in mind, but it turns out that there’s no way to talk about Bear and Lehman without going into the weeds of naked short-selling, and to do that takes up a lot of magazine inches. So among other things, this issue takes up a lot of space in the upcoming story.

Naked short-selling is a kind of counterfeiting scheme in which short-sellers sell shares of stock they either don’t have or won’t deliver to the buyer. The piece gets into all of this, so I won’t repeat the full description in this space now. But as this week goes on I’m going to be putting up on this site information I had to leave out of the magazine article, as well as some more timely material that I’m only just getting now.

Included in that last category is some of the fallout from this week’s SEC “round table” on the naked short-selling issue.

The real significance of the naked short-selling issue isn’t so much the actual volume of the behavior, i.e. the concrete effect it has on the market and on individual companies — and that has been significant, don’t get me wrong — but the fact that the practice is absurdly widespread and takes place right under the noses of the regulators, and really nothing is ever done about it.

It’s the conspicuousness of the crime that is the issue here, and the degree to which the SEC and the other financial regulators have proven themselves completely incapable of addressing the issue seriously, constantly giving in to the demands of the major banks to pare back (or shelf altogether) planned regulatory actions. There probably isn’t a better example of “regulatory capture,” i.e. the phenomenon of regulators being captives of the industry they ostensibly regulate, than this issue.

In that vein, starting tomorrow, the SEC is holding a public “round table” on the naked short-selling issue. What’s interesting about this round table is that virtually none of the invited speakers represent shareholders or companies that might be targets of naked short-selling, or indeed any activists of any kind in favor of tougher rules against the practice. Instead, all of the invitees are either banks, financial firms, or companies that sell stuff to the first two groups.

In particular, there are very few panelists — in fact only one, from what I understand — who are in favor of a simple reform called “pre-borrowing.” Pre-borrowing is what it sounds like; it forces short-sellers to actually possess shares before they sell them.

It’s been proven to work, as last summer the SEC, concerned about predatory naked short-selling of big companies in the wake of the Bear Stearns wipeout, instituted a temporary pre-borrow requirement for the shares of 19 fat-cat companies (no other companies were worth protecting, apparently). Naked shorting of those firms dropped off almost completely during that time.

The lack of pre-borrow voices invited to this panel is analogous to the Max Baucus health care round table last spring, when no single-payer advocates were invited. So who will get to speak? Two guys from Goldman Sachs, plus reps from Citigroup, Citadel (a hedge fund that has done the occasional short sale, to put it gently), Credit Suisse, NYSE Euronext, and so on.

In advance of this panel and in advance of proposed changes to the financial regulatory system, these players have been stepping up their lobbying efforts of late. Goldman Sachs in particular has been making its presence felt.

Last Friday I got a call from a Senate staffer who said that Goldman had just been in his boss’s office, lobbying against restrictions on naked short-selling. The aide said Goldman had passed out a fact sheet about the issue that was so ridiculous that one of the other staffers immediately thought to send it to me. When I went to actually get the document, though, the aide had had a change of heart.

Which was weird, and I thought the matter had ended there. But the exact same situation then repeated itself with another congressional staffer, who then actually passed me Goldman’s fact sheet.

Now, the mere fact that two different congressional aides were so disgusted by Goldman’s performance that they both called me on the same day — and I don’t have a relationship with either of these people — tells you how nauseated they were.

I would later hear that Senate aides between themselves had discussed Goldman’s lobbying efforts and concluded that it was one of the most shameless performances they’d ever seen from any group of lobbyists, and that the “fact sheet” the company had had the balls to hand to sitting U.S. Senators was, to quote one person familiar with the situation, “disgraceful” and “hilarious.”

I’m including the Goldman fact sheets here. They will not make a whole lot of sense to people outside of the finance world, but if you can fight through them, what you’ll find is the statistical equivalent of a non-sequitur. Goldman here is lobbying against restrictions to naked short-selling, and in arguing that point they include a graph showing the levels of “short interest” during two time periods, September—October 2008 (when there was a temporary ban on all short-selling, naked or otherwise) and January—March 2009.

Goldman’s point seems to be that short-selling declined during a period when the market fell sharply, and short-selling went up when the market rallied. I guess on some planet, perhaps not on earth but some other spherical space-boulder, this is supposed to indicate that short-selling is good for the market overall.

(Which, incidentally, it might be. But we’re not talking about short-selling here. We’re talking about naked short-selling).

The thing is, you can’t deduce anything at all about naked short-selling by looking at a graph showing levels of normal short selling. This is like trying to draw conclusions about the frequency of date rape by looking at the number of weddings held. The two things have absolutely nothing to do with one another.

I was so sure that I was missing something that I started asking around. “If you are confused, you are not alone,” one economist wrote back to me. “I have no idea why they are conflating short selling and naked short selling. Members of Congress are probably confused as well.”

The thing is, the only way to draw conclusions about whether or not naked short-selling is a problem is to look at individual cases of individual declines in the share prices of specific companies, and then check to see if there have been large numbers of failed trades in those stocks.

Goldman is not only not doing that here, they’re taking two statistics with no relation to naked short-selling (short interest and stock prices), stats cherry-picked during two seemingly random time-periods, and then slapping them underneath a cover sheet full of platitudes like “The US equities market is increasingly efficient and broadly regarded as the best in the world.” It’s not so much that this is a bad argument, it’s just… not really an argument at all. It’s lazy, really. It makes you wonder what’s going on at that company.

Anyway, I’ve got to run. I’ve got some more stuff coming out in the next few days, including some transcripts of compliance officers from certain banks blabbing about this issue.

This article originally appeared on True/Slant and is reprinted with permission.

Matt Taibbi is the author of The Great Derangement and Spanking the Donkey.

The Best of Matt Taibbi

Laura Blankfein and her friend Susan Friedman, wife of another Goldman honcho, Richard Friedman, caused a huge scene at Super Saturday in the Hamptons last weekend when they arrived at the event before the noon start time and balked at waiting in line with the other ticket-holders.

“Their behavior was obnoxious. They were screaming,” said one witness. Blankfein said she wouldn’t wait with “people who spend less money than me.”

via GOLDMAN SACHS WIVES LAURA BLANKFEIN AND SUSAN FRIEDMAN MAKE SCENE ON LINE IN HAMPTONS — New York Post.

I can’t believe I didn’t see this before. Laura Blankfein going mental over having to wait on line at a charity dinner… this is like the most awesome thing ever. I can just imagine her the next morning, complaining to Lloyd while shining his head with Turtle Wax before he goes off to work.

Meanwhile this is more recent news, apparently:

Police in East Hampton, N.Y., arrested the wife of longtime Goldman Sachs hedge fund guru Ray Iwanowski for drunk driving, according to The New York Post.

Jane Iwanowski, 48, crashed her BMW into a tree in July. A police report stated an intoxicated Iwanowski “was unable to walk or stand,” when questioned while at a hospital.

Fun times in the fast lane!

This article originally appeared on True/Slant and is reprinted with permission.

Matt Taibbi is the author of The Great Derangement and Spanking the Donkey.

The Best of Matt Taibbi

During the week of the A.I.G. bailout alone, Mr. Paulson and Mr. Blankfein spoke two dozen times, the calendars show, far more frequently than Mr. Paulson did with other Wall Street executives.

On Sept. 17, the day Mr. Paulson secured his waivers, he and Mr. Blankfein spoke five times. Two of the calls occurred before Mr. Paulson’s waivers were granted.

via During Crisis, Paulson’s Calls to Goldman Posed Ethics Test — NYTimes.com.

I spoke with someone who was in the Fed offices the whole weekend prior to the AIG bailout, a government official, and he poses an interesting question. Aside from the Fed, the Treasury, and the New York State Department of Insurance, the main players involved in the AIG bailout that weekend were AIG (obviously), JP Morgan, Morgan Stanley, and Goldman Sachs. There were swarms of bankers from the latter three banks there that weekend, poring over AIG’s books, trying to figure out if AIG could be rescued without government help.

Now, we know why AIG was there, obviously. Morgan Stanley was there representing the Treasury (it had been hired to advise the Treasury on the bailouts by Paulson during the Fannie/Freddie mess, with the rumor being that it was the only bank willing to give up market positions that would have left it too conflicted to do the work). JP Morgan we know was there because AIG had hired them weeks before to come in and try to clean up its messes. Only Goldman Sachs did not have an official role at these proceedings.

So why was Goldman there? And why was Paulson calling Goldman two dozen times that week? This is one of the other problems with Gasparino’s account (u201Cof course” Blankfein was there that weekend, he says, not telling us why this is so obvious). I’m not sure I’ve ever seen an official explanation for why Goldman was there that weekend; the ostensible explanation that most people seem to accept is that Goldman naturally was there because it was such a large counterparty to AIG.

But I suspect we’re going to find that Paulson was not on the phone two dozen times with executives from Deutsche Bank or Societe Generale or Barclays or Calyon, all of whom were significant counterparties to AIG as well. Goldman was not even AIG’s largest counterparty in the sec-lending wing of its business (Deutsche Bank was, and would eventually receive $7 billion via the bailout as a result), and yet as far as I know there were no Deutsche reps there that weekend at all. So what made Goldman special?

This is a good question, I think.

This article originally appeared on True/Slant and is reprinted with permission.

Matt Taibbi is the author of The Great Derangement and Spanking the Donkey.

The Best of Matt Taibbi

So you can see why Goldman alums sometimes don’t do very impressively once they leave Goldman. They find themselves in positions where no one questions their premises and it’s hard to get good feedback and pushback. (This is why Paulson employed telephone banks of analysts to call Wall Street to solicit opinions.) Outside of the Goldman womb of debate and ideas, bankers and traders lack perspective. You might say that no Goldman is an island.

via Will Everyone Please Shut Up About Goldman Sachs? | The Big Money.

And the winner of this month’s Most Retarded Horses__t Written In Defense of Goldman Sachs award goes to… Heidi Moore at Big Money! Come on down, Heidi!

This stuff is just getting funnier and funnier. Now that both Michael Lewis and Joe Hagan at New York have piled on and hammered the “magical” Wall Street bank’s reputation, the tearful, wounded apologies on the bank’s behalf are trickling in with some more urgency, especially now that, as Moore puts it, the bank faces the specter of “disastrously populist” hearings in the Senate for (and Moore left out this part) selling crap mortgages while shorting them at the same time.

This latest effort by Moore over at the Slate-run “Big Money” column is absolutely hilarious. She manages to write a fairly lengthy three-page article defending Goldman without addressing a single one of the main criticisms recently leveled at the bank. The piece is a protracted exercise in goalpost-moving, as her premise is that what Goldman’s critics accuse it of is not using the power of the state to bail itself out and enrich itself at the expense of others, but of having “designed the kind of hive mind that controls anything it touches.” According to Moore, the defense against the charge that Goldman executives have “the kind of hive mind that can control everything that it touches” is the fact that they fared so badly in their attempts at “controlling” government and popular opinion. She actually writes the following:

If you believe that Goldman Sachs has designed the kind of devastating hive mind that can control any institution it touches, including the U.S. government, you also have to explain why Goldman Sachs alums have a history of not functioning terribly well outside of Goldman. Why, for instance, did Henry Paulson, by all accounts a brilliant man, flounder about in the politics of the Treasury so desperately that he was forced at one point to plead with Nancy Pelosi on bended knee? Why did the first TARP overseer, Neel Kashkari, get yelled at by Congress while performing the thankless job of managing the $700 billion kitty of the government? Why did Edward Liddy, former Goldman board member who served as the new CEO of AIG (AIG), quit in a huff over bonuses?

Moore here is arguing that because Hank Paulson actually had to beg the House majority leader for $700 billion in no-strings-attached money to bail out his buddies, and because Neel Kashkari got “yelled at” for unilaterally changing the TARP mission in defiance of congressional orders (and for refusing to provide congress with information about where TARP money went and how he chose whom to give it to), and because former Goldman banker Ed Liddy evoked popular anger for using public money to shell out bonuses to the very department of AIG that bet $450 billion without having a dime to cover it (“necessitating” the bailout), that all of this somehow is proof that Goldman does not “have the kind of hive mind that conrols everything.”

In Moore’s mind, (or, as a friend of mine would put it, “in what passes for Moore’s mind”) this is a defense of Goldman because, if Goldman was as powerful as we all say, Goldman would have just zapped its “hive mind” at Nancy Pelosi, congress, and the public, and none of those parties would have bothered to criticize the bank. Logically put! Let’s put this argument into the form of a syllogism:

All all-powerful hive-mind institutions can make themselves immune to criticism,

But, Goldman Sachs failed to prevent absolutely everyone from complaining about its behavior.

Therefore, Goldman Sachs did not use public money and influence with the state to make itself billions in profits.

It gets better. Steaming ahead from there, Moore blows off the question of how Goldman made its profits this year, and simply assumes that the rest of us are not aware that Goldman has a wonderful corporate culture that is the root of its success. Among other things, the bank apparently encourages openness and disagreement (it’s funny how those of us on the outside of the bank do not notice these qualities too much)! Here she explains:

It’s not that Goldman doesn’t have its egos — it surely does — but as a matter of management, the firm also has several safeguards in place to keep rampant egos from destroying decision-making. Another thing that makes Goldman different from other firms is not that all Goldman bankers agree but that they are free — and, in fact, encouraged — to disagree.

So, gosh, I stand corrected, I guess. Because I thought that Goldman made a ton of money this year because it got a special waiver (fast-forwarding through the usual five-day antitrust waiting period, thanks to their buddies in the Fed) to instantly switch to bank holding company status and make itself eligible for $28 billion in FDIC-backed lending. I thought it got $13 billion in public money via the AIG bailout and hundreds millions more in extra underwriting fees through its work underwriting stock for banks repaying TARP money. I didn’t know that it made all that money because it had internal safeguards in place to rein in egos. I feel foolish now. Moore proceeds with a touching story:

John Thain once presented a case for Goldman’s IPO to the management committee, and several of his fellow partners disagreed. Thain’s reply to his vehement colleagues, according to Bloomberg: “Would it hurt you to suck up to me once in a while?” CFO David Viniar is a dragonlike protector of the firm’s balance sheet, known to shoot down trading ideas and expansion plans day in and day out. Viniar’s default answer, according to Goldman bankers, is “No,” and he is known for his even-handed rejection of expensive schemes.

Yeah, David Viniar, he’s really a demon when it comes to rejecting “expensive” schemes, isn’t he? Like the time he green-lighted that $20 billion in counterparty risk to that knucklehead Joe Cassano over at AIG, or the time he flinched when Blankfein wanted to jack the firm’s debt-to-equity ratio to 24-1 (oh, wait, he didn’t flinch. That was some other universe). And John Thain, I can see how great all of that famed Goldman humility culture has been for him. Dude only ordered a $1.2 million office renovation for himself while at Merrill (including a $1400 waste basket and the infamous $87,000 area rug) despite the fact that the firm had just seen $8.4 billion in write-downs under his management and laid off 3,300 people. Guess that ego really was reined in!

Moore goes on. It turns out — and this is another thing us critics of Goldman were not aware of — that there is a strong Attaboy! culture at Goldman, Sachs. It’s not that the firm sold crap $500-million mortgage deals with equity-to-value ratios of 99.21% as AAA-rated securities, then bet against those same securities; no, that’s not how they made their money. They made their money because management makes sure it feels just so darn good to work hard and do well there! Moore recounts:

Also, Goldman bankers and traders use the voice-mail system to give colleagues frequent snaps for a job well done. I was once in the office of a Goldman partner when he left a voice mail for a junior banker thanking her for introducing him to her client. Goldman won the piece of business. The implication, as well, was that it would be remembered at her year-end review. At most other firms, that’s a rare gesture.

But that isn’t all. It turns out there’s more to the secret of Goldman’s success: clothes! You see, while the executives of other companies needlessly waste their money on fancy suits, the highly-focused men of Goldman Sachs put all their effort into the job:

Goldman bankers also don’t look like other bankers on Wall Street. (And I don’t mean that they’re all bald and went to Dartmouth.) The firm has a reputation for producing menschy, nebbishy types who physically betray none of the intellectual magic ascribed to them; frayed cuffs, baggy suits, and lost buttons regularly adorn even the firm’s highest-earning millionaires and are worn as a source of pride. Goldman Sachs is suspicious of flashiness in an industry in which the most prominent bankers are beautifully dressed in snowy collars and suits so precisely tailored and finely woven that the wool fabric reflects light.

Moore wrote that passage at the bottom of page 2 in her piece. I expected the “point” to be in whatever paragraph began the next page. I clicked and read, instead:

At a financial conference at the New York Stock Exchange in 2006, I saw Lloyd Blankfein waiting his turn to go onstage while standing in a crowded room of reporters. Journalists, standing three-deep, surrounded bank executives at the conference. But not one reporter in the room seemed to recognize or approach the unassuming Blankfein, who was in shirtsleeves and wearing a baggyish suit — and also, at the time, was the chief executive of one of the largest investment banks. Byron Trott, the Goldman Warren Buffett, lacks flash; he looks more like a prosperous Midwestern architect than a millionaire Master of the Universe.

Again, apologies are in order! It’s not that Goldman cooked its first-quarter profit numbers, or was using a computer program that by its own admission could be used to manipulate the New York Stock Exchange, or that it got a special waiver for the entirety of 2009 to ditch traditional accounting to make its risk appetite look lower, or that it gorged itself on public money for a year and turned almost all of that money into bonuses for its employees, in the middle of a crisis in which vast numbers of Americans are literally going hungry and losing their homes. All of that is an error of perception. Why, just look at Lloyd Blankfein! Would a man wearing a suit that baggy be guilty of such things?

This is really what Moore is saying! It’s that stupid! Enjoy it while you can, folks, because one doesn’t often see p.r. flacking this entertainingly ham-handed and idiotic. The ones who are capable of it, they usually don’t survive to adulthood; they get clipped from the herd by predators.

Moore concludes with the following passage:

So you can see why Goldman alums sometimes don’t do very impressively once they leave Goldman. They find themselves in positions where no one questions their premises and it’s hard to get good feedback and pushback. (This is why Paulson employed telephone banks of analysts to call Wall Street to solicit opinions.) Outside of the Goldman womb of debate and ideas, bankers and traders lack perspective.

So let me get this straight. Goldman Sachs employees are so used to criticism and the free exchange of ideas that they flounder once they’re in public office, where “no one questions their premises” and “it’s hard to get good feedback”? Am I having an acid flashback, or is this the same Heidi Moore who 360 words ago was bitching about how Paulson, Kashkari, and Liddy faced such heated resistance to their “premises” after leaving Goldman?

This Moore piece, it shows how desperate the game has gotten for Goldman. They and their shills are reduced now to arguing that they make their money because their employees pat each other on the back and do trust-falls to instill mutual confidence in each other. The whole world is throwing heavy subpoenas and damning stacks of numbers at them, and they’re coming back with, “We succeed because we let a smile be our umbrella.” This s__t is literally as weak as it gets.

This article originally appeared on True/Slant and is reprinted with permission.

Matt Taibbi is the author of The Great Derangement and Spanking the Donkey.

The Best of Matt Taibbi

Equity underwriting boomed during the period as dozens of banks raised money to strengthen capital and repay Troubled Asset Relief Program funds. The business reported record revenue of $736 million.
via Article — WSJ.com.

So what’s wrong with Goldman posting $3.44 billion in second-quarter profits, what’s wrong with the company so far earmarking $11.4 billion in compensation for its employees? What’s wrong is that this is not free-market earnings but an almost pure state subsidy.

Last year, when Hank Paulson told us all that the planet would explode if we didn’t fork over a gazillion dollars to Wall Street immediately, the entire rationale not only for TARP but for the whole galaxy of lesser-known state crutches and safety nets quietly ushered in later on was that Wall Street, once rescued, would pump money back into the economy, create jobs, and initiate a widespread recovery. This, we were told, was the reason we needed to pilfer massive amounts of middle-class tax revenue and hand it over to the same guys who had just blown up the financial world. We’d save their asses, they’d save ours. That was the deal.

It turned out not to happen that way. We constructed this massive bailout infrastructure, and instead of pumping that free money back into the economy, the banks instead simply hoarded it and ate it on the spot, converting it into bonuses. So what does this Goldman profit number mean? This is the final evidence that the bailouts were a political decision to use the power of the state to redirect society’s resources upward, on a grand scale. It was a selective rescue of a small group of chortling jerks who must be laughing all the way to the Hamptons every weekend about how they fleeced all of us at the very moment the game should have been up for all of them.

Now, the counter to this charge is, well, hey, they made that money fair and square, legally, how can you blame them? They’re just really smart!

Bulls__t. One of the most hilarious lies that has been spread about Goldman of late is that, since it repaid its TARP money, it’s now free and clear of any obligation to the government — as if that was the only handout Goldman got in the last year. Goldman last year made your average AFDC mom on food stamps look like an entrepreneur. Here’s a brief list of all the state aid that is hiding behind that $3.44 billion number they announced the other day. In no particular order:

1. The AIG bailout. Goldman might have gone out of business last year if AIG had been allowed to proceed to an ordinary bankruptcy, as AIG owed Goldman about $20 billion at the time it went into a death spiral. Instead, Goldman gets to call upon its former chief, Hank Paulson, who green-lights this massive, $80 billion bailout of AIG (with Lloyd Blankfein in the room), at least $12.9 billion of which went straight to Goldman. Moreover, let’s not forget this: both Goldman and Bank Societe Generale had been tattooing AIG with collateral calls in the period before AIG’s collapse, with Goldman extracting a full $5.9 billion from the company during that time. It was those collateral calls that really killed AIG.

Now, ask yourself: exactly how big would Goldman’s profits be this year, if they had to fill a still-extant $13 billion or even a $20 billion hole on its balance sheet from AIG’s collapse? You think it would still be $3.44 billion? What if Hank Paulson had elected to save Lehman instead of saving AIG/Goldman, how big would Goldman’s profits be then? Is anyone even asking this question?

I keep hearing people say, “Well, so what — it’s only fair that Goldman got paid off for its deals with AIG. After all, AIG was contractually obligated to Goldman. Goldman deserves that money, because it was doing the right thing in buying insurance from AIG in the first place.”

That’s bulls__t, too. As Rich Bennett over at the hilarious monkey business blog pointed out to me the other day, Goldman was insane and reckless in making those deals with AIG. Goldman wasn’t removing risk from its books by buying CDS protection from AIG, they were exchanging one kind of risk for another kind of risk, counterparty risk. “If you have too much risk to one entity and they go bust, you’re s__t outta luck,” Rich says. “They took AIG for a ride, and when the music stopped, they and their partners were going to be taking up the proverbial tookus.”

So to review: Goldman makes insane bets, runs wild on AIGFP’s house idiot Joe Cassano for a while, sticking him with $20 billion in risk, and when it all went to s__t — as it inevitably had to — they drove a big stake through AIG’s heart and got the government to step in and pay them off using our money. How’s that for market capitalism? Just like Adam Smith drew it up, right? They’re just smart guys!

2. TARP. Much discussed, no need to really review here. Goldman got its $10 billion. It paid off its $10 billion. Good for them. However, there’s one thing to note here, and it hasn’t been mentioned really at all in the press. It is continually reported that now that Goldman has repaid its TARP money, it no longer has restrictions on its executive compensation. That’s actually not true. The government still holds warrants from Goldman and other companies that it acquired during the TARP process, and until the banks pay off those warrants (and they’re all already trying to pay them off at below market prices), the Treasury still technically has the authority to prevent lavish bonuses. Not that that will happen, of course, and this is yet another government handout — a firmer government would be hard on Goldman to the end of the process, while this government is doing its matador job and waving through these massive bonuses early on in the repayment schedule.

3. The Temporary Liquidity Guarantee Program. So Goldman last year converts from an investment bank to bank holding company status, which now makes it eligible for a new program that gives commercial banks FDIC backing for unsecured debt. This is not a direct subsidy in the sense of us actually handing over a bunch of money to Goldman, but it’s almost better, in a way. This basically hands over a free AAA rating to the big banks and allows them access to mountains of cheap money, with all of us on the hook if something went wrong. This is the equivalent of telling Exxon it can take crude from the Strategic Petroleum Reserve at below-market rates during an energy crisis and then turn around and sell it on the market at whatever price it wants, and pocket the difference, for the good of God and country. Goldman took full advantage of this deal, issuing $28 billion in FDIC-backed debt after its conversion. Exactly how hard is it for a bank to make a profit when it has unlimited access to virtually free money? It is almost impossible for banks to not make money when their cost of capital sinks this low.

Ask yourself this question: has borrowing money gotten any cheaper for you this year? Did someone from the government walk up to you after you foreclosed on your house or missed payments on your charge card and, as a favor, just because you’re so cool, jack your credit score back up to the 99th percentile and invite you to start all over again? Because that’s what happened to these assholes. They made every bad move you can think of and they not only got a clean credit slate but a virtually ceiling-free spending limit.

4. The Fed Programs. By converting to a bank holding company, Goldman also became eligible for a whole galaxy of new bailout programs administered through the federal reserve like the Term Asset-Backed Securities Loan Facility (TALF); it also became eligible to borrow cheap money from the Fed’s discount window. There is so much to cover here that it would take forever to get to all of it, but the key number to remember here is $2.2 trillion (not billion, trillion). That’s how much the Fed has lent out in assistance since this crisis started and we have no idea how much of it went to Goldman or any other firm, thanks to Ben Bernanke, who refuses to disclose this information. But you can bet that Goldman has taken full advantage of all the various programs designed to relieve the banks of the worthless crap assets they acquired while they were playing roulette the past ten years or so. We just have no idea how much crap they unloaded on the Fed, or how much they borrowed. Would you really bet that it wasn’t much?

5. The TARP Repayment Bonanza. See the story at the top of this piece. As part and parcel of the TARP program, the banks that received money had strict guidelines imposed on them by the state in the area of how they could raise the money to repay. TARP recipients had to issue new equity according to certain parameters, and guess who one of the only major equity underwriters left on Wall Street is? That’s right, Goldman, Sachs. So say International Reckless Dickwad Bank needs to issue $100 million in new stock to pay off TARP; they hire Goldman to do the deal, and since the fee for equity underwriting is 7%, Goldman gets, in essence, a state-mandated $7 million fee. Because so much money was lent out under TARP, the underwriters on Wall Street made a massive bonanza on all the new bank stock. As noted above, Goldman’s equity underwriting department hauled in $736 million this quarter. Does this happen without the bailouts? No. Do the bailouts happen if banks like Goldman hadn’t blown up the universe in the first place? No. You do the math; this is another subsidy.

And that’s just some of the help they’ve gotten. Should we bother to count Goldman’s status as one of just 17 remaining primary dealers in U.S. Treasuries, which naturally did a crisp business last year as the U.S. borrowed its way out of a hole the banks had themselves created? Should we count the ban on short-selling Goldman asked for and got last year? Or how about the seemingly obvious fact that the bank used all of this state assistance and guarantees as a crutch to prop up lots of new risk-taking activity, which was the exact opposite of what was supposed to have been achieved by the bailouts, which were supposed to usher in an new era of austerity and temperance?

As Felix Salmon notes, Goldman last year, after it converted to bank holding company status, announced that it was “taking steps to reduce leverage.” But what’s happened since then is that Goldman has actually been emboldened by all its state backing to borrow more and gamble more than ever. This is the equivalent of a regular casino gambler who hears that the house has doubled down on his credit line and decides to stay up at the tables all night, instead of going home and sobering up. Just look at Goldman’s VaR, or Value at Risk, which measures the amount of money the bank puts at risk on any given day: it’s soared since last year.

Taken altogether, what all of this means is that Goldman’s profit announcement is a giant “f__k you” to the rest of the country. It is a statement of supreme privilege, an announcement that it feels no shame in taking subsidies and funneling them directly into their pockets, and moreover feels no fear of any public response. It knows that it’s untouchable and it’s not going to change its behavior for anyone. And it doesn’t matter who knows it.

There are going to be some people who say that some of this stuff isn’t government subsidy so much as ordinary government contracting. After all, do we criticize Boeing for making airplanes or Electric Boat for making submarines during a war? If we don’t do that, then why should we be pissed about Goldman making a profit underwriting TARP repayment stock issuances, or Treasuries?

The difference is that Boeing and Electric Boat didn’t start the war. But these guys on Wall Street caused this crisis, and now they’re raking in money on the infrastructure their buddies in government have devised to bail them out. It’s a self-fulfilling cycle — beautiful, in a way, but at the same time sort of uniquely disgusting. That they’re going to get away with it is bad enough — that they’re getting praised for it, for being such smart guys, is damn near intolerable.

This article originally appeared on True/Slant and is reprinted with permission.

Matt Taibbi is the author of The Great Derangement and Spanking the Donkey.

The Best of Matt Taibbi

Equity underwriting boomed during the period as dozens of banks raised money to strengthen capital and repay Troubled Asset Relief Program funds. The business reported record revenue of $736 million. via Article – WSJ.com.

So what’s wrong with Goldman posting $3.44 billion in second-quarter profits, what’s wrong with the company so far earmarking $11.4 billion in compensation for its employees? What’s wrong is that this is not free-market earnings but an almost pure state subsidy.

Last year, when Hank Paulson told us all that the planet would explode if we didn’t fork over a gazillion dollars to Wall Street immediately, the entire rationale not only for TARP but for the whole galaxy of lesser-known state crutches and safety nets quietly ushered in later on was that Wall Street, once rescued, would pump money back into the economy, create jobs, and initiate a widespread recovery. This, we were told, was the reason we needed to pilfer massive amounts of middle-class tax revenue and hand it over to the same guys who had just blown up the financial world. We’d save their asses, they’d save ours. That was the deal.

It turned out not to happen that way. We constructed this massive bailout infrastructure, and instead of pumping that free money back into the economy, the banks instead simply hoarded it and ate it on the spot, converting it into bonuses. So what does this Goldman profit number mean? This is the final evidence that the bailouts were a political decision to use the power of the state to redirect society’s resources upward, on a grand scale. It was a selective rescue of a small group of chortling jerks who must be laughing all the way to the Hamptons every weekend about how they fleeced all of us at the very moment the game should have been up for all of them.

Now, the counter to this charge is, well, hey, they made that money fair and square, legally, how can you blame them? They’re just really smart!

Bullshit. One of the most hilarious lies that has been spread about Goldman of late is that, since it repaid its TARP money, it’s now free and clear of any obligation to the government – as if that was the only handout Goldman got in the last year. Goldman last year made your average AFDC mom on food stamps look like an entrepreneur. Here’s a brief list of all the state aid that is hiding behind that $3.44 billion number they announced the other day. In no particular order:

1. The AIG bailout. Goldman might have gone out of business last year if AIG had been allowed to proceed to an ordinary bankruptcy, as AIG owed Goldman about $20 billion at the time it went into a death spiral. Instead, Goldman gets to call upon its former chief, Hank Paulson, who green-lights this massive, $80 billion bailout of AIG (with Lloyd Blankfein in the room), at least $12.9 billion of which went straight to Goldman. Moreover, let’s not forget this: both Goldman and Bank Societe Generale had been tattooing AIG with collateral calls in the period before AIG’s collapse, with Goldman extracting a full $5.9 billion from the company during that time. It was those collateral calls that really killed AIG.

Now, ask yourself: exactly how big would Goldman’s profits be this year, if they had to fill a still-extant $13 billion or even a $20 billion hole on its balance sheet from AIG’s collapse? You think it would still be $3.44 billion? What if Hank Paulson had elected to save Lehman instead of saving AIG/Goldman, how big would Goldman’s profits be then? Is anyone even asking this question?

I keep hearing people say, “Well, so what — it’s only fair that Goldman got paid off for its deals with AIG. After all, AIG was contractually obligated to Goldman. Goldman deserves that money, because it was doing the right thing in buying insurance from AIG in the first place.”

That’s bullshit, too. As Rich Bennett over at the hilarious monkey business blog pointed out to me the other day, Goldman was insane and reckless in making those deals with AIG. Goldman wasn’t removing risk from its books by buying CDS protection from AIG, they were exchanging one kind of risk for another kind of risk, counterparty risk. “If you have too much risk to one entity and they go bust, you’re shit outta luck,” Rich says. “They took AIG for a ride, and when the music stopped, they and their partners were going to be taking up the proverbial tookus.”

So to review: Goldman makes insane bets, runs wild on AIGFP’s house idiot Joe Cassano for a while, sticking him with $20 billion in risk, and when it all went to shit — as it inevitably had to — they drove a big stake through AIG’s heart and got the government to step in and pay them off using our money. How’s that for market capitalism? Just like Adam Smith drew it up, right? They’re just smart guys!

2. TARP. Much discussed, no need to really review here. Goldman got its $10 billion. It paid off its $10 billion. Good for them. However, there’s one thing to note here, and it hasn’t been mentioned really at all in the press. It is continually reported that now that Goldman has repaid its TARP money, it no longer has restrictions on its executive compensation. That’s actually not true. The government still holds warrants from Goldman and other companies that it acquired during the TARP process, and until the banks pay off those warrants (and they’re all already trying to pay them off at below market prices), the Treasury still technically has the authority to prevent lavish bonuses. Not that that will happen, of course, and this is yet another government handout — a firmer government would be hard on Goldman to the end of the process, while this government is doing its matador job and waving through these massive bonuses early on in the repayment schedule.

3. The Temporary Liquidity Guarantee Program. So Goldman last year converts from an investment bank to bank holding company status, which now makes it eligible for a new program that gives commercial banks FDIC backing for unsecured debt. This is not a direct subsidy in the sense of us actually handing over a bunch of money to Goldman, but it’s almost better, in a way. This basically hands over a free AAA rating to the big banks and allows them access to mountains of cheap money, with all of us on the hook if something went wrong. This is the equivalent of telling Exxon it can take crude from the Strategic Petroleum Reserve at below-market rates during an energy crisis and then turn around and sell it on the market at whatever price it wants, and pocket the difference, for the good of God and country. Goldman took full advantage of this deal, issuing $28 billion in FDIC-backed debt after its conversion. Exactly how hard is it for a bank to make a profit when it has unlimited access to virtually free money? It is almost impossible for banks to not make money when their cost of capital sinks this low.

Ask yourself this question: has borrowing money gotten any cheaper for you this year? Did someone from the government walk up to you after you foreclosed on your house or missed payments on your charge card and, as a favor, just because you’re so cool, jack your credit score back up to the 99th percentile and invite you to start all over again? Because that’s what happened to these assholes. They made every bad move you can think of and they not only got a clean credit slate but a virtually ceiling-free spending limit.

4. The Fed Programs. By converting to a bank holding company, Goldman also became eligible for a whole galaxy of new bailout programs administered through the federal reserve like the Term Asset-Backed Securities Loan Facility (TALF); it also became eligible to borrow cheap money from the Fed’s discount window. There is so much to cover here that it would take forever to get to all of it, but the key number to remember here is $2.2 trillion (not billion, trillion). That’s how much the Fed has lent out in assistance since this crisis started and we have no idea how much of it went to Goldman or any other firm, thanks to Ben Bernanke, who refuses to disclose this information. But you can bet that Goldman has taken full advantage of all the various programs designed to relieve the banks of the worthless crap assets they acquired while they were playing roulette the past ten years or so. We just have no idea how much crap they unloaded on the Fed, or how much they borrowed. Would you really bet that it wasn’t much?

5. The TARP Repayment Bonanza. See the story at the top of this piece. As part and parcel of the TARP program, the banks that received money had strict guidelines imposed on them by the state in the area of how they could raise the money to repay. TARP recipients had to issue new equity according to certain parameters, and guess who one of the only major equity underwriters left on Wall Street is? That’s right, Goldman, Sachs. So say International Reckless Dickwad Bank needs to issue $100 million in new stock to pay off TARP; they hire Goldman to do the deal, and since the fee for equity underwriting is 7%, Goldman gets, in essence, a state-mandated $7 million fee. Because so much money was lent out under TARP, the underwriters on Wall Street made a massive bonanza on all the new bank stock. As noted above, Goldman’s equity underwriting department hauled in $736 million this quarter. Does this happen without the bailouts? No. Do the bailouts happen if banks like Goldman hadn’t blown up the universe in the first place? No. You do the math; this is another subsidy.

And that’s just some of the help they’ve gotten. Should we bother to count Goldman’s status as one of just 17 remaining primary dealers in U.S. Treasuries, which naturally did a crisp business last year as the U.S. borrowed its way out of a hole the banks had themselves created? Should we count the ban on short-selling Goldman asked for and got last year? Or how about the seemingly obvious fact that the bank used all of this state assistance and guarantees as a crutch to prop up lots of new risk-taking activity, which was the exact opposite of what was supposed to have been achieved by the bailouts, which were supposed to usher in an new era of austerity and temperance?

As Felix Salmon notes, Goldman last year, after it converted to bank holding company status, announced that it was “taking steps to reduce leverage.” But what’s happened since then is that Goldman has actually been emboldened by all its state backing to borrow more and gamble more than ever. This is the equivalent of a regular casino gambler who hears that the house has doubled down on his credit line and decides to stay up at the tables all night, instead of going home and sobering up. Just look at Goldman’s VaR, or Value at Risk, which measures the amount of money the bank puts at risk on any given day: it’s soared since last year.

Taken altogether, what all of this means is that Goldman’s profit announcement is a giant “fuck you” to the rest of the country. It is a statement of supreme privilege, an announcement that it feels no shame in taking subsidies and funneling them directly into their pockets, and moreover feels no fear of any public response. It knows that it’s untouchable and it’s not going to change its behavior for anyone. And it doesn’t matter who knows it.

There are going to be some people who say that some of this stuff isn’t government subsidy so much as ordinary government contracting. After all, do we criticize Boeing for making airplanes or Electric Boat for making submarines during a war? If we don’t do that, then why should we be pissed about Goldman making a profit underwriting TARP repayment stock issuances, or Treasuries?

The difference is that Boeing and Electric Boat didn’t start the war. But these guys on Wall Street caused this crisis, and now they’re raking in money on the infrastructure their buddies in government have devised to bail them out. It’s a self-fulfilling cycle — beautiful, in a way, but at the same time sort of uniquely disgusting. That they’re going to get away with it is bad enough — that they’re getting praised for it, for being such smart guys, is damn near intolerable.

This article originally appeared on True/Slant and is reprinted with permission.

Matt Taibbi is the author of The Great Derangement and Spanking the Donkey.

The Best of Matt Taibbi

After my recent piece about Goldman, Sachs hit the newsstands last week, I started to get a lot of mail. Most of it was thoughtful and respectful criticism, although there was an amusingly large number of people writing in impassioned defense of their right, under our American system, to be ripped off by large impersonal financial companies. “If my pension fund is buying [crap mortgages] from Goldman, and my pension fund loses lots of value, that’s not Goldman’s fault,” wrote one reader. “No one is forcing anyone to buy anything. The only thing Goldman is guilty of is making profits.”

I’m not even going to go there — the psychology of a human being who would take the time to actually write in a complaint like that is so bizarre that it would take more time than I have today to even begin discussing it. One other complaint that I will address quickly, though, is the notion that I didn’t tell Goldman’s side of the story. “Not exactly a balanced approach,” complained one reader. “You should take an ethics class. You have to give the other side a fair shot.”

Actually I did contact Goldman and gave the bank every opportunity to respond to the factual issues in the article. I’m bringing this up because their decision not to comment on any of those questions was actually pretty interesting.

We figured ahead of time that Goldman was probably not going to respond to many of the allegations in the article, since its MO in the past with regard to hostile journalists has usually either been to make bald denials or to simply avoid comment (that’s when they’re not using the carpet-bomb litigation technique, as in the case of GoldmanSachs666.com). So what I decided to do the first time I approached them was to send a short list of simple factual questions. If the bank decided to engage us and educate us as to its point of view on these simple questions, we would send more queries and expand the dialogue.

Given this, I tried to make that first list of questions as basic as possible. I asked if Goldman would have turned a profit in Q1 2009 if it hadn’t orphaned the month of December 2008. Then I asked if Goldman had made changes to its underwriting standards during the internet boom years; if Goldman’s position was still that the steep rise in oil prices last year was due to normal changes in supply and demand; and if it could explain its 1991 request to the CFTC to have its subsidiary J. Aron classified as a physical hedger on the commodities market. Citing various sources, I also noted that some people had complained that its move to short the mortgage market in 2006 even as it was selling those same types of instruments proved that the bank knew the weakness of its mortgage products, and asked if the bank had an answer for that. And I asked if the bank supported cap-and-trade legislation, and if it was fair to say (as we planned to in the piece) that the bank would capitalize financially if such legislation was passed.

I intentionally put a lot of yes/no questions on that list. If the underlying thinking behind any of those questions was faulty, it would have been easy enough for them to say so and to educate us as to the truth. Instead, here is the response that we got:

“Your questions are couched in such a way that presupposes the conclusions and suggests the people you spoke with have an agenda or do not fully understand the issues.”

You have to have swallowed half a lifetime of carefully-worded p.r. statements to see the message written between the lines here. That this is a non-denial denial is obvious, but what’s more notable here is that they didn’t stop with just a flat “no comment,” which they easily could have done. No, they had to go a little further than that and — and this is pure Goldman, just outstanding stuff — make it clear that both I and my sources are simply not as smart as they are and don’t understand what we’re talking about. So the rough translation here is, “No comment, but if you were as smart as us, you wouldn’t be asking these questions.”

So now word filters through that Goldman has issued yet another statement in response to the piece, this one by amusingly-named mouthpiece Lucas Van Pragg. Again, the company does not take issue with any of the facts in the piece — not one. Here’s what he says:

Taibbi’s bubble case doesn’t stand up to serious scrutiny either. To give just two examples, even with the worst will in the world, the blame for creating the internet bubble cannot credibly be laid at our door, and we could hardly be described as having been a major player in the mortgage market, unlike so many of our current and former competitors.

Taibbi’s article is a compilation of just about every conspiracy theory ever dreamed up about Goldman Sachs, but what real substance is there to support the theories?

We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance of being a force for good.

Okay, let’s look at that bit piece by piece. Van Pragg takes issue with the bubble argument by citing two “examples” of the case not holding water, the first being:

… the blame for creating the internet bubble cannot credibly be laid at our door…

I kept waiting for the “because…” clause here, but there wasn’t one. He just says so and leaves it at that. Now there is obviously some measure of hyperbole in solely blaming Goldman Sachs for something like the internet bubble, or any of the other recent Wall Street disasters, for that matter. But you’d have to be absolutely crazy (and you wouldn’t need “the worst will in the world,” either) not to accept the notion that Goldman shouldered a significant portion of the blame for the internet mess. They were, after all, the leading underwriter of internet IPOs during the internet boom years. In 1999, at the height of the boom, they underwrote 37 internet companies, most of which had little or no history and were losing money at the time of the launch. By late 1999 Goldman was underwriting one out of every five internet IPOs. They were repeatedly caught and punished for manipulating the prices of their IPOs, either via laddering or spinning. Van Pragg doesn’t deny any of this, and just blithely says that one can’t credibly blame them for the internet bubble. I’m almost insulted by the lameness and half-assedness of that comeback, but that might be part of the point, to be insulting. He moves on:

…and we could hardly be described as having been a major player in the mortgage market, unlike so many of our current and former competitors.

Again, not to beat this into the ground, but in 2006, at the height of the housing boom, Goldman underwrote over $75 billion in mortgages, over $59 billion of which were non-prime. That represented 7% of the entire market, which seems like a pretty “major” slice to me. It is true that they did not jump so completely ass-first into the market as Lehman and Bear did (note Van Pragg’s bemused reference to “former competitors”), but if you read the piece, we noted why that doesn’t take them off the hook at all. Because while their “former competitors” (one of whom is clearly “former” in large part because a former Goldmanite, Hank Paulson, elected to save Goldman’s hide instead of Lehman’s) were dumb enough to hold their mortgage paper and be sunk by it, Goldman shorted their own crap, which means (and I know I’m repeating myself here) they knew that what they were selling was a loser. So while they maybe weren’t the biggest player, they were still a major player, and one can easily make the case that they were the most obnoxious player, given that they dove into this muck with their eyes wide open, unlike so many other idiots on Wall Street.

In the middle of this weirdly substanceless retort, Van Pragg then goes on complain about the lack of substance in the article, makes the predictable charge that the piece was a compendium of invented conspiracy theories, then moves on to “reject” the notion that the company inflates bubbles and profits in busts (about that last part: I recommend checking out Goldman’s profit/bonus numbers in 2002, 2008, and 2009 to date. I’m not sure how they can refute the notion that they have profited during the recent financial calamities). Lastly, he says that the bank is “painfully conscious” of the importance of being a force for good, which I noted with amusement is not quite the same thing as saying that that bank is a force for good, or wants to be.

So to sum up, this all translates as:

“Taibbi’s bubble case doesn’t hold water. To use just two examples, Taibbi’s internet bubble case doesn’t hold water, and we didn’t sell as many mortgages as Lehman Brothers. Taibbi’s article is a compendium of every other story about Goldman that doesn’t hold water. We reject these theories that do not hold water, and are aware of the difference between right and wrong, making us legally sane according to the law.”

I’m aware that some people feel that it’s a journalist’s responsibility to “give both sides of the story” and be “even-handed” and “objective.” A person who believes that will naturally find serious flaws with any article like the one I wrote about Goldman. I personally don’t subscribe to that point of view. My feeling is that companies like Goldman Sachs have a virtual monopoly on mainstream-news public relations; for every one reporter like me, or like far more knowledgeable critics like Tyler Durden, there are a thousand hacks out there willing to pimp Goldman’s viewpoint on things in the front pages and ledes of the major news organizations. And there are probably another thousand poor working stiffs who are nudged into pushing the Goldman party line by their editors and superiors (how many political reporters with no experience reporting on financial issues have swallowed whole the news clich about Goldman being the “smart guys” on Wall Street? A lot, for sure).

Goldman has its alumni pushing its views from the pulpit of the U.S. Treasury, the NYSE, the World Bank, and numerous other important posts; it also has former players fronting major TV shows. They have the ear of the president if they want it. Given all of this, I personally think it’s absurd to talk about the need for “balance” in every single magazine and news article. I understand that some people feel differently, but that’s my take on things.

This article originally appeared on True/Slant and is reprinted with permission.

Matt Taibbi is the author of The Great Derangement and Spanking the Donkey.

The Best of Matt Taibbi

After my Rolling
Stone piece about Goldman, Sachs hit the newsstands last week (unfortunately
the piece is not yet up on the magazine’s web site, so I can’t
link to it yet – but it is out in print), I started to get
a lot of mail. Most of it was thoughtful and respectful criticism,
although there was an amusingly large number of people writing in
impassioned defense of their right, under our American system, to
be ripped off by large impersonal financial companies. “If
my pension fund is buying [crap mortgages] from Goldman, and my
pension fund loses lots of value, that’s not Goldman’s
fault,” wrote one reader. “No one is forcing anyone to
buy anything. The only thing Goldman is guilty of is making profits.”

I’m not
even going to go there – the psychology of a human being who
would take the time to actually write in a complaint like that is
so bizarre that it would take more time than I have today to even
begin discussing it. One other complaint that I will address quickly,
though, is the notion that I didn’t tell Goldman’s side
of the story. “Not exactly a balanced approach,” complained
one reader. “You should take an ethics class. You have to give
the other side a fair shot.”

Actually I
did contact Goldman and gave the bank every opportunity to respond
to the factual issues in the article. I’m bringing this up
because their decision not to comment on any of those questions
was actually pretty interesting.

We figured
ahead of time that Goldman was probably not going to respond to
many of the allegations in the article, since its MO in the past
with regard to hostile journalists has usually either been to make
bald denials or to simply avoid comment (that’s when they’re
not using the carpet-bomb litigation technique, as in the case of
GoldmanSachs666.com).
So what I decided to do the first time I approached them was to
send a short list of simple factual questions. If the bank decided
to engage us and educate us as to its point of view on these simple
questions, we would send more queries and expand the dialogue.

Given this,
I tried to make that first list of questions as basic as possible.
I asked if Goldman would have turned a profit in Q1 2009 if it hadn’t
orphaned the month of December 2008. Then I asked if Goldman had
made changes to its underwriting standards during the internet boom
years; if Goldman’s position was still that the steep rise
in oil prices last year was due to normal changes in supply and
demand; and if it could explain its 1991 request to the CFTC to
have its subsidiary J. Aron classified as a physical hedger on the
commodities market. Citing various sources, I also noted that some
people had complained that its move to short the mortgage market
in 2006 even as it was selling those same types of instruments proved
that the bank knew the weakness of its mortgage products, and asked
if the bank had an answer for that. And I asked if the bank supported
cap-and-trade legislation, and if it was fair to say (as we planned
to in the piece) that the bank would capitalize financially if such
legislation was passed.

I intentionally
put a lot of yes/no questions on that list. If the underlying thinking
behind any of those questions was faulty, it would have been easy
enough for them to say so and to educate us as to the truth. Instead,
here is the response that we got:

“Your
questions are couched in such a way that presupposes the conclusions
and suggests the people you spoke with have an agenda or do not
fully understand the issues.”

You have to
have swallowed half a lifetime of carefully-worded p.r. statements
to see the message written between the lines here. That this is
a non-denial denial is obvious, but what’s more notable here
is that they didn’t stop with just a flat “no comment,”
which they easily could have done. No, they had to go a little further
than that and – and this is pure Goldman, just outstanding
stuff – make it clear that both I and my sources are simply
not as smart as they are and don’t understand what we’re
talking about. So the rough translation here is, “No comment,
but if you were as smart as us, you wouldn’t be asking these
questions.”

So now word
filters through that Goldman has issued yet another statement in
response to the piece, this one by amusingly-named mouthpiece Lucas
Van Pragg. Again, the company does not take issue with any of the
facts in the piece – not one. Here’s what he says:

Taibbi’s
bubble case doesn’t stand up to serious scrutiny either.
To give just two examples, even with the worst will in the world,
the blame for creating the internet bubble cannot credibly be
laid at our door, and we could hardly be described as having been
a major player in the mortgage market, unlike so many of our current
and former competitors.

Taibbi’s
article is a compilation of just about every conspiracy theory
ever dreamed up about Goldman Sachs, but what real substance is
there to support the theories?

We reject
the assertion that we are inflators of bubbles and profiteers
in busts, and we are painfully conscious of the importance of
being a force for good.

Okay, let’s
look at that bit piece by piece. Van Pragg takes issue with the
bubble argument by citing two “examples” of the case not
holding water, the first being:

… the
blame for creating the internet bubble cannot credibly be laid
at our door…

I kept waiting
for the “because…” clause here, but there wasn’t
one. He just says so and leaves it at that. Now there is obviously
some measure of hyperbole in solely blaming Goldman Sachs
for something like the internet bubble, or any of the other recent
Wall Street disasters, for that matter. But you’d have to be
absolutely crazy (and you wouldn’t need “the worst will
in the world,” either) not to accept the notion that Goldman
shouldered a significant portion of the blame for the internet mess.
They were, after all, the leading underwriter of internet IPOs during
the internet boom years. In 1999, at the height of the boom, they
underwrote 37 internet companies, most of which had little or no
history and were losing money at the time of the launch. By late
1999 Goldman was underwriting one out of every five internet IPOs.
They were repeatedly caught and punished for manipulating the prices
of their IPOs, either via laddering or spinning. Van Pragg doesn’t
deny any of this, and just blithely says that one can’t credibly
blame them for the internet bubble. I’m almost insulted by
the lameness and half-assedness of that comeback, but that might
be part of the point, to be insulting. He moves on:

…and
we could hardly be described as having been a major player in
the mortgage market, unlike so many of our current and former
competitors.

Again, not
to beat this into the ground, but in 2006, at the height of the
housing boom, Goldman underwrote over $75 billion in mortgages,
over $59 billion of which were non-prime. That represented 7% of
the entire market, which seems like a pretty “major” slice
to me. It is true that they did not jump so completely ass-first
into the market as Lehman and Bear did (note Van Pragg’s bemused
reference to “former competitors”), but if you read the
piece, we noted why that doesn’t take them off the hook at
all. Because while their “former competitors” (one of
whom is clearly “former” in large part because a former
Goldmanite, Hank Paulson, elected to save Goldman’s hide instead
of Lehman’s) were dumb enough to hold their mortgage paper
and be sunk by it, Goldman shorted their own crap, which means (and
I know I’m repeating myself here) they knew that what they
were selling was a loser. So while they maybe weren’t the biggest
player, they were still a major player, and one can easily make
the case that they were the most obnoxious player, given that they
dove into this muck with their eyes wide open, unlike so many other
idiots on Wall Street.

In the middle
of this weirdly substanceless retort, Van Pragg then goes on complain
about the lack of substance in the article, makes the predictable
charge that the piece was a compendium of invented conspiracy theories,
then moves on to “reject” the notion that the company
inflates bubbles and profits in busts (about that last part: I recommend
checking out Goldman’s profit/bonus numbers in 2002, 2008,
and 2009 to date. I’m not sure how they can refute the notion
that they have profited during the recent financial calamities).
Lastly, he says that the bank is “painfully conscious”
of the importance of being a force for good, which I noted with
amusement is not quite the same thing as saying that that bank is
a force for good, or wants to be.

So to sum up,
this all translates as:

“Taibbi’s
bubble case doesn’t hold water. To use just two examples,
Taibbi’s internet bubble case doesn’t hold water, and
we didn’t sell as many mortgages as Lehman Brothers. Taibbi’s
article is a compendium of every other story about Goldman that
doesn’t hold water. We reject these theories that do not
hold water, and are aware of the difference between right and
wrong, making us legally sane according to the law.”

I’m aware
that some people feel that it’s a journalist’s responsibility
to “give both sides of the story” and be “even-handed”
and “objective.” A person who believes that will naturally
find serious flaws with any article like the one I wrote about Goldman.
I personally don’t subscribe to that point of view. My feeling
is that companies like Goldman Sachs have a virtual monopoly on
mainstream-news public relations; for every one reporter like me,
or like far more knowledgeable critics like Tyler Durden, there
are a thousand hacks out there willing to pimp Goldman’s viewpoint
on things in the front pages and ledes of the major news organizations.
And there are probably another thousand poor working stiffs who
are nudged into pushing the Goldman party line by their editors
and superiors (how many political reporters with no experience reporting
on financial issues have swallowed whole the news cliche about Goldman
being the “smart guys” on Wall Street? A lot, for sure).

Goldman has
its alumni pushing its views from the pulpit of the U.S. Treasury,
the NYSE, the World Bank, and numerous other important posts; it
also has former players fronting major TV shows. They have the ear
of the president if they want it. Given all of this, I personally
think it’s absurd to talk about the need for “balance”
in every single magazine and news article. I understand that some
people feel differently, but that’s my take on things.

This article
originally appeared on True/Slant
and is reprinted with permission.

July
1, 2009

Matt
Taibbi is the author of The
Great Derangement
and Spanking
the Donkey.

"Deep
down we all have a Puritan belief that unless they suffer a good
dose of pain, they will not truly repent. In fact, there has been
much pain, especially in the financial industry, where tens of
thousands of jobs, at all levels, have been lost. But fundamentally,
markets are not about morality. They are large, complex systems,
and if things get stable enough, they move on."

via Zakaria:
A Capitalist Manifesto | Newsweek Business | Newsweek.com.

From a distance
I’ve always vaguely admired the skills of Newsweek’s
Fareed Zakaria, who is maybe this country’s preeminent propagandist.
Any writer who doesn’t admire what this guy does is probably
not being honest with himself, because being the public face of
conventional wisdom is an extremely difficult job – and as
a man of letters Zakaria routinely succeeds, or pseudo-succeeds,
at the most seemingly impossible literary tasks, making the sensational
seem dull, the outrageous commonplace, and rendering horrifying
absolutes ambiguous and full of gray areas.

Whereas most
writers grow up dreaming of using their talents to stir up the passions,
to inflame and amuse and inspire, Zakaria shoots for the opposite
effect, taking controversial and explosive topics and trying to
help rattled readers somehow navigate their way through them to
yawns, lower heart rates, and states of benign unconcern. He’s
back at it again with a new piece about the financial crisis called
“The Capitalist Manifesto,” which is one of the first
serious attempts at restoring the battered image of global capitalism
in the mainstream press.

This writer
has done work like this before, using a big canvas to rework an
uncooperative chunk of history in the wake of a crisis. Zakaria
is probably best known for his post-9/11 “Why Do They Hate
Us?” article, a sort of masterpiece of milquetoast propaganda
that laid the intellectual foundation for a wide array of important
War on Terror popular misconceptions, not the least of which being
the whole “They hate us for our freedom” idea. One of
Zakaria’s central arguments in that piece was that poor struggling
Arabs were driven to envious violence by the endless pop-culture
reminders of American affluence and progress. It was just too much
to take, seeing all those cool blue jeans and all that great satellite
TV.

In one exchange
in that piece Zakaria talks with an elderly Arab intellectual who
scoffs at Zakaria’s suggestion that Arab cities should try
to be more like globalization-friendly capitals like Singapore,
Seoul and Hong Kong. The old Arab protests that those cities are
just cheap imitations of Houston and Dallas, and what great and
ancient civilization would want that?

I thought the
old Arab’s comment was funny, but Zakaria imbued it with serious
significance. “This disillusionment with the West,” he
wrote, “is at the heart of the Arab problem.” And while
witty Arab potshots at tacky southern strip-mall meccas like Houston
were significant enough to put high up in Newsweek’s
seminal piece about the root causes of 9/11, things like America’s
habitual toppling of sovereign Arab governments and installation
of ruthless dictators like the Shah of Iran were left out more or
less entirely (Zakaria managed to write a whole section on the Iranian
revolution without even mentioning that the Shah come to power thanks
to a CIA-backed overthrow of democratically-elected Mohammed Mosaddeq,
whose crime was ejecting Western oil companies from Iran).

Not that Osama
bin Laden and his followers aren’t all homicidal lunatics who
should be doused in barbecue sauce and tossed in a shark tank, but
Zakaria’s piece did a monstrous disservice to Americans by
glazing over the sources of Arab anger. He portrayed America’s
enemies as jealous dupes, who chose to swallow the religious extremism
fed to them by those opportunistic mullahs who stepped into the
power vacuum left by ineffectual socialist strongmen like Nasser.
(The neat rhetorical trick of making the current political bogeyman,
Islamic terrorism, a descendant of the last political bogeyman,
socialism, should not go unnoticed by admirers of the propaganda
art).

As is the case
with almost everything Zakaria writes, there was a grain of truth
in such a portrait, but it had the convenient benefit of almost
completely absolving America of wrongdoing in the ongoing Shakespearean
death-struggle for oil that is recent Middle Eastern history. Appallingly,
Zakaria even compared America’s bloodlusting pursuit of Middle
Eastern resources (a history that includes numerous CIA-backed coups
and more than one brutal war) to the frolicking of Tom and Daisy
in The Great Gatsby – i.e., toppling governments and
arming Saddam Hussein against Iran is like a bunch of ginned-up
rich folk knocking over the china. “America has not been venal
in the Arab world,” he wrote. “But it has been careless.”

Zakaria’s
Capitalist Manifesto is another such grandly fuzzy apologia,
a broad exercise in shifting any blame for a big crisis away from
a certain unblamable segment of society, only this one is much worse.
In his take on the financial crisis he offers a few basic points:

1. Gosh it
   sucks that the crisis happened, but it’s not as bad as people
   say. Remember how people used to pick on Internet stocks –
   well, look at Twitter!
2. The solution
   to what ails capitalism is more capitalism.
3. There will
   be a great public desire to tighten up the laws governing the
   economic sector, but let’s not get ahead of ourselves!
4. You know
   what’s a great idea? Voluntary self-regulation.
5. You can
   make all sorts of interesting collages just using a bunch of dollar
   bills and a Photoshop program.
6. If we could
   just all learn to be better people, everything will turn out fine.

His description
of the root causes of this financial crisis are about what you’d
expect from a man who invoked The
Great Gatsby to explain the mentality of the murderer of
4,000 people. When he mentions the objectionable behaviors that
led to the loss of trillions of dollars in wealth and untold numbers
of lost jobs and misery, he does so with distant, clinical language,
like he’s describing something seen through a telescope, disappearing
over the horizon. In fact his method of describing the “moral
crisis” that led to the financial implosion was to begrudgingly
admit that many people were less than nice. Here’s how he put
it:

"Most
of what happened over the past decade across the world was legal.
Bankers did what they were allowed to do under the law. Politicians
did what they thought the system asked of them. Bureaucrats were
not exchanging cash for favors. But very few people acted responsibly,
honorably or nobly (the very word sounds odd today). This might
sound like a small point, but it is not. No system – capitalism,
socialism, whatever – can work without a sense of ethics
and values at its core. No matter what reforms we put in place,
without common sense, judgment and an ethical standard, they will
prove inadequate. We will never know where the next bubble will
form, what the next innovations will look like and where excesses
will build up. But we can ask that people steer themselves and
their institutions with a greater reliance on a moral compass."

This is a beautiful
piece of writing. Describing the misdeeds of Wall Street in the
last decade by saying “few people acted… nobly” is
sort of like saying that Stalin was “not always sociable”
or O.J. Simpson was “not always committed to preserving life.”
I mean, talk about a freaking understatement. Forgetting entirely
the other insane lies in this passage (my favorite being the one
about bureaucrats not taking cash for favors – I guess he means
except for Bob Rubin taking $130 million or whatever from Citi after
pushing through that merger), that “not so noble” bit
is where Zakaria earns his money.

Because if
you get into the actual gory details of what went on in those years,
there’s just no way you come out of that story not wanting
to see every banker on Wall Street strung up by his testicles. The
crimes of this era were monstrous thieveries, committed against
ordinary people in a highly systematic and organized fashion with
the aid and compliance of a bought-off government, and the only
way you can not perceive what happened as a profound indictment
of capitalism is if you blow off the specifics entirely and try
to hide the details in vague, airy words like “irresponsibility”
and “excesses.”

Because the
specifics matter. It’s one thing to say that Citi wasted some
of the money taxpayers sent its way via the bailout; it’s another
thing to say Citi wasted some of the taxpayers’ money by upholstering
the pillows on the private jet Sandy Weill took to Mexico over Christmas
vacation with Hermes scarves. It’s one thing to say Wall Street
bankers felt pressure to chase profits; it’s another thing
to say they achieved those profits by systematically robbing a whole
generation of pensioners and working-class homeowners, under the
noses of the politicians they bought with tens of millions in campaign
contributions.

Zakaria works
hard to tell the crisis story minus these outrageous details. Then
he goes on to argue that, basically, nothing should be done. He
says 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 clichs 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! Amazing
stuff – God bless him.

This article
originally appeared on True/Slant
and is reprinted with permission.

June
27, 2009

Matt
Taibbi is the author of The
Great Derangement
and Spanking
the Donkey.

via Goldman
Regrets ‘Market Euphoria’ That Led to Crisis – DealBook
Blog – NYTimes.com.

Anyone else
out there find himself doubled over laughing after reading Goldman,
Sachs chief Lloyd Blankfein’s “apology” for his bank’s
behavior leading up to the financial crisis? Has an act of contrition
ever in history been more worthless and insincere? Even Gary Ridgway
did a better job of sounding genuinely sorry at his sentencing hearing
– and he was a guy who had sex with dead prostitutes because
it was cheaper than paying live ones.

Looking at
Blankfein’s one-sentence apology, I’m struck in particular
by a couple of phrases:

While we
regret that we participated in the market euphoria…

Really, Lloyd?
You “participated” in the market euphoria? You didn’t,
I don’t know, cause the market euphoria? By almost any measurement,
Goldman was a central, leading player in the subprime housing bubble
story. Just yesterday I was talking to Guy Cecala at Inside Mortgage
Finance, the trade publication that tracks statistics in the mortgage
lending industry. He said that at the height of the boom, in 2006,
Goldman Sachs underwrote $76.5 billion in mortgage-backed securities,
or 7% of the entire market. Of that $76.5 billion, $29.3 billion
was subprime, which is bad enough – but another $29.8 billion
was what’s called “Alt-A” paper. Alt-A mortgages
are characterized, mainly, by crappy documentation and lack of equity:
no income verification, no asset verification, little-to-no cash
down. So while “only” 38% of the mortgage-backed securities
Goldman underwrote were subprime, more than three-fourths of their
securities were what is called “non-prime,” i.e., either
subprime or Alt-A. “There’s a lot of crap in there too,”
says Cecala.

Let’s
be clear about what that meant. These crap/sham mortgages, a lot
of them adjustable-rate deals with teaser rates that featured sudden
rate hikes two or three years after closing, they would never have
been possible had not someone devised a method for selling them
off to secondary buyers. No local bank is going to keep millions
of dollars worth of Alt-A mortgages on its books, because no sensible
company lends out money to very risky customers and actually keeps
those loans on its balance sheet.

So this system
depended almost entirely on banks like Goldman finding ways to securitize
these instruments, i.e., chop the mortgages up into little bits,
repackage them as mortgage-backed securities like CDOs and CMOs,
and sell them to unsuspecting customers on the secondary market,
most of them large institutional buyers like pensions and insurance
companies and workers’ unions, many of them foreigners. Most
of those customers were snookered into buying this stuff because
they had no idea what it was: in the case of pensions and unions
particularly, a lot of these customers only bought this crap because
the peculiar alchemy banks like Goldman used in devising their mortgage-backed
securities made radioactive mortgages look like AAA-rated investments.
(Or at least they were given these ratings by Moody’s and Standard
and Poor’s, ratings agencies that were financially dependent
upon the very banks they were supposed to be rating – but that’s
another story).

Read
the rest of the article

June
19, 2009

Hank Paulson
is a national hero.

I said it
last October and I’m sticking by it. And now, there’s
actual evidence to back me up. The TARP bailout worked. The Wall
Street crisis is over.

via Mean
Street: It’s Time to Enshrine Hank Paulson as National Hero
– Deal Journal – WSJ.

So here’s
the letter I wrote to the Wall Street Journal after reading
Evan Newmark’s paean to Hank Paulson last week:

Dear WSJ,

Just out
of curiosity – did Evan Newmark ever work for Goldman, Sachs?
And if the answer to the question is yes, don’t you think
that might have been a good fact to disclose before he fellated
Hank Paulson in his “Mean Street” column?

Sincerely,
Matt Taibbi

Can you imagine
what a craven, bumlicking ass-goblin you’d have to be to get
a job working for the Wall Street Journal, not mention up
front that you used to be a Goldman, Sachs managing director, and
then write a lengthy article calling your former boss a “national
hero” – in the middle of a sweeping financial crisis,
one in which half the world is in a panic and the unemployment rate
just hit a 25-year high? Behavior like this, you usually don’t
see it outside prison trusties who spend their evenings shining
the guards’ boots. I can’t even think of a political press
secretary who would sink that low. Hank Paulson, a hero? Are you
fucking kidding us?

Exactly what
part of Paulson’s record is heroic, Evan? The part where he
called up SEC director William Donaldson in 2004 and quietly arranged
to get the state to drop capital requirements for the country’s
top five investment banks? You remember that business, right, Evan?
Your hero Paulson met with Donaldson and got the rules changed so
that Goldman and four other banks no longer had to abide by the
old restrictions that forced banks to actually have a dollar or
two on hand for every ten or so they lent out. After that, it was
party time! Bear Stearns in just a few years had a debt-to-equity
ration of 33-1! Lehman’s went to 32-1. By an amazing coincidence,
both of these companies exploded
just a few years after that meeting, and all of the rest of us,
Evan, ended up footing the bill, thanks to a state-sponsored rescue
of Bear and a much larger massive bailout of Wall Street in general,
necessitated in large part by the damage caused by the chaos surrounding
Lehman’s collapse.

Meanwhile your
own Goldman, Sachs ended up with a 22:1 debt-to-equity ratio a few
years following that meeting, a number that would have been much
higher if one didn’t count the hedges Goldman bought through
a company called AIG. Thanks in large part to Paulson’s leadership
in his last years as head of Goldman, the company was so massively
over-leveraged that it would have gone under if AIG – which
owed Goldman billions when it went into its death spiral last September
– had been allowed to collapse. But thanks to Hank Paulson,
who heroically stepped in and gave AIG $80 billion the same weekend
he allowed one of Goldman’s last key competitors, Lehman, to
collapse, Goldman didn’t have to go without that money; $13
billion of the AIG bailout went straight to Goldman. So I guess
we have Paulson to thank for the fact that he used about $13 billion
of our taxpayer money to essentially bail out his own fuckups.
I mean, that’s heroism if I’ve ever seen it. Audie Murphy
has nothing on that. Sit your asses back down, Harriet Tubman, Thomas
More, Gandhi and Jesus Christ. Hank Paulson is in the house!

Read
the rest of the article

June
9, 2009

If Obama had
stated that preventive detention would not apply to anyone apprehended
going forward, he would have offered a decisive – not to mention,
for people like me, more acceptable – policy directive. The fact
that he did not make this distinction cannot help but make one wonder
whether the remedies created to address the unfortunate and unacceptable
baggage of the Bush years may carry over into his own era. If that
is the case, we might well ask ourselves, what other good intentions
might choose to hide behind a legacy that begs for closure?

~ via The
major missing piece in Obama’s new Gitmo policy.

I had an interesting
discussion with a close friend of mine yesterday, a former journalist
who quit the business years ago to get a real job. We were talking
about our early impressions of Obama, and while I kept harping on
the bailouts and Obama’s bizarre decision to hand the Treasury
over to Goldman, Sachs, my friend kept coming back to Gitmo. He
said he could understand how Obama, a young president with no background
in economics continually blasted for his lack of experience, could
be bullied into handing over his economic policy to worn-out Wall
Street gorgons like Larry Summers and Bob Rubin. Politically, you
can see how that could happen. It’s not as if, my friend pointed
out, Obama could just hand over the Treasury to Paul Krugman and
Simon Johnson and expect the Democratic Party honchos to go for
it without complaint. The Rubin/Summers axis was always going to
be the default policy setting for a Democratic president, and it
would require spending a lot of political capital to switch to a
new paradigm.

Of course there’s
the other notion, which is that these pro-Evremonde economic policies
are actually an accurate reflection of who Obama is. Everywhere
I go I keep hearing people say, “How come Obama is letting
X happen or Y happen, how come he’s letting his underlings
do Z? It seems so unlike him!” It reminds me of the
way people view leaders in Russia. Going back centuries, Russian
peasants wrote impassioned letters to the Tsar, sure he was completely
unaware that his Grand Dukes were all thieves and his okhranka
agents were rapists and torturers. Now that Obama’s on the
scene a lot of Americans are demonstrating a similar public desire
to believe in the good king. Obama seems so decent and intelligent,
it’s hard to imagine that his act is just a big sales job,
that he’s really just a smooth-talking shill for a bunch of
Wall Street bankers and Pentagon generals. So people tend to scramble
for the exculpatory explanation: he’s being tricked, he’s
unaware, his hands are tied, and so on.

You can sort
of see that, maybe, with the economic policies. If you were bent
on clinging to the good-king fantasy, you could hold your nose and
imagine that Summers/Rubin cast a spell on poor Barack. But this
Gitmo thing is different. It’s not like Barack Obama doesn’t
know what habeas corpus is. The guy was a freaking constitutional
law professor (or “senior lecturer,” if that controversy
over his academic title still rankles you). And yet Obama seems
to be determined to preserve the whole concept of preventive detention,
which is every bit as jarring and upsetting as the preemptive invasion
concept Bush introduced. In fact this whole Gitmo episode should
serve as a reminder that the upper crust of the current Democratic
leadership has not, for the most part, even publicly renounced preemption.

While John
Edwards a couple of years ago said that preemption was “wrong
on the merits, wrong on the morals, wrong for America,” both
Hillary and Obama have carefully avoided taking any public stance
against it. True, back during the original war vote, Hillary did
say that her “yea” vote should not be taken as a “vote
for any new doctrine of preemption” – except that that’s
exactly what that vote was, an endorsement of the preemption policy
outlined in Bush’s notorious “National Security Strategy
of the United States” paper. Moreover Hillary’s top foreign
policy staffer at the time, Lee Feinstein, wrote soon after that
“the biggest problem with the Bush preemption strategy may
be that it does not go far enough.” When Kerry ran for president
he specifically endorsed pre-emption, only parsing it with one of
his classic waffle jobs, saying that any decision for a pre-emptive
strike would have to pass some kind of unspecified “global
test.” And Obama has never really gone near the topic: he did
talk about the U.S. having the right to respond to “imminent”
threats, but he’d always seemed to mean a genuinely imminent
threat, not the “They might have some kind of unnamed weapon
with or without a delivery system in thirteen or fourteen years,
we better invade now” standard that Bush went by.

Read
the rest of the article

June
4, 2009