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Jun. 30 2009 - 10:22 am | 789 views | 10 recommendations | 128 comments

On giving Goldman a chance

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

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

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

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

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

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

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

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

So now word filters through that Goldman has issued yet another statement in response to the piece, this one by mouthpiece Lucas Van Praag (or Von Doom, as he apparently is often called). Again, the company does not take issue with any of the facts in the piece — not one. Here’s what he says (via Felix Salmon at Reuters):

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

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

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

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

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

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

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

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

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

So to sum up, this all translates as:

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

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

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


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  1. collapse expand

    I’ve already read some crazy ass comment about your article being The Zionist Protocols 2.0

  2. collapse expand

    It’s also pretty unclear what sort of balance an article is meant to add if the subject being criticized refuses to engage the reporter on the subject. Even if Van Pragg had sent the response before the piece ran, there’d have been little to write besides, “When reached for comment, a Goldman Sachs spokesman said, ‘Nuh-uh’.” Balance!

    There are two sides to every story, but there aren’t always two credible sides to every story. When one of the sides offers nothing more than “That’s not true, because we say so”, treating that like its as credible as the cogent, facts-based points made by the other isn’t balance, it’s misleading.

    –d

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    What’s the deal with balance? When did it become important for someone to say a few nice things about a subject when reporting that the subject is bad? Am I supposed to think you’re point is not valid because you didn’t trumpet Goldmans long history of humanitarianism? If you did that I’d think you were a bit wishy washy, that you weren’t sure of your point.

    ‘“If my pension fund is buying [crap mortgages] from Goldman, and my pension fund loses lots of value, that’s not Goldman’s fault,” wrote one reader. “No one is forcing anyone to buy anything. The only thing Goldman is guilty of is making profits.”’

    How is this not Goldmans fault? Who created the mortgage backed security? It wasn’t the pension fund, it was the people selling them. They put a bunch of dogshit in a shiny gold box and sold it as a shiny gold box but you don’t blame them when it turns out to be a box of shit? Who do you blame for that? Granted there a otehr party’s involved but you can’t remove from blame the people who invented the vehicle though which millions were defrauded*.

    *When you ignore any risk modeling that tells you the person you are making a loan to will almost certainly default, then take payments from them, then take their house, you are committing fraud.

  4. collapse expand

    Excellent. PR spinners don’t stand a chance against you Matt.

    Note to corporate shills: don’t try to make a pinata out of Taibbi, man. He’ll rip you a new one.

  5. collapse expand

    Matt, your piece in RS was great.

    I work in the financial industry so I already knew about the corruption at GS. What I appreciated and made the RS piece great was you getting this story out in the mainstream like you said MSM is practically controlled by GS. Joe Sixpack needs to know GS is looting this country; raping the women, wasting the men, enslaving the young and destroying the old.

    Very good rebuttal to Von Pragg or Doctor Evil’s nonsense. Keep up the great work!

  6. collapse expand

    Having not read your article, I can’t comment on it. But maybe I can make a case for one sort of balance.

    When I want that, I don’t want a vapid wire piece where somebody who appears to know nothing gets matched quotes from two “sides”. If I wanted symmetrical drivel, I’d just read both press releases. Instead, I want something from a writer with knowledge and a viewpoint, but who has made a conscious attempt to confront their own biases, prejudices, and leanings.

    I don’t always want a balanced view. Rants, screeds, and polemics have their place. I can get entertainment or motivation from them. But when I want facts and analysis, I reject anything from a writer that doesn’t demonstrate a willingness to tackle their own bullshit with at least as much vigor as that of the article’s subject.

  7. collapse expand

    I hope some of your correspondents criticized you for failing to understand the entire concept of “hedging.”

    Because wow, you REALLY don’t understand it. Goldman wasn’t buying ABX contracts because they secretly knew that “what they were selling was a loser” — Goldman was hedging its risks. Banks always hedge as much of their risk as possible. This has been going on for thousands of years.

    The reason Goldman feels like officially responding to you is beneath them is that….well, officially responding to you is beneath them. The truth hurts.

    • collapse expand

      To know the full extent of this situation, one would have to know also, what private placements may have been issued to capitalize on the morgage meltdown…and the issue of hedging is a very convenient way of dodging the issue. LBlankfein also said to a congressional panel that it made no difference to GS one way or another whether AIG was bailed out with government money because they were perfectly covered–I find this to be more bold face lies since if what he said was true, GS would never make any money, or they would never be in trouble financially…it just ain’t so.

      In response to another comment. See in context »
    • collapse expand

      If officially responding to him or his article is beneath Goldman, then what do you call Van Praag’s statement? Was he in fact referring to a different but similar article by an unrelated, more worthwhile Taibbi?

      In response to another comment. See in context »
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      Hahahahahah!!! Dude, hedging is one thing, but intentionally selling that crap to people while knowing all along that it is crap is downright unethical and corrupt.

      I don’t understand how that can be viewed any other way. Maybe it is OK for me to roll back the odometer on my 1997 Nissan and sell it as a brand new car.

      In response to another comment. See in context »
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      I gather you work at Goldman?

      In response to another comment. See in context »
    • collapse expand

      NickJ

      Just a quick question for you……… Who do you work for, Goldman Sachs?
      Shallow defense @ best; fraud is fraud.

      In response to another comment. See in context »
    • collapse expand

      Hedging?

      Kind of like they called the netting of CDSs hedging. It was of a good strategy as long as there was a counter-party around to pay off their bet. They used hedging techniques in a derivative that defied the concept of hedging. The only reason they didn’t lose their ass was Paulson and the 13 billion paid to them from the proceeds of the taxpayers check. That was close to 33% of their tangible equity at the time. That’s of course if one believes their accounting which is suspect at best.

      There seems to be a very blurry line between being smart and just being a criminal on Wall Street. I seriously doubt that people who work there even consider any of the activity Goldman does to insure massive profits at others expense is anything but smart. They figured they have “hedged” themselves quite well by placing people in Govt positions to insure little will be done after they get caught in the variety of scams they have run.

      In response to another comment. See in context »
    • collapse expand

      “because WOW” and “This has been going on for thousands of years” doesn’t stand in light of the consequences of their actions, does it? Or are you completely devoid of sense? Perhaps you’re one of the sociopathic profiteers. Or just plain stupid. One or the other.

      In response to another comment. See in context »
    • collapse expand

      Do you know any folks at Goldman, nickj? Because I do, and they don’t agree with you.

      Was in class with several of them the other day, in fact, and when Taibbi’s article was brought up in discussion, the GS people were not defiant. They practically hid beneath their chairs. That’s called shame, nickj.

      In response to another comment. See in context »
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      Bullsh*t- it would be hedging if they held on to the underlying instruments. If they unloaded them to fools and also shorted them, it would be profiting double when creating crappy MBS securities.

      In response to another comment. See in context »
    • collapse expand

      You don’t hedge on products you’re selling, because once you’ve sold them they pose no risk to you. You’re supposed to hedge on products you’re buying in case the investment goes bad.

      Goldman basically filled the cellar with gasoline, locked the basement door and sold the house, then took out fire insurance on it.

      In response to another comment. See in context »
    • collapse expand

      yes banks always hedge their positions because they know they know nothing. and even when they hedge things dont always work the way they should.

      but they sell un-hedged positions to their customers. [of course they cant sell hedged positions because that would be either a gift or theft depending upon whether they sold them for more or less than they were worth. assuming of course that their hedges actually work.]

      and the customers want the risk because hedging limits the possible reward as well as possible losses.

      the point is that they sold these things to their customers and down played the risk to the customers while they hedged their risk and took the commissions.

      it seems insincere.

      In response to another comment. See in context »
    • collapse expand

      Really? Have there been banks for “thousands of years”. That’s THREE “0″s. I’m sure we all agree there hasn’t been globalized, corporate banking for 1000s of years and likely the rules of sheperd banking may not be adequate for today’s complex financial institutions and products. I am certain the sheperd’s did not put the wolves in with the goats (keeping it in a 1000 year perspective). The point is simple: when for-profit enterprises create complex self-hedged financial products who’s “value” is primarily in their speculative nature – and then manipulates their markets by deceiving consumers of associated risks – at this point governance should provide oversight and protection to the consumer. Matt’s coverage shows that regulation was so influenced by GS and others that it did not occur. The mantra of the ridiculous right is too absurd to wrap my head around. I.E.: “I have a right to be screwed, that’s capitalism”. While I understand the few indiviuals who still benefit from the scam arguing for it – I cannot understand why the “screwees” do! Is it really “American” to blindly take a screwing in the ass quietly? A kind of “man up” thing? Yikes. In my mind to let corporations with no goals other than profit be allowed to ruin lives people (who barely knew where their investments went) to be destroyed and further collapse a housing market and economy – is unholy and unAmerican. Who’s passing this koolaid? It must stop. If we look to history, the last major movement against “speculators” turned out badly. Avoiding a similar extreme response as communism provided to the Romanovs would be a good thing. Thanks Matt.

      In response to another comment. See in context »
  8. collapse expand

    Nick, wow, what a pretentious turd you are. I like how you slid in the jargon so we all know you’re a “big deal”. Matt’s questions were perfectly reasonable. Any journalist, interviewer, researcher, etc. should be asking these questions considering the situation we’re in. To say they are beneath them is to claim some sort of special exemption that exists only in your own mind. Do they teach this arrogance when they train to cold call old ladies retirees and widowers? I frankly love how Taibbi calls a spade a spade. Running to your room and crying about how much better you are is not really a defense anywhere outside of lower Manhattan.

  9. collapse expand

    Matts article perfectly illuminates what is an unbelievable problem for us here in America–trying to dispell ‘conventional wisdom”. I think it was sociologist Joel Best who said that getting rid of a bad statistic was, “harder to kill than a vampire.” And this vampire notion completely applies to the myths out there about the federal reserve and their agents of which goldman sachs is their first born. Conventional wisdom and group think give a beginning explanation as to why so few people know that the Federal Reserve is a private corporation. Yes, the Federal Reserve Act gave this privately held corporation with 300 shareholders the right to print our country’s money, and to charge for doing so, and to rebate the United States Treasury for all profits minus their operating expenses. Bloomberg reported on June 5, 2009 in the article “ Fed Intends to Hire Lobbyist in Campaign to Buttress It’s Image” , that the Federal Reserve was hiring one of Enron’s previous lobbyists. On May 6, 2009, US representative Alan Grayson questioned the Inspector General of the Federal Reserve, Elizabeth Coleman, if she had any idea where 9 TRILLION dollars of off-balance sheet transactions for the Federal Reserve were located—she had no idea. Structured investment vehicles (SIV) were the method that Enron used to manage the off balance sheet transactions that caused so much hurt to so many people, and it is also, SIV’s that the Fed is using for this 9 trillion dollars. Since both the Federal Reserve and Enron use SIV’s, perhaps an x-Enron lobbyist will help the private Federal Reserve Corporation navigate the bad press that seems likely to follow, when the public understands these details. Problem is, with the cunning audacity that is used to overlook all accusations, and a whole system that is designed to protect these overlords, it doesn’t matter what the public understands until/unless big daddy’s power is revoked by congress.

  10. collapse expand

    This is not about hedging! It’s about knowingly selling shit branded as triple-A doughnuts! That they massively hedged it only proves the point.

    Matt, your recent article in RS was one of the best I’ve read the past many years and I’ve made sure as hell RS know I feel that way.

    Very few people speak the truth these days and MSM that can’t even get themselves to utter the word “fraud” when talking about these criminals and their blatant criminal acts.

    GS latest trick has been to get NYSE to stop publising program trading figures (See Zerohedge today). This is outragous.

    Seeing that GS apparently completely own almost everyone they need to in positions of power there is only one thing to do.

    Award-winning financial blogger Karl Denninger called for a “Starve The Beast” today (http://market-ticker.org/) and that is just what thousands of americans and indeed people across the globe will do to stop this madness.

    Keep it up!

    Jesper, Paris

  11. collapse expand

    There are two reasons that financial journalism is frequently dishonest:
    1) Reporters don’t like to say mean things because it puts a damper on their social life. Most journalists just want to be loved.
    2) When a journalist writes negative pieces, the sources stop talking to him, and it’s difficult to get scoops.
    Taibbi is fearless and casts both of these aside. I just hope he doesn’t wind up face down in the Hudson River. (Even Jan Wenner may go after Taibbi for daring to say that Democrats and Obama share some of the blame.)

    Here’s what Taibbi needs to explicate for his readers:
    1) GS is more hedge fund than i-bank. At the end of the August 2008 quarter, their debt/equity was over 22x, a number that would make most hedge fund cowboys blush. This means that equity was only 4.2% of assets. If GS’s $1.081 trillion in assets fell after the August quarter by 4.2%, GS would have been bankrupt. Typical hedge funds and endowment asset values fell by much more than that in that quarter (around 20%). Without TARP, who knows what the bottom would have been?
    2) Taibbi says GS got at least $13b from the AIG bailout. Word on the Street is that the number was higher. Without this $13b, debt/equity ratio rockets to 32x, and equity falls to 3.0% of assets. Investors panic, covenants are breached, bonuses disappear, and the talent flees like rats off a sinking ship.

    Over the years, GS could have retained earnings in order to build up a rainy-day fund. But instead, they paid out massive compensation to employees and dividends to shareholders, thereby keeping book equity low in order to boost return-on-equity numbers, which, by the way,are not just a measure of reward, but are as much a representation of the catastrophic risk the firm is taking. As Nassim Teleb said, “We have a very strange situation in which it’s the worst of capitalism and socialism, a situation in which profits were privatized and losses were socialized. We taxpayers have the worst.”

    Keep fighting Matt…you’re an American hero!
    - Landanlius Truefeld

  12. collapse expand

    Yes, Matt, it’s always important to get the other side’s story. Very important, for instance, to get Jeffrey Dahmer’s side. He might have had a very compelling and substantive reason for killing and eating those people. It’s not all black and white.

  13. collapse expand

    Buying a fixed income instrument and then buying credit protection against it is hedging.

    Selling a fixed income instrument and then buying credit protection against it is a doubled-down or leveraged short bet against said instrument, which is the opposite of hedging.

  14. collapse expand

    I agree with you Mr. Taibbi. Good piece.

    As for nickj: The difference between hedging and dumping is in the quantity as well as the quality.

  15. collapse expand

    Excellent post.

    Also, half-assedness is one of my favorite words. I thought that I was the only one who used it though.

  16. collapse expand

    I am no huge fan of GS (as a frequent reader of Zero Hedge, it is impossible to be), but I do take issue with some of your logic. You criticize them because “they knew that what they were selling was a loser”, but this applies to anybody selling almost any financial instrument. I sold a stock today, because I believed it was a loser. If I thought it was a winner, I wouldn’t have sold it. (Duh!) As a purchaser of a financial instrument, you are making a bet that the instrument is a winner, but this bet is far from assured, and anybody who takes the seller’s advice that it’s a surefire winner is an idiot, pure and simple.

    The fact is that GS is very, very smart, and they’ve made some very, very shrewd moves over the past decade. The line between simply being smarter than the party on the other side of the transaction and taking advantage of the other party isn’t always clear. With these types of transactions, IMO, unless you have blatant misrepresentation or illegality, “buyer beware” applies and the winner has “outsmarted” instead of “exploited” the loser.

    Like the human body, financial systems are extremely complex and unpredictable. Just as you can’t just blame the doctor because a patient dies, you can’t just blame the bank (or other seller) because an investment blew up. Maybe it was just bad luck… but even if the instrument was a lemon from the beginning, after all it was YOU (the investor) who was dumb enough to buy it; it was YOU who didn’t do your research; it was YOU who took the seller’s word that you were getting a great deal; unless GS outright lied to make the sale, it is YOU who are the blame, not GS.

    Regarding the Internet bubble, I completely agree with you that most of the companies brought public by Goldman were complete crap. But so what? The fact that Goldman underwrote the IPO is not a guarantee that the company will succeed and the stock will appreciate indefinitely! Any investor in the markets should know that there are no guarantees, huge risks, and careful research (and risk management) is required. The fact that these companies were hugely speculative bets that had never made a dime was 100% public knowledge. Buying the IPO of a tech company during the bubble was like laying money down on “12″ at the roulette table. Do you blame the casino when the ball lands on “28″ and you lose your bet? Of course not. While it’s true that there were many retail investors who got swept up in the bubble and thought these tech companies were surefire investments, these people were naive and for the most part plain stupid, a fact for which you cannot blame GS (and these investors were every bit as greedy as GS, too).

    Now I’m not saying that GS didn’t do its part to pump up the bubble, and for that they do deserve criticism. But the fact is that bubbles are largely self-inflating. They exist inside the minds of market participants, and once they get going have a life of their own. (Correct me if I’m wrong, but the Tulip Mania predated GS by almost 200 years.) GS didn’t create the desire for these IPOs. People were hungry to invest in “the next Yahoo!” and, to a large extent, GS was simply providing a service and giving investors what they wanted (and also funneling investor capital to businesses that needed it, a vital service). To blame GS for the tech bubble is like blaming real estate agents for the housing bubble; they played their part, but in reality they were doing exactly what we would expect them to do (their job). If they oversaw some sales that blew up in the end, to the unfortunate buyers I say, “You know what you were buying, and you knew what you were paying, so stop complaining.”

    • collapse expand

      But they changed the rules in order to make it easier to get investors to buy in to those IPO’s that had lost money. Just like they manipulated the rules in order to make their CDO’s look like AAA investments. That is CORRUPTION!! How do you not understand that?

      I am all for a free market and let the losers be losers, the problem is that our pu$$y a$$ nation is so afraid to let the big guys lose, they bail them out over and over which only encourages their behavior. How can you support that???? HAHAHAHAHH

      Great piece Taibbi!! Please keep up the hard work. I am passing your stuff on to as many people as I can.

      In response to another comment. See in context »
    • collapse expand

      Comparing selling a loser stock to what Goldman does is so far off the mark when comparing what a private investor does to a large enterprise, it should be shouted down.

      At one time Goldman was not in the habit of bringing out companies that had no concept of profit until the bubble and short term greed took over “long term greed”. Reputation mattered then. That meant there was a certain amount of trust that Goldman felt was necessary to getting only the best clients.

      As mentioned in the article, there was a fairly strict set of milestones a company had to pass in the 80s before bring brought public. They were quickly discarded in the 90s as Goldman rushed to be the leader in the new bubble.

      In your buyer beware rant; I see the same “blame the victim” mentality that seems all too common. Why not just say that banks are worst than buy here pay here used car lots in terms of trustworthiness and everyone should know this?

      That is the essence of this article. They are crooks. A responsible journalist who does his work well doesn’t look for balance when he is exposing a criminal enterprise.

      How many times did we see Mike Wallace of 60 minutes blind side a company who had been screwing people left and right? He knew if he gave them fair warning his chance of getting the story would be slim to none.

      The justifications you use are horrible, until they are put in the right context. Matt put a buyer beware notice that the reputation that Goldman traded off of was fiction . So now that people know that they are what they are, doing business with them means win-loss. Win for them, loss for their marks.

      That’s why Goldman felt it necessary to give something more than “no comment” in response to the article. Once they are seen as a Wall Street version of a “buy here-pay here” used junk lot; it will be awfully difficult to return to the glory days of 27 billion in bonuses in a year. Now people will realize what lies behind that smile and handshake.

      Be sure to wipe the grease off.

      In response to another comment. See in context »
  17. collapse expand

    Thanks again Matt. Having been reamed by some “really smart guys” who were constantly telling me I just didn’t “understand”, when they were taking my business public, in truth they were just taking it. It sickens me to read the snotty, you don’t understand derivatives” line.. Here is a quote from the dictionary: the instantaneous change of one quantity relative to another. Whew.. Got that out of the way. The saddest thing is these guys are, one rung above Nigerian scammers. To bad Mr. Obama can’t see the forest for the sleaze.

    • collapse expand

      Dear skyshoes,
      It is not that Obama can’t see it, it is just that he and most every politician is owned by “it”–the financial-government complex, led by the privately held federal reserve, and infinitely more destructive and massive than any old military-industrial complex you might have once known about….the fed is the grandmaster puppeteer overlord of us all….congress, however, does have the power to revoke their power, and let our country be taken back by we the people.

      In response to another comment. See in context »
  18. collapse expand

    Gee whiz, Mike. You haven’t even scratched the surface. Let’s get someone to do a little investigative reporting about the following as recently disclosed – but not effectively synthesized – in the media:
    1. Check the resumes of Geithner, Bernanke, Summers, Paulson, Rudin, etc. Former GS boys or acolytes all. Then check to see who was in the Georgetown townhouse the week-end that it was decided to pull the plug on Lehmann: G, B, P and Mr. J. Finkbein, the present head honcho of GS. Noone else representing the gov’t, or the banking industry, or the investment houses. This was, it appears, strictly an in-house, back room deal and Obama, Dodd, Frank, etc., likely were, and will in the future continue to be, just rubber stamps. Once upon a time Lehmann was GS’s chief competitor; where are they now and where are all the other erstwhile competitors? Merrill? Gone. Bear Stearns? Gone. JP Morgan? Gone. Morgan Stanley? Reduced to second-class status. GS? Still standing, more powerful than ever, the only real game in town anymore. So what if they didn’t show a real profit in Q1′09. Given the present world situation (which one could argue they created just to do the shakeout), all they have to do is SURVIVE for awhile; then it will simply be Monopoly and they will own ALL the real estate, AND the bank, AND the utilities. Plus, a permanent “Get out of Jail Free” card in their back pocket. Think all that was an accident? Think all these geniuses didn’t know what would be the (temporary and manageable) global fallout from a decision like that? No pain, no gain. It’s called “killing the competition,” salted with a little brinksmanship. Just know that these guys have all the answers to questions we haven’t even thought of yet.
    2. How about AIG? GS swore at the time that it wasn’t involved. But why then did Congress agree to the paying out of so much ultimately unrecoverable taxpayer money while retaining absolutely no oversight(or even reporting requirements) over the use of the bailout funds given to financial institutions, particularly to AIG (who promptly gave $XX billions of dollars from the bailout package to GS – who had previously said they weren’t owed any)? Was it in fact a payback to a creditor? Or to an insured client? Or just the cost of doing business in the real world of international finance/politics? Damn! And I thought investing (and investment banking) was supposed to involve some degree of RISK!!!
    3. Check out GS’s interests in the European banking system and in China. However the global financial meltdown shakes out, Heads GS wins, Tails, GS wins – that is unless the world’s financial system (including GS) has overplayed its hand and we all wind up in a depression – which is possible if not likely and which, if it happens, will have no predictable end in sight. But if not, then when China becomes the strongest financial power in the world (and it can be seriously argued that they already are), do you think GS might be called upon to advise the otherwise unsophisticated Chinese bankers how to use that power? Why would Geithner have already quietly come out in favor of the equally quiet Chinese proposal to subordinate the dollar to some new form of world currency? (Let’s not forget he spent years in China doing economic studies and speaks fluent Mandarin.) Maybe because, if China formally assumes the highest postion of power in world finance, what good is that power if the universal denomination of value underwriting how that power is exercised is the US dollar (whose value would remain under the control of the US)?
    I could go on and on with other seemingly unrelated matters, but suffice it to say that it seems that GS has risen to the level of the world’s first Superstate, beholden in reality to no government and in control of every major world financial decision that will be made from here on out. It’s like GS is using the American government as a front office. As was written recently, this is the New Oligarchy, the New World Order and the new rules we will have to play by, safe from intervention, safe from regulation, safe from full disclosure. Someone should put the pieces of this jigsaw puzzle together just so the ignoranti like us can know what is really going on out there. You weren’t even given the time of day, Mike. Get used to it; this is the new Reality of the globalized financial industry, and GS is in the driver’s seat…and noone else even gets to read the map. Money is not King, FINANCING is King: Money is just the coin of the realm – like it always has been. Truth is, Financing is the corrupt genius child of Greed and it’s probably irreversible, but I’m not sure that it should be reversed even if it could be. At least there will finally be some measure of control over the world’s banking and investment system by some really smart people who may be corrupt, but who will now be beholden to the system that they created. And maybe what we are going through won’t get that much worse and maybe, just maybe, it won’t happen again anytime soon. Let’s just pray the boys at GS know what the hell they are doing; no one else seems to.

  19. collapse expand

    How does one get a non-sarcastic slow clap started in a comments section? Superlative work as always, Matt.

  20. collapse expand

    Goldman Sachs is gonna buy Rolling Stone, fill Matt Taibbis closet with skeletons and Spitzerize him.

  21. collapse expand

    Chris Hedges, Jay Rosen and anyone who has been paying attention all agree: the promotion of balance in journalism is inherently fraudulent, a practice that elevates bad information at the expense of truth. Why is it that we reflexively dismiss Holocaust deniers? Teach the controversy!

  22. collapse expand

    NickJ, I have to take issue with your comments re: hedging…..Goldman didn’t hedge this risk as would occur in normal practise, I’m afraid Matt is most likely correct, they created financial products that their analysts knew were EXTREMELY likely to blow up, and they covered themselves. Basically Goldman are a ‘go for the dollars and damn the social consequences’ type of organisation, and that you might say is perfectly legal. And yes, you’d be 100% correct, but is it moral? Does society benefit from these type’s of predators? I am a professional and may I say ethical trader, and can assure you that Goldman have and still are deliberately gaming the Energy sector, and net energy importers all over the world are paying the price for their fun and games. Just as oil prices were headed south a few months ago, goldman released an extremelly dubious year end outlook suggesting $80 a barrel was on the cards, and there is no credible economist that would agree that the world economy could handle such a price in its current recovery mode….even with supply disruptions, OPEC have 4-5 million barrels of excess production parked….making comments that game markets like this to make a quick buck or two just isn’t morally defenceable. The only hope is that enough participants in all markets and sectors around the world begin to filter these types of comments with the rest of their worthless spam. Goldman’s constant ‘whoring’ of its credibility shall one day be its downfall no doubt. Just because they are large doesn’t make them more or less corruptable than any other person or organisation, but the facts are the facts. On a final note, in my personal experience, anyone or any organisation who makes little effort to engage in a detailed defense of its actions usually has something that they would struggle to defend in detail to any credible degree. I once caught a company out in a direct lie in major issue of shareownership and recieved a letter issued from their legal representatives saying ‘it appears our client was mistaken’, when challenged on a major legal ownership issue! Incredible….Matt my advice, keep the pressure on them. Demand a face to face, and keep circulating the story until they respond seriously. CNBC, Bloomberg etc might like the story, they are very much covering the Madoff and Stanford cases right now, and prehaps an indepth on lack of ethics and manipulation might be a runner.

  23. collapse expand

    I have read (Tor F) that when the US Gov bailed out AIG to the tune of 150B plus dollars, billions flowed through and went to GS to cover their claims for losses on their insurance bets on credit default swaps.

    What a deal, we the raxpayers try and save AIG and we saved GS.

    Only in America

    — richard cooper

  24. collapse expand

    As an old media spokesperson, I grew tired and frustrated with both managements and editor/reporters who strove for “balance” in their stories, devoting space to two sides of an issue when only one perspective makes any sense. “Fairness” in reporting is what matters. While the tests for fairness may appear subjective, little things like facts, history and consequences together with some range of enlightened opinion can add up to a “fair” reflection of the truth, which Matt Taibbi seems to capture in his perspectives above.

  25. collapse expand

    (Note -repost from the wrong area)
    Matt,

    I read the Print piece. That was THE best I’ve read from you. No equal.

    I don’t get the impression that Goldman is a pioneer in the art of legal theft, I just think they let other companies who may or may not have stumbled onto soemthing that could be exploited show them the way, then they use every tool in their break-in kit to dominate that technique.

    For example: I don’t think they brought Netscape public in 1995. That’s what really started the phenomena of IPO stocks going up hundreds of percent on opening day. Once they saw that , then they geared their operations for “Bullshit.com”. Netscape was a profitable company. The ones they brought out were slapped together websites or ventures that consumed so much money doing something so obvious that the IPO became a joke. It wasn’t a joke though to the millions who lost money as that bubble burst.

    I read about laddering. It’s hard to see why no one went to jail for this. It was clear manipulation. Those tiny fines were a joke.

    The cap for me was when you pointed out they paid somewhere in the neighborhood of 27 billion in bonuses and 14 million in income taxes. The other question that you raised for me is; how much money is sitting in tax free havens?. How many of those banks really did need TARP funds?

    I’m betting Goldman is a leader there too

    There were a number of things I wasn’t aware of though that may put them in pioneer status. The Cap and Trade bubble ( coming to a neighborhood near you) and the letter they got in 1991 from the govt stating there wasn’t any limit in commodity futures.

    The rest of it is like a fine woven fabric of connecting all the dots showing your readers who these people are and how long they have been doing it. Well done.

  26. collapse expand

    Well done Taibbi. Using RS to get this out was pure genius. The GS filters would have got you otherwise. But do look after yourself please. These are vicious people.

    The question is – Is Obama getting to read your article or have they turned him to a zombie already?

  27. collapse expand

    oh one last thing I forgot to say earlier, which no-one has really touched on. GS, like everyone else packaging these contacts were using credit rating agencies to rubber stamp them, and ppl working for these agencies have publicily stated that the validity of their ratings were compromised by the nature of their relationship to the owners of the contacts. Now you can’t say that someone was simply hedging their position if they were deliberately influencing the ratings of these things. They can only be likened to clever Snake Oil sales men who shorted their own snakeoil, plain and simple! And you can say buyers should beware, but then shouldn’t we be able to trust the ratings of a major agency? There are others who are just as culpable as Goldman’s here, but that doesn’t detract from their guilt also. I don’t believe you can work for these types of organisations and believe in a God, unless you are making a concious decision to lodge permanently in the eternal hot house!

  28. collapse expand

    I haven’t received my RS copy yet, but Matt Taibbi is a thorough journalist and a freaking rock star!!

    Crazy as it is, I live in the reddest state in the union where people profess their belief in capitalism as Christ’s way and the ‘evils’ of socialism from the pulpit. I NEED articles like Taibbi’s that bring to light the corruption and greed that is entrenched in companies like GS. Bravo!!

    Matt, if you need a bodyguard I’d love to submit an application. :)

  29. collapse expand

    Hi Matt, I was just wondering if Simon Johnson might come to your defense. Also, I think this site is trying to be “cool” with “Called-Out Comments” – but it could easily be misunderstood that the comments listed are “Calling You Out” – ie they’re right and you’re wrong. Taking a brief glance at the comments, it might look like nickj had simply discredited you – end of story. Anyway, my fiancee signed me up for Rolling Stone – I think the magazine is crap – but I found it interesting that you were willing to lay at least part of the blame on Obama and the Democrats. I don’t think the two feuding ideologies realize that independents can discern pretty quickly when an article is simply a party-line hit piece. And given I think these bailouts are a synchronized attack by both parties on all of us, I appreciate that you were willing to forgo the bias. Nice article – I hope you can absorb the fallout.

    • collapse expand

      Nickj is intentionally confusing “hedging” with outright securities fraud. Hedging implies that GS saw multiple outcomes of a particular asset, and was tying to prevent their investments from primarily bad outcomes. GS only had ONE outcome in mind for mortgage backed CDOs: total failure. They profited from foreknowledge on mortgage backed securities that investors didn’t have, causing losses GS knew were going to happen ahead of time. The point being is that GS didn’t not “hedge” with uncertainty, but in fact dumped and shorted with near total certainty. I think nickj knows this, and is just being intellectually dishonest.. or is acting as a penny ante troll.

      In response to another comment. See in context »
      • collapse expand

        I have no doubt he’s a troll. We all work in industries where we can make up euphemisms for “here’s how I’m gonna fuck you over”. What’s odd here is that, following the lead article, they list 3 “Called-Out Comments”. If people weren’t ignorant, we wouldn’t have this problem with the bailouts – they depend on our collective laziness and stupidity. So the final comment listed, at first glance, “appears” to debunk Taibbi’s article. Most people do scan articles o the web – so nickj should be applauded for a good day’s work. I still can’t tell wtf qualifies a “Called-Out Comment” here? They should at least attempt to control what little they can control.

        In response to another comment. See in context »
  30. collapse expand

    There is a term in psychology for people defending Goldman, Sachs. It is called Stockholm Syndrome, in which a hostage idealizes his or her captor because it would be too terrifying to believe someone with so much power over you could be a bad person. This kind of trauma bonding shows up in power relations all the time and certain cultures cultivate it more than others.

  31. collapse expand

    Keep your teeth firmly planted on Goldman’s ass, Matt. God knows, somebody needs to expose these shitbags.

  32. collapse expand
    Wes
    Wes

    The most valuable part of the article is the warning that the rules are changing again, and next in line to bleed the pockets of American taxpayers is the carbon credit market, and everyone involved with it – which includes Goldman Sachs.
    President Obama has been pumping our heads with the idea that “green jobs” are going to take America into the future and save the economy.
    So what we’re gonna do is jack up everyone’s energy costs until the changes actually happen!

  33. collapse expand

    Give ‘em hell, Matt. Ten or twenty thousand coworkers and I lost our jobs, health insurance, and much of the value of our retirement savings (company stock frozen in our 401Ks) as the result of a disastrous merger. Investment bankers made huge profits doing the deal and now they are about to make huge profits undoing the deal. Please don’t let up; you are on the right side in this battle.

  34. collapse expand

    Matt

    Enjoyed your Goldman article in RS. There is little doubt that when you have former GS executives in most key Government posts, they will take care of their own. At some point in the near future, American taxpayers will wake up and realize that their much vaunted democracy is a farce run and controlled by special interests groups. The Junior senator from Chicago who is now President is a gifted orator who knows how to give a good speech but at some point, the tax payers will revolt when they get hit with Wall Streets Bills. As an investment advisor, we cannot be encouraging our clients to buy XYZ while shorting or selling our own positions, yet Investment Banks like GS get away with it because they can. America’s problems are so fixable and it will one day return to prominence but as long as politicians can be influenced, the American tax payer will be destined for more of the same. America needs a leader and it is not Obama. He will be a one term President who will preside over the continual decline of the great American Empire.

  35. collapse expand

    Goldman Sucks. SO – they bankroll these sub-prime loans, then they bet (Credit Default Swaps) that these loans will fail. They not only gain through their own profit; but, also through the demise of their rivals.

    I personally think JP Morgan is just as culpable, and can’t help but wonder if their credit default swaps affected the way in which they serviced their loans ie let them default. I can’t help but wonder how much they might profit from credit card defaulters. Maybe they’re banking on defaulters by targeting those with a history of low payments on high balances.

    Then there John Mack at MS.

  36. collapse expand

    Can’t wait to read this one. I LOVE that you are on to the dizzying wonderful world of Piracy. But you must be made aware that you can’t manipulate an economy alone, you must engage in consPiracy. And the man who’s always played by that book is the Captain; Captain Morgan. Who do you think taught Goldie all those tricks? You didn’t get a nudge from that old bird, did you? He always likes to play Good pirate, and I thought he might have talked you into painting Goldie Bad. She’s glad to play a whore if it will pay. I’ve gone to Poor Tom as these fools know no boundaries of reality. They have been on Nobel Quant Acid Koolaid for almost a decade and I don’t have to tell a Stoner when someone is done. Like a tissue of dried husks.

    My step-mom took my legacy and in exchange left me hers to drag around NYT’s Dealbook like a mad Achilles/Antigone; don’t you know they didn’t see eye to eye on burial plans and neither did we. Well, her ghosts go so deep into the darkest of times that you could say the “Unc” was the GOPs “little black bag man” to buy Harding the White House and the Black Cabinet. Teapot Blown. So, I’m not so unfamiliar with the way these boys play.

    You are likely right on the money. Goldie’s weak spot? Speculating she’s all out. Actuarially speaking! Wowowowowo!

  37. collapse expand

    Goldies is a clique – and a very hard one to get into.

    Us dippy humans have always created cliques – it’s a fact of life. And there is always a latent risk inherent in criticizing the clique du jour: are you genuinely angry with what they did, or just the fact that they would never, ever let you in?

    Cliques tend to interpret all criticism in the latter terms – ha! he’s just pissed off he can’t get in. It’s one of their key sources of power and inspiration.

    Respect.

  38. collapse expand

    Outstanding article Matt. I’ve been waiting for someone of stature to lay the truth out line by line , year by year. I’ve studied the Great Depression for a long time and have lived through the the Tech Bubble, the real estate bubble, the oil bubble , and have called the next one the alternate energy bubble (which cap and trade was included.

    It’s interesting to see you get attacked by the supporters of these bubble machines and the only conclusion you can come to is they made a lot of money playing this game and will defend it to their death.

    You can always tell when a bubble is being built when you here the pundits say “THE OLD RULES NO LONGER ARE VALID, THIS IS A NEW ECONOMY” When tech stocks were the hot ticket they touted the old earnings rules no longer applied, and your description of insider trading to a special few was being done is the open and plain to see.

    The real estate bubble exhibited the same nonsense talk when house prices were rising at 10 to 20% a year, they fielded all kinds of nonsense talk to justify it. Then as you point out they built the devices to screw the world and they knew they were selling junk , and so did the rating companies who rated them triple a. At the same time house prices were rising wages were falling but the wage to price ration kept increasing. If your head wasn’t screwed on backwards you knew what was happening. How come all the money managers who bought this junk didn’t know. Simple I guess they didn’t check.

    Thanks Matt, I love your work.

  39. collapse expand

    Hey NickJ,

    If you think that GS hedged all their subprime on the exposure by shorting the abx….or even half their exposure by shorting abx, then you don’t know what the hell you are talking about. The entire planet would have felt them putting it on and taking it off and I suspect you know something about markets and therefore you know this.

    Goldman hedged the bulk of their exposure by tattooing AIG with it and when that didn’t work out so well, AIG got their bailout.

  40. collapse expand

    Matt -

    I never understood the origin of the fair and balanced crap.

    Reporting facts logically leads you to a conclusion as Bill Moyers used to say. I believe that is the difference between journalism and punditry.

    Thank you for being a journalist.

    Regards,

    Tengrain

  41. collapse expand

    I heard about your Rolling Stone article on Thom Hartmann’s talk show and knew I had to read your article.

    Since I couldn’t find it online, I had to rush to the neighborhood Barnes & Noble to get a copy (I live in the boonies and we don’t have newsstands out here).

    I cribbed about seven or eight paragraphs from your article, summarized a few more, and sent it off to some local Dems and fellow peace demonstrators.

    Your observations seem pretty reliable to me and I will be very sure to warn Dems of the coming Global Warming Bubble, to make sure they know the companies and persons involved in raking up the dough.

    Your final paragraph is the clincher:

    “But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while other get a note from the principal excusing them from homework till the end of time, plus $10 billion free dollars in a paper bag to buy lunch. It’s a gangster state, running on gangster economics, and even prices can’t be trusted any more; there are hidden taxes in every buck you pay. And maybe we can’t stop it, but we should at least know where it’s all going.”

    Thanks for your research and great writing.

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    About Me

    I'm a political reporter for Rolling Stone magazine, a sports columnist for Men's Journal, and I also write books for a Random House imprint called Spiegel and Grau.

    For Media Inquiries: taibbipress@rollingstone.com

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    Contributor Since: March 2009

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