Matt Taibbi: The People vs. Goldman Sachs

[Hubbs]

Read it. Just read it.

An introduction:

They weren't murderers or anything; they had merely stolen more money than most people can rationally conceive of, from their own customers, in a few blinks of an eye. But then they went one step further. They came to Washington, took an oath before Congress, and lied about it.

Thanks to an extraordinary investigative effort by a Senate subcommittee that unilaterally decided to take up the burden the criminal justice system has repeatedly refused to shoulder, we now know exactly what Goldman Sachs executives like Lloyd Blankfein and Daniel Sparks lied about. We know exactly how they and other top Goldman executives, including David Viniar and Thomas Montag, defrauded their clients. America has been waiting for a case to bring against Wall Street. Here it is, and the evidence has been gift-wrapped and left at the doorstep of federal prosecutors, evidence that doesn't leave much doubt: Goldman Sachs should stand trial.

The great and powerful Oz of Wall Street was not the only target of Wall Street and the Financial Crisis: Anatomy of a Financial Collapse, the 650-page report just released by the Senate Subcommittee on Investigations, chaired by Democrat Carl Levin of Michigan, alongside Republican Tom Coburn of Oklahoma. Their unusually scathing bipartisan report also includes case studies of Washington Mutual and Deutsche Bank, providing a panoramic portrait of a bubble era that produced the most destructive crime spree in our history — "a million fraud cases a year" is how one former regulator puts it. But the mountain of evidence collected against Goldman by Levin's small, 15-desk office of investigators — details of gross, baldfaced fraud delivered up in such quantities as to almost serve as a kind of sarcastic challenge to the curiously impassive Justice Department — stands as the most important symbol of Wall Street's aristocratic impunity and prosecutorial immunity produced since the crash of 2008.

To date, there has been only one successful prosecution of a financial big fish from the mortgage bubble, and that was Lee Farkas, a Florida lender who was just convicted on a smorgasbord of fraud charges and now faces life in prison. But Farkas, sadly, is just an exception proving the rule: Like Bernie Madoff, his comically excessive crime spree (which involved such lunacies as kiting checks to his own bank and selling loans that didn't exist) was almost completely unconnected to the systematic corruption that led to the crisis. What's more, many of the earlier criminals in the chain of corruption — from subprime lenders like Countrywide, who herded old ladies and ghetto families into bad loans, to rapacious banks like Washington Mutual, who pawned off fraudulent mortgages on investors — wound up going belly up, sunk by their own greed.

But Goldman, as the Levin report makes clear, remains an ascendant company precisely because it used its canny perception of an upcoming disaster (one which it helped create, incidentally) as an opportunity to enrich itself, not only at the expense of clients but ultimately, through the bailouts and the collateral damage of the wrecked economy, at the expense of society. The bank seemed to count on the unwillingness or inability of federal regulators to stop them — and when called to Washington last year to explain their behavior, Goldman executives brazenly misled Congress, apparently confident that their perjury would carry no serious consequences. Thus, while much of the Levin report describes past history, the Goldman section describes an ongoing? crime — a powerful, well-connected firm, with the ear of the president and the Treasury, that appears to have conquered the entire regulatory structure and stands now on the precipice of officially getting away with one of the biggest financial crimes in history.

Defenders of Goldman have been quick to insist that while the bank may have had a few ethical slips here and there, its only real offense was being too good at making money. We now know, unequivocally, that this is bull****. Goldman isn't a pudgy housewife who broke her diet with a few Nilla Wafers between meals — it's an advanced-stage, 1,100-pound medical emergency who hasn't left his apartment in six years, and is found by paramedics buried up to his eyes in cupcake wrappers and pizza boxes. If the evidence in the Levin report is ignored, then Goldman will have achieved a kind of corrupt-enterprise nirvana. Caught, but still free: above the law.

[Beans]

I'm afraid that "above the law" is the reality of GS. Disheartening, but hopefully there will be a day of reckoning.

[HoustonSkin]

Those MFers need to go down. Unfortunatley, "above the law" is probably right because we have people with no balls in elected positions.

[Fergasun]

... in the midst of the crisis who was involved:

Hank Paulson, US Treasury Secretary, former Goldman Sachs.

Neel Kashkari, "Bailout Czar", former Goldman Sachs.

Dan Jester, assistant to Paulson, former Goldman Sachs.

Bob Steel, another assistant to Paulson, former Goldman Sachs.

But don't worry fellow citizens, JPMorgan folks say this is okay (from this article):

In fact, Goldman’s admirers say, the firm’s ranks should be praised, not criticized, for taking a leadership role in the crisis. “There are people at Goldman Sachs making no money, living at hotels, trying to save the financial world,” said Jes Staley, the head of JPMorgan Chase’s asset management division. “To indict Goldman Sachs for the people helping out Washington is wrong.”

Those Senator Levin hearings were some of the best to have come out of the financial crisis. He presided over those like a man wearing depends... I think its rare that a Congressman would sit there for hours and completely tear into witnesses. Mega kudos to him and especially his staff who made the magic happen.

[Hubbs]

But don't worry fellow citizens, JPMorgan folks say this is okay

That's like Babyface Nelson vouching for Al Capone.

But you already knew that.

[Fergasun]

If someone went after the banksters what do you think would happen to them? Mysterious plane crash?

[DRSmith]

The sad thing is when it was suggested to tax the bonuses and huge profits they are making to recoup the money and help put the country right, people got upset because they were told to.

[SkinsHokieFan]

If the Bush administration was the "big oil" administration, the Obama administration is proving itself to be the Goldman Sachs admin. How these ****ers have the ear of this guy and his foolish Treasury secretary is a crime

[deejaydana]

^^^^^ that's just the rub, I think the govt ultimately goes easy on them for fear of being brought down themselves for complicity. Rolling Stone is such a shell of what it used to be as a magazine

[Stillers6SB]

I don't agree with much of Taibbi's writing, but this quote is awesome:

A CDO, to begin with, is already a highly dubious tool for magically converting risky subprime mortgages into AAA investments. A CDO-squared doubles down on that lunacy, taking the waste products of the original process and converting them into AAA investments. This is kind of like taking all the kids who were picked last to play volleyball in every gym class of every public school in the state, throwing them in a new gym, and pretending that the first 10 kids picked are varsity-level players. Then you take all the unpicked kids left over from that process, throw them in a gym with similar kids from all 50 states, and call the first 10 kids picked All-Americans.

He definitely has a knack for analogies.

[AsburySkinsFan]

Economic Advisers to the Presidents (Clinton, Bush, Obama etc) all made tens of millions leading the companies which caused the crash. They are the one's who created the system that allowed their abuses, they're the one's who tell us that the system is too complex for us to understand, and that we should just trust them because they know what they're doing.....they are the criminals and the law makers....

5,000 Wall Street lobbyists in DC

Wall Streeters turn into lobbyists

Lobbyists turn into Administration officials

Administration officials turn into Wall Street CEO's.

Nope, no problem there.

[Hubbs]

^^^^^ that's just the rub, I think the govt ultimately goes easy on them for fear of being brought down themselves for complicity. Rolling Stone is such a shell of what it used to be as a magazine

Where exactly did that last sentence come from? My respect for RS has grown leaps and bounds for the publishing of Taibbi's articles.

[DCsportsfan53]

... in the midst of the crisis who was involved:

Hank Paulson, US Treasury Secretary, former Goldman Sachs.

Neel Kashkari, "Bailout Czar", former Goldman Sachs.

Dan Jester, assistant to Paulson, former Goldman Sachs.

Bob Steel, another assistant to Paulson, former Goldman Sachs.

Not to mention last presidential election you were voting either for GS or for...you guessed it, GS. Both Obama and McCain's financial advisory times were and are made up almost entirely of GS people. The nation got raped by Wall Street and their partners on Capitol Hill swept it under the rug...and people wonder why I've given up on voting. If only there were a lesser of two evils rather than two flavors of the same evil.

[PeterMP]

1. I'm surprised that nobody has been in here to explain that it wasn't GS and the other investment bankers, but the CRA.

2. People are already arguing that you can't prosecute GS- just like you can't let them fail:

http://blogs.forbes.com/robertlenzner/2011/04/17/there-cant-be-a-criminal-prosecution-of-goldman-sachs/

[deejaydana]

Where exactly did that last sentence come from? My respect for RS has grown leaps and bounds for the publishing of Taibbi's articles.

I've read RS for years, I even used to subscribe back in the 1980's and 1990's. They publish a regular amount of cheap 'hit pieces' now and a large part of their agenda is to denigrade the GOP (seemingly at all costs). I understand the anti-establishment bent, they were born in the Haight in the 1960's but somewhere along the way, probably when they moved from SF to NY, they lost their soul. My take anyway. It's just not what it used to be. Some would say they were just trying to gain a larger audience. It was first and foremost a music magazine and even this has been greatly diluted (read Filter or Mojo and you'll realize how much RS has lost). What happened when they had regular contributing authors like Updike and Mailer?

[AsburySkinsFan]

1. I'm surprised that nobody has been in here to explain that it wasn't GS and the other investment bankers, but the CRA.

If you think that then you don't understand what happened, it was all of the above and GS and the other investment banks were selling the crap investments and they KNEW they were crap and they were going to AIG to buy insurance on those CDO's because they knew they were going to fail. If you don't think the investment banks weren't responsible too, then I'd suggest watching "Inside Job".

[Hubbs]

If you think that then you don't understand what happened, it was all of the above and GS and the other investment banks were selling the crap investments and they KNEW they were crap and they were going to AIG to buy insurance on those CDO's because they knew they were going to fail. If you don't think the investment banks weren't responsible too, then I'd suggest watching "Inside Job".

:secret:

I'm pretty sure that was sarcastic.

[PeterMP]

:secret:

I'm pretty sure that was sarcastic.

I wasn't being sarcastic. I don't think that CRA was a major cause, but I'm surprised nobody has been here claiming it is. I guess explain might have not been the best word to use.

[AsburySkinsFan]

I wasn't being sarcastic. I don't think that CRA was a major cause, but I'm surprised nobody has been here claiming it is. I guess explain might have not been the best word to use.

The CRA's were to blame too, but to exonerate GS and the other investment banks is naive. They share the blame just as much because just like I said they knew that the CRA's were overrating the CDO's and the proof that they knew this is in the fact that the investment banks went to AIG and insured those CDO's because they knew they were going to fail, and fail big, and when they insured them they made sure that they insured them so that when they did fail that the investment banks wouldn't lose money.

Who is to blame:

1) People for over extending themselves in taking bad loans.

2) Predatory lenders and loan writers for offering loans they knew people couldn't afford, who got paid not by writing good loans, but by making loans any loans.

3) Lending banks, who bundled the bad loans (specifically subprime) into CDO's for investment purposes, not to mention over-extending themselves to the point that they had little to know room for loss before they were brought into insolvency.

4) Credit Rating Agencies who intentionally and systematically overrated the CDO's as AAA, and who overrated the banks as AAA even in mere weeks before their utter collapse into bankruptcy

5) Investment banks who not only convinced their investors to invest into the CDO's knowing that they were crap investments thus violating their fiduciary responsibility, and then creating the derivatives market in which they could exploit the fact that the CDO's were eventually going to fail but not telling anyone else

6) Major insurance companies like AIG who insured these CDO's and basically created a casino like atmosphere where bankers were literally betting on everything from the failure of CDO's (even CDO's the the gambler didn't even own) to the weather.

7) Politicians and policy makers who constantly fought any form of regulation and instead pushed for the past 30 years for more and more deregulation for the financial institutions in order for all of the above to take place.

8) Financial lobbyists who have been throwing money at politicians and buying their silence.

[redskins59]

Merrill Lynch and Citigroup sold far more CDOs than Goldman Sachs did. Yet, they arent attacked as much as GS. The reason is simple. GS survived and in fact thrived in 2009 whereas Merrill Lynch had to be bought out, and Citigroup lost a lot of money. The bottomline here is GS is being scapegoated for being smarter than everybody else. The smartest people in the business want to work there. Also, their employees are very loyal as well.

If you are a sophisticated investor, do your due diligence. It isnt GS's job to babysit you. I would argue that the financial crisis was not because of GS. It is because of Bear Stearns, AIG, Lehman Brothers, Citigroup, Merrill Lynch and all the Subprime mortgage companies like Countrywide.

[Goaldeje]

^^Hubbs got me interested in this topic, about which i have now read a lot. The problem with your statement is that you do not take into account the fact that GS lied. A lot. To their investors, to the government, etc. It is true that it is not GS responsibility to babysit their investors, but it is their responsibility not to straight up lie to their investors and deceive the regulators and everything else that ASF mentioned (nice summary, ASF).

The entire system is broken. I don't trust any of the big banks further thai can throw them, and will not do business with them if i can help it. You are correct that GS was smarter than everybody else, but forgot to mention they lied more and were more devious as well. That doesn't make them a scapegoat, it makes them crooks.

[redskins59]

You say GS lied to their clients. But to me, it seems like many of these quotes were taken out of context. For example the "one ****ty deal" quote. The Goldman employee probably meant that the deal wasnt very good for Goldman in terms of fees they were going to receive. So in other words the deal was ****ty to Goldman. Many of these quotes were taken out of context to make Goldman look bad.

You really think Merrill Lynch and Citigroup didnt do the same thing? They are not being targeted because they lost money. Goldman is an easy target because they made money. It is that simple to me.

[Goaldeje]

You say GS lied to their clients. But to me, it seems like many of these quotes were taken out of context. For example the "one ****ty deal" quote. The Goldman employee probably meant that the deal wasnt very good for Goldman in terms of fees they were going to receive. So in other words the deal was ****ty to Goldman. Many of these quotes were taken out of context to make Goldman look bad.

You really think Merrill Lynch and Citigroup didnt do the same thing? They are not being targeted because they lost money. Goldman is an easy target because they made money. It is that simple to me.

You seem to be making two different arguments. On the one hand, you seem to be saying that GS wasn't lying. Not real sure how you can defend that one other than the taken out of context argument. They were dishonest and defrauded people. It's pretty simple.

Your other argument I can agree with. Other companies did it too. Lots of them, as a matter of fact, not just Citigroup and ML. I have no problem with demonizing them as well and prosecuting as necessary.

[PeterMP]

You say GS lied to their clients. But to me, it seems like many of these quotes were taken out of context. For example the "one ****ty deal" quote. The Goldman employee probably meant that the deal wasnt very good for Goldman in terms of fees they were going to receive. So in other words the deal was ****ty to Goldman. Many of these quotes were taken out of context to make Goldman look bad.

You really think Merrill Lynch and Citigroup didnt do the same thing? They are not being targeted because they lost money. Goldman is an easy target because they made money. It is that simple to me.

Then why was it one of their major priorties?

http://www.huffingtonpost.com/2010/04/27/****ty-deal-goldman-exec_n_553541.html

If it was a bad deal for Goldman's, why didn't they rework the deal before they were out there trying to push it?

(Because they knew it was a loser and just wanted to get rid of it at any costs.)

[Destino]

If the Bush administration was the "big oil" administration, the Obama administration is proving itself to be the Goldman Sachs admin. How these ****ers have the ear of this guy and his foolish Treasury secretary is a crime

Try Reagan, Clinton, W Bush, and Obama. They've all employed the same people and allowed wall st to increase it's power and influence.