Streams

Goldman Sachs and the Vampire Squid

Friday, July 31, 2009

Goldman Sachs posted records profits in the second quarter of this year. Matt Taibbi, political reporter for Rolling Stone argues in "The Great American Bubble Machine" that the investment bank has been involved in every major market shift going back to the Great Depression.

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Comments [31]

Hurd Hutchins from New York, New York

Power corrupts, absolute power corrupts absolutely--but money, which is much more accessible, does a quicker and better job in both cases.

Aug. 04 2009 11:38 PM
effell

Eva, thank you for all your comments.

Blame voter apathy on the winner-takes-all electoral system. (Congressmen change less often than those of the Russian Duma under one party rule.)

Some element of proportional representation is a way to restore democracy.

Aug. 04 2009 04:31 AM
Dave C

I have never put much faith in politics due to a vague sense that politics is never as much about truth as it is about agenda and ambition. Well, this story confirms my suspicion.

I agree with Eva. We, the people, need to reclaim our government. I think the result of this information should be, for starters, mass, peaceful protest of every possible kind.

Aug. 03 2009 09:06 PM
DAT from Nathan Straus Projects

Matt Taibbi is a whistleblower and most
whistleblowers end up badly.

I hope he is going to be fine.

Matt Taibbi is taking the lid off the
garbage can.

Aug. 01 2009 01:04 PM
jbr

Sue, Eva:
Nice to see a constructive discussion for a change. My concern is that Taibbi is a rabble rouser and gives an excuse to the real culprits (lawmakers/regulators) to divert attention from themselves. My desire is to see the regulatory/govt/Fed Reserve system fixed so that future crisis can be averted - there is no point in expending energy on one particular case. You sort of end up focusing on a battle instead of the war as a whole.

For e.g.; agree that one of the issues is conflict of interest when someone from wall street joins the administration and especially when they either have conflict of interest or are ingrained in a particular type of Wall Street thinking. But, the fix should be systemic, to have rules in place so that regulatory appointees are incorruptible - sort of like judiciary lifelong appointments or preventing them from going back to the private sector, etc. And, having incentives for them to do their job effectively.

The public energy should be spent on calling for effective systemic change through useful, forceful, focused debate.
If Taibbi is a part of that debate then I welcome it. If on the other hand he diverts the attention to a cheap target that would be sad.

Aug. 01 2009 10:04 AM
Noah Faith from Bronx, NY

Like they say, money talks B.S. walks...my suspicion with many has been confirmed again by Mr. Taibbi. No wonder people lose faith with the "suits" whether it is banking, politics, insurance, attoneys, judges,...etc.
Strict regulations and ethical behavior must be brought back into the fold (maybe it never was based on history) at least to some substantial degree. Greed looms large over society during all periods of time. Unfortunately the "creeps" who use large fortunes to stay in power by bastardizing our systems make it exceedingly hard to combat without sacrificing one's faith possibly. That's why I give Rolling Stone and Mike a lot of credit for publishing this article along with WNYC having the radio interview. I wonder what fates will be in store for them like AIG operatives did to get Governor and former Attorney General Spitzer.

Jul. 31 2009 07:49 PM
eva

" Our govt. is hopelessly enslaved to the interests of big business. And there doesn't appear like we can do anything but accept it bitterly."

bob, I thought Jersey guys understood you don't go down without a fight.

Our idiotic country is still worth fighting for. (Seriously, what are the options, move to China or Italy where things are EVEN MORE corrupt?) The only way we'll achieve change is if we put constant pressure on the current administration. That includes going to dippy protests, writing letters to congressional morons, and civil disobedience. Yes, it sucks. But never, ever go down without a fight.

William Kunstler had it wrong. The real fight wasn't about race and revolution, but about entrenched corporate interests.

Jul. 31 2009 01:23 PM
eva

Sue,

Agreed with you on the easy financing. And it's a good point that Rubin failed at Citi. But regulatory capture remains the larger reason behind your contempt for Citi. No, GS isn't the only party involved in RC, but it's now the most powerful one. Why?

"William Dudley is an economist, not a banker (i.e. has always generated research, not earned banking fees.)"

Dudley was chief economist at GS for ten years. He's heavily invested in GS' success, as was Rubin even after he moved on to Citi. Even if they totally divested of GS holdings, they're still powerfully beholden to the firm.

Are you sure the repeal of Glass-Steagall did not benefit GS? GS was not exactly UNinvested in other financial institutions. If you really think about what the repeal achieved in the larger market, GS was one of the biggest benefactors.

"The bigger issue isn't that Washington is afraid of GS, but of the power that Wall Street money had on Washington from 1987 to 2007."

I don't think Washington is afraid of the power that Wall St. money had on it - that's like suggesting a well-paid hooker is afraid of the power a client has. Maybe some clients of the hooker will abuse her, but the rest pay her well. And at any time, she can come clean and expose their shared crime, but doesn't.

"Today, the only Wall Street power still able to exert clout on the Hill is Goldman."

This doesn't concern you? Why are they the only power still able to exert clout on the hill?

"Frankly, I'm more angry about Citi...I'd rather have an ex GS guy running TARP than an ex Citi guy, frankly."

I'd rather have neither, Sue. And the suggestion that Goldman is somehow smarter than Citi is, IMHO, disproved by the fact that they were dead in the water without the 13 billion they got from the AIG bailout.

Jul. 31 2009 01:16 PM
bob wade from spring lake nj

The biggest royal scam in history. Madooff, Goldman, the SEC, the ratings agencies, toxic assets, cdo's....you name it, all down the line. Now they push the govt. around like dummies. Hank Paulson, former CEO of Goldman Sachs, sold this scheme to a corrupt congress and Senate.
They bought it because they know who butters their bread in DC. Now the bankers all want million dollar bonuses.....what a joke. These criminals are knowingly destroying the country with their greed and fancy schemes to defraud everyone. And we in America have become so blase', indifferent, apolitical, that we let it happen right under our noses because we feel totally disenfranchised as citizens and voters. What's needed is to dump them all into the sea ala Boston Tea Party after seizing all their assets, then start over from scratch. Our govt. is hopelessly enslaved to the interests of big business. And there doesn't appear like we can do anything but accept it bitterly.

Jul. 31 2009 01:02 PM
Sue from New York

Eva, that's the most important point -- the easy access to the Fed's financing, which gives them (along with every other institution able to use it effectively) artificially low-priced capital.

But while Taibbi focuses on Goldman's push into regulatory agencies, he's making a very selective argument. Rubin may have come from Goldman, but he went to Citigroup after the Treasury (and proved there that Goldman Sachs alums are not evil geniuses). The head of the SEC (vs CFTC) is not a GS alum. Bernanke is not ex-GS. Geithner isn't a GS alum (though he was mentored by Rubin, among others). William Dudley is an economist, not a banker (i.e. has always generated research, not earned banking fees.) Christopher Cox, probably the most toxic and ineffective SEC head ever, was not a GS alum. It was Sandy Weill, not the folks at GS, who pushed for Glass-Steagall, which didn't really benefit Goldman Sachs and the other investment banks.

The bigger issue isn't that Washington is afraid of GS, but of the power that Wall Street money had on Washington from 1987 to 2007. Today, the only Wall Street power still able to exert clout on the Hill is Goldman.

Frankly, I'm more angry about Citi. It forced the changes to the financial and regulatory system, couldn't do basic risk management (the kind that caused GS traders to identify the problems in subprime and short the securities) tried to copy Goldman's proprietary deals (at Rubin's urging) and blew up. So far, it has swallowed more than $300 billion; we (taxpayers) own 36% of it right now. I'd rather have an ex GS guy running TARP than an ex Citi guy, frankly.

Jul. 31 2009 12:52 PM
eva

Rick,

"...when large formations of capital used the U.S government as an office tool, similar to a stapler or ink for their pens."

LOL!

Tuesday:
"But WHY would people who just so happened to have worked at Goldman still care so much about the firm?"

Because your firm, in large part, becomes a powerful part of your identity, when you devote so many long hours in such an intense environment. In all honesty, banking isn't the only industry like that, but it is a more intense bond, in part because the compensation is a powerful bond.

"Timothy Geithner never worked at Goldman--so just because he worked for people who once worked at Goldman, he is also implicated in this??"

To be fair, critics on both the right and the left believe Geithner is doing a terrible job. And it certainly doesn't look good that TG worked for Rubin, given the extraordinary pull Goldman has, and the extraordinary benefits Goldman has received from the government.

"There aren't that many investment houses in NYC. In an investment banker's career, it seems likely that everyone would have ended up working at Goldman at some point."

Uh... not true. And there used to be more, but one of the reasons Goldman is doing so well is, per Simon Johnson of the IMF, because so much of their competition has been eliminated. And, incidentally, who let Lehman Brothers fail? Hank Paulson, former Goldman CEO.

Jul. 31 2009 12:52 PM
eva

Sue, sorry, one more:

It is relevant to consider the amount of taxes Goldman paid last year.

Which is reportedly 14 million dollars, or one, count 'em, one percent.

I'm sorry for the multiple postings, but frankly it baffles me that we've just seen the largest transfer of wealth from the middle class to the financial sector - why aren't people out in the streets protesting?

This is, you're right, much deeper than Goldman. But Goldman is the most egregious. And all anyone can talk about is Skip Gates.

Jul. 31 2009 12:42 PM
Tuesday from nyc

But WHY would people who just so happened to have worked at Goldman still care so much about the firm? Timothy Geithner never worked at Goldman--so just because he worked for people who once worked at Goldman, he is also implicated in this??

There aren't that many investment houses in NYC. In an investment banker's career, it seems likely that everyone would have ended up working at Goldman at some point.

Jul. 31 2009 12:41 PM
eva

Sue, I think your criticism of Taibbi is valid, but it's also clear that Goldman has distinguished itself in regulatory capture.

The problem with Taibbi's argument against Goldman is that he insists on chasing various shadows down rabbit holes (insisting they're responsible for multiple crashes in the 20th century) thereby distracting from the actual rabbit, or the larger point, which is that Goldman has successfully infiltrated the very regulatory agencies which are supposed to monitor it.

And this resulted, Sue, in Goldman receiving over 50 billion in taxpayer dollars, of which only 10 billion in TARP payout is ever discussed.

Jul. 31 2009 12:39 PM
Sue from New York

#13, by the time many leave, they have already earned giant amounts and worked there for 15 years or more. They've accumulated giant wealth and want to do different things with it. Goldman has what's referred to as an "up and out" culture -- with a few exceptions, they encourage people to move on and leave room for the most talented 30-year-olds to move up.

Jul. 31 2009 12:38 PM
Derek from 42nd st. & Lex

The 34-year-old prosecutor also dropped this bombshell: “The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways.”

http://www.bloomberg.com/apps/news?pid=20601039&sid=aFeyqdzYcizc

Jul. 31 2009 12:38 PM
Rick from Connecticut Coast

Eva, you are right, I was not even scrapping the surface. We have obviously regressed back to the situation in the 1880's, when large formations of capital used the U.S government as an office tool, similar to a stapler or ink for their pens.

Jul. 31 2009 12:38 PM
Andrew B. from New York City

#7 Rick - You are misusing the word 'socialism' - this is called 'crony capitalism' - a kind of fake capitalism - much worse than either capitalism OR socialism- which at least in theory are supposed to benefit the society as a whole.

Jul. 31 2009 12:34 PM
Sue from New York

Your guest suggests that Goldman Sachs bankers were deliberately selling toxic securities to clients while shorting them for their own account. This implies that it was the same group of people cynically doing this. In fact, these were two different departments, each making their own business decisions. Nor, as Taibbi suggests, is Calpers a hapless tiny pension fund with no skilled staff. The problem? They were chasing extra returns in a low-interest rate environment, and as the Wall Street saying has it, "pigs get fed; hogs get slaughtered."

Blaming Goldman Sachs alone (vs the investment banking system, the way that lobbying by the whole financial sector changed the rules of the game, the way we all eagerly participated in this by looking for that elusive free lunch) is dramatic, but overly simplistic that undermines our understanding of what actually happened. Goldman was a minor league player in the research scandal, for instance, paying out only $50 million in the $900 global settlement (vs $300 million by Citi, $150 mln from Credit Suisse and $100 million by Merrill.) Goldman may have underwritten many tech companies, but it was Morgan Stanley, not Goldman, that broke the taboo of taking public a company without profits (Netscape), and Frank Quattrone (who never worked at Goldman) who was the real culprit in many of the problems that Taibbi cites, such as spinning and laddering.

Oh, and I've never worked for Goldman Sachs. Or anyone else on Wall Street.

Jul. 31 2009 12:34 PM
Joe Lombardi from NYC

Golman Sachs is not a good corporate citizen. They gave P.S. 89/I.S. 89 a grand total of $14,000 for these lower manhattan public schools' music program. In light of their billion dollar profits I'm sure they didn't have to reach very deeply into their petty cash to throw this crumb at the downtown schools.

The Bloomberg Administration bent over backwards (tax breaks, etc.) to get Goldman to build their "home office" in lower manhattan. The building will have no public access on the city's security rationale that we live in a "post 9/11 world." Your guest or some other good investigative reporter should investigate and write about the unholy relationship between the Bloomberg adminstration and Goldman. At least the robber barrons of yesteryear gave us public libraries. Couldn't Goldman have done better than $14,000 for musical instruments?

Joe Lombardi
Lower Manhattan, NYC

Jul. 31 2009 12:33 PM
Robert

Why do so many people from Goldman Sachs end up working in government? Can't they earn much more by staying with Goldman Sachs?

Jul. 31 2009 12:32 PM
Jimmy from Passaic, NJ

I know of someone else that was highly respected and had a great reputation as Goldman Sachs ... his name was Bernie MAddoff!!

Jul. 31 2009 12:32 PM
eva

Rick,

That's not all. They also got over $27 billion in guaranteed loans from the FDIC.

So the total take (10 bil in TARP, 13 bil through AIG, and 27 bil in loans) was over 50 billion, of which they repaid 10 billion, or 20%.

And that $50 billion take is only what we know. There's been a real shortage of transparency.

The reality is they would have been dead in the water without the AIG bailout.

Jul. 31 2009 12:31 PM
Maria

Your article in RS stated that Gov. Corzine never heard of the term "laddering" while CEO of Goldman Sachs. Can you elaborate on the definition?

Jul. 31 2009 12:31 PM
Rick from Connecticut Coast

Allow me to understand this, the U.S taxpayer backed up all the bad bets made by these financial/socialists by shoving $185 billion dollars in the front door of AIG and paid everybody off via the back door the same day, including $13 billion to Goldman Sachs . They now call this Treasury subsidy a "quarterly profit"

Jul. 31 2009 12:28 PM
eva

#4, Dave,

I agree, it's important to investigate the ratings agencies, but the kind of regulatory capture that Goldman is involved in is much deeper and far more problematic.

Taibbi - I wish you wouldn't use such florid prose - it made it too easy for Goldman to dismiss you.

But I was heartened that more "establishment" thinkers, like the editorial page of the Wall Street Journal, are NOW saying much the same thing Taibbi is.

Jul. 31 2009 12:25 PM
eva

I should explain:

Morgenthau told Hennelly that no US Treasury for decades would help him crack down on/shut down the offshore tax havens because the people profiting from them were campaign donors.

I think what Taibbi means to say is REGULATORY CAPTURE. What Hennelly is saying is somewhat deeper - campaign finance reform. I say it's deeper because it is on US, the citizens, to take back our government.

Jul. 31 2009 12:19 PM
DaveA from nyc

How about prosecuting some of the people in charge of the ratings. Go after the watchdogs who were purposely making the bogus ratings, they may have been pawns, but then let them squeal on the direct links that enticed them to lie about ratings.

Jul. 31 2009 12:17 PM
eva

Taibbi needs to get together with Bob Hennelly of WNYC.

Hennelly's report on Morgenthau's statement about Treasury's refusal for decades to crack down on offshore tax havens is at the ROOT of what Taibbi's trying to get at.

Hennelly, please contact Taibbi.

Jul. 31 2009 12:17 PM
esther

Why do pension funds always seem to get into this kind of mess, where they seem to invest in the wrong things? If they have so much to invest, some of that money should go into doing the proper research. I am not excusing Goldman, but institutions like this have a history.

Jul. 31 2009 12:15 PM
Andrew B. from New York City

Let's also see some focus on S+P and Moody's- why is noone probing their bogus AAA ratings of the bogus mortgage-backed securities?

Oh I forgot- Goldman won't let our puppet government do that.

Taibbi - YOU ROCK.

Jul. 31 2009 12:14 PM

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