The massive backlash against the hundreds of millions of dollars in bonuses slated to be paid out to the AIG unit that “crashed the world,” as Michael Lewis puts it in his problematic Vanity Fair profile
of Joseph Cassano (Lewis unfortunately bought the spin that it was all Cassano’s fault), sent financial workers into panic, some supposedly fearing for their lives.
Now that we’ve stepped back from the financial cliff and with the Dow up a third, Goldman will be rolling the dice that individual bonuses in the tens of millions of dollars will fly with a public whose benevolence prevented Goldman and just about every other bank from tumbling into the abyss last September.
Taxpayers are stuck with a multi-trillion dollar bill caused by Wall Street while Wall Street continues to pay itself Gilded Age riches. Something’s gonna give here.
But “Wall Street” is a faceless villain, something Taibbi understands and why he took the journalistic license to zero in on Goldman to the exclusion of other banks who have done similar things. With the news today, Goldman stands out even more—like a gold thumb.
For its efforts (and those of folks like Taibbi), Goldman may get to be our AIG now. It better hope the pitchforks of March have been put away for good.
UPDATE: For more on this, see the FT’s Alphaville blog for a good roundup that includes media reaction across the pond.
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The point is exactly to make this villain with a face and not to step into the quicksand of the general slung of "everybody is doin it" or "too little regulation" that the bizniz press is wrapped up in. How do you make the criminal responsible for his actions? You name him, as well as all the other. You don't solve many murders by looking at the general rules for manslaughter and how these rules ahve been to loose?
Posted by Richard Langdon on Thu 16 Jul 2009 at 05:16 AM
Good post. I have one important disagreement though.
The leaders of our national discussion are cowards. They will only kick a man when he's down (see: Madoff, Bernie). AIG was in turmoil and couldn't really defend itself. Goldman, meanwhile, is perhaps the most powerful institution in the world. It may have to face attacks from many different directions, different respected news organizations and talk shows and comedians and short segments on Rick Sanchez, but it won't have to deal with the steady CNN Situation Room leadoffs or Maureen Dowd columns or WaPo headlines. If any damage is done, it will be death by a thousand cuts rather than a frontal assault.
I'm afraid you give our gatekeepers too much credit.
Posted by LorenzoStDuBois on Thu 16 Jul 2009 at 10:53 AM
I'm as terrified of GS as anyone, but Megan McArdle pretty thoroughly gutted Taibbi's piece on her Atlantic blog.
http://politic.ology.com/2009/07/15/owning-matt-taibbi/
I, for one, welcome our new financier overlords. I'd like to remind them that as a trusted journalist, I can be helpful in rounding up others to toil in their underground sugar caves.
Posted by D.R. Foster on Thu 16 Jul 2009 at 12:55 PM
This post entirely misses central issues:
1) Bonuses for excessive risk-taking aren't averaged out--it's not socialism driving it, but greed, indifference, hubris, or malefescence: bonuses are graduated so as to reward the biggest "Bernie Madoffs" with the most ill-gotten gains!
2) See Bloomberg.com's article(s) on NY law firm's Rosen: GS makes up to 40% of their profits within a $590 Trillion ($590,000,000,000,000) over-the-counter derivatives market, which finally made the New York Time's front page on May 14, 2009 (which usually prefers to bury systemic risks of Krakatoa proportions until too late). Rosen's a lobbyist who will try and water down regulations even lower than Geithner--who prefers "clearinghouses" to "exchanges," which are the safest of the two pieces of shite. My guess is Joseph Stiglitz wanted to nationalize the banks in part to rewrite these contracts, then sell them back to private industry in Paul Krugman's prefererred form--boring, as they were when American Capitalism wasn't nearly as myopically self-destructive and indifferent to the consequent risk to humanity, and to the ecology, on Earth. These brutal nerds should get a hobby--marijuana or some mistresses--before they screw everyone, including themselves and their supposed loved ones, like Mrs Madoff.
Posted by TS on Sat 18 Jul 2009 at 07:57 AM
RICO Act indictments were prescribed by Paul B Farrell, PhD in the Wall Street Journal's sister paper, MarketWatch; but you guys missed that, too. He and others came out with the GS story (as well as that of the OTC derivatives bubble) months before Taibbi, who did package together it quite nicely for a more mainstream audience.
Megabubbles popping and "Great Depression 2" were predicted in 2011 by Dr Farrell, in Market Watch, I believe while Obama still in contention. Perhaps he knew already knew that he and Hillary would be ineffectual or were sell outs from the start.... Who knows, because 99.9% of your colleagues in the media have sold out (or were too myopic to begin with)?!
Posted by TS on Sat 18 Jul 2009 at 08:24 AM
Res Ipsa Loquitor: Here's the real story that's been conveniently swept under the rug.
from Reuters:
QUESTION: Did Goldman do any due diligence on AIG before buying credit default swaps (CDS) from it?
ANSWER: "We do extensive due diligence on all our counterparties."
****************************
posted 4/2/09 by Karl Denninger
(Credit Barry Ritholtz and Institutional Risk Analytics, the original source)
WHOAH!
In fact, our investigation suggests that by the time AIG had entered the CDS fray in a serious way more than five years ago, the firm was already doomed. No longer able to prop up its earnings using reinsurance because of growing scrutiny from state insurance regulators and federal law enforcement agencies, AIG’s foray into CDS was really the grand finale. AIG was a Ponzi scheme plain and simple, yet the Obama Administration still thinks of AIG as a real company that simply took excessive risks. No, to us what the fraud Bernard Madoff is to individual investors, AIG is to the global financial community.
As with the phony reinsurance contracts that AIG and other insurers wrote for decades, when AIG wrote hundreds of billions of dollars in CDS contracts, neither AIG nor the counterparties believed that the CDS would ever be paid. Indeed, one source with personal knowledge of the matter suggests that there may be emails and actual side letters between AIG and its counterparties that could prove conclusively that AIG never intended to pay out on any of its CDS contracts.
Read that folks.
Then read it again.
Then read it AGAIN.
More excerpts:
There are two basic problems with side letters. First, they are a criminal act, a fraud that usually carries the full weight of an “A” felony in many jurisdictions. Second, once the side letter is discovered by a persistent auditor or regulator examining the buyer of protection, the transaction becomes worthless. You paid $6 million to AIG to shift risk via the reinsurance, but the side letter makes clear that the transaction is a fraud and you lose any benefit that the apparent risk shifting might have provided.
And finally, the last nail in the coffin:
The key point is that neither the public, the Fed nor the Treasury seem to understand is that the CDS contracts written by AIG with these various non-insurers around the world were shams - with no correlation between “fees” paid and the risk assumed. These were not valid contracts as Fed Chairman Ben Bernanke, Treasury Secretary Geithner and Economic policy guru Larry Summers claim, but rather acts of criminal fraud meant to manipulate the capital positions and earnings of financial companies around the world.
Indeed, our sources as well as press reports suggest that the CDS contracts written by AIG may have included side letters, often in the form of emails rather than formal letters, that essentially violated the ISDA agreements and show that the true, economic reality of these contracts was fraud plain and simple. Unfortunately, by not moving to seize AIG immediately last year when the scandal broke, the Fed and Treasury may have given the AIG managers time to destroy much of the evidence of criminal wrongdoing.
Only when we understand how AIG came to be involved in CDS and the fact that this seemingly illegal activity was simply an extension of the reinsurance/side letter shell game scam that AIG, Gen Re and others conducted for many years before will we understand what needs to be done with AIG, namely liquidation. Seen in this context, the payments made to AIG by the Fed and Treasury, which were then passed-through to dealers such as Goldman Sachs (NYSE:GS), can only be viewed as an illegal taking that must be reversed once the US Trustee for the Federal Bankruptcy Court for the Southern District of New York is in control of AIG’s operations.
Thank you Timmy, thank you Ben Bernanke, thank you Henry Paulson, thank you George Bush and thank you President Obama.
If this is true every one of you needs to go to prison.
After those of you still in your positions are impeached.
Again, for the simple who need it in one sentence:
AIG was a Ponzi scheme plain and simple, yet the Obama Administration still thinks of AIG as a real company that simply took excessive risks. No, to us what the fraud Bernard Madoff is to individual investors, AIG is to the global financial community.
Distilled to one sentence: The bailout of AIG is equivalent to the US Taxpayer bailing out Madoff's admitted (and now convicted) Ponzi Scheme.
PS: This isn't MY analysis, this is the analysis of Institutional Risk Analytics. If you don't understand who they are, you should - they're one of the most-respected groups out there when it comes to banking system analysis. If they're willing to print something this damning....
Posted by Calltoaccount on Sat 18 Jul 2009 at 09:40 AM
Full discussion of unvarnished truth at:
http://www.huffingtonpost.com/2009/03/17/goldman-sachs-goes-for-th_n_175638.html
Posted by Calltoaccount on Sat 18 Jul 2009 at 09:50 AM
Thank you Calltoaccount
I have posted your comment on factsnews.wordpress.com
This totally blows my mind, and yet people act like "huh, whats wrong"
Posted by Factsnews on Tue 21 Jul 2009 at 12:22 PM
The law of diminishing returns applies to all finance when weighed against the commodity crisis looming at the first sign of "improved economic activity". You can see it already as the first miserable signals of recovery send oil and gold higher.
Natural asset depletion, mostly in the form of peak energy supply - not coincidentally the major pre-collapse issue - will see these fiscal pirates hiding in walled communities fighting off hungry and angry hordes.
Posted by William Jorgensen on Thu 23 Jul 2009 at 09:06 AM