Thursday, June 25, 2009

Rolling Stone: Goldman Sachs - The Wall Street Bubble Mafia

It is almost redundant to post this story on our blog, but I suppose for "piling on" purposes there is a major story in Rolling Stone by Matt Taibbi on (as we like to call them) Government Sachs. This goes to the larger thesis of the financial oligarchy that has emerged in the US in the past 2 decades, recreating similar conditions in the 1920s. (right before another crisis I believe?)

We've written countless pieces in this direction and the amazing thing is after this fallout, almost all of Goldman's major competitors disappeared or were damaged severely. Many of the markets they serve now have far fewer players which means ... wait for it... higher profit margins. I posted a few times how in the first quarter their trading desk only lost money 8 days... which is like a baseball player hitting .600+ for 3 months. But our knee jerk market is one based on information flow and if you (a) have much greater access to information and (b) now dominate much of the volume flow - I suppose you have an advantage or two.

Or it could all be smoke and mirrors and the folks at this company simply are that much better than all the other bright financial minds in every other firm across America ;) If you've ever seen some charts showing the inter-exchange of humanity between Washington and GS - you'd think otherwise.

Other examples - Goldman and friends across the Street claimed naked short selling is not a problem AND it would be expensive and difficult to stop. This was when their traders and their largest clients (hedgies) made small fortunes shorting smallish companies with no chance to fight back, with shares created out of thin air. Then once Goldman (and Morgan Stanley) were the last 2 standing last summer in the financial implosion of investing banks, calls were put into Washington and ... shorting of financials was banned. Oh yes, and naked shorting was also banned - and it worked effectively. Amazing isn't it.

I could go on (for a very long time) but I'll spare you ...

p.s. if you have qualms with anything coming out of Rolling Stone of value in regards to finance - the writer Taibbi is someone I've read many pieces from over the years and could write for the Wall Street Journal just as easily as RS. We cited the March piece from Taibbi on AIG on the blog, on the "Wall Street Revolution" (a masterpiece)

Felix Salmon has some nice outtakes and his opinion on the Goldman piece...
  • Suffice to say that in the second sentence of the piece Taibbi describes Goldman as “a great vampire squid wrapped around the face of humanity”; later on, he calls it “the planet-eating Death Star of political influence”.
  • Taibbi makes the case that it’s not just wheat futures which have been overrun by index speculation, but commodities in general and oil in particular. Indeed, Taibbi puts Goldman, Zelig-like, at the center of no fewer than four speculative bubbles: one in the 1920s in which Goldman-controlled entities ended up losing an astonishing $475 billion in today’s dollars; the tech bubble; the housing bubble; and the oil-price bubble ending in 2008. He calls the US “a gangster state, running on gangster economics”, and is very explicit about exactly who he thinks the gangsters are. (Clue: they paid just $14 million in tax on $2 billion in 2008 profits.)
  • I don’t agree with all of Taibbi’s article, but I’m surprised at how much of it I do agree with, especially when it comes to the subject of regulatory capture. Taibbi spends no little time looking at Goldman subsidiary J Aron, and the semi-secret letter it was issued by the CFTC in 1991, the existence of which wasn’t even known to Brooksley Born, who was then the chair. The letter allowed Goldman to ramp up its activities in Chicago by orders of magnitude. When Congress asked to see the letter, the CFTC was careful to ask Goldman first if that would be OK.
  • The chances that the Fed, or any other systemic risk regulator, will be able to rein in this powerful organization are probably slim. The best we can hope for, I think, is that Goldman will unilaterally decide to be a force for good in the world, rather than an inflator of bubbles and profiteer in busts.
I know some people think this is all grassy knoll stuff, but when so many people from so many places talk about all the smoke coming out from the crevices - either everyone is in a state of delusionor OR jealous OR there is a lot of truth to what is happening in dark corners where we are not allowed to see. Sadly, as with many things - it appears there is no changing it - just part and parcel in living under financial oligarchs.

I tried to print this out yesterday when I saw it in on ZeroHedge but it failed, so you might be stuck trying to read it here. Or go buy the magazine ;)

p.s. as an aside I expect Goldman Sachs (GS) to post incredible profits this quarter. We just raised the most money in secondary offerings EVER in any quarter, as we diluted the pants off almost every major financial firm in America, and Goldman had its hand in almost every one. Not to mention all these bond offerings to keep the US borrowing machine going.... not to mention ... well, expect a blowout quarter. And many more in the future... it's Goldman's sandbox.


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