Fifth, in judging whether a piece is fair journalism or beyond the pale, all benefit of the doubt must go to the reader, who, while not as bright certainly as those sophisticates at CNBC, must be assumed to have enough flickering brain power to understand that just as Goldman Sachs is not literally a “giant vampire squid,” neither is it solely responsible for the Great Depression or anything else. Taibbi is offering polemic—we know this from phrases like, “It fucked the investors who bought their horseshit CDOs.” It is an argument, a frame through which we are invited to view an event. Readers can figure this out.
Sixth, as noted, some of “Bubble Machine” ‘s most damaging facts—about the tech and mortgage wrecks, in particular—are not only true, they aren’t even particularly controversial anymore. For instance, he reminds readers that Wall Street/Goldman threw underwriting standards out the window in both disasters. In the old days, Wall Street required three years’ profitability before bringing a company public. But then:
Of the 24 companies [Goldman] took public in 1997, a third were losing money at the time of the IPO. In 1999, at the height of the boom, it took 47 companies public, including stillborns like Webvan and eToys, investment offerings that were in many ways the modern equivalents of Blue Ridge and Shenandoah [early Goldman vehicles that blew up]. The following year, it underwrote 18 companies in the first four months, 14 of which were money losers at the time.
Which part of this is wrong, naive, or a conspiracy theory? Taibbi here is holding Goldman and Wall Street to its own past standards. That’s just journalism. And he is not out of bounds to suggest that these practices are problematic since we already know full well that they were. The history of the Tech Wreck is in the books. Its outlines are no longer a matter of serious dispute.
What’s the complaint then? That this is old news? That Morgan Stanley, Citigroup and CSFB were worse? So what?
Or take this passage about the current crisis and the Goldman role in issuing junk mortgage-backed debt:
By the peak of the housing boom in 2006, Goldman was underwriting $76.5 billion worth of mortgage-backed securities — a third of which were subprime — much of it to institutional investors like pensions and insurance companies. And in these massive issues of real estate were vast swamps of crap.
What is the argument here? That these securities were chicken salad?
Take one $494 million issue that year, GSAMP Trust 2006S3. Many of the mortgages belonged to second mortgage borrowers, and the average equity they had in their homes was 0.71 percent. Moreover, 58 percent of the loans included little or no documentation — no names of the borrowers, no addresses of the homes, just zip codes. Yet both of the major ratings agencies, Moody’s and Standard & Poor’s, rated 93 percent of the issue as investment grade. Moody’s projected that less than 10 percent of the loans would default. In reality, 18 percent of the mortgages were in default within 18 months. [Taibbi’s emphasis.]
Where are the errors in that passage? Is it wrong to suggest that this is problematic? If others were worse—this is an excuse?
Bloomberg’s Mark Pittman back in 2007 explored Goldman’s contribution to the mortgage mess while Hank Paulson ran it; The New York Times’s Gretchen Morgenson was first to reveal Goldman’s stake in the AIG bailout; and Kate Kelly of the WSJ probed whether Goldman favored its shareholders over its clients in mortgage trading, But no one can argue with a straight face that the mainstream business press, which purports to cover Goldman 24/7, has mustered its considerable resources to directly address this institution’s role in the current crisis.
(For more, read this account by The Audit’s Elinore Longobardi of business press hagiography of Paulson last fall. The photos alone are worth a click.)