Taibbi is a gifted narrative journalist, whose verbal talents I greatly admire. But financial meltdowns don't offer villains, for the simple reason that no one person or even one group is powerful enough to take down a whole system. Confronted with this, Taibbi doesn't back away from the narrative form, or apply it to smaller questions where it is more appropriate, as William Cohan did in House of Cards. Instead, he grabs whoever's nearest to hand and builds them up into a gigantic straw villian, which he proceeds to bash with a handful of recently acquired technical terms that he clearly doesn't quite understand. It's not that everything he says is wrong, but the bits that are true aren't interesting, and the bits that are interesting aren't true. The whole thing dissolves into the kind of conspiracy theory he so ably lampooned in The Great Derangement. The result is something that's not even wrong. It's just incoherent.
To give you a flavor of what I mean, Taibbi rants about how we knew derivatives were bad bad BAD! because they'd gone so badly wrong before:
There was only one problem with the deals: All of the wheeling and dealing represented exactly the kind of dangerous speculation that federal regulators are supposed to rein in. Derivatives like CDOs and credit swaps had already caused a series of serious financial calamities: Procter & Gamble and Gibson Greetings both lost fortunes, and Orange County, California, was forced to default in 1994. A report that year by the Government Accountability Office recommended that such financial instruments be tightly regulated - and in 1998, the head of the Commodity Futures Trading Commission, a woman named Brooksley Born, agreed. That May, she circulated a letter to business leaders and the Clinton administration suggesting that banks be required to provide greater disclosure in derivatives trades, and maintain reserves to cushion against losses.
But it's not clear how much derivatives regulation would have helped any of these three companies. Gibson was defrauded by its bankers. P&G wasn't; they spent a great deal of money unwinding their positions when the Treasurer realized they had a lot of exposure on a bad bet on falling interest rates. Orange County, too, was making a massive, levered bet on a steep yield curve (roughly, a large difference between short and long term interest rates) that came undone when the yield curve flattened and interest rates rose. Moderately complex derivatives allowed its idiot financial manager to take somewhat larger bets, but you can take massive, money losing bets without them. At any rate, none of these derivatives have much to do with CDOs or CDSs; you might as well conflate stocks and bonds because they're both "securities". No one, as far as I know, is now proposing that we need to curtail the use of interest rate swaps.
Or take Taibbi's complaints about Goldman and its nefarious role in the Great Depression:
Beginning a pattern that would repeat itself over and over again, Goldman got into the investment-trust game late, then jumped in with both feet and went hog-wild. The first effort was the Goldman Sachs Trading Corporation; the bank issued a million shares at $100 apiece, bought all those shares with its own money and then sold 90 percent of them to the hungry public at $104. The trading corporation then relentlessly bought shares in itself, bidding the price up further and further. Eventually it dumped part of its holdings and sponsored a new trust, the Shenandoah Corporation, issuing millions more in shares in that fund - which in turn sponsored yet another trust called the Blue Ridge Corporation. In this way, each investment trust served as a front for an endless investment pyramid: Goldman hiding behind Goldman hiding behind Goldman. Of the 7,250,000 initial shares of Blue Ridge, 6,250,000 were actually owned by Shenandoah - which, of course, was in large part owned by Goldman Trading.
The end result (ask yourself if this sounds familiar) was a daisy chain of borrowed money, one exquisitely vulnerable to a decline in performance anywhere along the line; The basic idea isn't hard to follow. You take a dollar and borrow nine against it; then you take that $10 fund and borrow $90; then you take your $100 fund and, so long as the public is still lending, borrow and invest $900. If the last fund in the line starts to lose value, you no longer have the money to pay back your investors, and everyone gets massacred.
In a chapter from The Great Crash, 1929 titled "In Goldman Sachs We Trust," the famed economist John Kenneth Galbraith held up the Blue Ridge and Shenandoah trusts as classic examples of the insanity of leverage-based investment. The trusts, he wrote, were a major cause of the market's historic crash; in today's dollars, the losses the bank suffered totaled $475 billion. "It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity," Galbraith observed, sounding like Keith Olbermann in an ascot. "If there must be madness, something may be said for having it on a heroic scale."
This is all technically true, and collectively nonsense. Investment trusts--aka mutual funds, now heavily regulated--were not the cause of the Great Depression. They were not even the cause of the stock market crash. They were an interesting sideshow that Galbraith included in his book because they were a vivid example of the froth. And Goldman was not the center of investment trust activity. They were one player among many whom Galbraith picked as an example, presumably because they happened to be still around and had a recognizeable name. In other words, because their activity had been less extreme, and hadn't taken the bank down with it. Yet Taibbi turns this into a central example in the exhibit against them. Then there's a 65-year gap in the indictment, presumably because no one has written an engaging popular book about the stock market convulsions of the 1970s.
Then the reserve of popular investment post-mortems fattens, and suddenly there's a lengthy litany of new complaints about Goldman: pumping, laddering, spinning. Eric Martin defends Taibbi on the grounds that it's all true. I myself firmly believe that these things are true (she said, looking demurely over her shoulder at the nice man from Legal). But it's all old, old news. It's not even a particularly well-written or thoughfully analyzed summary of the exhaustive treatments of the subject by the fuzzy headed moderate business journalists Taibbi disdains. Investment banks treated their clients disgracefully during the internet bubble, and a lot of the clients were managers who did the same to their shareholders. But what does this have to do with the current financial crisis? Perhaps more to the point, how is it a special indictment of Goldman, the ostensible topic of his piece? Other banks did more and worse.
Even as an indictment of the system this thing is lacking, and showcases Taibbi's lack of fundamental conceptual understanding. He complains about CDO's on the grounds that Goldman hid the atrocious risks inside a fancy dan derivative package that no one could understand. But in fact, everyone was aware that CDO's were repackaging crap mortgages--that was the point. The idea was pure portfolio theory, broadly agreed upon by everyone involved. Everyone knew a lot of the mortgages might go bad, either by defaulting or prepaying. (This is a risk for bankers, who don't like the idea that if interest rates drop, their 7% mortgage might suddenly turn into a pile of non-interest-bearing cash which can only be invested at 5%.) But if you pool the risk, only some of the bonds will go bad, while others pay off. The result is a less risky, less volatile investment than any individual junk mortgage bond. And it would have worked, too, if it hadn't been for
Did individual portfolio managers take on too much risk? Yes. Did some morons get sold these bonds without understanding what was going on? Undoubtedly. But Goldman's customers for CDOs are not little grannies who think a bond coupon is what you use to buy denture glue. They're institutions who could reasonably be expected to understand the risks. Which is why it is not, as Taibbi absurdly claims, "securities fraud" for Goldman to sell people mortgage-backed CDOs when they themselves were moderately short the overall housing market.
"That's how audacious these assholes are," says one hedge-fund manager. "At least with other banks, you could say that they were just dumb - they believed what they were selling, and it blew them up. Goldman knew what it was doing." I ask the manager how it could be that selling something to customers that you're actually betting against - particularly when you know more about the weaknesses of those products than the customer - doesn't amount to securities fraud.First of all, of course banks sell people positions they aren't themselves taking. Sometimes the bank is right, and sometimes the customers are; differences of opinion are what make marriages and horse races. Second of all, the banks that went down, the ones that arguably caused the financial crisis, were long their own toxic waste (and that of others). Third of all, Goldman itself might argue that its mortgages were not as toxic as others, and for all I or Matt Taibbi know, they might be telling the truth. Fourth of all, the disconnect between the underwriting and the customer side of the investment houses was not only legal, but in some cases, mandatory. Excessive entanglement between the two is why Henry Blodget, whom Taibbi references elsewhere, has been banned from the securities industry for life. That Taibbi could even ask how this was not securities fraud is really troubling.
"It's exactly securities fraud," he says. "It's the heart of securities fraud."
This would not be complete, of course, without a detour into the dastardly CDSs, in which Taibbi illustrates that he either does not understand the concept of "hedging", or doesn't care. Memo to Taibbi: we want banks to lay off some of their risk exposure. That's what makes them more stable. Now, maybe Goldman Sachs was doing something wrong. But the fact that they insured some part of their portfolio against default is not proof of it. To know that, we'd need some sense of the size of the portfolio, the size of the insurance, the structure of the deals. Those are details Taibbi either doesn't have, or doesn't provide us.
I won't even go into Taibbi's silly and naive discussion of Goldman's alleged oil market speculation, except to note:
- He again does not succeed in pinning it all on Goldman
- He fails to explain how a 1991 rule change caused a 2008 price spike and decline
- He fails to note that price spikes and declines in the oil market were common pre-1991
No, for several reasons.
First of all, Taibbi doesn't say that Goldman Sachs is just a sort of Everyman; he claims they helped engineer crises so that they could profit from them. Second of all, ignorance leads Taibbi to ask the wrong questions, and provide no useful answers. The problem isn't that pointy-headed bankers were rooking us--that may have been an individual problem for individual investors, but a crisis this big cannot be explained by any sort of fraud. To make these charges stick, Taibbi needs to posit a ludicrous level of naivite among institutional investors. Being satisfied with sloppy answers, he doesn't talk about, say, Goldman's role in the AIG collapse, or how you build a banking system without putting bankers in charge of it. He doesn't prove anything except that Matt Taibbi knows little about how the financial system works.
A lot of laymen, and not a few financial writers, like Taibbi because he's willing to take the piss out of self-important bankers. But you can learn about how the banking system works without being coopted by the bankers--look at Michael Lewis, whose Liar's Poker remains a classic twenty years on. What you can't do is build cartoon villains. Felix Salmon isn't overly friendly to Wall Street. But he doesn't write rubbish.
The more dangerous thing is that Taibbi makes a lot of people feel like they finally understand how they were conned. Taibbi's facile use of technical terms, his lengthy explanation of little-known secrets that have been endlessly rehashed on every financial page for going on a decade, gives people the illusion that they have acquired valuable information about the financial crisis. They haven't. They've acquired a bunch of disconnected vignettes.
Which is not to say that I disagree with Taibbi's project. Wall Street is an arrogant beast that more than held up its half of the devil's bargain which drove us into our current ugly straits. Bankers who thought they were geniuses were deceived by models that assumed away the possibility of a second great depression. They made a terrifying amount of money doing it. And now that the taxpayers have bailed them out at considerable expense, we don't even get a goddamn fruit basket. Instead they merrily go along paying themselves gigantic bonuses for the singular feat of not driving our economy entirely back to the stone age. I think some populist rage is more than warranted.
But just because Taibbi, or Sarah Palin, has a legitimate grievance, it does not follow that everything they say is thereby legitimate. How you press that grievance matters. And the right way to do it is carefully, honestly, and with a deep respect for the value of knowledge, even if you disagree with those who are purveying it.
Goldman Sachs is a survivor, and as such, it is the deep pocket a good number of losers will be looking to pick.
"But just because Taibbi, or Sarah Palin, has a legitimate grievance, it does not follow that everything they say is thereby legitimate. How you press that grievance matters. And the right way to do it is carefully, honestly, and with a deep respect for the value of knowledge, even if you disagree with those who are purveying it."
So, you respond to Taibbi's facile bogeyman caricature of Goldman Sachs with a facile bogeyman caricature of Palin?
Megan Gets Her Matt Taibbi On!
Stan B won the thread.
No, no, Stan -- she's talking about the Alaska governor Sarah Palin. The one who isn't careful or honest or deeply respectful of knowledge.
You're probably thinking of the one from Phoenix. And she is pretty great.
The "everybody knew" version of the CDO crapocalypse should have been retired at least a year ago. Between the failure of the ratings agencies and the callous disregard for massive fraud throughout the mortgage process, the insiders should have known a lot more than the outsiders, and there's growing evidence they did. But they sold the stuff anyhow, which stinks no matter how you slice it. An awful lot of people need to be fired &/or prosecuted.
Taibbi's central point, that it's probably not a real hot idea to have a private company running the US Treasury as a subsidiary, shouldn't be that hard to accept.
Who's purveying knowledge, anyhow? I ain't seen that particular crime going down in a long time.
I'm just not down with the idea that there's some sort of elusive "central point" to stories that permits you to write a bunch of total nonsense as long as the "central point" is good.
You do realize that somebody will hang that quote around your neck on every post you write, don't you?
Whether or not you agree with me, I am in fact required to get the details right in the pieces I publish in my magazine. There's no out for "truthiness".
Megan, you have gotten so many details wrong in the course of your writings here that I'm surprised you weren't struck down as you typed this.
Seriously, you STILL haven't told us how the $100 billion in tax revenue is too little for the program that will cost $100 billion dollars.
The difference between Matt Taibbi and Sarah Palin: Taibbi gets outraged about injustices that happen to other people. Sarah Palin gets outraged about "injustices" that happen to her.
I will defer to your knowledge on this Taibbi piece, since economics has got to be one of my least good areas. But this piece aside, has Matt Taibbi gotten anything wrong in any of his other writing, or done something else that would justify the Taibbi/Palin comparison?
Nutella, I bootstrapped that from a prediction of $872 billion over 10 years, which is less than $1 to $1.3 trillion over 10 years. Which I told you before.
Such as saying "it would have worked, too" when you're talking about instruments conceived in utter cynicism?
An awful lot of people invested in mortgage backed securities unaware that they were originated with fraudulent income, bogus appraisals, ridiculously rosy assumptions of future appreciation, absurd risk models, kickbacks in all directions and a system of rewards that didn't include any bad consequences for the people who waved them through. Of course this stuff was going to crash. You didn't have to be Doris Dungey to see that, but unless you were paying attention to her and people like her, you could close your eyes & (STILL) pretend that it all could be OK.
"Nutella, I bootstrapped that from a prediction of $872 billion over 10 years, which is less than $1 to $1.3 trillion over 10 years. Which I told you before."
Yes, you told me taht, but that doesn't answer the question.
You say the new tax raies "only" $100 billion as if that's too little.
The plan is supposed to cost ~1 trillion over 10 years, or $100 billion a year.
How does that come out to the crisis of fund raising you seem to want to believe it is?
Also, the definition of bootstrap does not include dividing by ten.
http://www.google.com/search?q=define%3A+bootstrap&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a
The problem is, Megan, you get your details deceptively wrong on so many occasions it would take an extraordinarily long post to catalogue them. This seems to derive from desperately specious reasoning. My jaw was on the ground so often a root canal could have been performed. As I am not being paid to deconstruct the hogwash in this piece at length, the best I can say to you is that you need to read more and stop watching Fox.
where can we read an article that identifies factual errors in the taibbi piece, that could really help a layperson understand the roots of your blinding hostility for the guy.
Very nice review, Megan.
Moreover, Downpuppy, I agree the ratings agencies whiffed. But Taibbi made it sound like no one realized that the mortgages in the CDOs had a higher risk of default. EVERYONE realized this. That was why they were being packaged into CDOs.
The Atlantic disagrees.
"A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true. Alan Greenspan’s pronouncements in favor of unregulated financial markets are well known. Yet Greenspan was hardly alone. This is what Ben Bernanke, the man who succeeded him, said in 2006: “The management of market risk and credit risk has become increasingly sophisticated. … Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks.”
Of course, this was mostly an illusion. Regulators, legislators, and academics almost all assumed that the managers of these banks knew what they were doing. In retrospect, they didn’t. AIG’s Financial Products division, for instance, made $2.5 billion in pretax profits in 2005, largely by selling underpriced insurance on complex, poorly understood securities. Often described as “picking up nickels in front of a steamroller,” this strategy is profitable in ordinary years, and catastrophic in bad ones. As of last fall, AIG had outstanding insurance on more than $400 billion in securities. To date, the U.S. government, in an effort to rescue the company, has committed about $180 billion in investments and loans to cover losses that AIG’s sophisticated risk modeling had said were virtually impossible.
Wall Street’s seductive power extended even (or especially) to finance and economics professors, historically confined to the cramped offices of universities and the pursuit of Nobel Prizes. As mathematical finance became more and more essential to practical finance, professors increasingly took positions as consultants or partners at financial institutions. Myron Scholes and Robert Merton, Nobel laureates both, were perhaps the most famous; they took board seats at the hedge fund Long-Term Capital Management in 1994, before the fund famously flamed out at the end of the decade. But many others beat similar paths. This migration gave the stamp of academic legitimacy (and the intimidating aura of intellectual rigor) to the burgeoning world of high finance."
"EVERYONE realized this."
Everyone also realized the rating agencies were getting it wrong, too, which is why the spreads were so great between AAA-rated corporate bonds and AAA-rated CDO tranches. They just didn't realize how wrong they were getting it.
At one point in your article, you claim, "But in fact, everyone was aware that CDO's were repackaging crap mortgages--that was the point."
and then in the next breath, "And it would have worked, too, if it hadn't been for a collapse in the housing market of a scale not seen since the Great Depression."
So, how do you miss that with a large base of "crap mortgages" the large scale foreclosure rates wouldn't decimate the housing market? How do you know that the CDO is full of crap and don't see the housing market crash coming?
I don't buy it. I think too many institutional investors relied on the ratings agencies and didn't do enough investigation or independent analysis. And who's to say that the next great investment vehicle won't be more of the same garbage shined up and repackaged?
Holy crap, Megs. You need to get off the coke. We're all pretty worried about you.
Interesting post, Megan. Speaking of Lewis, I'd be curious to hear your take on his recent Vanity Fair piece about AIGFP.
On the topic of Goldman, though I'm constitutionally disinclined towards any sort of conspiracy theories whatsoever, I must say I find some grist for suspicion in the fact that, regardless of administration, Goldman boys are inevitably tapped for senior treasury roles. And those who aren't Goldman alums find themselves tapped as "consultants" for Goldman when their party is out of office.
Very probably, the way this works is that Goldman hires exceptionally smart, talented people and that's why they are so successful and b/c they are so smart and talented, they are often tapped for government service. And in government service, they meet the cream of the crop and introduce them to their friends, smart people all liking each other, and that's how the consulting gigs get acquired. Nothing sinister at all.
On the other hand, it might be that, at least in part, Goldman does so well b/c they have an inside hand to play with the government and thus work to maintain that inside hand both by getting their folk put in and co-opting others who are likely to be appointed again down the road.
If this latter version is even a little bit true, it might very well explain how the other banks get drawn into dangerous sucker plays. The non-Goldmanites might somewhat blithely follow along with Goldman's trading strategies figuring, "If the smart guys at Goldman are doing it, there must be something to it..." But the part they miss is that the smart guys at Goldman have already set themselves up to be subtlely backstopped by the government (as witness their AIG exposure being redeemed by the government at $1 per dollar, despite their having "fully hedged it"...) so these other banks get into deep, deep water by following the Goldman strategy without understanding that part of it is cultivating deep ties to the government, regardless of who's in power.
Anyway, as I say, I'm very much not a conspiracy nut, but the fact that the AIG bailout seemed to benefit no one so much as Goldman and was, in a completely innocent yet still odd coincidence, created by government folk who were all Goldman alums and that this seemed somehow to never become much of an issue was puzzling to me.
You could say the same thing about McKinsey & Co. or Wilmer Cutler or Covington & Burling. They all have a reputation for hiring extremely smart and ambitious people who end up being top government policy types. That doesn't mean that they don't end up all having a very skewed world view, but it also doesn't mean there is some weird Illuminati conspiracy going on.
A fair point, but Goldman Sachs likely wouldn't be in business today without the government aid it received last year (including permission to let it become a bank holding company), and it's reasonable to ask to what extent it received that aid due to its alumni in government. If Lehman had a similarly influential group of alumni, might it still be in business today as well?
Are you saying that literally every major investment bank on Wall Street would be out of business today if it hadn't been for the government intervention last year? I've never been sure if I approved of the "bailout", but if that was the alternative, maybe it was worth it. Or are you saying that Goldman Sachs was uniquely vulnerable, second only to Lehman?
I completely disagree, Dave. Goldman (and, to a lesser extent, JPMorgan) actually had a very robust risk assessment system in place prior to the crash, and consequently was far less exposed than the other investment banks. It really didn't need the money, but was asked (forced) to take money by the Fed and Treasury because of fears that if some banks took money and others didn't, investors would run screaming from the banks taking money and government efforts would prove futile. Under worst case conditions, GS had sufficient reserves to buy back all of their stock and go private, hold on to whatever toxic assets they had, and wait it out.
Also, GS (like the other IBs) became bank holding companies because the SEC's consolidated supervision system collapsed. This wasn't the gov't doing the IBs a favor, but a stop-gap measure to transfer regulation to the Fed after the SEC's approach proved inadequate.
One gripe I have against the criticism of GS is that it was doing precisely what it should have been doing -- paying attention to what it was buying, having in place computer systems that could model cash flows for complicated financial instruments (and not just relying on the rating agencies), and just analyzing risk. If the other banks had been doing all this, we wouldn't be in the mess we're in now.
"I completely disagree, Dave. Goldman (and, to a lesser extent, JPMorgan) actually had a very robust risk assessment system in place prior to the crash, and consequently was far less exposed than the other investment banks."
JP Morgan, as a combined well-run commercial bank and investment bank, was in a much more secure position than Goldman. It would make more sense to compare Goldman to the other stand-alone, publicly-traded investment banks.
"It really didn't need the money, but was asked (forced) to take money by the Fed and Treasury because of fears that if some banks took money and others didn't, investors would run screaming from the banks taking money and government efforts would prove futile. Under worst case conditions, GS had sufficient reserves to buy back all of their stock and go private, hold on to whatever toxic assets they had, and wait it out."
So that's why it paid 10% interest to Warren Buffett for his capital injections via that preferred deal? Goldman was facing liquidity issues just like the other stand-alone, publicly-traded investment banks. They were all highly-levered and in need of stable capital.
"Also, GS (like the other IBs) became bank holding companies because the SEC's consolidated supervision system collapsed."
Really, MDF? You don't think it had anything to do with wanting to be eligible for the liquidity facilities the government had made available to bank holding companies? And why wasn't Lehman's request to become a bank holding company approved?
Goldman was and is in a much better position than the other pure investment banks.
GS was able to get funding from Buffett precisely because it wasn't in as bad a position as the other IBs, notwithstanding the liquidity crisis that was affecting everyone in the market.
Lehman wasn't allowed to become a bank holding company because the government decided not to bail it out at all. That's pretty well-understood.
Although it doesn't name names, the Senior Supervisors Group's report on risk management is pretty clear that "some firms" had much better systems in place and were suffering less as a result -- and it doesn't take much reading between the lines to see that "some firms" means Goldman Sachs.
http://www.newyorkfed.org/newsevents/news/banking/2008/SSG_Risk_Mgt_doc_final.pdf
The stand-alone, publicly-traded investment banks, which were all highly-levered and didn't have enough of their own stable sources of capital, were all vulnerable. Whether they should have been bailed out, or forced to be acquired by larger, more stable institutions, is a separate question. The question I'm raising is why Goldman Sachs seems to have gotten preferential treatment to, say, Lehman Brothers. Another question is why the government didn't demand a bigger pound of flesh in return for its help. After all, the bailout of AIG was also partly a bailout of Goldman, indirectly, and the government ended up owning almost 80% of AIG.
From what I understand Goldman was first in line for collateral from AIG, and had their exposure to AIG hedged. The AIG bailout was more about saving all the _other_ poor schmucks who were counterparties to AIG.
"Interesting post, Megan. Speaking of Lewis, I'd be curious to hear your take on his recent Vanity Fair piece about AIGFP."
The one where Lewis blames it all on the Brooklyn College guy?
Right - it is another derivative. We should see this statement:
It is imperative that the US gov’t bailout AIG so that Goldman Sachs can be made whole on their bets against US citizens' ability to pay their mortgages.
"I'm just not down with the idea that.."; that's just so not English.
The scooby-doo reference is golden. Well done.
"Investment banks treated their clients disgracefully during the internet bubble, and a lot of the clients were managers who did the same to their shareholders."
True, but the fundamental underlying cause of the internet bubble was retail investors who wanted to get rich quick without doing any work and thought that the stock market was the way to do it, thanks to the "new economy" that changed everything. Investment bankers and many other professionals shouldn't have gotten caught up in the frenzy, but unfortunately they turned out to be just as greedy and gullible as ordinary investors.
With every crisis, it's tempting to imagine some evil criminal masterminds that had the entire crisis planned out step by step from day one, so that we were helpless and not at all guilty for blindly trying to make money the easy way. But I think we're giving Goldman way too much credit by pretending that they foresaw all of this.
Blighter, it may be true that other banks imitated anything that seemed to be working without first figuring out how it worked or whether it was really a good idea. I saw that with the flood of US, European and even Asian companies that followed Gordon Wu into China in the 1990s without first figuring out exactly how he managed to get paid for doing business there. If people think that they smell money, they have a tendency to stampede (which is what we should be trying to limit, before the next bubble). But even if Goldman ended up not having been hurt as badly as the other banks in this mess, would it really have paid them to engineer this whole thing, on the hopes that they wouldn't lose as much as others in the end?
From a policy standpoint, the problem with this search for one or two villains while excusing everyone else is that it won't help us design systems that limit the next bubble/crash.
Oh no, I absolutely don't think Goldman engineered the collapse in the hope of profiting from it, not at all. That would truly have been stupid and is waaay too far into conspiracy-land for my mind to even contemplate.
It's just that I, at least, had never realized the extent of the interplay between Goldman and Treasury (and it's true of a few other similarly high-flying firms in other industries, as MDF pointed out in reply to my earlier comment). While I find it difficult to believe that Goldman alums use Treasury posts to plot financial armageddon in the hope of somehow profiting, I find it very easy to believe that Goldman manages to profit by its close association with the government. Maybe it's just the benefit of knowing how those folk will react through having worked with them for years; maybe it's the Goldman alums subtly shading everything to Goldman's advantage merely because they have spent years looking out for Goldman and it's a hard habit to break.
At the very least it seems somewhat unseemly that one firm can count on always having an inside man at any government meeting that could in any way affect them. I'm sure it's not an explicit thing, but it is somewhat like having the government operate as a subsidiary. Or, maybe not a subsidiary, but a sister corporation founded by ex-employees that's in a complimentary business.
And, as I say above, I could see how the financial collapse could have been set off by folk trying to emulate Goldman without realizing quite how they had subtly rigged the game. If Goldman was able to take more risks because they could rely on outsized influence with the backstop of last resort (the federal government) due to their revolving door policy with regards to all senior government treasury jobs, that's in-and-of-itself prob. a bad thing but not catastrophically dangerous.
What is catastrophically dangerous is when others watch Goldman take those outsized risks and figure they can do the same so long as they very carefully copy Goldman, without realizing that Goldman has an in with the administration -- every administration.
No, sorry - not true. Not true at all.
I'm not yelling at you, Ann, but I'm well & truly sick of hearing that anyone who lost money in the financial markets was either incompetent for not seeing the crash coming or corrupt because they had a custody business and didn't warn their clients away from it.
If an security starts at $10, goes to $200 in twelve months, and then goes to $3 twelve months after that, what do you call the guy who recommends buying at after 6 months? A genius for predicting six months of growth based on six months of data? A fool for not seeing the crash 18 months out? A criminal for not warning his clients of such?
With 20/20 hindsight, we come down hard on the investment banks and the rating agencies. CDO's have tranches - even the AAA-rated ones had pay-me-first and pay-me-last tranches with different mixes of junk mortgages in them. An institutional investor knows what this means and the rating agency's rating is one input to the formula, not a command from atop the mountain. And as for the retail investors, that's what the suitability laws are for...
The real issues here are not about good bet vs. bad bet, competent vs. incompetent, negligent vs. greedy. They're about systemic exposure; concentrations of risk due to high market share in a given security type and the ripple effect of a down market on an individual balance sheet (cf. Lehman and/or AIG). The folks who bought into a bubble were often right to do so, and anticipated getting out on the way down when the bubble burst. The fact that they couldn't get out (due to frozen liquidity markets) is what turned this from a down market to a financial crisis.
*frozen liquidity in the markets
Oops...
I think Megan is, if anything, charitable to Taibbi.
This is a guy who in this piece shamelessly explored the current people's attitudes towards the financial industry, and made a baseless and borderline libelous insinuation that Goldman Sachs is responsible for half the every economic catastrophes in the last 80 years.
Megan,
I usually like your writing and can easily follow your point even though I might, in the end, disagree with your take. In this case, I think your post would benefit from a rewrite removing the references to Sarah Palin. I read the first paragraph or two looking for the tie between Taibbi and Palin. Then I started looking for the explanation of how what Taibbi did is similar to what Palin's believed to have done. Finding neither a tie between the two nor a discussion of what Palin did and how it's similar to Taibbi's article, I'm more than a little confused as to what the reference to Palin was all about. Was the intent some Mark Steyn-like pop culture quip? (If so, you should emulate Steyn more faithfully and not omit the parenthetical sentence or two explanation for the uninitiated reader.)
I can only assume that Palin has become in your circles the perfect example of someone doing something, but what that something is I've got less than a clue and no money to buy one with. Did Taibbi quit his job suddenly and unexpectedly? Does he claim some object can be seen from his state that most of the nation (absurdly) believes cannot be seen from his state? Does he say, "Ya' betcha'" too often? Is he considered incredibly good looking for his age, profession, and life experience? Does he dress like the male equivalent of a slutty flight attendant? Is she known for writing long fact-free articles? Does he (un)reasonably object to having his family the subject of late-night TV banter? Should he be considered a hypocrite because his children don't fully live up to the moral standards she sets? Does a member of your magazine's editorial staff spend too much time speculating in print about whether Taibbi's children really are his children?
From reading your post, it's clear that you believe Palin is known for reducing complex situations into narratives of good versus evil. Fine. That may be a fair charge. (Whether its fair to say she's more likely than, say, Nancy Pelosi to not allow the facts to get in the way of demagoguery, is another question.) However, since I didn't come to the party with the mental picture of Palin as the perfect example of this type of behavior, your mentioning her does not strengthen your point against Taibbi; it detracts from it. Rather than our shared understanding of Palin reinforcing the vision of why what Taibbi did is bad, my mind's spent too much time rummaging through my memory trying to recall what Palin may have said or done that's similar to your complaint with Taibbi. All I'm left with is, huh? Something doesn't fit here; it's the reference to Palin.
Does Taibbi defend the indefensible? Huh? Does he? Oh, no. That'd be you, guy.
So much wackness and talking-points regurgitation in your comment, which I stopped reading halfway through. But I'd just like to touch quickly on one point. Americans didn't find Palin's "I can see Russia" statement to be absurd because they didn't know that Russia is visible from Alaska (if you're in one specific section of Alaska). No, we found it to be retarded because what does being able to SEE a country have to do with anything, especially when offered up as foreign policy credentials?
To help you with this point... I can SEE the Mississippi River from my house (it's five blocks away). Does this make me an expert on the Mississippi? On rivers? Would you like to put me in charge of all traffic on the largest river in our nation now? Or environmental policy vis-a-vis the Mississippi? Economic policy, maybe? Because, you know, I can totally SEE it from my house.
I hope that this helps you.
Hey, thanks for the help. It's greatly appreciated.
To return the favor, try a google search and see how many times Gov. Palin's comment was characterized to mean she had claimed to be able to see Russia from her house. Since that's NOT what she said, it was unfair and absurd to belittle her as being so stupid as to think she could fool the nation into believing she could see Moscow from Juneau.
As you point out, it's very weak to claim that, just because you can SEE something, you are an expert in that thing. Of course, that wasn't her claim, either. She made her comment in response to questions about how she could be prepared for the foreign policy responsibilities of national office if she'd never worked in Washington, DC. She, like Bill Clinton before her, pointed out that her duties as governor involved some international responsibilities. She, like Clinton, sought to give those responsibilities greater weight than they deserve, but it's hardly an illegitimate response to the questions posed to her.
Due to Alaska's location, the governor of our northern most state has more international duties than, say, the governor of Kansas. For example, unless things have changed since my father served in the Alaskan Air Guard, the governor is copied on all reports of interception of Russian military aircraft approaching US airspace. The governors of few other states would routinely receive such reports. So, it was in that context that she said you could see Russia from Alaska. Being such close neighbors, her duties as governor naturally included some interaction with Russia and Canada -- just as the governors of California, Arizona, New Mexico, etc., have some regular interaction with Mexico. The federal government takes the lead in our relationship with neighboring states (as is appropriate), but (as is also appropriate) most federal administrations have consulted with the administrations of the states that are closet to, and might be most concerned with, our dealings with Canada and Mexico. Just as the governor of Maine would be very interested in any new treaty with Canada covering fishing rights in the North Atlantic, the governor of Alaska would properly be interested in the Japanese and Russian fishing fleets plying the Bering Sea.
So, your supposition is correct: just because you can SEE the Mississippi River, I wouldn't want you to be given responsibility for transportation, economic, or environmental policy. On the other hand, if your job required you to be informed and consulted about the development of such policies, I wouldn't think you were wholly inexperienced in the area.
Does that help? Glad I could return the favor.
Nope. It doesn't help. Sarah Palin had no foreign policy responsibilities whatsoever, ever, and this has been detailed over and over again in the press. That's okay. As an Illinois Senator, Obama didn't have those responsibilities eitehr, although he's - you know (hate to have to do this to you) - smarter, better informed, more curious, smarter again. But that's okay, either way. But I'd just prefer that a candidate tell the truth. Sarah Palin doesn't know anything about Russia. But she's willing to act like she does, and OHIMIGOD, I QUIT. If you really think that she's smart and qualified, then more power to you, dude. We'll never know, and that's really really awesome, because, well, nevermind - the strain of pretending that I really have to take her seriously is killing me.
Really?
Romney.
Huckabee.
Crist.
Jeb Bush.
Gingrich.
Anyone.
I don't like any of these people that much, but they're all real human beings that I could actually have a conversation about. They're all legitimately viable candidates.
But no. It's Palin that gets you guys all hot and bothered. Good luck with that.
What's truly hilarious about this post is that Sarah Palin never said she could see Russia from her house; Tina Fey did.
Except, of course, Palin never said that. Tina Fey did.
Genius. Effing genius. You think as if a Saturday Night Live skit is your reality.
Friends don't let Friends read Think Progress. M'kay?
BTW, How's HopeNChange going? Printing money like it's Weimar?
Well, I'm one of those urban horribles that Sarah Palin spent most of the campaign railing against--the folks who don't understand the "real America". I feel quite real, thanks, so you could hardly expect me to like her. The division of the country between us and them was hardly original to Palin, but she's the one who spent her whole campaign putting it front and center.
I'm not excuse Obama's liberal urban bullshit about God and guns. But it wasn't the central plank of his campaign. Sarah Palin built a public persona around vilifying some unnamed elite who was out to get the good soccer moms of the world. I don't like populism on either side of the political spectrum.
Megan,
Thank you for the response. Until you responded I honestly had no idea that the first thing that would pop into anyone's head upon hearing Palin's name was "She's the gal who ran against a bogey man called the Elite." Maybe I'm the only one of your readers who doesn't make that connection; I doubt it. During the recent campaign, both sides employed bogey men -- weren't we promised (by both sides) that they'd stand up to Wall Street? Maybe I didn't take as much umbrage at Palin's use of the technique as you did (because I wasn't her target), but I did notice it and didn't like it. Nor do I think she's the best example of running against a bogey man. How do you think she stacks up against Al Gore's populist appeal in 2000? My point, which I've taken too long to make, is that, unless Palin's distinguishing feature is railing against bogey men AND she's seen as the ultimate example of the behavior, saying someone's "getting his Sarah Palin on" conveys nothing more than bewilderment.
Again, thanks for the response. Have a great week end.
It is understandable that you don't like her (you combine the key hostile demographics of childless women, academics, journalists, and denizens of in a cosmopolitan cities). I'm not sure that you're one of the targets, though you seem to identify somewhat with people who are.
Going back through your writings on Palin, it's consistently the tribal things that you mention as not liking. Her motherhood and domesticity, in particular, comes up time and again, sometimes with variations like "pta mom". Sometimes you call her ignorant, but not as often. Once, you explicitly say that you're not the target of Palin's populist allies (in a post on Bristol "This is everything the pro-lifers tar us with: arrogant, elitist, anti-motherhood, pro-abortion rather than pro-choice.")
This is the first time (at least from the 8 pages of archives I leafed through) that you've mentioned this aspect of Palin. There isn't enough space to flesh it out, and it seems obvious that it would detract from your primary claim, since all but the most direct comparisons with Palin will draw more heat than light.
There are a lot of reasons why she might be brought into the picture here. Do you really feel that not liking her is a good reason for including her in the Taibbi piece?
I'm not a big fan of McArdle, but in her defense, I will say this:
For whatever reason, trashing Palin has become as reflexive as breathing.
McArdle's comparison of Palin to Taibbi was hardly the most egregious Palin-bashing I've seen (and I say that as someone who dislikes Palin, but just doesn't see the value of trashing her ad nauseum.)
I didn't feel that it was entirely out of context. I thought Taibbi had a good case in most respects, but he really overstated it in the RS article, and thusly he had somewhat "dumbed-down" his argument.
On the other hand, to dismiss his points entirely simply on style issues?
It's interesting to me that earlier McArdle posts (e.g., Edmund Andrews) drew hundreds of comments. But this one, even a day later, still has less than 80.
I wonder if defending Goldman Sachs - even from the overwraught hyperbole of Taibbi - is beyond the pale even for McArdle's fans?
As well: it was my understanding that Felix Salmon wrote that he thought the Taibbi prose was over the top, but that he couldn't argue with any of the facts Taibbi had brought forward. I'll stick with Felix Salmon's assessment, not McArdle's.
Plutarchos, I agree that trashing Palin is reflexive to many, but my sense is that controlling reflexive urges is a key part of writing well.
I don't agree with your assessment of the rest of the post's impact. It seemed to me to be in line with Salmon's "facts are right, style wrong" where that was the case, and effective in rebutting factual claims where it wasn't.
The problem is that drawing nuanced, technical images of why the banking crisis occured is like a black and white, soft toned, highly realistic drawing of a house and garden or some such. Slap on a crude streak of bright crimson paint and you'll have something that may be more striking, but simply isn't interesting as similar thing to what it was. The distraction completely drowns the main attraction.
True, I've become so woefully inured to the trash-talking of Palin, that Megan's piling on didn't seem so bad to me on a relative basis.
(As I wrote, I am no fan of Palin, but I don't "see the value of trashing her [Palin] ad nauseum." But I will also note that much of what came Palin's way was due to Palin's own tendency to react to comments that should simply have been ignored. I think the correct model in this overheated media age was best demonstrated by Obama's brushing of his shoulder in response to similarly gratuitous comments made about him during the campaign, which ostensibly allowed us to return to the issues.)
Back to the point, I disagree with your equating what Megan wrote in response to Taibbi to what Salmon wrote in response to Taibbi.
Their responses are significantly different.
I would disagree with you in both form and substance about Palin, but that's not the point. The point is her effectiveness as a national force.
To wit? You mentioned her name once in your title and fully a third to almost half of the posts on your Takedown of Matt Taibibi are either attacking or defending Sarah Heath Palin of Wassilla, Alaska.
The Train is leaving the Station. Don't say I didn't tell you so!
I think she explains the comparison pretty well, right there at the start of the piece:
He seems to deliberately eschew understanding his subjects, because only corrupt, pointy-headed financial journalists who have been co-opted by the system do that. And Matt Taibbi is here to save you from those pointy headed elites.
If you want to argue that Sarah Palin has not, in fact, made a trademark of favoring good ol' common sense and plain speaking over careful analysis and thoughtful study, and has not in fact disparaged those who prefer the latter to the former, go ahead. It flies in the face of a surplus of available evidence, but hey, maybe you don't like evidence.
Anyway, McArdle, I thought the reference to Palin fit perfectly. And I'm glad you wrote this post, because I did read that Taibbi article and come away feeling like someone had finally laid it all out for me. (Now I am sad and reverting to my earlier feeling that the world has become too complicated and since no one can explain it, it's pointless for me to worry about it too much.)
If you want to argue that Sarah Palin has not, in fact, made a trademark of favoring good ol' common sense and plain speaking over careful analysis and thoughtful study, and has not in fact disparaged those who prefer the latter to the former, go ahead. It flies in the face of a surplus of available evidence, but hey, maybe you don't like evidence.
Hold on. I'm not saying that. What I'm saying is I don't think most people would cite her whole "elites v. real people" shtick as the 1st, 2nd, ..., or 5th thing they think of when they hear her name. Maybe I don't identify Palin first and foremost in that way because I wasn't her target, so maybe I'm just misreading things. In which case, I withdraw my complaint.
However, I think there's a caricature view of Palin that simply is not shared by many of us who didn't vote for Obama. Since a lot of Obama voters seem to be very surprised by a lot of his policies (see Megan's post about how some Obama voters are surprised they're among the rich he plans to tax), I'm not going concede Obama voters are generally possessed of a greater insight into the candidates' true natures.
Fair enough, and sorry for the sarcasm earlier. I don't know that I ever felt like one of her targets, and I don't know how it is with most other people, but the elites-vs.-real-people shtick is one of the first things that come to my mind about Palin, so Megan's metaphor worked for me.
I can think of Joseph Cassano as one such villian. Like, just because no single person or entity could singularly orchestrate this financial meltdown, doesn't mean their are individuals who are culpable. I would say, individuals who got earned millions to take huge risks only to be bailed out by the Taxpayers, to be such individuals worthy of scorn.
God, is MM just the biggest defender of the Status Quo or merely the world's biggest Nihilist. Thus, we get this gem:
Do you really want to start this war? One could easily wonder how Megan got into college while bombing the reading comprehension part of the SAT's. Matt isn't railing against Hedging. Jesus. Is she that dense? He's railing against Regulatory Arbitrage, and the illusory hedging mechanisms employed by Goldman, as the leading example. He writes that he singles out Goldman, opposed to Morgan, because Goldman's the biggest, the most egregious example, and the most well politically connected.
Goldman, wasn't hedging in the sense that, Southwest Airlines goes long on Oil Futures to offset the loss in airline revenues they'll experience if Oil prices go up. Goldman was selling crap, bought insurance on that crap to satisfy capital requirements (in his longer versions of this story, he goes into the ridiculous leverage ratios, but HEY!, everyone was doing it) and then sell more crap, and then shorted the insurance company (AIG) because they knew the insurance company couldn't pay off. But, since Goldman is so well connected, the American people ended up bailing out Goldman through AIG, In amounts that make the Loss the Taxpayers for TARP and Chrysler and GM look tiny), when they very well knew that the AIG insurance couldn't pay off.
Why is this so f---ing difficult for Meghan to comprehend and why is she even defending this?!?
Every once in a while I come back to her blog because she's supposedly the economic expert of the Atlantic Bloggers. But, instead, we get this (financial) establishment worshipping patronizing bullshit. Wow, she's so contrarian. Has she ever heard of agency creep? Like, it's not good.
And as for all her $hit talking towards Taibbi, I must say, I don't have the link available, but he wrote a massive article, I think for RS, but I'm not sure right now, around January, that was one of the most comprehensive and thoroughly researched, and detailed articles I have yet read on the financial crisis. And for her to just make all these ridiculous claims that MT doesn't know crap about "how the world works," or "how business really is," is patently absurd. It's like she just picks little holes in his grammer, but refuse to address the substance of his thesis. WHICH ISN'T THAT GOLDMAN IS SINGULARLY RESPONSIBLE FOR EVERY BUBBLE. Only that they profit off of it, and use the Taxpayers as an implicit guarantor of their losses thus lowering their capital costs and allowing them free reign to take risky bets during the bubbles, which are very profitable, and skate on by when the bubble bursts. This isn't a triumph of Capitalism Megan.
I can't wait for his response. Are you calling me a layman? I have a financial background but I greatly enjoy his writing. In large part, because no many other people have the stones to say what he does.
As I say, I don't think that the message excuses incoherence on the details. I don't disagree that the banks need to be taken down about eighteen pegs. But I don't think that Taibbi's the man to do it. Or if he is, he's carefully hiding it.
Cool, so how about making a single post about how they need to be taken down any pegs at all, let alone a dozen and a half.
Criticize them just once, place. I dare you.
You'll have to wait for my October column, I'm afraid. I work on long lead times for print.
Be that as it may, I gotta give props to Goldman Sachs for one thing: Shorting AIG stock when they figured that AIG could never make good on its insurance claims caused by the crappy bets they themselves were making.
Some trades are profitable.
Some are elegant.
Shorting AIG was just the cherry on top of the big shit sundae. :-)
Well played, my droogs. Horror show.
Excuse me, but Goldman Sachs lost billions of dollars as a result of the financial crisis. The fact that it was less bad for them than it was for others certainly didn't make it good for them.
AIGFP has been working toward unwinding their financial commitments since they got their first government dollar, and Goldman was hardly the only client to whom they paid their contractually obligated claims. Are you suggesting that if my house burns down on the day I win the lottery, my insurance company should reject my claim? Or are you suggesting that AIGFP should wind down their financial obligations without, you know, paying anyone any money? Or maybe they should have only stiffed TARP recipients because, while they're legally deserving of the funds, we're all pissed at them right now and want to see them punished? Kind of like secured creditors of GM or Chrysler?
I found Taibbi's biggest sin to be his suggestion that Goldman was the only (or even the biggest) player in this game. He alluded to others (they weren't alone...) but hammered on GS because it allowed him to list a littany of cabinet-level government officials and then make a (baseless and unsupported) innuendo about corruption or conflicts of interest.
That much money to AIG ultimately went to Goldman wasn't a bug, but a feature. (And by that I don't mean a conspiracy theory that Goldman's connections enabled it to engineer the AIG bailout.) That was the whole point of giving the money to AIG: so that it could pay off the institutions it had insured.
The above post was written either by a banker, or someone with a bad case of false consciousness. It really captures for me how out of touch the smart people who run the magic money machines on Wall Street really are.
If bankers want to justify to the public their enormous, publicly-subsidized profits at a time of high unemployment, then they need to do better than “well duh what did you retards think was going to happen when we bailed out an insurance company?” That’s approximately the tone of the above post. Actually, the public was sold the bail out on the premise that if it didn’t happen then everything would collapse. Now I guess we’re all idiots for being surprised to learn that the only thing that didn’t collapse was Goldman’s bonus structure.
What’s hard for bankers to understand is that when their ‘normal’ everyday operations are explained to non-bankers, they begin to sound a lot like fraud. Most Americans can explain what they do for a living to someone in another field without simultaneously explaining why it shouldn’t be illegal. So, sure, maybe Taibbi didn’t capture all of the nuanced reasons why a bank can legally sell lay-clients an investment product while simultaneously betting against that product themselves. Or why Goldman should get 100 cents on the dollar back from their bad AIG bets courtesy of the tax-payer. But the fact that ‘that’s how it’s done on the Street’ doesn’t make it any less wrong.
Here’s a simple point for any bankers who might be confused as to why people are mad at them for doing ‘what they’ve always done’: TARP= failure. It’s that simple. TARP is not a great, heroic rescue program made by pragmatic regulators. It signals a huge failure at every level of government and finance. Yet nonetheless people are being rewarded handsomely for pulling it off.
So his facts are right, and his conclusion is right, but he was, ummm, shrill?
Taibbi will be devastated.
No, his facts are wrong, his conclusions are wrong, and only his discomfort with Goldman Sachs' role in our public life is correct. Since that's about 5% of the essay, and he doesn't even explore THAT in any interesteing way, F-
Or perhaps a better way to say it is that the facts are right, but the mini narratives are ludicrously wrong, which makes the meta narrative suspect.
That's an astounding self-reversal. The "mini-narratives" are the problem now? I haven't read the Taibbi article yet nor do I have a financial background so I can't really comment, but it reads like you are flailing here.
And what's with the tacked on Palin reference? Why in the world would you bring her up so unnecessarily?
Megan McArdle Gets Her Abject Suck-up Conformism On.
I guess Megan's trying be one of the cool kids now, and we all know that unintelligent, robotic bashing of Palin is a prerequisite for membership. Last I heard, she was speculating about baby bumps and who was the real mother of Trig. It's all rage over at the venerable, august, sophisticated and "writerly" Atlantic Monthly.
HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA! Megan's getting the details wrong while still having a job is legendary. Like, for example, your snark about the bankruptcy study by Elizabeth Warren:
Dig Megan ever, even once acknowledge that this was on page five of the report? Several readers pointed this out to her, some even quoted the text:
No, Megan, you're not 'required' to get the details right, in fact, you often don't. And since your magazine doesn't seem fit to penalize you for it, I don't see how you can even use the word 'require' with a straight face.
I read the Taibbi article as a polemic, not a straight hard news story. As such, I found it a bit wild-eyed in places but not too far out of whack for the genre. I can see the worry that someone might pick it up and believe the scales had fallen from their eyes and they now knew how the world worked when the appropriate response is, "Sharp rant!" But the same can be said of exposés in sources a lot more strongly associated with hard news than Rolling Stone.
There are two big things to be said about the Taibbi article: 1) It sets the mind to thinking about the dangers of regulatory capture in a very vivid way. 2) It makes one alert to the fact that for all the geniuses we supposedly have running our financial system, there will probably be new blow-ups to follow, and when they come the people on top will be from firms like GS and will have the perspective that you save the system by saving firms like GS.
I'll agree that Taibbi did himself - and his readers - a disservice by acting like GS runs the world. It makes it too easy to dismiss him as a conspiracy theorist who's gone overboard. It would be nice to see a calmer, more sober look at how we've come to a point where to paraphrase Charlie Wilson, we keep getting Treasury Secretaries who believe that what's good for Wall Street is good for the country and vice-versa and why that's a problem.
As for the Palin comparison: It was a tenuous connection and detracted from your argument.
Mega post, eh?
Who thinks that a CDO is a derivative, anyway? Sure a synthetic CDO, but a CDO is a package of real stuff, not a side bet on (or against) it.
TL;DR. Can someone please summarize this post in 20 words or fewer so I can see if its worth reading?
"Neither Matt Taibbi nor Sarah Palin know anything about Serious Buisiness on the Internet. Taibbi's problem is that he bitches about stuff even though he doesn't have an MBA. Fail. Also, he doesn't "prove" anything, which I will demonstrate by not actually refuting anything he said. Also also, I'm totally not a fan of bankers or Wall St, just so we're all clear on that."
Was that too long?
Never heard of Taibbi nor why I should care about him, but great summary. Thank you very much!
Someone not worthy (not MBA) wrote about one company who were in the middle of and partly responsible for the current melt down but didn't get the subtleties that the fact they survived and others didn't meant that they were right, and only unpolished hicks like Palin would even dare write about these lofty things.
In fact, McArdle's post is even more damning of Goldman Sachs than anything referred to. They just did the perfectly logical thing that anyone on Wall Street would have done.
There was no fraud. Just stupidity. Now please everyone, collect your savings and nest eggs and give them to Goldman and other Wall Street firms. They need more of your money to lose.
Derek
Taibbi is indeed a gifted writer, but he undermines his own talent in three ways Ms McArdle hasn't touched on. First, he relies witlessly and lazily on expletives. Then, despite himself having lost a lot of hair before hitting forty, he lays too much into the physical defects of his targets, Cassano, for example, having 'way too much forehead'. Finally, his over-reliance on drug metaphors suggests that maybe it's not long since his own last detoxing.
he relies witlessly and lazily on expletives.
his over-reliance on drug metaphors
LOL! I know exactly why he does this. He's a brilliant guy - so brilliant he knew that being labeled a "smart kid" was social death in high school. Therefore, he felt that if he said "I just wanna get fu*kin' high" enough, it would throw the rest of the kids off the train and they would think he was cool.
He's been unable to break that habit in his adult life.
kids off the train should read "kids off the trail".
Fu*kin' lack of editing capabilities.
Finally, his over-reliance on drug metaphors suggests that maybe it's not long since his own last detoxing.
Come on, it's Rolling Stone, this only makes sense. Half their readership is in rehab at any given time.
As far as I can tell, the gratuitous swipe at Palin was because Ms. McArdle needed to win a bet. Because if not, it was just the worst form of "see, Atlantic? I'm really just as cool as the rest of you! Please please please let me go to your fireworks party!"
But the gratuitousness meant I didn't bother to read what you wrote. Maybe my loss, but mostly hers, as I guess Ms. McArdle only wants to be read by those who like her, self identify as elites.
Self identify as elites? More like get the epithet "elite" thrown at them as a vague, all-purpose insult by people like you.
Of course this is true, I am elite. In my own mind. :P
I agree Allison, but despite her excellent writing Megan is only human and works in DC, a city built on political influence. The level of hatred for Palin there really can't be overstated.
"Oh my God she doesn't listen to us! She must be incredibly ignorant!"
We have Congress passing bills so complicated no one reads them before voting, and people wonder why a plainspoken Alaskan soccer mom is drawing huge crowds.
Megan,
Of course Mat Taibbi overstates the case: Goldman didn't create all of those bubbles. But he is correct in pointing out the incestuous relationship between Goldman alumni and government, and he has been preceded in making this (fairly uncontroversial, by now) point by journalists who write for more sober outfits than Rolling Stone.
It's interesting to remember, at this point, that Rep. Maxine Waters raised questions about this before many mainstream journalists did, and when she did, you dismissed her as crazy. And yet, as I noted later, when journalists such as David Weidner raised the same questions, you weren't similarly dismissive. You just ignored them.
So why not set aside all the fluff in Taibbi's piece and focus on the most damning aspect, the incestuous role of Goldman alumni in government? Maybe you owe Maxine Waters an apology.
I believe Megan has addressed that before, pointing out the obvious: who the hell do you think you're going to get knowledgeable enough about the financial industry to regulate it, other than people from the financial industry?
(Note: when I say, "the obvious," I mean obvious to everyone except liberals, who think career government bureaucrats can run anything, just by saying the magic word "regulation" and lighting candles at the shrine of FDR.)
Hey Megan,
You wrote about the ridiculous trusts created in the run up to the 1929 crash that "They were not even the cause of the stock market crash."
Taibbi didn't write that they were *THE* cause. Taibbi wrote that in Galbraith's estimation "The trusts.. were *A* major cause of the market's historic crash."
Galbraith wrote of trusts in general at the time: "The most notable piece of speculative architecture of the late twenties, and the one by which, more than any other device, the public demand for common stocks was satisfied, was the investment trust or company."
Taibbi's claim here seems sound to me. I think you misread him here. He was merely pointing out that Goldman made money off of a bubble and even helped inflate that bubble.
"But it's not clear how much derivatives regulation would have helped any of these three companies."
This is central to your point that derivatives regulation would not have helped any company.
I suppose we may never get it perfectly, but we must at least get it.
I'm not sure if there is a clear answer that everyone can agree on but we've got to find a resolution. Government Grants For First Time Home Buyers
I already posted this in her crossposted article, but this is the among the worst "takedowns" of Taibbi ever written.
http://trueslant.com/matttaibbi/2009/07/07/on-the-everyone-was-doing-it-excuse/?nucrss=1
"Then there is this other argument, the one being bandied about by Time magazine, among others. According to Steven Gandel of Time, the problem with my piece is that it is — get this — too specific. According to the above passage, focusing on Goldman in particular when attempting to explain (in general) the crimes of Wall Street to ordinary readers is somehow a distraction from the “real problem.” To repeat:
quote:
…spend too much time on Goldman and you miss the fact of how broadly the financial system and the regulations that are supposed to keep profiteers in check failed us.
I had to read that passage several times to even begin to grasp its ostensible meaning. Apparently this is the best argument that Time could come up with to discredit this article, that the rhetorical technique of using a specific example of a specific bank like Goldman to tell a broader story about Wall Street in general distracts readers from the “more important” issue of how government regulators… failed to stop banks like Goldman! I mean, really, how’s that for circular thinking? This is silly stuff even by Time magazine’s standards.
I’ve been shocked by how many grown adult people seem to have swallowed this argument, that the argument against Goldman’s behavior during the bubbles of recent decades is invalid because “everyone was doing it” — and other banks, like for instance Morgan Stanley, were “just as bad” as Goldman was.
Two things about that. One, it isn’t true, not really. By any reasonable measure Goldman is and has been the baddest guy on the block for a long time. When it comes to government influence, no other Wall Street company even comes close. And while maybe one might have made an argument that other players were more damaging to society before the crisis of last year, there’s simply no question now, after the bailouts and especially after the AIG fiasco, that Goldman now reigns supreme in the area of insider advantage. To pick any other bank to tell the story of the rapidly growing influence of Wall Street on politics and the blurring of public and private roles would be a glaring journalistic oversight, and surely even Goldman’s biggest supporters would admit this.
Two, even if it is true that “everyone else was doing it”: so what? Who cares? To me this response is highly telling. We published a piece accusing Goldman Sachs of systematically ripping off pensioners and other retail investors by sticking them with rafts of toxic mortgages it knew were losers, of looting taxpayer reserves to cover its bad bets made with AIG, of manipulating gas prices to massive detrimental effect, of helping to explode an internet bubble that caused over $5 trillion in wealth to disappear, and numerous other crimes — and the response isn’t “You’re wrong,” or “We didn’t do that shit, not us,” but “Well, Morgan did the same stuff,” and “Why aren’t you writing about Morgan?”
Why didn’t we write about Morgan? Because we didn’t. Because it’s your turn, you assholes. Maybe later someone will tell the story of the other banks, but for now, while most ordinary people are only just learning about the workings of the financial innovation era that blew up in their faces last year, the top dog in that universe is going to be first in line to get the special treatment. That might be inconvenient for Goldman, but it doesn’t make the things I or anyone else say about them untrue.
Normally I don’t care so much when people criticize my work. It goes with the territory. But in this case, the response of a bank like Goldman and Goldman’s supporters is characteristic of the subject matter in a way that is important to point out, even after the fact of publication. These are powerful people who know how to play the public relations game, have all the appropriate contacts, and have a playbook that they follow to discredit their critics. Whether it’s me now or the next guy who takes them on, they’re going to come back with some kind of charge, be it “Everyone was doing it,” or “We’re just smarter than the other guys, you can’t blame us for that,” or “The real culprits are the ineffective regulators,” something.
They’re going to say that and more, but whether it’s this time or the next time, the important thing is to pay attention to what they don’t say. And what they didn’t say about this piece is that it was wrong. They didn’t deny any of it. They said others were just as bad, they said I was a bad guy, they said it was a conspiracy theory. But they didn’t say it was mistaken, and that’s the only thing that matters."
"of helping to explode an internet bubble that caused over $5 trillion in wealth to disappear"
So he's blaming Goldman for not doing everything possible to keep the bubble expanding as long as possible? And $5 trillion in "wealth" disappeared when someone finally noticed that the emperor had no clothes? What a hack this guy is. The only reasonable criticism of investment banks during the internet bubble is that they should have worked harder to stop the bubble earlier, not that they should have kept their eyes closed even longer.
By the way, it's a shame that we weren't using auctions for IPOs during the bubble, since that would have popped it earlier. People would still have lost a lot of money, of course, since auctions would have shot IPO offer prices to the moon, but the resulting losses would have ended the Ponzi scheme aspects of the market sooner.
Exactly again. His comments show that he doesn't even understand what a bubble is. $5 trillion in wealth didn't disappear; the whole essence of a bubble is that there wasn't any wealth there to begin with -- just the paper illusion of wealth.
After reading this article, my first thought was:
Megan McArdle gets her Andrew Sullivan on
but the resulting mental image was too painful.
The Palin reference does detract from an otherwise interesting article, and Megan would do well to avoid such asides in future, even if she feels personally attacked by some of Palin's remarks, or doesn't like some of Palin's attitudes.
As for those defending and attacking Palin, as an outsider I would say that claiming foreign policy experience for governing Alaska is at least as plausible as claiming executive experience for running an election campaign, or similar experience for being married to a previous president. If you want to find a reason to dislike a politician, one can usually find one. It is disappointing that Megan has succumbed to Palin Derangement Syndrome, though.
||
Ha ha, foreign policy experience, I'd almost forgotten about all that. I think it's pretty clear that train left the station a looong time ago.
At this point, the question of whether or not Palin has enough experience has kinda taken a backseat to the question of whether or not Palin is clinically insane.
Three things Sarah Palin and I
can agree on:
You can't cheat an honest man.
You get what you pay for.
Count your change.
You may not know that some of the
other Founding Fathers got a good
Snark out of watching Geo. W.
count his change; All those
pounds, shillings, pence, etc.
had him moving his lips.
I mean, how did this dummy
get to be President, anyway ?
For the same reason she may,
if she still cares enough
about the lumpenproletariat
to take on the thankless task:
She is brave and honest.
P.S. George fixed his counting
problem by going to a simpler
set of subdivisions for the dollar;
MM, are there any signs that the
financial community is trying to
simplify the rules by which they
play their game, given that the
current ones are demonstrably
too difficult for them to follow ?
If you don't think there is major fraud going on, you are very naive and never worked on Wall Street. I direct you to this white paper:
http://www.themistrading.com/article_files/0000/0348/Toxic_Equity_Trading_on_Wall_Street_12-17-08.pdf
'They estimate that 70% of the volume in today's markets is from high-frequency program trading. They outline how large brokers and funds can buy and sell a stock for the same price and still make 0.5 cents. Do that a million times a day and the money adds up. Or maybe do it 8 billion times. It requires powerful computers, complicity of the exchanges (because the exchanges get paid a lot), and highly proximate computer connections. Literally, the need for speed is so important that to play this game you have to have your servers physically at the exchange...High-frequency trading strategies have become a stealth tax on retail and institutional investors. While stock prices will probably go where they would have gone anyway, toxic trading takes money from real investors and gives it to the high frequency trader who has the best computer. The exchanges, ECNs and high frequency traders are slowly bleeding investors, causing their transaction costs to rise, and the investors don't even know it. We are literally talking billion of dollars here.'
Goldman recently went after an employee who stole some of their trading software. The US assistant attorney general said in the courtroom that the software had the potential to manipulate the market. Gee, you think?
Yawn. Arbitrage and market-making. It's been done for thousands of years.
I tried really hard to read and understand this critique of Taibbi, as I'd like to get both sides of the story and I understand that to some extent Taibbi is a rabble-rouser and, in any case, certainly not a serious financial journalist. In the end, however, I couldn't make heads or tails of what McCardle is saying here, and what I could understand seemed obviously untrue or irrelevant.
That Taibbi is short on details doesn't seem to be a terrible indictment of a guy who writes polemics. What's important is that he's broadly right about what he's yelling about, and is entertaining doing so. Does he exaggerate when he paints GS as the entity behind most of the last 100 years' downturns? Probably, but even if what he says is exaggerated to twice its true size, it's still worth the ink and bile being spilled.
Also, the mise en scene McCardle paints of all the stock market players knowing the real story about CDOs and toxic derivatives is laughably untrue, and I'll leave it there. And sure, maybe banks do sometimes sell people different positions than they're taking. The difference, of course, is that the bank is usually not producing the poisonous commodities that they're selling en masse and moving instantly away from, like someone farting in an elevator and getting off at the next floor. Anyone who can't instinctively see the difference here, in both behavior and scope, has a seriously faulty moral compass.
Honestly, I have a hard time understanding anyone playing apologist for Goldman Sachs at this time. Is it just a holdover from that fashionable mid-decade Slate contrarianism, wherein a journalist displays their "objectivity" by staking out positions of deep moral stupidity? Or is it that McCardle is annoyed by how much acclaim Taibbi is getting for these articles?
One final thought--Taibbi, however right or wrong he might be, is eminently readable. McCardle is not. I would argue that's because Taibbi is writing from a position of moral clarity and McCardle is scrambling to employ as much obfuscatory language as possible in the service of defending the indefensible, but I'll allow that it could be simply that MT is a much better writer.
I'm sorry, where are the facts that MM is providing? Her opinion-- that everyone involved in the CDO fiasco knew how toxic they were--runs counter to more or less everything written to date on the subject.
On the subject of clarity--moral or otherwise--I recommend having a look at Orwell's "Politics and the English Language." MM's piece here is a shining example of Orwell's tenet that it's really hard to write clearly about something you either 1) don't believe, or 2) don't understand. Which one of these it is, I have no idea.
One might note the views expressed by the acting director of the Office of Thrift Supervision, who suggested that to this point there has not been any event of default on the CDSs written by AIG Financial Products,the residual of which are now held by Maiden Lane 3.
The bulk of what AIGFP appear to have written through 2007 ( remembering that they decided not to write any more subprime cds paper well before anyone else) were balance sheet rents to European banks,the value of which disappeared when AIG was downgraded and were thus no longer rented. It appears that what did AIG in was the downgrading by the rating agencies( those paragons of competence) after a new set of accountants and the third new ceo decided to cover their own risks by writing down what the prior auditors and ceos had accepted. The downgradings, which apparently were never challenged,precipitated the collateral calls that AIG couldn't meet. Maiden Lane 3,run by the Fed, made the decision to buy in the alleged risk and to pay off the counterparties. But to this day there does not seem to be any refutation of the testimony given under oath by the acting head of OTS.
Meh, Rolling Stone is just a shiny rag anyway.
But what should we really expect from Taibbi when a Congressman on the Financial Services Committee gets fleeced in a Ponzi scheme?
Dumb: But financial meltdowns don't offer villains, for the simple reason that no one person or even one group is powerful enough to take down a whole system.
Wars don't offer villains, for the simple reason that no one person or even one group is powerful enough to conquer a nation.
The financial crisis offers scores of villains. Villains seldom have ruin as an objective, but instead cause ruin through greed, or arrogance. There are villains. If you worked in high finance at all in the past 20 years making huge amounts of money for applying skills and aptitudes that elsewhere in the economy would return a fraction of your income you were a villain. I'm not calling for heads, but I'd like you to use yours.
Once you have too many villains, you have no villains; you have a malfunctioning system.
I'm friends with dozens of comic book fans who'd strongly disagree with you there. Do you drink a lot or do you actually believe that?
Sorry, Megan, but the facts are wrong too, often in horribly obvious ways. They would be funny if so many people didn’t expect this guy to know better. Here’s just a few bits of evidence of complete ignorance of basic financial concepts.
Mortgages, typically thousands and not hundreds, are bundled into mortgage-backed securities. Specifically, the kind where a pool of mortgages is sold as different classes of bonds is called a collateralized mortgage obligation, not a CDO, and these have been around for over 25 years. Nobody ever referred to MBS as CDOs, although some CDOs were composed of CMO bonds. Was the problem with all MBS? Just CMOs? Or just CDOs, even though that’s not what he’s describing? Are CDOs worse? Why?
CDOs are not derivatives, even though CDO and CDS both have CD in them. Are all derivatives problematic, including stock options and interest rate swaps? How exactly did these other folks get into trouble, and what does that have to do with CDS?
If these regulations affect banks, how would they have helped Procter & Gamble, Gibson Greetings, and Orange County?
No, actually, all of the mortgages were second lien mortgages, as disclosed on the cover of the prospectus, the offering document given to potential investors.
The best howler yet. I’m pretty sure that even the wildest originators were not lending to people without having names and addresses. How would that work exactly?
“I want a mortage.”
“Okay. Can you tell me your name?”
“Nope.”
“How about the address of the property?”
“Nope.”
“Great, pick up your check on the way out. We can’t actually put a lien on your property because we don’t know who you are or where it is, and we can’t mail you a payment coupon book. So just pay us by the first of the month, uh, Mr. X.”
Tabibi may be referring to the final tape of all the mortgage data given to investors, which does not have names and addresses for each mortgage in the pool for obvious privacy reasons, but does have lots of other information. The loans themselves were to named individuals at actual addresses.
The scatological obsession is a bit creepy, too. Number of times “shit” used: 11. Number of times “crap” used: 8. I find that this does nothing to convey righteous moral clarity. It just makes the author look dumb.
I'm assuming that Taibbi got this information from a fortune article (google the name of the MBS to find the link) about this particular bit of toxic waste. To wit:
And also, here is the source of your second quibble (and yes, I'd call this one a quibble):
I agree he seems to have conflated these two into the "second mortgages" part with the "many" statement. The rest is just confused writing, not factually incorrect, unless you're saying Allan Sloan is also factually incorrect.
The "scatological" bit is a red herring from what is otherwise a pretty nice counterargument.
But comparing Taibbi to Palin is, quite frankly, mystifying, no matter how much the author tries to explain it. There is, quite frankly, no comparison, other than the fact that they are both human beings.
The best howler yet. I’m pretty sure that even the wildest originators were not lending to people without having names and addresses. How would that work exactly?
I rofled.
Great comment, John. Thanks for sharing.
Taibbi is a gifted narrative journalist, whose verbal talents I greatly admire.
And yet you call him the Sarah Palin of journalism?
Sorry, you lose this one right there before it really even gets started.
If you can't even use a metaphor without getting it completely mixed up then you're not going to be very convincing to anyone. Especially going up against Taibbi who's an absolute master of language (thus bearing no resemblance to the inept, inarticulate Palin whatsoever) with such a weak argument, not to mention such a dull article.
Your claim for this comparison seems to be Taibbi's supposed "eschewing understanding his subjects". However is that any sort of recognizable or significant trait of Palin's? I thought it was that she was inarticulate to the point of comedy, corrupt to the point of indictments, and inexperienced to the point of now not being even a one-term governor.
I'm tempted to think that you were tempted to try to write with something like Taibbi's biting wit, but in this instance it was definitely coming to a battle of wits entirely unarmed.
Outside of his main point about GS, I think his (Taibbi's) examples go further afield than needed. The example I find closest in time & means is the S&L debacle. It was major upstream securitizing of those mortgages that seems a template for this meltdown. The main change is that the buyers of last resort expanded overseas and into the widows' & orphans,' and pension funds.
Guys, I wouldn't bother posting anything critical on the blog - I had two posts up that were taken down. I looked at the blog this morning and then logged on this evening to find the whole conversation changed. I'll bet that most of these further critical posts will be removed in the morning.
And Megan, if you want to do this - just turn off commenting - at least that would be more straightforward.
You may have gotten our spam filter, but I haven't touched--indeed read--any of the comments on this article until this morning. It looks to me as if you were commenting on the parallel entry at Atlantic Business, which does not share comments with my blog. Those comments are still up.
Apologies--I don't like the lack of cross-comments either, but I don't control the back end.
My bad Megan - you are right. My apologies for my prior post.
I should also mention that it looks like Tabibi cribbed his information about the subprime deal from Allan Sloan of the Washington Post, who wrote a column about it in October 2007.
Here's Tabibi:
Note the facts presented: $494 million issue, “many” second mortgage borrowers, 0.71% equity, 58% low or no doc, 93% investment grade, Moody's 10% default projection, and 18% defaulted within 18 months. Also note the weird statement that the loans did not include names or addresses of borrowers. The 18 month figure is curious, too. Why not use a more recent number?
Here’s Sloan:
All the facts in Tabibi’s article are in Sloan’s. Tabibi clearly didn’t read the prospectus himself, not even the cover, or else he would not have said that “many” of the mortgages were second lien when the entire deal was second lien. Tabibi also mistook Sloan’s statement that names and addresses aren’t given to the investors to mean that the names and addresses weren’t actually in the loan documents. The 18 month default rate also makes sense in an article written in October 2007, not so much for one written in June 2009.
Gee, I post at 10:17 and you post at 10:26. Does that mean you "cribbed" from my reply? Dude, just admit I corrected you. Your credibility suffers when you don't.
(since your original post was at 7:21, and my reply was at 10:17, I'm assuming you didn't actually "Google" it until after I replied.)
I got the fortune citation from this link. Didn't see the Washington Post version.
Hiding the source doesn't hide your shame in "cribbing" from my reply to make yourself look better.
blighter - I think it's pretty common for the major players in an industry and the regulators of that industry to move back and forth. The major players have the expertise and if the government regulators are going to understand what they are regulating, then hiring from the major players is probably inevitable.
Megan - I also thought the Palin reference was gratuitous. It struck me as unnecessarily snarky and controversial in that it might annoy people who disagree with you about Palin but who might be interested in the content of this post. Liking or disliking Palin probably doesn't correlate with being interested in how Goldman Sachs and regulation contributed to the financial crisis. I say this as someone who has no strong opinion on Palin but who had to think about what you meant by the comparison and wasn't really enlightened by it at all.
This Eric Martin post reminds me that a number of you have asked me what I thought of Matt Taibbi's Rolling Stone piece on Goldman Sachs.
Why would anybody ask you that, Megan?
Ms. McArdle, I'm entranced by your literary gymnastics but this particular piece gyrates around a number of questionable assumptions. As an example, you begin your construction of Mr. Tabibi's pillory with the statement that "no one person or even one group is powerful enough to take down a whole system." What of the Hunt brothers and their nearly successful attempt to corrupt the silver market, the ever expanding list of rogue traders (eg. Nick Leeson and Barron's), Milken and junk bonds, even Madoff himself. Certainly the systems these individuals inhabited were more limited in scope, but the outcome in each case was that, if the system survived at all, money was lost, trust was broken, and not easily restored (if at all). Why can't a well-connected institution like Goldman embed a behavioral norm and an ethos among it's adherents that extends far beyond it's tactical reach; in effect a form of influence leveraging. Having tilled the corporate soil and planted it's crop, Goldman merely waits til harvest time to reap the rewards. If the the complex global financial system operates within the realms of chaos theory, Mr. Tabibi is pointing out that every time there's a financial whirlwind, the same damn butterfly is flapping it's wings.
But this is not true. Goldman didn't make Lehman collapse, or cause National City to explode in 1929 or any of the other causes of the crises which Taibbi doesn't mention, but which has nothing to do with Goldman Sachs. Citibank (aka Charles Mitchell's National City) is a more plausible candidate for multiple central causal roles. Again, if you don't know much about, say, the Great Depression, Taibbi's accusations are plausible, precisely because you don't know all the pieces that are missing. But if you do, they're ludicrous. Did Goldman cause the 1925 Florida real estate bubble, too? The oil market gyrations in the seventies?
Individuals can indeed take down a company. But they can't take down the whole financial system. There are too many players looking too hard to mitigate and control risk. And thank God. That's why we have major depressions once every seventy years, not once every four or five.
"Individuals can indeed take down a company. But they can't take down the whole financial system. There are too many players looking too hard to mitigate and control risk. And thank God. That's why we have major depressions once every seventy years, not once every four or five."
You need to read Bruner's and Carr's The Panic of 1907: Lessons Learned from the Market's Perfect Storm. If you do, I think you will find that:
1. Individuals can take down the whole financial system. In fact, they did in 1907.
2. When people pursue only their own interests, they tend to be blind to the risks created by others in related but non-competing areas. That's what happened with the trust companies in 1907.
3. We used to have major depressions every 10 years before Glass-Steagall was enacted. Glass-Steagall was repealed in 1999, and financial institutions have returned to the types of predatory behavior that caused major depressions every 10 years. Your trust in the market to self-regulate is misplaced.
Accordingly, I have no idea why anybody should listen to anything you have to say. The good news for you is the people prefer confidence to expertise, and, whatever anybody thinks about your expertise, you exude confidence. I see a long career ahead for you.
It's nearly impossible to "prove" causality here, and one need not prove that to be able to infer that Goldman's up to some shit.
It was Goldman's former CEO who made the discretionary decision that Lehman fell just below the "too big to fail/Systemic Risk threshold" to warrant a bailout. It was Goldman's current and former CEO's, who were the one's, who greenlighted the AIG bailout, that funneled approximately $13B directly to Goldman through AIG. Today, we hear that Goldman has records profits, $2B in net income and $18B in compensation.
Sure, Goldman didn't make Lehman collapse. But, it's impossible to prove causality. We can make a strong inference that Goldman had a hand in Lehman's demise.
Furthermore, as to the notion that Lehman fell short of the systemic risk threshold to warrant a bailout, I'm pretty sure, the failure of Lehman was the critical point in this financial world of shit that we all inhabit.
And it would have worked, too, if it hadn't been for those crazy kids a collapse in the housing market of a scale not seen since the Great Depression.
No it wouldn't. Eager for greater returns on investment, Wall Street engineered a loophole out of the standard prudent leverage ratios for debt by serializing mortgages into bonds.
In order to keep the music playing even as the chairs were disappearing, Greenspan at the Wall Street subsidiary Federal Reserve kept interest rates artificially low.
What went on here is that the Wall Street banks were trying to build a perpetual motion machine and got slapped down by harsh reality.
The economy is in the tank, jobs evaporating, wages falling, workweeks plummeting, yet Goldman Sachs manages to get bailed out not once but twice, and has the DOJ acting as internal security control to recover software that could be used to manipulate markets.
Hundreds of millions losing ground while one connected bank manages to rake in billions...
-marc
In the heart of the financial crisis (Q408), Goldman Sachs lost $2.3 Billion.
Which was better than most banks, and mostly because they got out of the subprime business earlier than most banks. Still, "one connected bank manages to rake in billions" is the kind of hyperbole that Megan was complaining about in the Taibbi article...
Brian, did the US Taxpayers not go into hock to bail out both Goldman and AIG?
Did Goldman then get 8 figures from the Treasury directly and then 8 figures from AIG?
Doesn't that still leave Goldman "raking in billions" of taxpayer dollars?
Even after paying down the TARP loans, GS still has $14b of money free and clear which taxpayers have gone into hock to provide.
Did any other American financial institution double dip to that extent? Could the USG have allowed AIG to tank foreign sovereign banks as a matter of foreign policy? Could they have allowed Goldman to tank as a matter of domestic policy?
Goldman plays the casino well, but since they have a high stake in the house, their success is getting out of the card counting business before the house stepped in.
Goldman stipulated to the financial equivalent of card counting when they revealed that their software could be used to manipulate markets.
I don't believe that Goldman employees are any more or less intelligent than other professionals. There are many kind of smarts, no one industry has a monopoly on that. What Goldman does quite well is to nurture a culture which is the financial equivalent of remote control warfare, where portentous decisions are made, the consequences of which are borne by billions of humans and our planet in a way that objectifies, dehumanizes and renders irrelevant the big picture.
In gambling, the house always wins.
Goldman always wins when it gambles.
Goldman is the house.
-marc
Well, since you asked...
Goldman borrowed $10B from the Treasury as part of Hank Paulson's "take one for the team" program. They have since paid that money back.
Goldman also purchased (as in paid regular premiums for) insurance from AIG. To suggest Goldman purchased this insurance based on some inside information, or due to its federal government connections, is to laughably ignore the fact that AIG's market share was so irrationally large than when the claims came rolling in, they found themselves in a $60 Billion hole.
Also of note: the reason we, the people, leant AIG $60 Billion was to allow them to pay off their creditors and get back to a profitable business model, so that they may begin paying us back our $60 billion. Goldman was but one of dozens of banks that AIG paid. They are one of a select few that our esteemed leaders railed about publicly, because it allowed them to create the illusion of "double dipping," which helped them pass all manner of stimulus packages and other record-setting government spending programs.
Goldman made an investment with AIG and that investment paid off. Comparing that mone to the TARP money (let alone adding the two together) is evidence of buying into this illusion.
I'm sure, by this point, no one will believe me, but it's not my intention here to defend Goldman Sachs. I just don't see how we can annoint them the "evil villians who destroyed the world" just because they weathered the storm better than most and because it's easy to mention their name and several prominent government officials in the same sentence.
Do you believe there is a conflict of interest? Prove it. Do you believe they committed a crime? Prove it. All the rest is 20/20 hindsight, sour grapes, or just plain hackery...
"How you press that grievance matters."
So, if you aren't an investment banker with an ivy league degree in economics and 20 years experience trading derivatives you can't comment? Isn't the truth best arrived at though the give and take of intellectually honest people and not by trying to play 'gotcha'? Perhaps Taibbi's article is meant to be the beginning of the discussion...not the be all and end all.
Goldman may not have 'engineered' the crisis but can you honestly think of a better poster child? They also may not have broken any laws but since they helped write many of them it shouldn't be surprising that they knew best where, and how far, to push them.
Derivatives may have originally been intended as way to hedge risk but they now increasingly seem to represent just another variable in the markets for the likes of Goldman to manipulate. What kind of bananna republic hands out secret 'permissions' anyway?
Megan, if you truly believe "some populist rage is more than warranted" then you should be applauding the efforts of Taibbi to wake people up. He pointed out the forest even if he didn't know the genus of all the trees.
a) If they aren't a plausible poster child, then the fact that they're more plausible than even greater stretches doesn't reassure me
b) As I said in the piece, "truthiness" is not a defense. I don't applaud people who write things that are silly merely because they chose the right target. I'll probably hate Sonia Sotomayor as a judge, but the "wise latina" speech was not the right grounds on which to criticize her, and I said as much.
I think Ms. McArdle is barking up the wrong tree with regards to Goldman. What Goldman did that was unethical is that they didn't lose a lot of money when lots of other people did. Since a lot of people have done badly, it cannot be there own fault, and it obviously cannot be the fault of the Solons on the Potomac, a mustache twirling villain from Wall Street must have done it.
The mustache twirling villain from Wall Street gets invented everytime the stock market tanks, he's a stock character just like the butler who did it. One od the reasons securites laws like insider trading laws are so vague is that some prosecutor somewhere, whether he's Eliot Spitzer or Rudolph Guiliani, can get some scalps when the public wants some, and often times actually guilty people won't be enough. It also cannot be someone who also lost a lot of money, i.e. Madoff cannot play the role. So it seems to be Goldman's turn.
Not that Goldman isn't benefitting unfairly at the public's expense, Goldman is essentially a hedge fund whose debt is insured by the FDIC, sometimes directly, mostly implicitly. Not that they're a bad risk, Goldman is a very good hedge fund, but the govt shouldn't be writing puts on their bonds. But since there is no mustache twirling villain angle about any of this, it won't come up.
j mct,
If I understand it correctly, Goldman Sachs received US $10 billion through TARP directly, and US $12 (twelve) billion through TARP's allotment to AIG.
Goldman Sachs has repayed, as I understand it, $10 billion. Is it not true that they have retained $12 billion in taxpayer money through AIG - essentially as compensation for Goldman's LACK of intelligence in hedging?
They may not be villains (there are villainous qualities in every hero, and heroic qualities in every villain, and who among us is an angel?)
It is not my concern who is a villain and who is not. But it is fair to ask why Goldman was allotted so much cash through AIG, and why that is not accounted for in the so-called return of TARP funds.
They were forced to take the TARP money and have paid it back. (There is still some wrangling going on about warrants that the govt basically demanded Goldman issue them). Per AIG, the Feds bailed out AIG, this means that they don't default on their debts, they owed people money on car insurance claims as well as Goldman, so bailing out AIG means they don't default to Goldman as well a someone with a car insurance claim or a life insurance policy. A creditor is a creditor is a creditor no matter who it is.
Per Goldman, they still wouldn't lost money. They owned CDS on AIG bonds and that would have covered what I've read as the $12 billion loss they would have lost from AIG would have hurt but not wiped them out. A long CDS position is essentially a synthetic way to sell short a risky bond, (or buy a portfolio of treasuries and finance it by borrowing a corporate bond, the writer of the CDS doing the opposite, all synthetically via a contract designed to mimic such a trade, to be exact) in this case AIG corporates, so if their counterparty didn't go belly up, they wouldn't have lost a dime, or far less then the full amount, if the Feds let AIG go down, if that's where it stopped. If the CDS they were long were from a foriegn bank like Credit Suisse, and they needed bailing out because of AIG, then the US taxpayer wouldn't have put up a dime, the Swiss taxpayer would have. If they were from Citibank, and AIG failing caused Citibank to fail, and the govt bailed Citi out (or at least for more than they already have), then they would have indirectly given Goldman money, but a creditor is a creditor is a creditor, whether it's the fireman's union's bank account or Goldman. Given that the Feds did bail out AIG so all that is moot, Goldman has taken a small loss on it's long CDS position on AIG.
You'd be right that if financial armageddon occured Goldman would have gone down. But so would have just about everyone else too though, including say, IBM.
Goldman's 'crime' in all this was that they didn't lose any money, which is an essential feature of the mustache twirling villain that is always manufactured every time the financial markets tank. It isn't any more complicated than that.
"Taibbi's facile use of technical terms, his lengthy explanation of little-known secrets that have been endlessly rehashed on every financial page for going on a decade, gives people the illusion that they have acquired valuable information about the financial crisis. They haven't."
And how do you know this to be true, Megan? This is part of the arrogance of the media elite who thinks the great unwahsed are too dumb to know we have been conned.
Oh, I got it. Only someone like you or someone who works for the Atlantic can explain it to us.
"But just because Taibbi, or Sarah Palin, has a legitimate grievance, it does not follow that everything they say is thereby legitimate."
Or Sarah Palin? Or Hitler? Or Stalin? Or Satan? You are pulling a Goldman here and making Taibbi's article about Taibbi and not the article. You (or Goldman or someone paid by Goldman) follows the same script. You can't disprove what Taibbi wrote so you change the argument.
"I won't even go into Taibbi's silly and naive discussion of Goldman's alleged oil market speculation, except to note:
* He again does not succeed in pinning it all on Goldman"
And this is a direct quote from the Taibbi article,"Obviously Goldman had help — there were other players in the physical-commodities market"
To quote Reagan, there you go again, changing the argument. I hope they have enough hay at the Atlantic for all the straw men you are building.
"This would not be complete, of course, without a detour into the dastardly CDSs, in which Taibbi illustrates that he either does not understand the concept of "hedging", or doesn't care."
Actually, Megan, I don't think you get it. What Goldman was doing was hawking mortgages to pension funds claiming they were as safe as treasuries because of the AAA rating and then going short those mortgages using CDS. That is classic pumping and dumping and is securities fraud. It's the equivalent of having your analysts rate a stock a buy and then shorting said stock.
"To know that, we'd need some sense of the size of the portfolio, the size of the insurance, the structure of the deals."
Againk, you just don't get it. We know Goldman had at least $13 billion because of the AIG fiasco.
"He fails to explain how a 1991 rule change caused a 2008 price spike and decline."
Megan, on this point, you are totally clueless. Taibbi doesn't touch on the law, but I will. The law allowing for speculators to keep their positions hidden from the CFTC was written by Enron, submitted in the 2001 budget (not 1991) by Phil Gramm, and signed into law by Clinton. It was the Commodity Futures Modernization Act, AKA the Enron loophole.
"He fails to note that price spikes and declines in the oil market were common pre-1991."
Look at this graph, http://www.eia.doe.gov/emeu/steo/pub/fsheets/real_prices.html. Megan, the only real spikes occurred in the 1970s when we had price controls on gasoline, the Arab oil embargo, and the Iranian revolution. If you don't see the spikes after the CFMA was passed, you need glasses.
"But financial meltdowns don't offer villains."
Enron, whose lawyers wrote the law and whose lobbyists pushed for it, and whose managers are now in jail is not a villain? How about Phil Gramm for sneaking it into the law or Clinton for signing it? How about Hank Paulson pushing for and getting the law changed allowing investment banks more leverage and risk? How about the credit agencies who graded the CDOs AAA if the price was right?
Warren Buffett famously quoted, "Only when the tide goes out do you discover who's been swimming naked."
It wasn't the financial meltdown that created villains. It was the market's plunge that exposed the likes of Madoff, Sir Allen Stanford, Lehman, and Bear. Goldman would have suffered the same fate only they had enough buddies in government to give them an expensive swim suit paid for by taxpayers.
It is that last fact that makes what Goldman did so despicable. When it comes to profits, Goldman earned them and gives out huge bonuses, but when it comes to losses, the government had to step in. The only parties that don't find the private gains, public losses concept disgusting are those working on Wall Street or hoping to someday. Are you one of those people, Megan?
More specifically to Megan's question, the reason a 1991 rule change caused a 2008 price spike is because the banks, and Goldman in particular, didn't move heavily into oil speculation until the credit market choked:
http://www.washingtonpost.com/wp-dyn/content/article/2008/08/20/AR2008082003898.html
mct wrote:
"Per Goldman, they still wouldn't lost money. They owned CDS on AIG bonds and that would have covered what I've read as the $12 billion loss they would have lost from AIG would have hurt but not wiped them out."
I'm not convinced you're right. Can you offer some links to sources that would confirm that Goldman wouldn't have been seriously damaged without the $12.9 billion from AIG?
I'm also not convinced, following Gretchen Morgenson's concerns, that it was necessary for AIG to pay out its counterparties at approximately 100 cents on the dollar (and note that Goldman was the largest beneficiary of all the counterparties, ABOVE Deutsche and Societe Generale) .
The larger question (apart from your tangled attempt to tease out the definition of a long CDS) is why Goldman retains $12.9 billion in taxpayer money (through AIG.)
I agree that a "creditor is a creditor." This, however, does not justify stealing from the US taxpayer.
BTW, how much did Goldman pay in taxes last year? And how does that compare to the many tens billions in tax credits Goldman received from the government in the past year?
Hi Megan,
I find it really funny people like you who call themselves journalists won't ever write about the Federal Reserve that is not federal(private). It is the root of all the problems in the U.S. It prints the money and we pay them interest? That is insane!!! Why don't we the people print our own money Megan? Will any of you ever write a serious article about it? Why is a Federal Reserve even necessary Megan?
No one writes about the bankers who purposely do reckless business with other peoples money and then the same people get 9 trillion in bailouts no questions asked for running shit business, not to mention it happens every 10 years. Why don't you write about this?
Wall Street another dirty business, with its leaders going back and forth to Washington it's a friggen joke Megan!!! It's a good old fashion confidence game, but its the Stock market so it is legal, but where are the articles Megan??
The mainstrean media is a complete incompetent joke. The question is why don't you write about any of this until your blue in the face? It is ruining the country.
The gov't is run by lobbyists(Bribes and extorsionists), it's not for the people, or by the people, but Corp. and eletist dictatorship, but none of you even explore the limitless possibilities on any of these subject's.
It is laughable you will spend time critiquing Matt, a man who has balls to even take any of this head on, while all the rest of the cowards are just looking to keep there jobs and not rock the boat(like you). What weak spineless life forms the media as a whole is. You will pull the wool over most of the peoples eyes, but things are changing fast and you seem like your just a joke of a life form. (Sorry for all the mispelled words my spell check was down).
You should hail this guy as the phenom he is because he has courage and quit being an elitist journalist and do something.
Wonderful critique alien999.
What is most discouraging Megan is that your article is a useless unproductive effort at tearing Matt down as a journalist, taxpayer, and person.
Its hard enough when most of the mainstream media focuses on Goldmans ability to weather the storms(s) vs its competitors. But when the few brave souls such as Matt have the courage to stand up and speak what he see's as the truth, its truly sad to see articles such as yours written with a transparent agenda that is to attack Matt and protect Goldman's reputation. It's almost as if somebody from GS decided to lobby you (pay you money) in order for you to write this article.
Let's take your initial paragraph and show you how obvious it is that you are writing with the agenda of insulting Matt as a writer, and not his evidence.
"But financial meltdowns don't offer villains, for the simple reason that no one person or even one group is powerful enough to take down a whole system."
Financial meltdowns of course offer villains. The fact that it was not one person or group that can take down a system is no reason why there are no villians in a meltdown. This premise holds no water. Would it be more fair to say that Goldman was one of the many villians? I don't think Taibbi's point was to say that GS took the whole system down by themselves, but rather they were one of the main parties causing these problems that led to the near destruction of our economy.
"Confronted with this, Taibbi doesn't back away from the narrative form, or apply it to smaller questions where it is more appropriate, as William Cohan did in House of Cards. Instead, he grabs whoever's nearest to hand and builds them up into a gigantic straw villian, which he proceeds to bash with a handful of recently acquired technical terms that he clearly doesn't quite understand."
Why are you attacking his "narrative form"? What does that have anything to do with the validity of his arguments? Would the average American reader be better to understand the points he made if he wrote like you, using unclear and ambiguous jargon to confuse the masses? Matt wrote in a way to make sure the public at large could understand this fleecing of the American taxpayer. If anything, Matt's prose should be applauded. You even said yourself: "Taibbi is a gifted narrative journalist, whose verbal talents I greatly admire."
"It's not that everything he says is wrong, but the bits that are true aren't interesting, and the bits that are interesting aren't true. The whole thing dissolves into the kind of conspiracy theory he so ably lampooned in The Great Derangement. The result is something that's not even wrong. It's just incoherent."
I don't know how you could conclude that Matt's piece was incoherent. If anything, your argument against Matt is. You should, if you disagree with him, correct the parts that he says is wrong, if they actually are. Moreover, by you saying "the bits that are interesting aren't true", shouldn't we expect that you tell us what lies Matt is spewing?
I reread your article 3x's and I still don't understand what you are trying to say. Comparing Matt to Sarah Palin is not what people care about to hear. What they really want to know is, is Goldman Sachs running the government?
Which is not to say that I disagree with Taibbi's project.
Hilarious. Having filled the screen with the kind of nit-picking detail the Goldman-ilk schuysters typically use to obscure the essence of things with a cloud of wandering threads and Brownian thought-motion, you've added this little "condemnation" of Wall Street.
No one with a brain will fall for this.
Anyone who compares Matt to that brainless hillbilly is shilling for Goldman. Any time anyone reads what ypu write, they should remember that.
man-- i was really excited for a good olde fashioned pseudo-intellectual THROW DOWN up in here.
Megs came out of the gate STRONG! calling matty boy all kiiinds of stupid and THEN....
and THEN..,...uh.... and then... yeah, well, then her argument kinda peetered when it came time to start talking about the "stuff".., so f it, megs, she's a fighter! she went back to the well-- calling Matto all kiiinds a stupid again.... and again... she went for it with a passion that comes from a deep freudian place.... but... then....
damn. finally she realized she MUST throw in some words to surround her dissin' of the guy writing for the rock and roll magazie-- so she made some strong pseudo-intellectual smackdowns:
1. the stuff matt writes is all "technically" true-- but its presented in a style that is displeasing to some.
2. the stuff matt writes is all "technically " true-- but, hey, there were other companies doing stuff too. They just werent doing it at goldman, and what kind of golfman profile doesn't also profile all the other companies in the industry? i mean, what a lowlife rock and roller. this hack.
the only clear outcome here is-- neither one of these blowhards knows what they're talking about. at least matt taibbi can write his A** off and make it fun to read. guess that's why he's in the magazine people buy.
I work in finance and feel comfortable discussing derivatives, but I found Taibbi's piece valuable in that he put the topic up for discussion with people who aren't usually comfortable talking about CDOs etc.
If we're making pop-culture comparisons, I think Borat would be a more fitting reference --both expose our willful ignorance in an entertaining and engaging manner. (this post being proof of the "engaging" part)
Megan -- so glad you and other financial journalists have such a better understanding of the topic than Matt, and that 'everyone knew' financial institutions led by goldman were taking the grand risks that pretty much collapsed the economy, broke the federal budget and put so many americans out of homes and out of jobs.
then again, could you send me the link to the stories where you warned the rest of America to run, hide and keep our 401ks from becoming 201ks.
because while you may disagree with matt's conclusions about these 'technically' correct facts, y'all don't have a lot of credibility on this topic, since you apparently knew and said nothing.
at the moment, my main wish is that Taibbi, rather than saying nothing, had gotten into this topic a whole lot sooner. we might have had the warning we needed.
sure, goldman didn't act alone. lots of others participated, and lots of authorities and journalists gave them a pass.
Nail on the head. I would only add:
1. Taibbi isn't saying GS is responsible for creating instruments in order to kill the world economy, but they were the most powerful of many deregulation influence peddlers who went on, after that initial accomplishment, to exploit those opportunities by finding increasingly clever ways to defraud (the precise term) markets.
2. It is an outrageous assertion to extrapolate from the basic concept of CDOs that everyone knew some mortgages would fail and that fund managers could and should have known the quality of the underlying product. How would a pension fund manager know CDOs comprised $700,000 mortgages Countrywide sold to migrants earning $12,000 per year? How would they know rating agencies were on their knees before investment banks? Presumably a fund manager, just like the rest of us, would think laws and regulations would prohibit that from occurring and, if not, a diligent cadre of professional financial reporters such as the so-very-knowledgeable McArdle would expose it--unless, that is, they were toadies of the people they cover (for).
People should be going to jail for this, the crooks of GS among them. That they will not doesn't validate McArdle's position but condemns it for aiding and abetting. The similarities between mainstream journalism's handling of the war and financial journalism's handling of this blatant theft are astounding. McArdle's sanctimonious assertion that she is "in fact required to get the details right in the pieces I publish" is galling. She never got it right, nor did most of the so-called "legitimate" journalists on the beat. Small wonder they're snippy when Taibbi exposes them. Smaller wonder still when we believe him more than her.
On point 2, they couldn't know if there was fraud, but they could know all the data about the amount of the mortgages, how much info was collected about the borrower, the borrower's credit history, etc. They could know that for each of the thousand or so mortgages that are packaged in a mortgage-backed security that went into a particular CDO. These were/are private contracts and typically all that information would be made available on a CD for the buyer to analyze. Some investors (GS among them) made more of a habit of analyzing this data, but many investors just looked at the credit rating and never popped open the underlying data. Keep in mind that the only investors investing in these products were supposedly "sophisticated" institutional investors, also supposedly with the resources to actually analyze this data.
Granted, there was a lot more fraud at the individual mortage level than a lot of people thought, but fundamentally the problem with the CDOs wasn't that the mortgages were going to default. If that's all it was, actual bank losses wouldn't be all that great because even if 20% of all mortgages defaulted, you're still talking about only a few dozen billion dollars. Instead, what these CDOs did was double down or triple down the bets through leverage and credit default swaps going in the opposite direction of a normal insurance contract (in other words, rather than insuring yourself against losses in the investments you've made, you promised to pay someone else if your investments lose money in return for a premium.) And the problem with the rating agencies wasn't that they were crooks (no one has shown even a bit of evidence about that so far, not withstanding Moody's statement that they would rate even a CDO drawn up by a cow), the problem was that they assumed that a collection of AAA-rated products, bound together, should also be AAA-rated. (The reason this was a problem is that the original AAA-rated product was given that rating because it held diversified securities each with a small chance of failure. However, the securities were not nearly as diverse as everyone assumed, so that an incident likely to bring down one also tended to bring down all the others as well.)
Worst of all, the cash flows for all of these CDOs should have been readily modeled by the investors in these things, so even when thing started to default, they should have been able to figure out what was still performing, how much money was coming in, and how much the CDO was worth. Instead, because everyone was relying on the rating agencies instead of their own assessments, as soon as the ratings were called into question, the market for these products disappeared and the banks weren't able to estimate the value of their portfolios. I don't think there were any villains here, but there were lots and lots of idiots.
There are way too many Eric Martins writing for a living...
Methinks Megan has been spending too much time in salons with The Atlantic and its patrons and not much time with most of the people who were hurt by Goldman Sachs. How else do you explain she thinks "everyone" knew anything about the financial shenanigans practiced on Wall Street?
Ms. McArdle
I have not read the Matt Taibbi piece in Rolling Stone, however I will take your word that Mr. Taibbi demonstrates a lack of understanding on how financial systems work.
That being said your criticisms of him demonstrate a similar lack of understanding. I am not a financial writer nor do I claim to have your financial expertise but you reference the House of Cards documentary, which directly contradicts your claim that everyone knew there was a certain level of risk involved with the purchase of Collateralized Debt Obligations.
Appearing in the House of Cards Documentary was Hedge Fund Manager Kyle Bass. Mr. Bass, who made a substantial amount of money betting against CDO’s, was interviewed for the documentary. The interviewer asked Mr. Bass how he came to be so astute about the probability that the CDO’s were a bad bet; he stated he questioned industry insiders and they explained that the industry insiders base their models on a continuously rising Real Estate market. This is an assumption that anyone who was involved in the late 80’s, early 90’s S&L crisis could easily see was drastically flawed.
Additionally, 60 Minutes conducted a piece on Credit Default Swaps in which the reporters on 60 Minutes detailed how the Credit Default Market was essentially a return to the Bucket Shop Days of the early 1900’s. The 60 Minutes report attempted to demonstrate how the Commodity Futures Modernization Act of 2000 was directly responsible for the lack of regulation in the area of Credit Default Swaps. As corroboration for this assertion the 60 Minutes report highlighted a section from the CFMA, which restricted the States from enforcing existing “Bucket Shop” regulations.
The inclusion of this restriction may have been at the behest of the corporations who would profit from this product. Another reporter wrote that the State exemption was the result of NY State’s insistence that NY’s Insurance Regulator’s wanted no part of Credit Default Swap Regulation. Either way your rebuttal skirts the issue.
As to the allegations of Criminal Fraud, there is supposedly an email drafted in 2006 by an analyst at Standard and Poor’s, which reads, “Let’s hope we are all rich and retired before this house of cards falters.” I am, by no stretch of the imagination, a securities fraud expert but this document, at least on its face, would seem to indicate criminal duplicity.
I have not read enough of your writings or that of the publication you represent but if this piece is indicative of the rest of your writing then while Mr. Taibbi may represent the ramblings of the populist school of economics your views seem to mirror those of the Larry Kudlow school of thinking.
You give Taibbi way, way more credit than he deserves by allocating so much space and effort to critiquing him.
I remember Taibbi when he was writing "look at me!" lunacies for the free hand-out NY Press, from which he got bounced for writing "The 52 Funniest Things About The Upcoming Death of The Pope" (which also got his boss, the hand-out's editor, fired).
That was four years ago. I don't think he's picked up an MBA in finance since then -- he's writing at the same level of education and understanding, and using the same ploys to get attention and a paying audience for himself.
And it works! As per all the write-ups he just earned on his Goldman story.
Of course, how he managed to jump from writing compilations of dead Pope jokes for give-away papers to landing a job where he's paid real money to write about the likes of Goldman Sachs ... well ... there are mysteries in life, and one can also wonder about what passes for the profession of journalism a lot of the time in this country.
But there are some kinds of behavior that should not be rewarded even with criticism.
What strikes me right away in reviewing the comments are the apologists for GS. It seems Mr. Taibbi's article in The Rolling Stone has, at the very least, elevated the rumors and mumbling about GS sufficiently to draw out the coy, but obvious nonetheless, professional damage control mouthpieces for GS. Some might consider that where there's smoke, there is frequently fire. We have one of the GS alumni as the head of the Bank of Canada and today he has declared the recession "over". I think it is fair to say that based on the staggering US debt, the decline in the value of the US Dollar and the threat of inflation and the high levels of unemployment in the US and here, most Canadians are not buying it. Some of us are expecting the stock markets to tank again and wipe out the gains that have been made this year. I wonder if GS will be betting on that. I guess we'll know when their 3rd and 4th quarter results are announced.
Megan, I am seriously disappointed. Is this the best Lucas Van Praag can offer on the PR front? I'll tell you what. Why not take a gander at New York Magazine's current issue. The cover story on Goldman is an easier pill to swallow, but it does little to get the American public on the side of Goldman juggernauts. If anything, it validates some of what Taibbi wrote in his Rolling Stone piece.
Let's face it, the heart of Goldman is as corrupt as it gets. It's not the face of a few at GS that has caused this mess; but the firm as a collective group of narcissistic sociopaths.
An acquaintance - once good friend - became a partner at a certain investment bank (leaving the name of the institution out for privacy sake, but you can easily guess the name) a couple of year's ago. This changed him in an instant, an not in a good way. That is, as soon as that $15 million bonus check landed in his bank account. He started his career in finance in the energy derivatives business, so, naturally, I asked him about the validity of Taibbi's claims. Specifically, when asked about "Bubble #4: $4 a Gallon," he chuckled. "Made me a very wealthy man," was all he would say. He would say nothing more, but nothing more needed to be said.
Yes, folks, this is what we're facing. No matter how you slice it, Goldman has only the best interests of its select few in mind. Let current Goldman associates figure out genius ways of manipulating markets and formulating 'bang-and-blame' escape plans for when they go south or become exposed, while Goldman alums either lobby on The Street's behalf, or end up at the right hand of the Commander in Chief, whispering sweet nothings in the ears of those making the decisions for all Americans. Are these decisions good for the American people, or for The Street? Unfortunately, almost always for The Street, but who cares about the rest of the struggling Americans, as long as they can rack up a bigger bonus by year's end. Let the average citizen eat cake!
Absolute power corrupts absolutely? At Goldman, you bet your ass is does.