On the Bailout Hustle
So my new article in Rolling Stone, “Wall Street’s Bailout Hustle,” is up and online.
The piece was a lot of fun to write mainly because I got to learn a lot about con men I never knew before. But it was also challenging for a lot of other reasons. For instance, there was a whole section on Quantitative Easing I had to cut — I say this with apologies to Tyler Durden, who walked me through a lot of that stuff — for space reasons and because delving into the incipient U.S. debt problem would likely have made the piece too complicated. Thus though the piece appears to focus exclusively on the banks and how they skimmed their own bailout — which is totally true — there is actually a more subtle story out there about the mutual dependency of our increasingly broke-ass, politically desperate government in Washington and their virtually insolvent partner-banks on Wall Street. I would like to get into that more in the future.
Already I’m getting some criticism in the mail. As I’m still pretty sick right now I can’t really respond to it at length. But one theme that comes back over and over again from some writers is this idea that I ignored what would have happened if the banks had not been bailed out. That would have been an even worse disaster, the theory goes, ergo all this whining about the banks robbing the bailout money is off base.
My feeling on that is similar to what Barry Ritholtz (check out his site if you haven’t), the author of Bailout Nation and one of the guys I spoke with at length for this story, proposed. He said that “we should have gone Swedish on their asses.” The Swedes after a similar bubble burst in 1992 temporarily seized control of insolvent institutions, forced banks to write down losses before they got aid, and gave taxpayers a huge share in the upside of recovery. It was a tough-love approach that really worked and forcefully addressed the moral hazard issue in a way we never touched.
That’s one way we could have proceeded. But whatever we didn’t do, we can be sure that what we did do was exactly wrong. Barry pointed out the classic pronunciation of Victorian economist/journalist Walter Bagehot, who said that in a crisis, a Central Bank should lend freely to solvent institutions against good collateral, at penalty rates. We did exactly the opposite: we lent to insolvent institutions, against shit collateral, at zero percent interest. We told these guys to drink themselves sober. Total crap thinking and totally typical.
Anyway, I’ll get into this more after I return to the living; right now I’m going to go hang a plasma bag from my bedroom lamp and eat the contents of the first prescription bottle I can find in my bathroom.
Thanks to those who sent get well wishes.
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Matt,
You’re the best investigative reporter on the beat right now. Keep crack’n those heads on Wall Street.
Get well soon
I’m a fan for life.
CG
This is brilliant! Please tell me that you’ll be on with Bill Maher in the near future to discuss this!
Hey Matt, I enjoyed your “Banksta Hustle” article immensely. Reading it is a cathartic experience. Those dollar bozos have some major league karma headed their way, and you’re just the guy to help it along. Get well soon. You’re doing God’s work!
Then I guess Evan Lysacek went totally Sweden on those damn capitalist Russian figure skaters.
Thanks for posting your new article.. after several months of unemployment i can’t even afford 5 bucks for an issue of RS.
Oh and thanks also for finally responding to all the Big Banker apologists who responded to the Vampire Squid expose with a simple, cognitively challenged, ‘Well, we couldn’t just let them fail (thus, we did the right thing sending them dumptrucks full of cash for free).’ It’s about time. If you recall even good ol’ Bill Maher was sort of in that camp, which was disappointing for a moment.
Oh and you need to get some greens in your diet or something, you seem to be sick a lot. Blueberries, Green Tea, spinach, broccoli; i’m tellin ya they work wonders.
Unplug and get well soon.
Blackberries have greater antioxidant properties than blueberries. I take mine in smoothie form after my daily workout.
In response to another comment. See in context »Mr. Taibbi,
This is an excellent piece, thank you.
I think the danger however is viewing the corruption as a matter of individual rather than as a system. It is not that individual bankers or politicians are corrupt, although of course some are, but rather the entire system is corrupt.
The individuals in these banks, federal regulatory agencies, and even members of congress are not really stupid, most are quite intelligent. They can run the same math that you did and probably did so a long time ago, and then some.
Why are there so many more pirates in Somalia then elsewhere? Are the people of Somalia more or less criminally minded than say Madagascar? The problem in Somalia is that there really is not much of any way to make a descent living except by piracy (or maybe importing khat).
The same is true in this country, how would one make billions of dollars in profits? Not by building a steel mill or auto plant. Not by manufacturing anything. Sure there are good profits in agribusiness but pretty much all of the available farm land has been snatched up. Defense contractors still make good profits, as do pharmaceutical companies but those fields no not have a lot of room for new investments, the big boys have the market. There are few options here and there but by and large, the big profits are to be made elsewhere. What is an investor to do?
The only readily and reliably profitable investment open to new investments in the US has been FIRE (Finance, Insurance, and Real Estate). These have been very profitable for a significant number of people (at least until recently). This has been so for two or three decades. Without FIRE, the US economy would be in even worst shape than it is. As a result, the forces that be in Washington have been showering favors upon FIRE, it is the only game in town.
Of course this suits some poltical factions better than others. “Conservative” politicians have been since 1981 been running up huge deficits and cutting taxes while giving billions of dollars to their friends. This ties the hands of future administrations since they cannot then take any actions because of crippling debt and deficits (it is called “starving the beast”).
This is a very convenient convergence of interests. Conservative politicians are interested in creating crippling debt and deficits and Wall Street is looking for profits from financial shell games in lieu of actual investments. So this is why we have a new liberal administration following the same disastrous policies of its conservative predecessors. Of course this new administration received plenty campaign contributions from Wall Street and is interested in getting more soon.
I once read a tsummery of War & Peace. It went something like “Ignore the individuals, follow the story”. The point was that huge historical processes, like wars and peace, are not determined by individual but rather individuals are determined by those processes. It is our political and economic systems that are corrupt, the individuals in question are merely responding to that corruption and have few alternatives.
Your point is very true. But, I have to add that individual responsibility is expected. I get so sick of morals being preached to the masses: honor, truth, and fairness. Then we ignore the exhibition of the very opposite qualities in those who ’succeed’ in life.
In response to another comment. See in context »Could there be any worse example than the reappointment of Ben Bernanke as Fed Chair?
No matter what system you put in place, it will always rely upon individuals placed in positions of great responsibility to behave honorably, truthfully and fairly in the exercise of their duties.
There were checks in place which could have and should have stopped this madness very early its development.
But, I do think we desperately need to repeal the seventeenth amendment, and find a more intellectually intensive means of selecting the one body in the legislature who is suppose to act with some degree of wisdom, as Mr. Madison intended.
-RLee
http://therleepost.blogspot.com
David,
I could not disagree more. I always hear how this company is evil, or Congress is corrupt, as if these entities are actually living, breathing human beings. They are mere fictions. The California Legislature is not incompetent or corrupt, the individual members who comprise are. Halliburton is no more evil than Enron. Do you think Mr. Enron put all those bad investments into Off The Book shells?
No, individual people did. Companies act through their people. Yes, people like you and me. Just as Nazi Germany acted through it soldiers and SS members, these companies act through its employees. So when Goldman Sachs utilizes a trading computer program that instantly detects a market influencing trade and it triggers a GS buy before the client (essentially taking profits from the client), this was completed by individuals that had to imagine the software and execute the program. In other words, this was intentional, rational conduct to commit these fraudulent acts.
And, as a long as people blame the system and refuse to accept individual responsibility, things cannot change. How many times have you heard a Congressman say how corrupt Congress is as if he or she has no role in this corruption? In fact, isn’t this exactly what Evan Bayh did and now he’s some kind of hero?
BTW – War & Peace is a long, boring book – I’d rather read Dostoevsky.
In response to another comment. See in context »I feel the same way. I believe accountability and incentives should always be made at the individual level before bad individuals can effect the culture of an enterprise. Lumping people into large buckets and labelling them is couterproducive in most cases. Alright, I suppose exceptions might be if they’re Nazis, murders, or work for Goldman Sachs, but most people are actual decent; conventional wisdom would say.
This won’t be popular… I have always thought that corporations should not be taxed unless they pose some burden on society, (polute, use roads, etc), but feel free to tax the people that run the company as much as necessary without any games. Make these people be accountable for everything they do on an individual basis with guidelines ingrained into the culture of the enterprise.
Matt – keep healthy and safe
In response to another comment. See in context »david, you and matt are making more sense than the the new york times and the wall street journal combined. thank you.
In response to another comment. See in context »Somalia does not have a government. When someplace doesn’t have the authority to guard its borders you get pirates. Not the kind of pirates who board ships and steal them, the other kind of pirates who come in and fish their waters empty and dump toxic waste and garbage. The waters off of Somalia are Dodge City, Man. The pirates are the innocents in this game. It’s the Chinese and Japanese fishing vessels and garbage skows from all over Europe who are the true crim’nals.
In response to another comment. See in context »Matt,
I totally agree that we should have temporarily seized control of the banks and followed the approach you have suggested in this article. Wall Street has done this country so terribly wrong that I believe a temporary takeover of the banks would have had the support of the majority of the public. It would have been the right thing to do and a perfect opportunity to shove it right down the throats of the obstructionist Republicans, who no doubt would have been screaming bloody murder. Unfortunately, it appears the Democrats are passing on the opportunity to take the moral high ground with respect to their dealings with the banks.
Also, get well soon. We need you. In case you missed it, Henry Paulson, who as late as December, 2007 (nine months before the big crash) was warning about to much regulation (which makes him a big-time culprit in the financial crisis), wrote an op-ed in the New York Times saying that we need the big banks to jump start the economy. I much prefer, even at this time, the seizing of the banks plan.
Correct!! This entire problem will be solved when we have democrats running the show in our hallowed federal government. Barack Obama, Barney Frank, and Chris Dodd will show these fat cats a thing or two! Viva our side. Fuck the other side. All that is evil on Wall Street is the fault of the Republican Party. All that is good in America comes from the Democrats. Rachel is good! Hannity is bad. Keith is Wise. O’Reilly is stupid. And the band played on…
In response to another comment. See in context »Matt, can’t wait to see what kind of rebuttals you make to your critics. I posted the article to a message board and a loan officer posted like fifty million words on why you were wrong:
http://torchthebridge.com/forums/viewtopic.php?p=78986#p78986
If you get lucky, Ricky Jay and David Mamet will take the con jobs metaphor and run with it.
>”The Swedes after a similar bubble burst in 1992 temporarily seized control of insolvent institutions, forced banks to write down losses before they got aid, and gave taxpayers a huge share in the upside of recovery. It was a tough-love approach that really worked and forcefully addressed the moral hazard issue in a way we never touched.”
It worked in Sweden because Scandinavians are used to government intervention and benefits from their tax dollars. You’re tight when you say “That’s one way we could have proceeded.” However, the fallout from this kind of government intervention int he U.S. would have at best made such a procedure unbearable (imagine the non-stop screams of the teabaggers); it might have been dismantled or ignored at worst due to GOP ploitical target practice.
>”But whatever we didn’t do, we can be sure that what we did do was exactly wrong.”
Yup. A little failure could have gone a long way toward a learning experience for G$, AIG, and their ilk. We (the collective, as a country “we”) should have let them feel then fire breathing down their necks with no bailout in sight. The players all wanted a stake in the global economy, and had all the gianormous U.S. Banks been allowed to take a dive, some foreign bank would have eaten them for breakfast, waiting for our accounts as the hors-d’oeuvres to the mid-day business meal. At that point, a government seizure might have been seen more plausibly if not more positively. Such a near-death-experience for the Wall Street muckety-mucks might just have produced a rallying cry to reinstate regs like Glass-Steagall and/or develop more effective regulation.
One thing’s for sure: the longer we wait for the banks to fix their gambling habit, the longer it will take for the businesses to become the beneficial entities we need to lead the financial markets in this country.
I received my Rolling Stone this week. The editor’s note (Taibbi vs Wall Street) went into the background of how you got onto this topic, and I really look forward to reading the entire piece.
Read the article last night and it is dead on. Thank you for all the insightful details and colorful analogies. To spend time hypothesizing what would have happened is pointless. These critics are implying, like Paulson and crew that “the baliout” as we now know it, was the only option and that was total BS. Sign here, now, no questions, no stipulations, nothing and our brilliant leaders fell for it! Financial Services Industry is a double oxymoron.
easy on the meds & get better soon – we need your brand of fearless, honest reporting.
I can’t stand those people who say that, “if we didn’t bail them out it would have been Armageddon.” All these people totally lack the skill of critical thought. They are apologists for the banksters. The reason no other alternatives were even considered is because Wall Street owns Congress.
We need a banking system, we don’t need the corrupt banks that we currently have.
Tyler Durden’s a stud….and I’m sure is on “the list”….but WTF so are you and so am I….What’s a good con without a list. Didn’t know when I started reading you if you actually know who is running this show…but I think you probably know by now. Pretty helpless feeling to know the the Prez is just a puppet but its a fact. I listened to an old Black Panther on Air America discussing the treatment of the panthers by media fbi etc in the 60s and how they were marginalized by the usual methods. Normally as a dumbass white guy I would have half listened and said paranoia conspiracy BS…..but after the last 10 years I listened carefully and was shocked by the current parallels….the guy was a great interview wish i could remember his name…anyway he also related a view that O was chosen by the true “powers”….and is merely a functionary…..I agree. Its a completely controlled system.
Ta and good onya for the Rolling Stone article. While you’re still feeling crook, any chance of you putting that unused Quantitative Easing piece on the blog?
Matt, as I read your amazing and infuriating series of articles, I wonder why there have been no major investigations, no grand juries called, not even legit congressional hearings on the unrepentant grifting you have described in your various pieces. Is there some course of action of the citizen taxpayer to take in lobbying Eric Holder to hold these guys accountable? What would the charges be, racketeering, fraud, conspiracy to commit fraud? I’ve read this month’s piece as well. It’s brilliant. You’re like the guy in Shawshank Redemption who has to crawl through a mile of $#%# to free himself.
Frankly, the denizens of Congress are too befuddled by the whole thing. If they could understand it, we’d never have gotten this far into the mess.
In response to another comment. See in context »The process of choosing those folks needs to change. Just thinking we can elect new guys, never works.
-RLee
http://therleepost.blogspot.com
ps. I hope you feel better. (Organic) chicken soup with lots of fresh garlic simmered therein, with a fresh OJ chaser usually helped me knock out most ailments.
Matt – The link you provide doesn’t work. Somehow a “p” got added to the end. I did get there though http://www.rollingstone.com/politics/story/32255149/wall_streets_bailout_hustle/
Got my RS today and Must say you continue to bring this whole mess down to earth so the rest of us can understand it and pass it on. Thanks for another great piece. Feel better.
really liked the article, sir.
these issues simply cannot be covered enough. i find myself really wishing there was some way i could contribute in spreading the word.
it seems so perverse the government’s dependency on the very people that our taking them for a ride. paul krugman was in a panel on the latest episode of charlie rose and he seemed to have similar sentiments about the government, although they weren’t talking about the bailouts, they were talking about how to best aim to create jobs and address the national debt simultaneously through bipartisan resolve. but the episode is on charlierose.com and i thought it was really informative and interesting. you’d dig it.
I’d really like to see somebody tackle the “if we hadn’t let them rob us blind the world would have come to an end” narrative. You know, when this was actually going down that was being fed to us so consistently that it pretty much had me convinced. It makes sense at face value that if there’s not enough liquidity in the lending market, you just give the banks some money to lend and then that will help calm the seas.
But even now, it’s not exactly clear to me what the Fed could have done in the moment (excluding their role in creating crisis to begin with) to have made things turn out better. At this point I’m confident enough that even inaction is preferable to what happened, but I think that’s a piece of the puzzle most people are missing.
Would it have even been legal to “go Swedish”? Were there any smart people inside of the Bank or Treasury advising a better solution? I’d really like to see somebody tackle these questions, whether it be Matt, Zero Hedge or God forbid, a “serious” financial journalist.
Go try to find some archived blog posts. Alternatives were discussed at great lengths in the “alternative media”.
In response to another comment. See in context »An excellent article that further depressed me, but I really do want to see more writing on the sick relationship between our broke government and our insolvent banks. Particularly, I am interested in reading about what intelligent and thoughtful people see happening to our country/economy in the future. Clearly, we’re all playing with monopoly money and living on borrowed time. Can anything be done to save the US taxpayer and re-create a real economy, or is an Argentinian Armageddon inevitable and we should take the tea baggers and militia plans seriously? God help us all.
Matt,
Man, what a refreshing experience watching/listening to a string of your interviews. Got the link thru Huff Post. I was so frickin impressed. I just didn’t think there was anyone with national exposure who had a combination of intellect, concern and balls to “get it!” and say it.
I was basically on the beach when the tsunami (housing crash) hit. Won’t go into that right now.
Have two pieces on a blog I just started that I’d like to bring to your attention. “The Great Recession: Have You Paid Attention?” and “Hercule Poirot: It was the Underwriter, In the Study, With a Fraud Instrument”
-RLee
http://therleepost.blogspot.com
Matt,
Just wanted you to know of your impact; I am bringing this article in a family financial management course at large, Midwest university; thanks for your work….
It reminded me of an article by a famous Canadian sociologist named Erving Goffman who wrote a comprehensive article about Con Artist’s strategies called: “Cooling the Mark Out”
Great work… I’ll let you know how my students respond; if you ever want to make a guest lecture in class or want to get the hell out of NYC let me know; (I’ll find you basketball tickets to the Izzone)
http://www.tau.ac.il/~algazi/mat/Goffman–Cooling.htm” —
John
I really liked your article, it made this whole mess more understandable, and the tricks that the wall st. fat cats are playing more clear. I’m stuffing all my money under my mattress from here on out. yikes.
I’d like to see a “what if we said no” article too. It could be in two stages. The first part of TARP and then everything that came after that led them from being completely insolvent in 9 months to paying out almost record bonuses.
What is amazing is that there has been no corrective action in any way manner or form. A few CEOs lost their jobs with massive pay outs but not one person went to jail.
The individual scams while larger ( Inflation?) are part and parcel of the history of this country. I don’t think they relate to what an entire industry did and got away with.
As much as I dislike Bush, let’s contrast this from 2001-2002 when Anderson was given a death sentence, Worldcom’s CEO and financial person went to jail, Enron’s people went to jail and the firm went bankrupt, Joe Nacchio is spending some quality time in lock-up from Quest. The list goes on. All of these businesses and CEOs were lionized as visionaries and butt licked wherever they went.
Then again, I think if Gonzales was in there nothing would have happened. Maybe there was too many career prosecutors left over from a prior era. We also had Sarbanes Oxley come out from the legislative side. CEOs now had to sign off on financial stateements. What a concept. No more “My accountant made me do it”.
In short corrective actions were taken.
Then they killed the effect of that off with their response to the CDS blown engine by handing a blank check to former CEO of Goldman Sachs. What led us to this from 2002? There’s a story in there too.
Overall, This is something that is probably going to cost us the country. You just can’t destoy the world and say “hey, psst, wanna buy some bonds buddy , pal, friend?”
If Goldman Sachs gets banned in Europe and prosecutions start we are going to look pretty goddamn silly for giving credit to this administration for saving the banking system.
David,
I could not disagree more. I always hear how this company is evil, or Congress is corrupt, as if these entities are actually living, breathing human beings. They are mere fictions. The California Legislature is not incompetent or corrupt, the individual members who comprise are. Halliburton is no more evil than Enron. Do you think Mr. Enron put all those bad investments into Off The Book shells?
No, individual people did. Companies act through their people. Yes, people like you and me. Just as Nazi Germany acted through it soldiers and SS members, these companies act through its employees and managers. So when Goldman Sachs utilizes a trading computer program that instantly detects a market influencing trade and it triggers a GS buy before the client (essentially taking profits from the client), this was completed by individuals that had to imagine the software and execute the program. In other words, this was intentional, rational conduct to commit these fraudulent acts.
And, as a long as people blame the system and refuse to accept individual responsibility, things cannot change. How many times have you heard a Congressman say how corrupt Congress is as if he or she has no role in this corruption? In fact, isn’t that exactly what Evan Bayh did and now he’s some kind of hero?
BTW – War & Peace is a long, boring book – I’d rather read Dostoevsky.
I wrote this 2 days ago after reading Matt’s latest RS piece and I am guess I am just too lazy to do another one.
Matt, fuck you.
Before I went to bed last night, I finished reading Matt’s latest Rolling Stone article entitled “Wall Street’s Bailout Hustle.” Then at 3:00 a.m., I woke up because I was grinding my teeth and clinching my fist. Yes, in the middle of the night, with my regal 125 pound blonde lab at my feet, I wanted to punch someone in the face. Correction, I wanted to punch a Wall Street Banker in the face. Correction, I wanted to punch Jim Cramer in the face. Correction, I wanted to punch Barney Frank or Chris Dodd in the face.
Final correction, I wanted to punch myself in the face for not doing enough to expose the Wall Street rip-off that stole half of my retired Mother’s meager savings. She now tells me she cannot sleep because she’s worried so much about how she will get by because her health is too good and my Dad did not leave her enough money to make it another 15 years. So now these Wall Street fucks, have older people worrying that they will live to long?
So at 4:00 a.m., I vow that I will do something constructive to change things. To help true journalists like Matt Taibbi expose Wall Street for what it is and assist the real victims of the global financial crisis.
As a former prosecutor, I have the tools, beneath my wool blended sweater and years of corporate apologies, I have the inside knowledge. I merely must find a way to put it to work.
Matt, thank you.
Martin,
In response to another comment. See in context »Good intro to your comment. I wish everyone who thought themselves good of heart would have the same epiphany you described.
I have a civil suit, against one of the banks, that I am desperately trying to keep alive long enough to get some legal eagle to take up. Unfortunately, my locale here in the South makes finding such a person a true long shot.
The travesties of the banks are spread farther than just the big boys in the investment world, as this current economic catastrophe would not have occurred without the wrongful acts of the mortgage lenders who knowingly produced millions of time bombs loans, fully aware that they would sink the housing market.
Check out two pieces on my blog, ‘The Great Recession: Have You Paid Attention?’ and ‘Hercule Poirot: It was the Underwriter, In the Study, With a Fraud Instrument’.
And if you know a sharp legal mind who likes a good challenge and can practice in Georgia, or piggy back with an attorney here, then contact me.
-Robert
http://therleepost.blogspot.com
thats the spirit bud….my advice if you are young is get yourself a year’s store of Alpo and take your blonde babe out to the woods and hide….hells comin and no ones gonna save us
In response to another comment. See in context »great comment…always wanted to Punch Jim Cramer in the face too…but then Larry Kudlow would pop up shortly afterward and I forgot all about the punching and just wanted to kick Kudlow in the testes
another great piece Mr. Taibbi
In response to another comment. See in context »What if the sky turned red and people ate people? “What ifs” are the ready refuge of people who don’t have the intelligence to make distinctions. Doing the right thing or the wrong thing is quite distinct from doing nothing.
Great article; I’ve read thousands covering financials/economics and it was really first-rate.
As far as “what would have happened if the banks had not been bailed out?” The answer is: the same thing that’s going to happen anyway; only we pissed away trillions that might have been used to rebuild. The economy is in far worse shape now than it was last year at this time, despite what the shills in Washingtion and on the Street claim.
And Obama Inc has Dubya Bush on the ropes for the WWF title – World’s Worst Fascist!
Great piece.
I believe Goldman Sachs and the other big banks have actually been convinced of the necessity of and are required to perform one (service) in return for the bailout.
The economy and basic financial health of our country is leagues worse than acknowledged. There is but one generally held asset that the public can take relative comfort in (while also serving to divert focus from the state of our trashed nation).
This asset is the public’s investment in stocks. The stock market has markedly improved since the lows. But this performance is not tied to any economic expansion. Rather, it is a result of that most foul of economic terms “increased productivity”. Basically, the result of fake bottom line improvements by layoffs and increased burden on those remaining. (And this cost will rear its head in the form of increased substance abuse, domestic violence and all other social ills resulting from continued stress and fear).
I believe the FED, Treasury, Goldman and the big banks, and certain “patriotic” hedge funds have been propping up this “only performing asset”. Utilizing the purchase of futures contracts and using front-running and high speed trading of selected stocks to actually ensure an upward bias in stock prices.
With the economy two-thirds driven by consumers (now savers and payers-off of debt), there is simply no rational basis for a rising stock market. Particularly when also considering the endlessly downward-spiraling blue collar manufacturing employment.
While I’m supportive of an audit of the FED, I do fear the consequences when it is realized that the only beacon of light (the stock market performance), is also shown to be nothing but an illusion.
Well said.
In response to another comment. See in context »Oh for sure. The stock market is the biggest bubble the world has ever known, although they don’t know it yet. The DOW should be between 6 and 7 thousand, at best. In ten years, or less, we’ll get into the meat of the baby boom curve for retirees and the amount of money coming out of the market world wide will stifle if not depress the market for a long while.
In response to another comment. See in context »How could the DJIA go from 2,000 in Jan/1988 to 11,000 in Jan/2000? Did the average company in the DJIA quintuple in value in 12 years? Hardly. In the 90’s an increasing number of companies opened up 401k investments to their employees, that plus the recently established IRA’s and the peak boomers hitting their investing and peak salary years (age 40+) had money rushing into the market like never before. Funds managers continually complained that they had no good place left to invest the rising volume of investor dollars, but everyone soon just ignored fundamentals (just as Matt wrote about) and simply went with the flow of rising prices.
When the stock market was tanking early last year, and my mom was fretting over her investments, I told her the market wasn’t going to fall lower than what it was worth. And now that’s it bounced back after the scare, it’s just a matter of knowing when to get out before the real crash.
-Robert
http://therleepost.blogspot.com
Does True/Slant have a way to link to people’s webpages through their user names? This would eliminate the need (or the feel for the need) to constantly advertise personal websites at the end of every post.
rlee, I’m sure you have some good things to say, and i’m all for shameless self-promotion, but only if it’s int he right venue. After so many repeated links to your site, i’m turned off enough that i won’t venture there.
In response to another comment. See in context »The RS piece was outstanding. I renewed my RS subscription just for those articles. Any other MSM reporting on the financial crooks is lame.
‘pronunciation’ should be ‘pronouncement’.
[...] On the Bailout Hustle MATT TAIBBI True/Slant Feb. 19 2010 [...]
Thanks Matt – great piece.
Dear Matt,
As always, you are top-notch! And to think, I first fell in love with you because of a Burning Man article. How far we’ve come!
I hope someone is taking good care of you while you’re sick. If not, I’m totally up for the job.
If Elizabeth Warren, Neil Barofsky, Matt Taibbi (aka The Taibbi) and I all agree on something, it must be right!
Thanks to THE TAIBBI for another awesome story (and yes, that “S” on Superman’s shirt does stand for s**thead, to whomever wrote that last outrageously funny letter to RS).
Whenever I hear anyone say “..when the economy comes back…” I rush to correct them: There is no economy.
The bad guys (debt-financed billionaires) have spend the last 30 to 40 years disassembling it, selling it off and cannibalizing it, and all they have left to peddle is that debt, which they then “socialize” (i.e., saddle Joe Taxpayer with it).
We are so screwed…..
One other quick point, which probably others have already made: trying to ascertain the layout of debt among the shadow banking system had grown increasingly complex, but with the latest stories on how Goldman Sachs (and others) aided certain Euro countries in hiding their debt, it has increasingly fallen into place.
And when people around the planet begin to realize that those investment banker types which aided those countries in hiding their debt now reside in the Obama Administration……
Ya think????? hehehe….Of course they do. The elected him for his skills…hell they had me fooled. I was still ignorant enough to believe (or maybe I wanted to believe) tht the system was still capable of electing someone from the “people”…..WRONG. Its all gamed. All set up to make you look like you have a choice. You don’t.
In response to another comment. See in context »I still ask myself why I thought the keynote speaker at the Democratic National Convention in 2004 was an “outsider” when he ran in 2008.
In response to another comment. See in context »Fantastic article, Matt. Great idea comparing today’s scams with the classic cons of the past. Made for an enjoyable read.
“It’s old investors betting on the arrival of new ones, with the value of the underlying thing itself being irrelevant. And this behavior is being driven, no surprise, by the biggest firms on Wall Street.”
When one criticizes Wall Street, the response is often that the critic is jealous or hung up on class warfare or wants to punish the achievers. As if there is no difference between the insanely-funded Wall Street contract-writing wheeler-dealers and the guys who create the underlying things. Wall Street should be merely a middleman, an intermediary. Our current system is comparable to letting a hired auctioneer keep 50% of the value of the Van Goghs he sells.
“The system assumes a certain minimum level of ethical behavior and civic instinct over and above what is spelled out by the regulations.”
I agree completely, but I have given up. I am convinced the solution is to alter the risk/reward ratio to remove unhealthy incentives. There is no risk to the Wall Street crowd for bypassing ethical behavior and civic instinct, and the reward for doing so can be mind-boggling. High marginal tax rates would help, I feel, by decreasing the reward.
(And if the banks leave the country — and I don’t see that happening, it’s a hollow threat — so what? A Wall Street banker is as likely to invest in a foreign nation as domestically. Am I to believe a London or Dubai banker would ignore a good prospect in the U.S.? I know it would suck for Manhattan real estate prices, but we could become a nation of inventors and producers again.)
Awesome piece in RS Matt and thanks for giving a call out to Tyler Durden at Zero Hedge, he too has been taking a lot of heat for having the nerve to question the golden boyz at Goldman “Sack the US”. Don’t give up, don’t ever give up!
Hi, Matt
Get well wishes from me too. Great piece in Rolling Stone. I agree with the guy who said you should eat some greens. Get a Vitamix blender and puree big heads of green leaf lettuce and other assorted veggies, so they are easy to digest and absorb, and U will feel much better.
On the banks, if the bailouts were so necessary, let’s see the proof. Since we taxpayers own them, let’s see their books and proof that the whole financial system would ahve collapsed if we hadn’t bailed them out. But then your point is more important than that even– that we should have done what Sweden did– tough love for the banks– brilliant. Now the Swedes have some guts. I wonder what happened to our own guts as Americans.? We used to have guts. What happened? Did we turn into a nation of numbed out zombie couch potatoes watching entertainment on TV whenever we’re not at work? Have we as a nation lost the strength or presence of mind to problem solve any more? I know folks like you are thinking about problem-solving. But how does the average citizen remain unaware of, or at least not concerned enough to do anything about, what’s been going on? Do you– or other commenting folks here– have any idea how this happened? People used to look up to us Americans. We were stars and courageous folks in WWII for example. What happened?
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Matt – awesome article (though I could have done without the mental image of a naked female wiggling beneath a 300 lb. plumber). Still, you have once again done the impossible – taken the complex and not only made it simple but damned entertaining. (Plus, as usual, you have given me yet ANOTHER priceless line that I will steal without shame – ‘drink yourself sober’.) Thanks so much!
And, Matt, for God’s sake, please take care of yourself. You’re starting to worry me about how often you get sick. Could you please get some more rest, plus drink plenty of fluids? (Uh, I mean ‘fluids’ as in water and juices, NOT Jack Daniels). I can’t bear to think of losing you as a writer.
Any chance of your posting the Quantitative Easing section?
Mr. Taibbi,
Considering how many very rich and powerful people you have probably pissed off bigtime, have you had your food checked for polonium, ricin, or anything of the sort?
Great RS article. Get well.
The article was brilliant, Matt. Thank you for your perseverance and your fearlessness. It’s a testament to how broken our system is that after reading an article like this one, our politicians essentially shrug their shoulders instead of throwing every last one of these goniffs in jail. I’m completely outraged. Why isn’t there more of it?
Like many deep-sea cephalopods, Vampire Squid lack ink sacs. If threatened, instead of ink, a sticky cloud of bioluminescent mucus containing innumerable orbs of blue light is ejected from the arm tips. This luminous barrage, which may last nearly 10 minutes, is presumably meant to daze would-be predators and allow the Vampire Squid to disappear into the blackness without the need to swim far. The display is made only if the animal is very agitated; regenerating the mucus is costly from a metabolic point of view.
http://en.wikipedia.org/wiki/Vampire_Squid
I turned a recent post into an essay.
The Adventures of Fedman and the Temple of Doom Otherwise Known as AIG
If you hear our Treasury Secretary, Timothy Geithner, tell it, he and his banker friends saved the world on a blustery fall day in September 2008 when they bailed out AIG and saved us from certain doom. Good old Timmy recently told this tale to one of the Congressional Oversight Committees, namely that he needed to bailout AIG as its bankruptcy would have caused the collapse of the financial markets. Talk about grandiose. There’s nothing more surreal than watching this Spock wannabe puff out his chest and suggest how he saved the world. Never mind the fact that he and the bankers caused the crisis. Indeed, if Superman caused most the problems that he was trying to fix, then I don’t think anyone would think he was very “super.” Someone needs to give Timmy a reality check – you’re not a superhero, you’re the villain.
First, Superhero’s don’t blame a computer tax software for the fact that they tried to evade their income taxes. Second, if you respond to a financial panic by panicking – you’re definitely not a Superhero. Finally, throughout his testimony, he keeps stating that if Congress just enacts President Obama’s Bank Tax, we’ll get all the money back. Note to Superhero, I call him Fedman; I have never seen Superman or Batman tax the bad guys into submission. Seems pretty weak even for Fedman.
At one point in his overwrought testimony, Geithner explains why he had to pay the counterparties (companies that bought credit default swaps insuring mortgage backed securities) 100 cents on the dollar – supposedly because that’s what the contract said and when the counterparties were asked if they would take less, they said no. Despite the fact that market value was only 48 cents on the dollar, Geithner paid the full freight. Hey Fedman, it’s called negotiation. They say no, and then you say no. Then you walk out in a huff and slam the door behind you, rattling the whole building. It’s Superhero 101 – they come running back, willing to take pennies on the dollar.
And another thing Fedman, Counterparties (i.e., those menses’ at Goldman Sachs) were not victims. If they were dumb enough to buy insurance from a company that had no actual collateral and put nothing in reserve, they deserve to get nothing. The Counterparties got taken – I don’t see a problem – how is it a taxpayer issue? Isn’t it simply one dog eating another? Isn’t that exactly what you Gordon Gekko’s preach when you’re hitting the “diamond” run at Telluride?
Let’s face it Timmy, one of the major flaws with this whole Superhero plan was that you were saving the world by saving the criminal – another major breach of Superhero etiquette. Just like President Obama’s statement on torture that it is a false choice that Americans needed to violate its core principles to protect us from Terrorists, so too is it a false choice that we needed to save AIG to save Main Street. There were other options available and all of them centered on Main Street, not Wall Street. In fact, since Fedman (and the prior Fedman, Paulson) world view started and ended with Wall Street, their view was myopic at best. If Main Street needed credit then instead of taking Main Street’s money (taxes) and giving it to the banks to loan back to us, why not just let Main Street keep it in the form of tax cuts? If you were really a Superhero, you would have known that?
Let me tackle some of Geithner’s biggest reasons for giving the bailouts to AIG: (1) He claimed that Commercial Paper Market would freeze and other financial institutions would not lend. Guess what? We bailed out AIG and the credit markets still froze. In fact, the Fed, commenced another program called the CPFF (Commercial Paper Funding Facility) that pumped billions into this market. This was what actually got the market going again, not the AIG bailout. (2) He claimed once the Government authorized the original $86 billion, that he had to protect that investment by ultimately buying the underlying collateral (sub-prime mortgages) that was the subject of the credit default swaps. The flaw in his superpower reasoning is that the main issue was the credit rating agencies downgrading of AIG which in turn caused more collateral calls. So why not simply stop the ability of the credit rating agencies to downgrade them? After all, it’s not like they knew what they were doing; remember all those ridiculous AA/AAA ratings for the subprimes? Indeed, one thing that is clear today is that the ratings did not capture the true risk of many deals because the rating agencies were more concerned with their own bottom lines. (3) Lastly, he claimed that since AIG had nearly 75 million customers, their sudden bankruptcy would create havoc in the insurance markets. Do you really think that strange talking Gecko would not have loved the opportunity to underwrite 75 million new contracts? I am pretty sure he would have down it in less than fifteen minutes and saved us a ton on car insurance.
Even Section 13(3) of the Federal Reserve Act which Geithner relies on for the authority to bailout AIG does not specifically grant the Federal Reserve these unlimited powers. Instead, it vaguely focuses on providing liquidity to the markets in times of severe stress. It’s a real stretch to argue that the Fed, made up of non-elected officials, has an unfettered right to give companies any amount of money it deems necessary with the only oversight coming by Congress, long after the fact.
In fact, Section 13(3) has been used only twice since 1913, for negligible amounts. An example, after 9/11, many experts called for the Fed to use its power to save the Airline Industry, which was practically destitute because everyone was afraid to fly. But after much internal debate, it was decided to let the airlines go into bankruptcy, which many have recently emerged stronger than ever. Since both the financial and airline industry are vital to American commerce, it is not a coincidence that the financial industry has been treated so differently. Indeed, it required nearly a perfect storm of greed, hubris and fear, for the fleecing to occur.
The real crime was not bailing out AIG to the tune of $186 billion, but rather allowing it to survive. One thing is very clear, AIG Management did almost nothing right and AIG was a diseased carcass that should be dust by now. The fact that they’re paying themselves million dollar bonuses should tell you everything you need to know about this mutant company where up is down and failure is success.
The best part of Geithner’s testimony is near the end when he states: “I am personally very confident that if we (had) not acted, the crisis would have caused more devastation and would have cost far more money.”
Really? When the argument for something is an unprovable personal plea like it would have been a thousand times worse, you should not trust the claim. Hey Fedman, your opinion (and the people like you) means nothing to us. Don’t you get it? You were completely wrong in 2008, suddenly now, you have abject clarity. Sorry Fedman, it’s time to turn in your Spock ears.
I hate to quote Tiger Woods for anything but since he’s now the poster child for the stupid and entitled, I thought what he said in his recent public apology deserved attention:
“I knew what i was doing was wrong but thought only about myself and thought I could get away with whatever I wanted to, I felt I was entitled. I had worked hard. Money and fame made me believe I was entitled. I was wrong and foolish. I don’t get to live by different rules. The same boundaries that apply to everyone apply to me.”
It struck me that those that live on Wall Street probably feel the same way, entitled. They steal because they think they’re entitled to take our money because we’re so stupid. Mere serfs that could not possibly understand the complicated concepts undelying finance.
Just like Tiger miscalclated so have the Wall Street Bankers — It is time to make amends and never repeat the same behavior again.
Oh yeah, you never made amends and you’re going back to doing exactly what you did before.
Hi, Matt! I loved your article and can’t wait for the follow-up about quantitative easing. I’ve been trying to understand it, and I love Zero Hedge (and Naked Capitalism, too), but you have such a great way of explaining things in a way I can understand.
I did want to point out that if Goldman was making collateral calls (demanding more collateral) for its credit default swaps, I’m pretty sure it’s safe from the trustee’s avoidance powers under both fraudulent conveyance laws and preference payments. Collateral demands and sales of that collateral are also exempt from the automatic stay in bankruptcy. Another gift from BAPCPA – the 2005 legislation that keeps on giving.
I’ve read some arguments on Naked Capitalism and elsewhere that GS was demanding collateral deliberately to take AIG down (they did something similar to Bear Stearns and Lehman Brothers), but that’s being debated by people much smarter and more educated than me.
[...] uses to hype his case.The interesting bit is Taibbi followed up his article with a blog entry “On the Bailout Hustle” in which he contrasts the American bailout hustle with the more effective but less [...]