Matt, Welcome to the Lake.

Max, Thank you for Hosting this Salon.

1) Real wages have been stagnant in America for 35 years. This has created addiction to cheap credit and speculation. From tech stocks to homes, scratch tickets, casinos and derivatives. All Goldman did was game this system well. This system, our debt and speculation national economy, inflates bubbles and then staggers as they burst spraying economic pain shrapnel all over the economy. Our legal and economic system work to transfer pain down the income and influence ladder. Isn’t that the real problem?

Anyone out there?

Great to join you Matt and all those folks out there.

Max

Max, in answer to your question, obviously the decline of the real economy is a major problem. But that problem is hugely exacerbated by the financial services community, which has found ways basically to strip the remaining assets of the population through a variety of schemes. The pessimism of that community, which doesn’t try to build business but tries instead to take the few scraps left from ordianry people, is the problem

This post did not show up on my computer until just recently. I was on at 10am and this was not here. Can we still comment?

Silly me! Pacific time!

Thanks for your coverage of Goldman. There were many villains who participated in, and precipitated, the financial meltdown, but Goldman was chief among them. The guys at Goldman are not the smartest guys in the room. If they were, they wouldn’t have had to become a bank holding company (in name only) and take handouts from the government. But because of their penetration of government (which some really stupid financial writers have described as the deep Goldman “tradition of public service”), they never had to be that smart. My standard questions about Goldman are: Why does it exist? Why should it exist? What market function does it serve?

Also what do you think about Goldman’s former chief economist William Dudley being named to Geithner’s old post of president of the New York Fed?

And finally, I wanted to say I appreciate the discussion of manipulation of oil and commodities markets. This is a subject I have been writing on for a long time. Most of Goldman’s obscenely large profits this quarter came from this area. I have often wished that the connection between the high price of gas drivers are forced to pay and Goldman’s manipulations were made clear and repeated because then something might be done about this company.

I’d say so. GS isn’t alone, that’s for sure.

Hi Matt! Welcome!

Sure looks like it. :-)

I would agree that predatory activity worsens the problems we have. I would also see many industries as doing this. From pharma parying on real and imagined illness to the for profit prison industry driving laws to increase length and odds of long prison terms?

I’ve got a broad question for Taibbi: Nick Turse’s The Complex (2007?) details the extension of the Pentagon’s influence into a wide range of large corporations, mostly through supply contracts. The upshot is widening corporate support for the tax-sucking military-aggression juggernaut that is the Pentagon. The costs are real, just look at the Federal budget, or ask Stiglitz (the most famous calculator of the cost of Iraq and Afghanistan). So far there has been room for both the finance sector leaders (beyond Taibbi, see Simon Johnson’s “The Coup” in The Atlantic, e.g.) and the Pentagon to steamroller government for their own purposes. But are the interests of these two masters aligned? Can they cooperate? Might one encroach on the other in a meaningfully disruptive way?

Matt, I’m observing all of this from Canada (whose banking system, regulated as it is, is now acknowledged as the most stable in the world), and feeling my nuts slowly draw up into my belly. With Goldman Sachs et al. continuing to speculate and rape wildly, this time with taxpayer’s money, how much longer do you think this can on before the US economy actually chokes and comes grinding to a halt? Six months? Six years?

Hello Matt,

I continue to wonder how ratings agencies got away with rating investments AAA when they clearly weren’t. Isn’t that criminal fraud?

- Tom

Having Dudley in Geithner’s new role is especially appalling, considering two things:

1) The NY Fed is now Goldman’s primary supervisor, now that it has converted to bank holding co status, and
2) It took so much effort to get another Goldman guy, Stephen Friedman, out of the NY Fed chairman’s job last year.

Matt–thanks so much for stopping by.
Max–thanks for hosting today.

Matt, why is this not being shouted from the rooftops of the major news outlets. Are they really that bad? Is there no hope of seeing stories like yours on NBC? In the Washington Post?

Canada’s banking system is run by a former Goldman exec as well

It didn’t help that the supercapitalists fell all over themselves to take the cash left over from Reagan’s tax cuts and use it to build factories in allegedly-Communist China instead of the US.

I too would like to thank Matt for bringing up and highlighting the special positions of former Goldmen in the Regulatory and policy structure.

Tom, the ratings agencies have gotten away with it for a couple of reasons. One, they have consistently blamed accidental phenomena — Moody’s even blamed a computer glitch for overrating one class of securities. Two, they make the argument that they simply misunderstood the math of the asset-backed securitized deals, which might be true in some cases. But overall, sure, this was fraud, and open slumming for fees from the i-banks.

Really enjoy your work, Matt. The question isn’t whether GS is gaming the system, the question is: what can be done about it? No system of government is able to remain unaffected. Ours is by money…big money. Do you really think there is any hope for a quantum change?

A second question, just to keep this moving

There are more lobbyists than legislators in DC and the revolving door issues abound. Why is Goldman unique or different from energy companies positions at the Energy Department? This is repeated with agribusiness at the FDA and Pharma, weapons contractors at DOD, Airlines and transport firms influence on the Department of Transportation……..

Hi paolipress…

I think the prospects for real reform are pretty small, although we’ve seen some small improvements (the hearings this week on reform of the commodities markets are an example). But certainly the things that are really needed, like criminal investigations of these banks by the feds, that is highly unlikely, because of the political monopoly they enjoy.

I think we need a new economic structure to avoid being addicted to cheap credit and bubbles. This addction makes lenders and speculators king candy men?

Progressive critics of Washington’s surrender to special interests abound, as befits the dire prognoses for our economic, physical, and environmental health. Public pressure on legislators is a common prescription. Insightful analysts like William Grieder (Come Home, America, 2009) advocate a mass political awakening, and can document some progress in this direction (see especially David Sirota0s The Uprising, 2008). Could campaign finance reform provide a shortcut? Campaign finance reform won’t strip special interests’ hold over government. The “For Sale” signs will remain over the doors of officials in Washington. But campaign finance reform ought to help?
Submitted by my friend Dave

Hey Max, thanks for keeping it moving.

I guess the answer is that it isn’t different. What makes it a bigger story is that the financial services industry has such sweeping reach into every corner of our lives. Now we’re paying a tax to them every time we buy gas, make a payment on our mortgages, use a credit card, pay taxes, see our savings interest rates fall… its power to take our money is just greater.

Welcome Matt Taibbi! I loved your takedown of Michelle Bachmann a month or so ago…still rings in my head as a moment of clarity and truth (about bums huffing glue making more sense than MB).

Anyway, have you located any honest people on Wall Street and if so, do they have anything to say about how to fix the mess we’re in? Perhaps Wall Street isn’t the place to look for the answers. But I was wondering.

BTW, one small fry who was laid off from AIG before the meltdown actually apologized for what happened. On the other hand, an older guy in Tiburon was proudly displaying his tomato red AIG cycling shirt with absolutely no sense of shame.

Greater than defense, pharma, oil, infotainment……..

Matt — thanks so much for your work on these issues, what a craptastic mess we’ve managed to make of things the last few years.

And Max, thanks for the great intro.

For both of you — will we ever see a return to Glass-Steagall? Or are the fears and oversight roadblocks that folks like Elizabeth Warren are discussing more of the reality to come?

There has been a lot of discussion recently about how outsourcing has not been all that useful or economically justifiable but companies did it anyway because everyone else was doing it. I looked at the numbers recently and IIRC we have lost 26% of goods producing jobs and 30% of manufacturing ones since January 2001. This represents a major de-indutrialization of the country and adds to our present difficulties.

Well, clearly campaign finance reform is needed.

I talked to one congressman who tried to write a “Dear Colleagues” letter to other House members complaining about Goldman and the bailouts. Within an hour he had Dick Gephardt (who now lobbies for Goldman) on the phone complaining. Other house members called and said they couldn’t sign the letter if Goldman was mentioned by name. This just shows the reach they have. Legislators are terrified of cutting off that funding valve.

its power to take our money

That’s it in a nutshell. Expecting these guys to “self-regulate” is like expecting a crack addict to self-regulate.

Good Morning, Mr. Wolf and Matt,

Matt I have been informed and entertained by your pieces for years now, as well as your appearances on Bill Maher.

As you know,the President has appointed Christine Varney as the official to enforce the anti-trust RICO law.

Since Goldmine Sacks is so incestuous and has so many entwined tentacles,would you consider them (GS) to be a candidiate for “trust busting”? No pun intended.

Thanks again for your work and to FDL for the opportunity to participate.

My guess is that we will see heavily watered new regulations that will amount to preventing leading firms from doing exactly what they did in the 2002-2007 bubble. Already there are new bubblets and the problem that we live on bubbles here. It is not just wall street either. In 2005-2007 American families made more money with cash out home refinancing than with all raises and salaries combined!

Glass-Steagall is not the only reform that is needed but it is my touchstone for determining when government is really getting serious about regulation and reform.

From what I have read we are about to see some big hits coming down from commercial real estate. Is this going to impact the too big to fails or just regional and local banks. Any idea how this will impact the “recovery”.

Hey Dosido–

Thanks for the question. Yes, I have met honest people on Wall Street. In fact I’m now getting tons of calls from people offering to tell me things about what their bosses are/have been up to.

Most people go into this world to make money, obviously, and not for public citizenry. But a lot of these people are offended at how low they’ve been asked to sink. The mortgage schemes were just too much for a lot of people. Stuff like the CDO squared, ie dumping BBB-rated mortgage securities into another CDO and just magically turning 70% of them into AAA securities. It’s obscene, and they’re offended, a lot of them.

Thanks for coming to the Lake, Matt. I respect and appreciate your work greatly.

Matt:

In light of your own observations, is there any question in your mind that the word “conspiracy” belongs squarely in the midst of this conversation? Can we embrace the word as a legal term, and move beyond the “tin foil” connotations which the media has brainwashed us to respond with?

Are the Treasury, FED, SEC, NASDAQ and Goldman not enjoined in some form of conspiracy?

Wow, I was just checking into The Lake and MT is in the heezy!

We’re not worthy!

Now, to catch up on the thread.

BTW, gotta love the WSJ headline today…

“Traders Blamed for Oil Spike”

The leader in the clubhouse for today’s “No shit, Sherlock” award.

Hi Gitchee–

I don’t see Goldman getting any antitrust attention, especially since the whole thrust of the Paulson-Geithner economic policy haas been to make more big companies, not smaller ones. State-sponsored shotgun weddings of BoFA/Merrill, Bear/Morgan, etc, that’s the trend.

Commercial real estate had a hand in the demise of Lehman Brothers. We are talking a $3.5trillion market with huge issues and short periods to refinance the credit outstanding. Think of all those epmty malls and dying big box retailers. Before this is all over a big chunk of our consumer economy will be a new rust belt of closed malls and gaps along major shoppign streets.

We have a new commodities bubble. I keep saying that given the glut of oil on the market and economic contraction around the world, oil should be trading in the $30-35 range. Instead it is inching back toward $70. The differential between the two results mostly from manipulations by players like Goldman.

Of course we have this bear market/suckers rally too. And Goldman’s frontrunning and acting as a hedge fund trading for itself is a big part of what is going on there as well.

I have a predatory loan from GMAC (who has been sending out more loan aps under a new name since the bailout called AFS). Anyway, I have been truly astounded at their ability to basically steal money right under my nose. For instance, I sent a check for escrow of 696.00 which three months later has not been credited to my account. I went into a chapter 13 bankruptcy because of their violation of TILA and respa laws, refusing to communicate with me or give me a pay amount. In my chapter 13 they have me going backwards without ever having missed a payment.

I fear that foreign entities control my loan and that it was bundled in some sale of toxic assets which is why the banking industry is fighting the cram down legislation. I think they are afraid that these foreign folks won’t get paid what they “think” they have coming in the way of bogus fees and/or property.

It seems like they are truly out of control and able to do whatever they want which includes violating our banking laws. Nothing Obama has done has caused any change in this behavior. (at least as far as my loan and many others per complaints online).

Is there a chance in hell of this changing?

Yah, no kidding, right?

I was talking to a foreign reporter yesterday who just interviewed a VP at a major oil company, and apparently even they are pointing the finger at the investment banks now. I think the notion that the oil bubble was speculative has entered the realm of the noncontroversial, finally.

Wow, I take that as a good sign. What do these folks do when they are offended to the point of no return? Do they quit? Changes companies? change careers? Just wondering how that offended feeling translates into action.

I find the loan modification scams esp. horrifying and debased.

One of the painful ironies of Goldman’s 2nd quarter earnings was there use of trading and cheap credit to boost returns. The last 3 months smell of a crack up over shoot rally with markets leapfrogging over the economy.
September 2009-March was an irrational party where everyday Americans beleved things would change- by magic- and only the rich would suffer.
The last 4 months are an irrational party where the wealthy think they will walk through the fire unburned.

One of the benefits of the high price of oil last year is that it forced a lot of American businesses (Thomasville furniture being one) to come home. In 2005 it cost $2000 to ship a typical container; as of last fall it was around $8000 to $9000. Oil’s obviously dropped some since then, but it’s still not down to 2005 levels.

Hey, great work Mr Tabibi, writing about these vital issues in an accessible and immediate style.

I was curious if you consider there to be a discernible difference in the influence of Wall Street over Washington in Democratic administrations?

If so, is there a great example that encapsulates this difference, because I and others I know have our doubts.

Wavpeac, I actually had something vaguely similar happen to my home loan. My lender misread my town’s tax charter and decided to take double the amount I owed from my bank account to put in my escrow account. It took me months to sort out. And my town’s assessor says that this bank does this all the time — overreaches for escrow payments, apparently so that it have more money to play with temporarily.

Stuff like this goes on a lot, apparently. Anyway, send me an email, I want to hear more about your situation.

Will the revolution be televised?

Chris Hedges in The Nation quotes a Democratic staffer as saying that the place is crawling with lobbyists for the banks, and there is no one from the other side.

Is there anyone with any clout working the Hill on the side of serious regulation that might the financial elites under control?

Commercial real estate and refinancings are two big shoes that will fall. The government captured by firms like Goldman have injected trillions into the financial sector without fixing its underlying problems or those of the wider economy. At some point, the government is going to run out of money or be forced to cut back, and then the house of cards that the financial and economic system have become will be at risk again.

Hi Matt,

I was wondering what you thought a movement toward an economy meeting the demands of collective livelihood might be met. I was reading a newly published article on Veblen by Oncu, who writes about business ideology and the ‘conscientious withdrawal of efficacy’ in controlling price. There is a kind of paradox in financialization where financiers who guide social livelihood have interest is return instead of efficacy (enter the chinese-communist parable of the capitalist pouring milk rather than giving it to those in need). Is there any room for de-financialized firms focused on social efficacy? We see even health losing to financialization in the form of a (sinking) ‘public option’

Total Lobbying Spending

1998 $1.44 Billion
1999 $1.44 Billion
2000 $1.56 Billion
2001 $1.63 Billion
2002 $1.81 Billion
2003 $2.04 Billion
2004 $2.18 Billion
2005 $2.42 Billion
2006 $2.61 Billion
2007 $2.85 Billion
2008 $3.28 Billion
2009 $1.16 Billion

From Open Secrets.org

Sporkovat–

Yes, there is a difference. Wall Street has MORE influence under Democratic administrations.

GS was Obama’s #1 private contributor. It gave 4 dollars to Democratic congressional candidates for every 1 to Republicans last year. This has been their history long-term. The Democrats very clearly bank their financial strategy on raising money from the financial services industry, and it’s been that way going back to at least 96, with the Rubin era.

OT Dana Bash has reported on CNN that Sen. John Kerry of MA, on the senate finance committee has proposed using the “tax code” as a means to pay for healthcare and control healthcare inflation costs! This would mean the use of incentives is equally applied, across the board. I hope the proposal is also leveraged against, tax exempt insurers, to control costs.

This should be brought to the attention of house members as a way to fund a public option and control costs.

Number of Lobbyists

1998 10,676
1999 13,280
2000 12,719
2001 12,056
2002 12,334
2003 13,143
2004 13,380
2005 14,393
2006 14,771
2007 15,311
2008 15,038
2009 11,911

Actually, a lot of players want to keep oil at $50 or higher, especially in Latin America. Chavez needs $50 a barrel oil to pay for his social programs as well as to make profitable the refining of the super-heavy crude (as in “black peanut butter” heavy crude) in the Orinoco region. Plus the enviros are worried that the move to greener cars will stall out if gas is too cheap.

“Legislators are terrified of cutting off that funding valve.”

That’s kind of the problem in a nutshell isn’t it? The fact is, as RFK jr. pointed out, that the Democrats eat from the same trough as the Republicans do, roll in the same muck, and over time have become the same kind of overfed swine.

I think it was a terrible mistake to allow the same entities to fund campaigns AND lobby the politicians they fund. In other countries that’s the definition of criminal influence peddling. In America it’s protected free speech. At any rate, as long as the public continues to vote into office whomever spends the most on TV ads, a third party option or even grass roots primary challenges are bound to fail. The money interests will always back whoever they perceive to be the most corrupt.

Masaccio,

The people on the Hill who are most outspoken about this stuff are Bernie Sanders, Ron Paul (believe it or not), and Byron Dorgan, and also Maxine Waters and Dennis Kucinich. The hold Sanders put on the nomination of former Goldman banker Gary Gensler to run the CFTC (which regulates the commodities and derivatives markets)is an example of the impact even one senator can have.

I enjoy reading you but probably have not read much that you have done. Have you written anything about the joke politicians like Christopher Dodd and Barney Frank who are mostly clueless shills for the financial industry but try to cast themselves as reformers and experts?

And have you considered doing a story on JPM and Jamie Dimon like you did for Goldman?

I came across an interesting piece the other day about “Build America Bonds”,and guess who is one of the top brokers?

“Build America Bonds” Paying a Shocking Premium to Corporates

The “Build America Bonds” were created by Bill S.238 called “The Build America Bonds Act of 2009 which provides $50 billion of federal taxpayer funds to subsidize state and local government tax free bonds in support of ’shovel ready’ infrastructure projects.

We have NOT yet found out WHY, but it is apparently giving a big benefit to the buyers of the bonds who are getting an income stream at well below market prices for comparable issues. In some cases the BAB bonds are pricing at 149 basis points over comparably rated corporate bonds.

Meredith Whitney, star analyst that she is, was the closest with her $4.65 prediction. She thinks the stock has lots of room to run, notes Fortune. Goldman, in her mind, will surf the economic woes now roiling the country. Goldman is a top underwriter of municipal bonds and the No. 1 underwriter of Build America Bonds.
“These are a new type of municipal bond, part of the Obama administration’s $787 billion stimulus plan. Cities, states, universities and government entities use BABs, as they’re known, to finance infrastructure projects. This is a potential $50 billion annual market, Whitney says, and Goldman currently holds a 25 percent share,” reports a Fortune article”

Jessie’s Cafe’ Americain-Linky to follow)

I haven’t heard to much about this,what do you think Mr. Wolf?Would you have ANY idea who the other brokers are?

That was back when DeLay was setting up his K Street Project, was it not? I seem to recall the Dems got starved from about 2000 to 2004 (especially since the GOP went after trial lawyers, a big Dem bloc, once they got K Street under their thumb).

Maybe we need to spend a lot less social time looking for bad apples and a little more time fixing the barrel where are all in. Especially if you think the barrel may go right over the debt falls while everyone inside fights over who is most to blame?

Since August 2007, most of the attention has been given to the causes of the bubble build-up. There have been a few who eyed the cause of the burst at the like Pimco’s Bill Gross.

That growing lack of confidence – more so than the defaults of two Bear Stearns hedge funds and the threat of more to come – has frozen future lending and backed up the market for high yield new issues such that it resembles a constipated owl: absolutely nothing is moving.

There was likely something more specific that caused this. Greenspan said he was going to “find out”. So far…zippo.

Alan Greenspan was in Congress yesterday. Congress is digging through Wall Street’s rubble to find out who was responsible for the financial crisis. Of course, the old “Orient Express” conclusion – that everybody, from borrowers, to lenders, to Congressmen, to Greenspan, “did it” – won’t satisfy the need to hang somebody up by their thumbs.

Do you have any idea what actually caused the “prick”?

More Greenspan BS:

Greenspan continues to say that there’s no way anyone could have seen the current financial problems coming. And maybe nobody really knew how much damage the credit-swap market could cause, but there were plenty of warnings that our economy was headed for trouble.

Now that China is seen to be in a bubble dynamic, when do you suppose their debt burden will overwhelm their overcapacity? This time next year perhaps?

China overcapacity looming

China’s cement production capacity is expected to exceed the country’s demand of 1.7 mtpy by 300 million tons.

And what do you expect to follow that climax…three years of synchronized global deflation?

Money generally backs whoever’s in power at the time. Though certain entities, such as the US Chamber of Commerce, are known for their fondness for Republicans.

Hugh —

I was reading something yesterday which speaks to the wasted resources. At the end of 2007, there was $1.4 trillion in outstanding subprime mortgages. But we allocated something like $13 trillion to the bailout. We could have paid off every single mortgage in America, AND bought homes for every person who currently does not have one, with that amount of money. Or we could have funded health care for 50 years. Instead, it’s basically just been turned into a backstop for bad bets on Wall Street. They missed their chance to do something and now the money’s going to be gone soon.

Thanks, I was wondering if there are public interest lobbying groups with any impact on financial issues. If the best we can do is Waters and Kucinich and Paul, we are in trouble.

The system of prime brokers places government debt and also facilitates states and localities in getting access to credit markets- not for free either!

@63

Jesse’s Café AméricainJesse’s Café Américain. “Your life is shaped by the end you live for. You are made in the image of what you desire.” Thomas Merton …
jessescrossroadscafe.blogspot.com/ – Cached – Similar

I totally agree. We are going to imprison Madoffs and the like and give companies like Goldman Sachs a slap on the wrist, feel better about everything, like the evil is gone and now it will all be good and right, meanwhile we will be in another, different destructive cycle.

I haven’t written about Dodd (who if I remember correctly led the Senate in contributions from the FS industry) or Frank (whose chief of staff, Michael Paese, just got a cush job at Goldman), but I might in the future.

I will be writing some about JPM in my next book. I have a friend who used to work for them and has some amazing stories — will leave it at that for now.

China’s been threatening to stop buying our T-Bills on the idea that we need them more than they need us, but they’re discovering that this would screw them just as hard if not harder, right as they’re starting to have to deal with the problems that two decades of hothouse growth, fed by foreign CEOs wanting to run away from unions and environmental regs, have given them.

THello Matt, and thanks for your work. The fact that the financial sector contributes more money to Democrats to Republicans is important (thanks for the ratio, I hadn’t seen it before), but requires some interpretation. Thus, it might cost a bit more to harness a Democratic legislator to regressive policy agendas than it does to buy off a Republican. It does not immediately follow, at any rate, that the financiers have more power in a Democratic administration than in a Republican one. They have plenty either way, it seems.

Odd you should mention Pimco.

The website I referred to,Jessie’s Cafe has extensive reporting about Pimco.

Dear Marie 917,

I agree. We are used to seeking revenge and that has come to replace fixing broken systems that do lot to direct individual actions

thank you.

Big respect to Rolling Stone for giving you a platform to reach younger folks when their views of the world are in flux.

Matt,

I am not sure how to get an e-mail to you. Here is a link to a group of stories I wrote on daily Kos documenting my struggle. The comments section includes comments from others who have had experiences such as mine and my articles link to complaints pages that document story after story regarding Tila and respa violations. All with the same behaviors of not returning calls and faxes, the misapplication of payments, wrong pay off amounts, destroyed credit, bogus charges.

One more note of interest. One result of GMAC going into bankruptcy was that it meant there would be no way for a huge class action lawsuit to succeed or get paid. The lawsuit would have surely uncovered that thousands of people lost their homes and paid out fees they should not have owed. That lawsuit is linked in my articles but has been dropped because there is no way that retribution will occur at this point. Perhaps the lawsuit will continue once GMAC has paid back all creditors but if I were them, I’d be dragging that out.

Here’s the link. http://www.dailykos.com/user/wavpeac

Making Bernie Madoff the perp-walking poster child for Wall Street misdeeds and then walking away quickly like the cleanup job is done was the single most predictable political development of the past year.

http://www.data360.org/dsg.asp…..up_Id=1363

Subprime outstanding

Money generally backs whoever’s in power at the time.

I think it’s gone beyond that now, but I’m observing from the relatively sane perspective of a Canadian citizen. It seems to me a lot of your “moderate” Blue Dogs are actually Republicans who have been backed by the very same money interests who fund their real Repug rivals. If it’s a two party system, and you’ve got deep pockets, why not hedge your bets by backing both candidates?

I think the results speak for themselves.

Oh, and here’s that quote from RFK jr. I referenced. I could as easily have gone with Gore Vidal’s observation that there is only one party in America, the property party.

“The Republicans are 95 percent corrupt and the Democrats are 75 percent corrupt. They are accepting money from the same corporations. And of course, that is going to corrupt you.”

— Robert F. Kennedy Jr.
Robert F. Kennedy Jr. – Fascist America

Great point Matt! Maybe second to disracting with MJ funeral talk for 11 days?

That may be true, but don’t underestimate the import of that talk on China’s part.

This is a major consequence of what’s happened in the last few years. The rest of the world is now looking at the U.S. financial market and seeing the same crap it sees in places like Russia and Indonesia — crony capitalism and cannibalistic looting of state reserves to prop up a few insiders. This is going to lead to a widespread loss of confidence not only in the dollar but in our whole economy.

That, plus the fact that we’ve now borrowed so much money that the only way we can pay it back is to inflate/devalue the currency, means that other countries are going to be scared as hell of doing business with us.

So what would be the first step towards restructuring our economy to work again for the middle class? Hi Max from one of you students this past summer in Comparative development.

I work in taxes and investments and I don’t understand the logic behind the bailouts. I had hoped they would stop when Obama took office but that’s obviously not happening.
I also thought Obama would turn Joe Biden loose on the fat cats but again that hasn’t happened.
Like they say, money talks.

Matt and Max, thank you for all that you do.

I work in financial services and I want to personally thank you for taking the time to learn about complex financial transactions and then be able to explain it all in a clear, concise & and lol funny way.

What these crooks are doing to gas prices (and therefore the whole damn economy) via the commodities markets and 40-1 leverage is unconscionable and it defies logic that congress hasn’t put a stop to it yet.

That’s true, I forgot about that. Lloyd Blankfein must be thanking God for taking MJ when he did.

But Matt, by directing all the attention to Goldman Sachs as the perp in this situation or one of the major ones, are you also contributing to turning the focus away from the systemic issues?

I love the quotes.
Thanks.

The debt issues here are real and have to be discussed. Otherwise folks wont understand the cuts that are coming. Think California but much much bigger!The US will borrow $1.8T this year and $1.4T next year. We are already $11T in debt. In addition, China lends because we share an economy and they need us to buy. That said, they already own $930B in US Gov debt!

STTP, I totally agree and it’s even more amazing that they handed over so much money in the bailouts without really any conditions whatsoever. The leverage problem could ahve been fixed relatively easily just be rolling back the 2004 decision to loosen lending restrictions. Why not do it? I don’t get it either.

What did you do in your career?

Marie,

Thanks for the question.

My answer to that is that the only way people can understand these very complicated issues is if they have a concrete example. GS is both representative of larger systemic trends and also unique in its own way; if you know how GS operates, you can understand a lot about Wall Street. I understand the question, but I don’t buy the argument that focusing on GS “distracts” from larger issues — I think it helps, on the contrary.

They never mention the possibility that this “outstanding debt” is being created by bogus fees and rigged systems. It’s my understanding that the new applications and fixes for these loans did not save the loans, but that these companies did nothing to get rid of the fees. These fees per my lawyer are a “grey” area where the regulations are not clear. As a result, these could be inflated figures that have nothing to do with paying off a “normal” interest rate and loan. If I could simply make my payment and get rid of the 10,000.00$ in fees without them putting me back in foreclosure I could keep the loan. But if they get rid of these fees…some corporate somewhere has to take the loss…

America runs on debt and speculation- not just wall street by any stretch of the imagination. So long as that is true banks and traders are king makers/breakers. Main street realtors, bankers, greed and desperation keep these fires blazing with or without wall street gas on the fires.

An FDIC report I saw over at Calculated Risk: http://www.calculatedriskblog……nment.html

had $13.9 trillion pledged to the financial industry of which $6.788 trillion was already out the door. The thing that struck me most was that $3.2 trillion (47%) of this had gone to an obscure, opaque Treasury program meant to backstop money markets. What this money is doing is unknown. Even the figure itself was a guesstimate. No one seems to be asking questions about it. He may be legitimate but certainly smells like it isn’t.

So you think Wall Street is the systemic issue? Not the creation of dependence on credit and consumption as a social indicator of worth, etc, etc.?

I personally found it a watershed moment when the guru of Free Marketeering, Greenspan himself, finally admitted before Congress-last November-”I have found a flaw”.(!!!)

FINALLY admitted that the free market wasn’t so free after all.

At least not free for you and me.

“It’s hard to get a man to understand something when his paycheck depends upon NOT understanding it.” H.L. Mencken

Dear Wavpeac,

We have spent more and more and taxed less. This is the root of the problem. The US government is in a debt spiral where more and more is borrowed to pay off old loans. Sadly, it really is that simple.

That, plus the fact that we’ve now borrowed so much money that the only way we can pay it back is to inflate/devalue the currency, means that other countries are going to be scared as hell of doing business with us.

Isn’t that essentially the condition that caused Nazi Germany to start invading its neighbors? We live in interesting (read: terrifying) times.

Started in retail brokerage at Merrill in the ’80’s — first day of my training class was the October Crash in 1987.

Now primarily work with teachers & school administrators and their 403(b) plans.

Stagnant wages 1973-200? created a terrible situation. More hours of work, less civic involvement, unaccountable politicians and rising corruption. Debt and speculation were supposed to make up for what everyone did not earn. This created the great debt bubbles. The debt is a symptom, not our disease!

It’s an old truism that someone referring to themselves as a ‘former intelligence operative’ or ‘former CIA agent’ is often not really ‘former’, but is still entangled.

Matt, do the think the same can be said for Goldman Sachs executives, like for example Neel Kashkari, that there is no such thing as ‘formerly of Goldman Sachs’?

That, plus the fact that we’ve now borrowed so much money that the only way we can pay it back is to inflate/devalue the currency

Actually the other ways are a partial default or a combination of the two. I wouldn’t shed too many tears over the Chinese though. All the players on the world scene can do the math. They always could. The Chinese kept the yuan low to stimulate exports. They built up big cash reserves (in part because of Geithner’s screw ups during the Asian banking crisis in the 90s). They bought Treasuries and such and they should have known that not all that money was going to come back. But they like us were willing to overlook all that before things hit the skids.

Marie,

Again, I understand your question. But the reason all that credit was out there for people to misuse is that Wall Street created a number of mechanisms that created a market for loans that should have been worthless or unattractive. Without securitization and the gaming of the ratings agencies, without the ability to sell pools of subprime mortgages as AAA-rated investments to pension funds and university endowments, there is no market for all those loans.

Wall Street created this entire market. It drove all the lending. Yes, people were irresponsible, but that’s nothing new; what’s new is all the innovations that created all this new money.

You don’t think they are creating some of this debt out of “thin air”? Or are you saying you think it is the chasing of this debt that creates the need for them to make these bogus fees. (10 check fee, property inspection fees, late payment fees (when they post every payment late), lawyers fees for foreclosures, servicing fees, miscellaneous fees.

It seems to me that there are fees for breathing and these fees began small but are starting to stack up. The fees started with those with marginal credit but are eventually going to spread across the board. These fees aren’t attached to anything concrete, but they get folded into the value of the loan AND the amount of debt? Don’t they?

And why did the finance lobby spend literally millions so that they were remain unregulated?

I don’t think so. It is stories about the depredations that make people understand the systemic rot and hopefully demand real change.

That, plus the fact that we’ve now borrowed so much money that the only way we can pay it back is to inflate/devalue the currency, means that other countries are going to be scared as hell of doing business with us.

Gee we could recoup much of the STOLEN WEALTH just by re-instituting the 90% tax bracket for the top most bracket. I would even to agree to sunset it after ten years or if all the Governments debt is paid off, which ever comes first. Oh and lets have a minimum tax on all Corporations of lets see 35% of the profit… It just pisses me off that so many never pay a dime in Federal taxes!!

Without securitization those folks would have just been even poorer faster. The problems is they cant get living wages, health insurance, a chance, a quality education…..
All finance can do is move risk and spending through time. Wall Street did not and can not make the national economy out of thin air

Isn’t the stagnant wages a by product of the FEDs tactics. We have had trickle down economics mentality sending money upstream and when it starts to reach those downstream the FED decides “the economy is heating up” and we need to shut it down.

And let me concur with Max here. There were a lot of people borrowing money they shouldn’t have and buying houses they couldn’t afford. But a lot of the credit explosion was people borrowing to make up for the shortfall in real wages.

Moreover Wall Street also invented numerous schemes that encouraged irresponsible borrowing — like the subprime lenders who encouraged people to take out multiple credit cards and keep low balances to jack up their available credit and artificially boost their FICO scores.

Wasn’t what rally drove all this to happen a combination of factors beginning with the deep seated belief that as Americans, we should be able to consume more and more each year based on constant increasing real wages which when stopped where replaced with access to credit? It’s just seems that your blame being placed solely on Wall Street ignores the numerous social and political factors that have contributed to this crisis and will continue to contribute to more in the future, regardless of what happens to Goldman Sachs.

If wall street really does run the world, why did three of the 5 big firms die and why are so many comfortable blaming it on them?
Because their apex is over. The structural problems persist. Debt and speculation are one way to keep folks spending and believing.
When that fails-2007-2008- you just try something else.

I have been saying that Obama has more in common with Hoover than FDR. We are getting a fix for the financial industry that is not a fix for the financial industry. We are getting global warming legislation that does not fix global warming. Healthcare reform that is more concerned with the health of the corporations involved than with the health of ordinary Americans. I don’t know how bad things have to get before we see real solutions for real problems. My fear is that our elites will simply never get it nor relinguish power to anyone who does. Sort of like the crew of the Titanic with water up to their noses but still refusing to see or even acknowledge the iceberg.

I agree with you on wages, Max, but are you saying that securitized investments weren’t misused?

Matt, how can I trust you on economics when your chart in your How Green story had an obvious mistake? I can assure you that nobody was less happy as Valerie Bertinelli’s ass got smaller.

Matt, these innovations were not new but also used in the 1920s bubbles. Building on Max’s macro analysis, tax cuts and stagnant wages in the 1980s increased the wealth and incomes at the top, while Wall Street tried to get a hold of that wealth for debt to the workers and speculation in stock, real estate and commodities, and also globalizing manufacturing. Upward wealth redistribution gives those at the top more money than they know what to do with, which is why Wall Street came up with their “innovations” to get the wealthy to invest in those products. Wall Street serves the wealthy. What the economy/society needs is that enormous wealth at the top, $15 trillion in liquid wealth in the hands of the top 1%, according to the Fed’s Survey of Consumer Finances, reported by Edward Wolff, and invest in social/public goods to meet social/public needs.

Matt Taibbi:

I’m seeing you everywhere: here, Bill Maher, Al-Jazeera…

I’m pessimistic about most things these days, but the fact that a person like you can have any kind of exposure is cause for optimism about the media environment.

When the magic is gone you rob your own future, when your future is gone you rob someone else’s present and later, their future. When the bills come you try to get someone else to pay. Wall Street neither invented nor, cornered the market in these games.

Wall Street did not and can not make the national economy out of thin air

Well yes, and no. The paper economy was just that and grew for nearly 30 years before reality caught up to it. But during that time and increasingly, a lot of the economy was based on thin air.

Apparently,Goldman Sachs is the Dorian Grey of Wall Street. They have been around a long time,like vultures circling for carrion .

And they have always had a prescient knowledge of where the “kill” will be ,beforehand.

John Kenneth Galbraith, writing on the Great Depression, pointed out the foibles or trusting Wall Street to regulate themselves:

“This took a variety of forms, of which by far the most common was the organization of corporations to hold stock in yet other corporations, which in turn held stock in yet other corporations. During 1929 one investment house, Goldman, Sachs & Company, organized and sold nearly a billion dollars’ worth of securities in three interconnected investment trusts—Goldman Sachs Trading Corporation; Shenandoah Corporation; and Blue Ridge Corporation. All eventually depreciated virtually to nothing.”

The Glass-Stegall Act was a well-conceived response to shenanigans like those from Goldman Sachs, above. It created a Chinese Wall between stock brokerage (dressed up with the fancy phrase “investment banking” to give it a better cachet) and commercial banking.————–Seeking Alpha

I still feel that part of the story is not being told. I had good credit, I had a reasonable loan and was making my payments. I was not destined to be poor. My ex quit paying child support suddenly after 10 years of paying on time. I had a two month period of instability caused in part by services fees when my auto pays went through the bank. This resulted in my being two months late on my house payment. By the time I could pay off the amount I was behind (3 months) they had doubled the pay off amount with fees. This happens with the credit card industry and I think has greatly contributed to the foreclosure rate. Then they refused all communication for 6 months. My story is common not rare. Then the games began in regard to my escrow and refinancing and a multitude of other violations of law. In the mean time…my credit was destroyed. My earning potential has increased, my finances more stable but I cannot get caught up in regard to the fees that are unpredictable and bogus. This has been observed by my lawyers and others. Where does this kind of behavior fit into the picture?

To me it’s like the black sheep in a family. This level of illegal behavior tells us something about the whole industry and it tells a story about the fact that the gov’t is not willing to stop this behavior or even to uncover it. I feel there is a bigger story here. Is there a foreign entity pulling the strings that our gov’t cannot and will not confront?

Dear Matt,

You are 100% correct on the securitization being mis used. I teach this as follows. Wall Street is a hot dog vendor. They figured out – structured financial product- how to sell lips and a-holes died pink and spiced. This allowed the entire world to lend to broke us consumers. You are 100% the system was abused and inflated the bubble. My point is the American middle class was already dead man walking, They just squeezed a little extra out and then hurt more in the aftermath.

Marie,

I’m sorry, but there’s an enormous difference between buying a house you might not be able to afford and making a $450 billion bet with money you don’t have, a la AIG, or hawking $500 billion worth of subprime mortgages as AAA-rated paper to pension funds and unions and then turning around and betting against those same instruments. With Wall Street we’re talking about fraud and deception on a grand scale, with eyes wide open, and a government that took $13 trillion of our money to pay them off — and you’re talking about people borrowing too much money for their personal use. I’m talking about robbing money from old people and taxpayers to pay for bonuses. Is Wall Street America’s only problem? No. But what went on there is crime on a vast scale. It’s not comparable to a culture of “general irresponsibility,” which incidentally I’ve not really seen — what I see mostly is people taking out credit cards to pay for medical bills they can’t afford.

@122

Greenspan, Cox: Not Too Big to Flail — Seeking AlphaThe former CEO of Goldman Sachs (GS) should be there, too. Oh, wait, he can’t be. … As a US Supreme Court opinion held in 1971, it did its job well: …
seekingalpha.com/…/101668-greenspan-cox-not-too-big-to-flail – Cached – Similar

Here’s some anecdotal evidence about lender encouragement to borrow: in 2008, credit card companies mailed 4.2bn solicitations, down a billion from 2007. This is having an effect on post office revenues.

Murray Kempton said that finance was the art of passing money from hand to hand until it disappeared.

Right, I totally agree. And I think this was part of Wall Street’s motivation. The decision to simply loot the rotting carcass of the country speaks to utter pessimism about our future. They knew the game was up and they’re trying to get what they can while there’s still some stuff left.

If wall street really does run the world, why did three of the 5 big firms die

Well, even among sharks there are winners and losers. You might as well ask why Wall Street was so intent on killing the goose that laid the golden egg. If they had only been capable of moderating their greed, they might have continued. But that is the Greenspanian view, that markets will self-regulate. That they will behave rationally. That they will look into the abyss and step back. This in fact didn’t happen. Greenspan was wrong. The greedy will push markets into the abyss and follow them in. And they won’t do this once (as say after the housing bubble burst) but again (as with the oil bubble) and again with the recession and again with the meltdown, and as they (with Goldman’s ongoing speculations) are trying again to do now.

Why is Mozilo being prosecuted and no one else?

Matt, the vampire squid with the blood funnel is a great image.

Matt, thanks for all your incredible work. Do you find it’s hard to get booked to talk about your work on teevee? Whenever I see you, the talking heads seem absolutely baffled by your truthtelling, and then I don’t see you on that show again. Maher excepted, do you think there’s any real understanding by our legacy media of the problems we’ve gotten into in finance/government? Or is it all infotainment to them? Who do you trust to get what’s happened?

Wall street deserves plenty of blame and many rotten things were done. We didnt have a $35trilion global swoon on walls street alone. It takes the whole village- the system- to create this kind of boom and bust.
Also, in the aftermath of the debt and speculation bubble what happened? 5 million people were fired, states are broke, cities are broke, the federal government is broke….
This is bigger than wall street ever was.
Local realtors, bankers, mortgage brokers, dreamers, contractors, tax authorities, media- everyone had their hands in middle class america’s pants.

Interesting stat. Can you share your source?

Wavpeac, understand that the economy is a kleptocracy where corporations pay the government to enact laws that allow them to capture as much of workers’ income as possible. All the corporations charge outrageous fees and prices. It is called maximizing profits, also written into law at the corporations’ behest. Why does our society celebrate maximizing profits, the majority of profits going to the Fortune 500, and maximizing consumption for the rest? Why does our society pretend that two corporate political parties can run the system to the benefit of the majority, who want a social democracy like in North/west Europe? When will the majority demand political leadership that does what the majority wants?

He’s not the only one. In fact if I remember correctly the FBI announced 400 mortgage fraud indictments all on the same day last year. He’s just the biggest one.

As we come to the end of this lively discussion,

Matt, Thank you for stopping by the Lake today and spending time with us.

Max, Thank you very much for Hosting today’s Salon.

Any last thoughts?

These links would probably be of interest to you,wave.

This 2008 heist of the American public was BCCI -Part II,imho.

Lots of deregulation and diffused accountability in global financial acoords like Basel I and II.

Nobody talks about the IMF,either.

PDF] Testimony of Professor Jeffrey D. Sachs Harvard University April …File Format: PDF/Adobe Acrobat – View as HTML
policies, nor the terms under which IMF loans are made available, nor the detailed results of IMF programs. … The IMF’s secrecy has at least two sources. Formally, the IMF …. maintain a common currency, despite the profound inflationary … In our own country, the Federal Reserve Board has found ways …
http://www.earth.columbia.edu/……..fin… – Similar

JEC Press ReleaseOct 20, 1998 … This Act addressed the issues of IMF secrecy and loan subsidies by … The IMF may continue to maintain deep subsidies on some of its loans … by the Treasury Secretary and Federal Reserve Chairman that the major donor …
http://www.house.gov/jec/press/1998/10-20-8.htm – Cached – Similar

I really think the constant focus on “bad borrowers” distracts from the illegal behavior that is going on in the industry. It’s like blaming the rape victim. I think that for many people in the middle to low income bracket you will find “imperfect” decision making and borrowing. However, the illegal behaviors of these criminals have exacerbated these “mistakes” to such a degree that the borrower cannot get ahead or recover. As a result the lender keeps pointing the finger at the victims in an attempt to say “hey look over there!”

I would be willing to bet that you can’t argue a “causal” relationship in regard to some of these foreclosures because people are so close to the line in their finances in this climate. However, I’ll bet you would find if anyone would look, that the finance industry engaged in illegal behavior while facilitating a large percentage of these loans. Since the loan company engaged in illegal behavior, violated TILA and RESPA laws…they are liable in the end. Yes, you might find that lots of borrowers were not “perfect” victims…but victims of illegal behavior none the less.

Hello Matt: I apologize for being late to the party. Great discussion. Thanks to everyone. One comment: I thought Maher gave you very short shrift last Friday night, and I wrote to the show to tell them exactly that. I understand he was playing “devil’s advocate”, but frankly, I think he was way out of his league.

Keep doing what you’re doing.

The link is in the comment.

New Century, American Home Mortgage, KB Home… all under investigation.

And it was June 19 last year that the FBI made that announcement — Bear Stearns hedge fund guys being the big headline target that day.

Dear Matt and Bev,

Great to work with you on this. Matt, I enjoy your writing very much and look forward to working together again in the future.

Max Wolff

Thanks to everyone for coming on, and for the lively discussion. It’s been a pleasure! Thanks to Max and Bev in particular.

Marx speaks to this in Capital, Vol 1 and that was 150 years ago.

@140

The Economist
Fraud reporting
Jul 21st 2009

The rise in financial crime in America

OVER 730,000 counts of suspected financial wrongdoing were recorded in America last year, according to recent data from the Treasury Department’s Financial Crimes Enforcement Network.

Institutions such as banks, insurers and casinos are required by law to report suspicious activities to federal authorities under 20 categories. Financial institutions filed nearly 13% more reports of fraud compared with 2007, accounting for almost half of the increase in total filings.

The number of mortgage frauds alone rose by 23% to almost 65,000. But not all categories saw an increase: incidents suspected terrorist financing fell. Just under half of all filings are related to money laundering, a proportion that is little changed in over a decade.

Matt and Max,
Thanks for a most interesting and enlightening discussion. One of the best ever.

and thanks Bev!

Matt and Max, thanks for the visit. It’s always nice to increase one’s knowledge base.

Marx speaks to this in Capital, Vol 1 and that was 150 years ago.

True, but Greenspan was only a young kid then and probably never heard about it.

Keep up the good work…thank you so much for shedding light on this very troubling topic.

Re Mozilo and plugging bmaz’s post today, doesn’t it say so much that Christopher Dodd who chairs the Senate Finance committee which oversees so much of the response to the financial crisis got a special mortgage deal from Mozilo?

heh heh

heh heh!

A final word on mortgage fraud, it was pervasive and systemic. There was also control fraud by the executives of the banks that knew what was going on but let it go on, even encouraged it. Tens of thousands of cases sounds like a lot but when you consider that samples studied have shown large percentages of fraud, we are easily talking millions of mortgages.

In the Bush years, states were expressly forbidden to pursue a lot of this. At the same time, a lot of manpower in the fraud units of the FBI was transferred to counter-terrorism. So fraud remains under investigated and prosecuted, and few of the executives involved outside of Mozilo have seen any action taken against them.

Sorry to just be getting here… I agree, Hugh

Obama’s proving to be more Hoover, than FDR and on other issues, more Ford, than Lincoln or TR.

I think this is a count of “suspicious activity reports”, called SARs, which all financial institutions are required to file if certain red flags are raised. This has been around for some time, but after 9/11, FinCEN, the Financial Crime Enforcement Network, got after financial institutions, which started to report a lot more.

It doesn’t mean there are that many fraud cases out there. There is a lot of defensive filing to keep FinCEN off their backs.

In my opinion Greenspan is the biggest villain (certainly not the only one) in this whole mess. He kept interest rates too low for too long and lobbied hard against regulating derivatives.
Greenspan was, at one time, brilliant. I’ve read some of his writings from the 1960’s and they are great. When he was appointed Fed chairman in the mid 1980’s he checked his brilliance at the door.

Well said!

“must read” if you have any interest in the financial market melt down.
(Three-part conversation between Johnson and Talbott on the causes of the current economic crisis)

http://www.salon.com/opinion/f…..index.html

http://www.salon.com/opinion/f…..index.html

http://www.salon.com/opinion/f…..index.html

That was pretty much my impression too.

Sort of a pre-emptive CYA strike.

Kinda like the CEO salaries of health insurance company CEO’s dropping by half in some cases,just last year as compared with 2007.

Blinded by his own brilliance, and baffled all the rest of us with his bullshit.