Saturday, February 20, 2010

Rolling Stone Magazine on Goldman Sachs

Matt Taibbi writes a colorful and searing account of how Goldman Sachs fleeces its clients and the American taxpayer in the midst of the financial meltdown.

Taibbi likens the period since the crisis began to the Newman/Redford movie The Sting and describes various classic con artist schemes
  • the Swoop and Squat, where GS gets cash from the beleaguered party that it has lent money to and thereby forces it into a liquidity crisis, and stays whole when that party goes under.
  • the Dollar Store Scam, where GS dresses up like a conservative commercial bank and is instantly eligible for free money from the Fed which it can then lend back to the government at T bill interest. Borrow for free, lend risk free for interest, all paid for by taxpayers.
  • the Pig in the Poke, where the crap investments in mortgages get upgraded to investment-grade by virtue of taxpayer backing and some convenient rule-changes by regulators.
  • the Rumanian Box, where GS is given "billions if not trillions" in loan guarantees, cash and artificial upgrades of its investment ratings, then hangs on to the cash, motivating the federal government to throw even more money at GS in an effort to get them to put the money into circulation through loans. GS hangs on to it all, and pays bonuses because it is making so much and risking/losing nothing.
  • the Big Mitt, where all the big players are consulted on how to stay whole despite holding the most toxic and worthless loans, at taxpayer expense, and without the taxpayer being aware of the price he will have to pay or the timing of the big new favors being granted. Knowing they would be made whole, the big players bought MORE of the toxic crap, at pennies on the dollar.
  • the Wire, where (as in The Sting) GS uses its position and the information that comes across its desk in the normal course of business to make bets in the direction that it knows the market will move based on what its largest customers are doing. Push up the price of the oil futures that your big customer will buy, by buying first and selling to him at the higher price. 76% of GS revenue comes from trading; GS uses a flash trading system to act in the market fractions of a second faster than big trades that it knows are coming.
  • the Reload, where the con gets his victim a second time by telling him he can recoup what was lost in the previous scam. Governments attempting to reinflate a bubble that should never have been encouraged in the first place, and Wall Street acting in its own interests rather than the interests of Main Street, set the stage for the Reload last fall.
Let's end this summary with a quote from Taibbi's article:
Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures. And what should really freak everyone out is the fact that Wall Street immediately started skimming off its own rescue money.

1 comment:

JR said...

That's quite the article. You know America is in deep doo-doo when even Rolling Stone seems to be channeling Glenn Beck.