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Taibbi: "Goldman Raped The Taxpayer, And Raped Their Clients"

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Nothing really new, just the most searing and comprehensive evisceration of the vampire squid's "profitability tactics" to date, packaged in a box of exquisite semantic brilliance that only Matt Taibbi can provide, and comprehensible enough for anyone to understand. Taibbi points out: "the fact that we haven't done much of
anything to change the rules and behavior of Wall Street shows that
we still don't get it. Instituting a bailout policy that
stressed recapitalizing bad banks was like the addict coming back
to the con man to get his lost money back. Ask yourself how well
that ever works out. And then get ready for the reload." It is time to break up the market monopolizing force known as Goldman Sachs.

Published in Rolling Stone magazine


Wall Street's Bailout Hustle


Goldman Sachs and other big banks aren't just pocketing the trillions we gave them to rescue the economy - they're re-creating the conditions for another crash


On January 21st, Lloyd Blankfein left a
peculiar voicemail message on the work phones of his employees at
Goldman Sachs. Fast becoming America's pre-eminent Marvel Comics
supervillain, the CEO used the call to deploy his secret weapon: a
pair of giant, nuclear-powered testicles. In his message, Blankfein
addressed his plan to pay out gigantic year-end bonuses amid
widespread controversy over Goldman's role in precipitating the
global financial crisis.

The bank had already set aside a tidy $16.2 billion for salaries
and bonuses — meaning that Goldman employees were each set to
take home an average of $498,246, a number roughly commensurate
with what they received during the bubble years. Still, the troops
were worried: There were rumors that Dr. Ballsachs, bowing to
political pressure, might be forced to scale the number back. After
all, the country was broke, 14.8 million Americans were stranded on
the unemployment line, and Barack Obama and the Democrats were
trying to recover the populist high ground after their
bitch-whipping in Massachusetts by calling for a "bailout tax" on
banks. Maybe this wasn't the right time for Goldman to be throwing
its annual Roman bonus orgy.

Not to worry, Blankfein reassured employees. "In a year that
proved to have no shortage of story lines," he said, "I believe
very strongly that performance is the ultimate narrative."

Translation: We made a shitload of money last year because we're
so amazing at our jobs, so fuck all those people who want us to
reduce our bonuses.

Goldman wasn't alone. The nation's six largest banks — all
committed to this balls-out, I drink your milkshake!
strategy of flagrantly gorging themselves as America goes hungry
— set aside a whopping $140 billion for executive
compensation last year, a sum only slightly less than the $164
billion they paid themselves in the pre-crash year of 2007. In a
gesture of self-sacrifice, Blankfein himself took a humiliatingly
low bonus of $9 million, less than the 2009 pay of elephantine New
York Knicks washout Eddy Curry. But in reality, not much had
changed. "What is the state of our moral being when Lloyd Blankfein
taking a $9 million bonus is viewed as this great act of
contrition, when every penny of it was a direct transfer from the
taxpayer?" asks Eliot Spitzer, who tried to hold Wall Street
accountable during his own ill-fated stint as governor of New

Beyond a few such bleats of outrage, however, the huge payout
was met, by and large, with a collective sigh of resignation.
Because beneath America's populist veneer, on a more subtle strata
of the national psyche, there remains a strong temptation to not
really give a shit. The rich, after all, have always made way too
much money; what's the difference if some fat cat in New York
pockets $20 million instead of $10 million?

The only reason such apathy exists, however, is because there's
still a widespread misunderstanding of how exactly Wall Street
"earns" its money, with emphasis on the quotation marks around
"earns." The question everyone should be asking, as one bailout
recipient after another posts massive profits — Goldman
reported $13.4 billion in profits last year, after paying out that
$16.2 billion in bonuses and compensation — is this: In an
economy as horrible as ours, with every factory town between New
York and Los Angeles looking like those hollowed-out ghost ships we
see on History Channel documentaries like Shipwrecks of the
Great Lakes
, where in the hell did Wall Street's eye-popping
profits come from, exactly? Did Goldman go from bailout city to
$13.4 billion in the black because, as Blankfein suggests, its
"performance" was just that awesome? A year and a half after they
were minutes away from bankruptcy, how are these assholes not only
back on their feet again, but hauling in bonuses at the same rate
they were during the bubble?

The answer to that question is basically twofold: They raped the
taxpayer, and they raped their clients.

The bottom line is that banks like Goldman have learned
absolutely nothing from the global economic meltdown. In fact,
they're back conniving and playing speculative long shots in force
— only this time with the full financial support of the U.S.
government. In the process, they're rapidly re-creating the
conditions for another crash, with the same actors once again
playing the same crazy games of financial chicken with the same
toxic assets as before.

That's why this bonus business isn't merely a matter of getting
upset about whether or not Lloyd Blankfein buys himself one
tropical island or two on his next birthday. The reality is that
the post-bailout era in which Goldman thrived has turned out to be
a chaotic frenzy of high-stakes con-artistry, with taxpayers and
clients bilked out of billions using a dizzying array of old-school
hustles that, but for their ponderous complexity, would have fit
well in slick grifter movies like The Sting and
Matchstick Men. There's even a term in con-man lingo for
what some of the banks are doing right now, with all their cosmetic
gestures of scaling back bonuses and giving to charities. In the
grifter world, calming down a mark so he doesn't call the cops is
known as the "Cool Off."

To appreciate how all of these (sometimes brilliant) schemes
work is to understand the difference between earning money and
taking scores, and to realize that the profits these banks are
posting don't so much represent national growth and recovery, but
something closer to the losses one would report after a theft or a
car crash. Many Americans instinctively understand this to be true
— but, much like when your wife does it with your 300-pound
plumber in the kids' playroom, knowing it and actually watching the
whole scene from start to finish are two very different things. In
that spirit, a brief history of the best 18 months of grifting this
country has ever seen:

CON #1


By now, most people who have followed the
financial crisis know that the bailout of AIG was actually a
bailout of AIG's "counterparties" — the big banks like
Goldman to whom the insurance giant owed billions when it went
belly up.

What is less understood is that the bailout of AIG
counter-parties like Goldman and Société
Générale, a French bank, actually began
before the collapse of AIG, before the Federal Reserve
paid them so much as a dollar. Nor is it understood that these
counterparties actually accelerated the wreck of AIG in what was,
ironically, something very like the old insurance scam known as
"Swoop and Squat," in which a target car is trapped between two
perpetrator vehicles and wrecked, with the mark in the game being
the target's insurance company — in this case, the

This may sound far-fetched, but the financial crisis of 2008 was
very much caused by a perverse series of legal incentives that
often made failed investments worth more than thriving ones. Our
economy was like a town where everyone has juicy insurance policies
on their neighbors' cars and houses. In such a town, the driving
will be suspiciously bad, and there will be a lot of fires.

AIG was the ultimate example of this dynamic. At the height of
the housing boom, Goldman was selling billions in bundled
mortgage-backed securities — often toxic crap of the
no-money-down, no-identification-needed variety of home loan
— to various institutional suckers like pensions and
insurance companies, who frequently thought they were buying
investment-grade instruments. At the same time, in a glaring
example of the perverse incentives that existed and still exist,
Goldman was also betting against those same sorts of
securities — a practice that one government investigator
compared to "selling a car with faulty brakes and then buying an
insurance policy on the buyer of those cars."

Goldman often "insured" some of this garbage with AIG, using a
virtually unregulated form of pseudo-insurance called
credit-default swaps. Thanks in large part to deregulation pushed
by Bob Rubin, former chairman of Goldman, and Treasury secretary
under Bill Clinton, AIG wasn't required to actually have the
capital to pay off the deals. As a result, banks like Goldman
bought more than $440 billion worth of this bogus insurance from
AIG, a huge blind bet that the taxpayer ended up having to eat.

Thus, when the housing bubble went crazy, Goldman made money
coming and going. They made money selling the crap mortgages, and
they made money by collecting on the bogus insurance from AIG when
the crap mortgages flopped.

Still, the trick for Goldman was: how to collect the
insurance money. As AIG headed into a tailspin that fateful summer
of 2008, it looked like the beleaguered firm wasn't going to have
the money to pay off the bogus insurance. So Goldman and other
banks began demanding that AIG provide them with cash collateral.
In the 15 months leading up to the collapse of AIG, Goldman
received $5.9 billion in collateral. Société
Générale, a bank holding lots of mortgage-backed crap
originally underwritten by Goldman, received $5.5 billion. These
collateral demands squeezing AIG from two sides were the "Swoop and
Squat" that ultimately crashed the firm. "It put the company into a
liquidity crisis," says Eric Dinallo, who was intimately involved
in the AIG bailout as head of the New York State Insurance

It was a brilliant move. When a company like AIG is about to
die, it isn't supposed to hand over big hunks of assets to a single
creditor like Goldman; it's supposed to equitably distribute
whatever assets it has left among all its creditors. Had AIG gone
bankrupt, Goldman would have likely lost much of the $5.9 billion
that it pocketed as collateral. "Any bankruptcy court that saw
those collateral payments would have declined that transaction as a
fraudulent conveyance," says Barry Ritholtz, the author of
Bailout Nation. Instead, Goldman and the other
counterparties got their money out in advance — putting a
torch to what was left of AIG. Fans of the movie
Goodfellas will recall Henry Hill and Tommy DeVito taking
the same approach to the Bamboo Lounge nightclub they'd been
gouging. Roll the Ray Liotta narration: "Finally, when there's
nothing left, when you can't borrow another buck . . . you bust the
joint out. You light a match."

And why not? After all, according to the terms of the bailout
deal struck when AIG was taken over by the state in September 2008,
Goldman was paid 100 cents on the dollar on an additional $12.9
billion it was owed by AIG — again, money it almost certainly
would not have seen a fraction of had AIG proceeded to a normal
bankruptcy. Along with the collateral it pocketed, that's $19
billion in pure cash that Goldman would not have "earned" without
massive state intervention. How's that $13.4 billion in 2009
profits looking now? And that doesn't even include the
direct bailouts of Goldman Sachs and other big banks,
which began in earnest after the collapse of AIG.

CON #2


In the usual "DollarStore" or "Big Store"
scam — popularized in movies like The Sting
a huge cast of con artists is hired to create a whole fake
environment into which the unsuspecting mark walks and gets robbed
over and over again. A warehouse is converted into a makeshift
casino or off-track betting parlor, the fool walks in with money,
leaves without it.

The two key elements to the Dollar Store scam are the whiz-bang
theatrical redecorating job and the fact that everyone is in on it
except the mark. In this case, a pair of investment banks were
dressed up to look like commercial banks overnight, and it was the
taxpayer who walked in and lost his shirt, confused by the
appearance of what looked like real Federal Reserve officials
minding the store.

Less than a week after the AIG bailout, Goldman and another
investment bank, Morgan Stanley, applied for, and received, federal
permission to become bank holding companies — a move that
would make them eligible for much greater federal support. The
stock prices of both firms were cratering, and there was talk that
either or both might go the way of Lehman Brothers, another
once-mighty investment bank that just a week earlier had
disappeared from the face of the earth under the weight of its
toxic assets. By law, a five-day waiting period was required for
such a conversion — but the two banks got them overnight,
with final approval actually coming only five days after the AIG

Why did they need those federal bank charters? This question is
the key to understanding the entire bailout era — because
this Dollar Store scam was the big one. Institutions that were, in
reality, high-risk gambling houses were allowed to masquerade as
conservative commercial banks. As a result of this new designation,
they were given access to a virtually endless tap of "free money"
by unsuspecting taxpayers. The $10 billion that Goldman received
under the better-known TARP bailout was chump change in comparison
to the smorgasbord of direct and indirect aid it qualified for as a
commercial bank.

When Goldman Sachs and Morgan Stanley got their federal bank
charters, they joined Bank of America, Citigroup, J.P. Morgan Chase
and the other banking titans who could go to the Fed and borrow
massive amounts of money at interest rates that, thanks to the
aggressive rate-cutting policies of Fed chief Ben Bernanke during
the crisis, soon sank to zero percent. The ability to go to the Fed
and borrow big at next to no interest was what saved Goldman,
Morgan Stanley and other banks from death in the fall of 2008.
"They had no other way to raise capital at that moment, meaning
they were on the brink of insolvency," says Nomi Prins, a former
managing director at Goldman Sachs. "The Fed was the only

In fact, the Fed became not just a source of emergency borrowing
that enabled Goldman and Morgan Stanley to stave off disaster
— it became a source of long-term guaranteed income.
Borrowing at zero percent interest, banks like Goldman now had
virtually infinite ways to make money. In one of the most common
maneuvers, they simply took the money they borrowed from the
government at zero percent and lent it back to the government by
buying Treasury bills that paid interest of three or four percent.
It was basically a license to print money — no different than
attaching an ATM to the side of the Federal Reserve.

"You're borrowing at zero, putting it out there at two or three
percent, with hundreds of billions of dollars — man, you can
make a lot of money that way," says the manager of one prominent
hedge fund. "It's free money." Which goes a long way to explaining
Goldman's enormous profits last year. But all that free money was
amplified by another scam:

CON #3


At one point or another, pretty much
everyone who takes drugs has been burned by this one, also known as
the "Rocks in the Box" scam or, in its more elaborate variations,
the "Jamaican Switch." Someone sells you what looks like an
eightball of coke in a baggie, you get home and, you dumbass, it's
baby powder.

The scam's name comes from the Middle Ages, when some fool would
be sold a bound and gagged pig that he would see being put into a
bag; he'd miss the switch, then get home and find a tied-up cat in
there instead. Hence the expression "Don't let the cat out of the

The "Pig in the Poke" scam is another key to the entire bailout
era. After the crash of the housing bubble — the largest
asset bubble in history — the economy was suddenly flooded
with securities backed by failing or near-failing home loans. In
the cleanup phase after that bubble burst, the whole game was to
get taxpayers, clients and shareholders to buy these worthless
cats, but at pig prices.

One of the first times we saw the scam appear was in September
2008, right around the time that AIG was imploding. That was when
the Fed changed some of its collateral rules, meaning banks that
could once borrow only against sound collateral, like Treasury
bills or AAA-rated corporate bonds, could now borrow against pretty
much anything — including some of the mortgage-backed sewage
that got us into this mess in the first place. In other words,
banks that once had to show a real pig to borrow from the Fed could
now show up with a cat and get pig money. "All of a sudden, banks
were allowed to post absolute shit to the Fed's balance sheet,"
says the manager of the prominent hedge fund.

The Fed spelled it out on September 14th, 2008, when it changed
the collateral rules for one of its first bailout facilities
— the Primary Dealer Credit Facility, or PDCF. The Fed's own
write-up described the changes: "With the Fed's action, all the
kinds of collateral then in use . . . including
non-investment-grade securities and equities
. . . became
eligible for pledge in the PDCF."

Translation: We now accept cats.

The Pig in the Poke also came into play in April of last year,
when Congress pushed a little-known agency called the Financial
Accounting Standards Board, or FASB, to change the so-called
"mark-to-market" accounting rules. Until this rule change, banks
had to assign a real-market price to all of their assets. If they
had a balance sheet full of securities they had bought at $3 that
were now only worth $1, they had to figure their year-end
accounting using that $1 value. In other words, if you were the
dope who bought a cat instead of a pig, you couldn't invite your
shareholders to a slate of pork dinners come year-end accounting

But last April, FASB changed all that. From now on, it
announced, banks could avoid reporting losses on some of their
crappy cat investments simply by declaring that they would "more
likely than not" hold on to them until they recovered their pig
value. In short, the banks didn't even have to actually
hold on to the toxic shit they owned — they just had to
sort of promise to hold on to it.

That's why the "profit" numbers of a lot of these banks are
really a joke. In many cases, we have absolutely no idea how many
cats are in their proverbial bag. What they call "profits" might
really be profits, only minus undeclared millions or
billions in losses.

"They're hiding all this stuff from their shareholders," says
Ritholtz, who was disgusted that the banks lobbied for the rule
changes. "Now, suddenly banks that were happy to mark to market on
the way up don't have to mark to market on the way down."

CON #4


One of the great innovations of Victor
Lustig, the legendary Depression-era con man who wrote the famous
"Ten Commandments for Con Men," was a thing called the "Rumanian
Box." This was a little machine that a mark would put a blank piece
of paper into, only to see real currency come out the other side.
The brilliant Lustig sold this Rumanian Box over and over again for
vast sums — but he's been outdone by the modern barons of
Wall Street, who managed to get themselves a real Rumanian Box.

How they accomplished this is a story that by itself highlights
the challenge of placing this era in any kind of historical context
of known financial crime. What the banks did was something that was
never — and never could have been — thought of before.
They took so much money from the government, and then did so little
with it, that the state was forced to start printing new cash to
throw at them. Even the great Lustig in his wildest, horniest
dreams could never have dreamed up this one.

The setup: By early 2009, the banks had already replenished
themselves with billions if not trillions in bailout money. It
wasn't just the $700 billion in TARP cash, the free money provided
by the Fed, and the untold losses obscured by accounting tricks.
Another new rule allowed banks to collect interest on the cash they
were required by law to keep in reserve accounts at the Fed —
meaning the state was now compensating the banks simply for
guaranteeing their own solvency. And a new federal operation called
the Temporary Liquidity Guarantee Program let insolvent and
near-insolvent banks dispense with their deservedly ruined credit
profiles and borrow on a clean slate, with FDIC backing. Goldman
borrowed $29 billion on the government's good name, J.P. Morgan
Chase $38 billion, and Bank of America $44 billion. "TLGP," says
Prins, the former Goldman manager, "was a big one."

Collectively, all this largesse was worth trillions. The idea
behind the flood of money, from the government's standpoint, was to
spark a national recovery: We refill the banks' balance sheets, and
they, in turn, start to lend money again, recharging the economy
and producing jobs. "The banks were fast approaching insolvency,"
says Rep. Paul Kanjorski, a vocal critic of Wall Street who
nevertheless defends the initial decision to bail out the banks.
"It was vitally important that we recapitalize these

But here's the thing. Despite all these trillions in government
rescues, despite the Fed slashing interest rates down to nothing
and showering the banks with mountains of guarantees, Goldman and
its friends had still not jump-started lending again by the first
quarter of 2009. That's where those nuclear-powered balls of Lloyd
Blankfein came into play, as Goldman and other banks basically
threatened to pick up their bailout billions and go home if the
government didn't fork over more cash — a lot more.
"Even if the Fed could make interest rates negative, that wouldn't
necessarily help," warned Goldman's chief domestic economist, Jan
Hatzius. "We're in a deep recession mainly because the private
sector, for a variety of reasons, has decided to save a lot

Translation: You can lower interest rates all you want, but
we're still not fucking lending the bailout money to anyone in this
economy. Until the government agreed to hand over even more
goodies, the banks opted to join the rest of the "private sector"
and "save" the taxpayer aid they had received — in the form
of bonuses and compensation.

The ploy worked. In March of last year, the Fed sharply expanded
a radical new program called quantitative easing, which effectively
operated as a real-live Rumanian Box. The government put stacks of
paper in one side, and out came $1.2 trillion "real" dollars.

The government used some of that freshly printed money to prop
itself up by purchasing Treasury bonds — a desperation move,
since Washington's demand for cash was so great post-Clusterfuck
'08 that even the Chinese couldn't buy U.S. debt fast enough to
keep America afloat. But the Fed used most of the new cash to buy
mortgage-backed securities in an effort to spur home lending
— instantly creating a massive market for major banks.

And what did the banks do with the proceeds? Among other things,
they bought Treasury bonds, essentially lending the money back to
the government, at interest. The money that came out of the magic
Rumanian Box went from the government back to the government, with
Wall Street stepping into the circle just long enough to get paid.
And once quantitative easing ends, as it is scheduled to do in
March, the flow of money for home loans will once again grind to a
halt. The Mortgage Bankers Association expects the number of new
residential mortgages to plunge by 40 percent this year.

CON #5


All of that Rumanian box paper was made
even more valuable by running it through the next stage of the
grift. Michael Masters, one of the country's leading experts on
commodities trading, compares this part of the scam to the poker
game in the Bill Murray comedy Stripes. "It's like that
scene where John Candy leans over to the guy who's new at poker and
says, 'Let me see your cards,' then starts giving him advice,"
Masters says. "He looks at the hand, and the guy has bad cards, and
he's like, 'Bluff me, come on! If it were me, I'd bet everything!'
That's what it's like. It's like they're looking at your cards as
they give you advice."

In more ways than one can count, the economy in the bailout era
turned into a "Big Mitt," the con man's name for a rigged poker
game. Everybody was indeed looking at everyone else's cards, in
many cases with state sanction. Only taxpayers and clients were
left out of the loop.

At the same time the Fed and the Treasury were making massive,
earthshaking moves like quantitative easing and TARP, they were
also consulting regularly with private advisory boards that include
every major player on Wall Street. The Treasury Borrowing Advisory
Committee has a J.P. Morgan executive as its chairman and a Goldman
executive as its vice chairman, while the board advising the Fed
includes bankers from Capital One and Bank of New York Mellon. That
means that, in addition to getting great gobs of free money, the
banks were also getting clear signals about when they were
getting that money, making it possible to position themselves to
make the appropriate investments.

One of the best examples of the banks blatantly gambling, and
winning, on government moves was the Public-Private Investment
Program, or PPIP. In this bizarre scheme cooked up by goofball-geek
Treasury Secretary Tim Geithner, the government loaned money to
hedge funds and other private investors to buy up the absolutely
most toxic horseshit on the market — the same kind of
high-risk, high-yield mortgages that were most responsible for
triggering the financial chain reaction in the fall of 2008. These
satanic deals were the basic currency of the bubble: Jobless dope
fiends bought houses with no money down, and the big banks wrapped
those mortgages into securities and then sold them off to pensions
and other suckers as investment-grade deals. The whole point of the
PPIP was to get private investors to relieve the banks of these
dangerous assets before they hurt any more innocent bystanders.

But what did the banks do instead, once they got wind of the
PPIP? They started buying that worthless crap again,
presumably to sell back to the government at inflated prices! In
the third quarter of last year, Goldman, Morgan Stanley, Citigroup
and Bank of America combined to add $3.36 billion of exactly this
horseshit to their balance sheets.

This brazen decision to gouge the taxpayer startled even
hardened market observers. According to Michael Schlachter of the
investment firm Wilshire Associates, it was "absolutely ridiculous"
that the banks that were supposed to be reducing their exposure to
these volatile instruments were instead loading up on them in order
to make a quick buck. "Some of them created this mess," he said,
"and they are making a killing undoing it."

CON #6


Here's the thing about our current
economy. When Goldman and Morgan Stanley transformed overnight from
investment banks into commercial banks, we were told this would
mean a new era of "significantly tighter regulations and much
closer supervision by bank examiners," as The New York
put it the very next day. In reality, however, the
conversion of Goldman and Morgan Stanley simply completed the
dangerous concentration of power and wealth that began in 1999,
when Congress repealed the Glass-Steagall Act — the
Depression-era law that had prevented the merger of insurance
firms, commercial banks and investment houses. Wall Street and the
government became one giant dope house, where a few major players
share valuable information between conflicted departments the way
junkies share needles.

One of the most common practices is a thing called
front-running, which is really no different from the old "Wire"
con, another scam popularized in The Sting. But instead of
intercepting a telegraph wire in order to bet on racetrack results
ahead of the crowd, what Wall Street does is make bets ahead of
valuable information they obtain in the course of everyday

Say you're working for the commodities desk of a big investment
bank, and a major client — a pension fund, perhaps —
calls you up and asks you to buy a billion dollars of oil futures
for them. Once you place that huge order, the price of those
futures is almost guaranteed to go up. If the guy in charge of
asset management a few desks down from you somehow finds out about
that, he can make a fortune for the bank by betting ahead of that
client of yours. The deal would be instantaneous and undetectable,
and it would offer huge profits. Your own client would lose money,
of course — he'd end up paying a higher price for the oil
futures he ordered, because you would have driven up the price. But
that doesn't keep banks from screwing their own customers in this
very way.

The scam is so blatant that Goldman Sachs actually warns its
clients that something along these lines might happen to them. In
the disclosure section at the back of a research paper the bank
issued on January 15th, Goldman advises clients to buy some dubious
high-yield bonds while admitting that the bank itself may bet
against those same shitty bonds. "Our salespeople, traders
and other professionals may provide oral or written market
commentary or trading strategies to our clients and our proprietary
trading desks that reflect opinions that are contrary to the
opinions expressed in this research," the disclosure reads. "Our
asset-management area, our proprietary-trading desks and investing
businesses may make investment decisions that are inconsistent with
the recommendations or views expressed in this research."

Banks like Goldman admit this stuff openly, despite the fact
that there are securities laws that require banks to engage in
"fair dealing with customers" and prohibit analysts from issuing
opinions that are at odds with what they really think. And yet here
they are, saying flat-out that they may be issuing an opinion at
odds with what they really think.

To help them screw their own clients, the major investment banks
employ high-speed computer programs that can glimpse orders from
investors before the deals are processed and then make trades on
behalf of the banks at speeds of fractions of a second. None of
them will admit it, but everybody knows what this computerized
trading — known as "flash trading" — really is. "Flash
trading is nothing more than computerized front-running," says the
prominent hedge-fund manager. The SEC voted to ban flash trading in
September, but five months later it has yet to issue a regulation
to put a stop to the practice.

Over the summer, Goldman suffered an embarrassment on that score
when one of its employees, a Russian named Sergey Aleynikov,
allegedly stole the bank's computerized trading code. In a court
proceeding after Aleynikov's arrest, Assistant U.S. Attorney Joseph
Facciponti reported that "the bank has raised the possibility that
there is a danger that somebody who knew how to use this program
could use it to manipulate markets in unfair ways."

Six months after a federal prosecutor admitted in open court
that the Goldman trading program could be used to unfairly
manipulate markets, the bank released its annual numbers. Among the
notable details was the fact that a staggering 76 percent of its
revenue came from trading, both for its clients and for its own
account. "That is much, much higher than any other bank," says
Prins, the former Goldman managing director. "If I were a client
and I saw that they were making this much money from trading, I
would question how badly I was getting screwed."

Why big institutional investors like pension funds continually
come to Wall Street to get raped is the million-dollar question
that many experienced observers puzzle over. Goldman's own
explanation for this phenomenon is comedy of the highest order. In
testimony before a government panel in January, Blankfein was
confronted about his firm's practice of betting against the same
sorts of investments it sells to clients. His response: "These are
the professional investors who want this exposure."

In other words, our clients are big boys, so screw 'em if
they're dumb enough to take the sucker bets I'm offering.

CON #7


Not many con men are good enough or
brazen enough to con the same victim twice in a row, but the few
who try have a name for this excellent sport: reloading.
The usual way to reload on a repeat victim (called an "addict" in
grifter parlance) is to rope him into trying to get back the money
he just lost. This is exactly what started to happen late last

It's important to remember that the housing bubble itself was a
classic confidence game — the Ponzi scheme. The Ponzi scheme
is any scam in which old investors must be continually paid off
with money from new investors to keep up what appear to be high
rates of investment return. Residential housing was never as
valuable as it seemed during the bubble; the soaring home values
were instead a reflection of a continual upward rush of new
investors in mortgage-backed securities, a rush that finally
collapsed in 2008.

But by the end of 2009, the unimaginable was happening: The
bubble was re-inflating. A bailout policy that was designed to help
us get out from under the bursting of the largest asset bubble in
history inadvertently produced exactly the opposite result, as all
that government-fueled capital suddenly began flowing into the most
dangerous and destructive investments all over again. Wall Street
was going for the reload.

A lot of this was the government's own fault, of course. By
slashing interest rates to zero and flooding the market with money,
the Fed was replicating the historic mistake that Alan Greenspan
had made not once, but twice, before the tech bubble in the early
1990s and before the housing bubble in the early 2000s. By making
sure that traditionally safe investments like CDs and savings
accounts earned basically nothing, thanks to rock-bottom interest
rates, investors were forced to go elsewhere to search for
moneymaking opportunities.

Now we're in the same situation all over again, only far worse.
Wall Street is flooded with government money, and interest rates
that are not just low but flat are pushing investors to seek out
more "creative" opportunities. (It's "Greenspan times 10," jokes
one hedge-fund trader.) Some of that money could be put to use on
Main Street, of course, backing the efforts of investment-worthy
entrepreneurs. But that's not what our modern Wall Street is built
to do. "They don't seem to want to lend to small and medium-sized
business," says Rep. Brad Sherman, who serves on the House
Financial Services Committee. "What they want to invest in is
marketable securities. And the definition of small and medium-sized
businesses, for the most part, is that they don't have
marketable securities. They have bank loans."

In other words, unless you're dealing with the stock of a major,
publicly traded company, or a giant pile of home mortgages, or the
bonds of a large corporation, or a foreign currency, or oil
futures, or some country's debt, or anything else that can be
rapidly traded back and forth in huge numbers, factory-style, by
big banks, you're not really on Wall Street's radar.

So with small business out of the picture, and the safe stuff
not worth looking at thanks to the Fed's low interest rates, where
did Wall Street go? Right back into the shit that got us here.

One trader, who asked not to be identified, recounts a story of
what happened with his hedge fund this past fall. His firm wanted
to short — that is, bet against — all the crap toxic
bonds that were suddenly in vogue again. The fund's analysts had
examined the fundamentals of these instruments and concluded that
they were absolutely not good investments.

So they took a short position. One month passed, and they lost
money. Another month passed — same thing. Finally, the trader
just shrugged and decided to change course and buy.

"I said, 'Fuck it, let's make some money,'" he recalls. "I
absolutely did not believe in the fundamentals of any of this
stuff. However, I can get on the bandwagon, just so long as I know
when to jump out of the car before it goes off the damn cliff!"

This is the very definition of bubble economics — betting
on crowd behavior instead of on fundamentals. It's old investors
betting on the arrival of new ones, with the value of the
underlying thing itself being irrelevant. And this behavior is
being driven, no surprise, by the biggest firms on Wall Street.

The research report published by Goldman Sachs on January 15th
underlines this sort of thinking. Goldman issued a strong
recommendation to buy exactly the sort of high-yield toxic crap our
hedge-fund guy was, by then, driving rapidly toward the cliff.
"Summarizing our views," the bank wrote, "we expect robust flows .
. . to dominate fundamentals." In other words: This stuff is crap,
but everyone's buying it in an awfully robust way, so you should
too. Just like tech stocks in 1999, and mortgage-backed securities
in 2006.

To sum up, this is what Lloyd Blankfein meant by "performance":
Take massive sums of money from the government, sit on it until the
government starts printing trillions of dollars in a desperate
attempt to restart the economy, buy even more toxic assets to sell
back to the government at inflated prices — and then, when
all else fails, start driving us all toward the cliff again with a
frank and open endorsement of bubble economics. I mean, shit
— who wouldn't deserve billions in bonuses for doing all

Con artists have a word for the inability
of their victims to accept that they've been scammed. They call it
the "True Believer Syndrome." That's sort of where we are, in a
state of nagging disbelief about the real problem on Wall Street.
It isn't so much that we have inadequate rules or incompetent
regulators, although both of these things are certainly true. The
real problem is that it doesn't matter what regulations are in
place if the people running the economy are rip-off artists. The
system assumes a certain minimum level of ethical behavior and
civic instinct over and above what is spelled out by the
regulations. If those ethics are absent — well, this thing
isn't going to work, no matter what we do. Sure, mugging old ladies
is against the law, but it's also easy. To prevent it, we depend,
for the most part, not on cops but on people making the conscious
decision not to do it.

That's why the biggest gift the bankers got in the bailout was
not fiscal but psychological. "The most valuable part of the
bailout," says Rep. Sherman, "was the implicit guarantee that
they're Too Big to Fail." 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. If the bailouts validated anew
the crooked psychology of the bubble, the recent profit and bonus
numbers show that the same psychology is back, thriving, and
looking for new disasters to create. "It's evidence," says Rep.
Kanjorski, "that they still don't get it."

More to the point, the fact that we haven't done much of
anything to change the rules and behavior of Wall Street shows that
we still don't get it. Instituting a bailout policy that
stressed recapitalizing bad banks was like the addict coming back
to the con man to get his lost money back. Ask yourself how well
that ever works out. And then get ready for the reload.

[From Issue 1099 — March 4, 2010]


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Thu, 02/18/2010 - 10:26 | 235304 THE DORK OF CORK
THE DORK OF CORK's picture

In this strange Goldman world of ours

I feel as if I have been pressed ganged into the Royal Navy

without the meagre comforts of my rum ration

Thu, 02/18/2010 - 10:28 | 235318 FreakuentFlyer
FreakuentFlyer's picture

no more rum in the navy either. it's cans of beer now!

Thu, 02/18/2010 - 10:32 | 235323 THE DORK OF CORK
THE DORK OF CORK's picture

It better be Carlsberg ,I don't want no stinking Budweiser

Thu, 02/18/2010 - 12:20 | 235486 Going Down
Going Down's picture


Sorry. We only serve Tsingtao.


Thu, 02/18/2010 - 12:47 | 235536 THE DORK OF CORK
THE DORK OF CORK's picture

Do you find that the presence of heavy metals gives that beer its distinctive Bite.

Thu, 02/18/2010 - 13:28 | 235597 Going Down
Going Down's picture


"It's the water." And fuck Coors.


Thu, 02/18/2010 - 15:35 | 235816 Anonymous
Anonymous's picture

I had to check the article date.
I thought it was from Feb 2009.

Thu, 02/18/2010 - 10:54 | 235339 Anonymous
Anonymous's picture

all true, and all just pissing in the wind. Nothing will change, the rich will get richer. God Bless America.

Thu, 02/18/2010 - 10:30 | 235321 dark pools of soros
dark pools of soros's picture

i drink your milkshake...    priceless!!

Thu, 02/18/2010 - 10:39 | 235325 Anonymous
Anonymous's picture

This column must have been written in the waning hours of a Vicodin haze.

Thu, 02/18/2010 - 10:42 | 235327 trav7777
trav7777's picture

So what's the solution, Taibbi?  The first person who goes and shoots one of these traitors will be executed under hate crimes and as a terrorist.

"We" are not the enablers, our owned government is.

In EVERY socialist system across the globe, this exact same thing is happening.  The Greeks have low personal debt but their sovereign is bankrupt.  The oligarchs there did the same scam, load the sovereign up with debt to its gills.

I was the one who used "Bamboo Lounge" first, btw lol, over on TF

Thu, 02/18/2010 - 11:03 | 235356 Anonymous
Anonymous's picture

In Europe people have guts and go on the street. They strike, they revolt, they get loud and cause serious damage to those who hurt them.

Americans are pussys.

You get what you deserve, straight in the butt from your elected leaders and their cronies.

Do I have a point ?

Face the mirror sheople !

Thu, 02/18/2010 - 12:17 | 235480 Anonymous
Anonymous's picture

I do admire how the French kidnap their business people!
Gotta love it.
Don't worry about us, WE WILL WAKE UP,and when we do, its
going to be ugly
Anger is definitely building to a crescendo here....
people are slowly waking up
Many Chumbawamba's....

Thu, 02/18/2010 - 12:51 | 235537 Missing_Link
Missing_Link's picture

In Europe people have guts and go on the street. They strike, they revolt, they get loud and cause serious damage to those who hurt them.


Americans are pussys.

Have you guys noticed that the Tea Party protesters are out in the streets doing exactly the kind of (peaceful) protests you're referring to?

And yet, ZH commenters seem to universally write them off  ...  and Taibbi, too, is incapable of growing beyond his infantile leftist partisanship, and smears the people participating in the protests as conservative ignoramuses (when they are, in fact, protesting EXACTLY the same things that he is).

How strange.

All these cries for protest, and yet when people actually DO protest very loudly in every city against what's happening, they're written off as "tea-baggers" and conservative idiots (despite the fact that the crowd contains roughly equal numbers of liberals, libertarians, and constitutionalists).

Thu, 02/18/2010 - 13:30 | 235601 dark pools of soros
dark pools of soros's picture

the tea party got hijacked - it shouldn't even be used as a political vehicle.  It should just be used to raid GS et all and lynch them..  figuratively or literally 

Thu, 02/18/2010 - 14:04 | 235646 Anonymous
Anonymous's picture

The Tea Partiers are nothing more then the angry fringe of the republican party pissed that there is a black president. The few uninformed extras peppered through out the fractured gatherings are out of work and mad as hell. Except they really don't know who or what to be mad at so they find comfort in shaking their fists at dog whistle terminology like 'socialism' and 'obamacare. Meanwhile they are surviving off the teat of the government through their unemployment benefits after having lost their job to the boondoggle that is outsourcing. No job equals no health insurance because a roof becomes the obvious choice over unaffordable COBRA.

Those who are working have not seen any significant increase in their earnings as their outlaying expenses have exponentially gone up.

Now, the tea party leaders are colluding with the very same politicians they bemoan. The Palin's and Steele's of the world are co-opting the movement and will surely absorb these woefully uninformed. This ensures they continue chasing their own tails because the anger is misplaced. The charlatan politicians are using this ignorance to their own advantage. For sure this movement has already been blunted and the splintering factions is beyond emendable.

So that's that for the tea partiers.

Thu, 02/18/2010 - 14:29 | 235677 Anonymous
Anonymous's picture

Tea Parties?

Oh you mean those rallies that are orchestrated by the propaganda arm of Rupert Murdoch, Inc.

What's it stand for? Taxed Enough Already?... Are you? Taxed... Enough... Already?

It's just another distraction to make you feel like you're "stickin it to the man" on your way to the unemployment office to pick up last week's check.

Fri, 02/19/2010 - 03:38 | 236895 Frank Owen
Frank Owen's picture

Missing Link - You're a riot. What would those Liberals in your Tea Party think of your comments like "and Taibbi, too, is incapable of growing beyond his infantile leftist partisanship". Plus they're only doing one thing mentioned there - Going to the street but the Europeans don't need Fox news to tell them to do it. Strikes? nope. Revolt? naw. Get loud and cause serious damage? Nope. There's a growing amount of people starting to want a revolution but The Tea Party seems to have been hijacked right from the start. Sarah Palin + the Tea Party?? What does she want a revolution for, more highways to nowhere??

Thu, 02/18/2010 - 12:57 | 235556 Cognitive Dissonance
Cognitive Dissonance's picture

Clearly we Americans are superior in this case. While you Europeans are choking on your training and indoctrination, we Americans long ago recognized that resistance is futile and are happily marshaling our economic armies with the intention of taking over the world. Get with it dude. Accept the programing and join the hive before you find yourself on the wrong end of a currency collapse.

<sarcasm off>

Thu, 02/18/2010 - 11:21 | 235380 SteveNYC
SteveNYC's picture

At least they kept themselves out of hock, the average Yank is indebted up to the eyeballs. College, mortgage, car, credit ain't pretty, and it's getting uglier.

These pieces of shit are the enablers. They are the global crack dealers that have bought-off and infiltrated the already-corrupt "cops".

As long as greed and ignorance are the dominant themes affecting humans, they will continue to prosper.

Thu, 02/18/2010 - 11:58 | 235442 DaveyJones
DaveyJones's picture

They're drug dealers posing as drug counsellors

Thu, 02/18/2010 - 12:40 | 235521 gmrpeabody
gmrpeabody's picture

LOL...but so true.

Thu, 02/18/2010 - 11:51 | 235418 Crab Cake
Crab Cake's picture

The solution, of course, is a jubilee, justice enforced, and renewal of the social contract. 

How do we get to that solution?  I can't see that yet, it's murky. 

Thu, 02/18/2010 - 12:45 | 235533 glenlloyd
glenlloyd's picture

Jubilee aint gonna happen...why? Moral Hazard.

Besides, there's no equity in it for those who didn't play the ridiculous "live beyond your means" game.

There have to be winners and losers, not everyone can win.

Thu, 02/18/2010 - 13:21 | 235592 covered
covered's picture

I tend to see the solution in much the same way as Crab Cake. I would also toss in seizure of assets along with prosecutions. As to getting to that point, I think Taibbi's point of laymen, or potential jurors, "giving a shit" is well taken.

Thu, 02/18/2010 - 14:25 | 235673 Real Estate Geek
Real Estate Geek's picture

Gotta get an attitude like Al Capone's in The Untouchables:  "I want him DEAD!  I want his family DEAD!  I want his house burned to the ground!  l want to go there in the night and piss on his ashes!"

Here's De Niro's audio clip of that line:

Thu, 02/18/2010 - 12:08 | 235465 BernankeCo
BernankeCo's picture

Solution is to abolish the fed

Thu, 02/18/2010 - 12:23 | 235489 Anonymous
Anonymous's picture

and let Congress create monetary policy? no fucking way...
The solution is to apply complete transparency to the FED,
or create a new FED that is transparent. I mean completely
transparent. But letting congress handle money ie eq to
giving a two year old a loaded pistol in a crowded room

Thu, 02/18/2010 - 12:31 | 235498 dark pools of soros
dark pools of soros's picture

you're busting on Taibbi??   this guy has done a shitload and you jumping up for a coined phrase??  Taibbi had the balls to create eXile - and now attacks GS in a major mag routinuely..


we all need to keep spreading the news to every blind fuck american even if you don't like your neighbors

Thu, 02/18/2010 - 13:08 | 235538 BernankeCo
BernankeCo's picture

America going down slippery slope

Larry Blankfein sanctimoniously explained Adam Smith’s invisible hand. 

The future for the USA is very bleak; a future resembling that of a socialist country like Canada or UK, but far worse.

With mass complacency to big government, nanny state initiatives people's constitutional rights will slowly be eroded.othing!" We live in a Financial Aristocracy and D1CTAT0RSHIP!

Thu, 02/18/2010 - 13:37 | 235609 B9K9
B9K9's picture

Tyler, you really need to put a junk counter in place that automatically bans user accounts once a certain threshold is reached.

Thu, 02/18/2010 - 16:20 | 235949 dark pools of soros
dark pools of soros's picture

would there be a Leo exception???  :)

Thu, 02/18/2010 - 18:31 | 236451 Haywood Yablomi
Haywood Yablomi's picture

One that picks up EVERY post that Leo writes? 

Thu, 02/18/2010 - 10:57 | 235344 Anonymous
Anonymous's picture

Taibbi concludes:

"It isn't so much that we have inadequate rules or incompetent regulators, although both of these things are certainly true. The real problem is that it doesn't matter what regulations are in place if the people running the economy are rip-off artists."

Meanwhile on ABC World News last night the lead story was Tiger Woods and his upcoming press conference on Friday.

Thu, 02/18/2010 - 11:01 | 235350 BernankeCo
BernankeCo's picture

I am surprised at how many people in the financial world are now aware of what a scam the Federal Reserve and fractional reserve banking system is. These international bankers have been robbing the US since 1913 when the Federal Reserve began.

Thu, 02/18/2010 - 11:10 | 235364 Anonymous
Anonymous's picture

You sound like a real quick study.

Thu, 02/18/2010 - 11:11 | 235366 THE DORK OF CORK
THE DORK OF CORK's picture

I find your generic comments BernankeCo fascinating in their blandness

Well done you get a star young man

Thu, 02/18/2010 - 11:24 | 235386 Anonymous
Anonymous's picture

He's sanitized like a Kosher Deli counter when the Rabbi visits.

Nothing a little butt rape couldn't complexify significantly, you violent ancient druidic bastard.

Tiocfaidh ár lá bitches!

Thu, 02/18/2010 - 11:29 | 235391 Anonymous
Anonymous's picture

Americans submit to their elected dictators.

No guts to stand up and claim their rights.

Its laughable how stupid americans have become.

Thu, 02/18/2010 - 13:08 | 235525 BernankeCo
BernankeCo's picture

Larry Blankfein sanctimoniously explained Adam Smith’s invisible hand. 

The future for the USA is very bleak; a future resembling that of a socialist country like Canada or UK, but far worse.

With mass complacency to big government, nanny state initiatives people's constitutional rights will slowly be eroded.othing!" We live in a Financial Aristocracy and D1CTAT0RSHIP!

Thu, 02/18/2010 - 11:03 | 235353 bugs_
bugs_'s picture

Great article what a hoot.

"Rumanian Box"!!!


Thu, 02/18/2010 - 11:05 | 235357 drbill
drbill's picture

How long before the squid decides that Taibbi needs to have a fatal "accident".

Thu, 02/18/2010 - 11:53 | 235425 macfly
macfly's picture

Since the squid owns the White House, it must also own the Secret Service. We know how good the other SS was at making it's foes vanish, so lets see how this one stacks up.

Thu, 02/18/2010 - 13:59 | 235639 Anonymous
Anonymous's picture

This one stacks up pretty good once you consider the fates of Ron Brown and Vince Foster.

Thu, 02/18/2010 - 22:33 | 236943 Dburn
Dburn's picture

JHC, you guys are still hung up over that?

Thu, 02/18/2010 - 11:57 | 235439 Anonymous
Anonymous's picture

Fortunately, Tiabbi has ink, too.

Thu, 02/18/2010 - 11:08 | 235361 Fish Gone Bad
Fish Gone Bad's picture

To help out the overworked people at the animal shelter, Goldman employees volunteer to kill small puppies.  This gets them ready for the real dirty work ahead of raping and pillaging the world.

Thu, 02/18/2010 - 11:13 | 235367 Anonymous
Anonymous's picture

It's all Greek 2 me!

Thu, 02/18/2010 - 11:15 | 235370 SWRichmond
SWRichmond's picture

Excellent street level summary of an incredibly important story.  Thanks, Matt, for not letting go.  Push push push.  I will be more than delighted to get back to arguing with my liberal friends once, together, we have successfully routed out the banking oligarchy that runs this country.  But routing them out must be job #1.  Through theft they are destroying hope and opportunity; it must stop, and we must stop them. 

Yes, the MIC can be next.

Donating to ZH and subscribing to RS today.

Thu, 02/18/2010 - 11:23 | 235384 gmrpeabody
gmrpeabody's picture

Good luck....they own the courts, they own the lawyers, they own the schools, they own the media, they own all public servants. The banks own them.

Thu, 02/18/2010 - 22:34 | 236946 Dburn
Dburn's picture


Thu, 02/18/2010 - 11:24 | 235385 mikla
mikla's picture


The closing of the article, IMHO, is absolutely terrifying:

That's why the biggest gift the bankers got in the bailout was not fiscal but psychological. "The most valuable part of the bailout," says Rep. Sherman, "was the implicit guarantee that they're Too Big to Fail." 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. If the bailouts validated anew the crooked psychology of the bubble, the recent profit and bonus numbers show that the same psychology is back, thriving, and looking for new disasters to create. "It's evidence," says Rep. Kanjorski, "that they still don't get it."  [emphasis added]

They "levered up", and continue to do so.  Everything now is bigger, more dangerous, more levered than it ever was before.

There won't be another bailout because they probably can't pull it off again (the public attitude has changed).  Thus, the epic "crack" will be absolutely cataclysmic.


Thu, 02/18/2010 - 11:54 | 235431 financial illiterate
financial illiterate's picture

And this is the bit that I don't understand. If they pull the whole casino down on their heads, what's in it for them? What's the point of all the wealth in the world when there's nothing left to buy or eat or do?
Or are these people simply incapable of not stealing money no matter the consequence? Like Cockroaches eating their own limbs they will eventually consume themselves once the rest of the worlds financial system is a smoking ruin?

Thu, 02/18/2010 - 12:41 | 235522 SWRichmond
SWRichmond's picture

If they pull the whole casino down on their heads, what's in it for them?

Power, and the ability to completely dominate the creation of the new landless serf system, and installing their idiot children as heirs in a new system of financial primogeniture.  Except it's not entirely new, aka Rothchilds.

Thu, 02/18/2010 - 13:48 | 235624 B9K9
B9K9's picture

It only works if the serfs continue to honor the worthless pieces of paper upon which the contracts (debt obligations) are written.

The way I see this playing out is with a new federation being formed by interested states which simply walks away from existing federal commitments ie the USSR scenario.

The banksters need to hope there aren't global mass trials.

Thu, 02/18/2010 - 14:18 | 235662 Anonymous
Anonymous's picture

Interesting thought B9...

I often wonder what the Country of California would be like. Since the feds won't bail us Kalifornians out, why do we even need them? To steal our Social Security and Pensions, to tax the hell out of us?

I think Kalifornia would make a great country: we've got our own agriculture, our own gold mines, our own cheap labor force (the border-crossers); I think we would do nicely on our own.

Thu, 02/18/2010 - 14:36 | 235690 Anonymous
Anonymous's picture

Despite California's size, and stature there is neither the available arable land or talent to feed its entire population. It will rip itself from the inside out.

Thu, 02/18/2010 - 16:25 | 235966 dark pools of soros
dark pools of soros's picture

you could add Oregon and Washington into the mix...  not Nevada, zona or utah 


I could see those three coastal states thriving and you might be able to opt in Hawaii for the hell of it..  just think, holding the whole Western ports??!!


yeah they would get army in there in a hurry... 

Thu, 02/18/2010 - 14:46 | 235703 Anonymous
Anonymous's picture

I disagree, and agree. The proles can be dominated way past their ability to object - it's happened many many times before.

That's the equivalent of saying that Nazi concentration camps work only so far as Jews are blindly willing to walk into gas chambers.

As ridiculous as that seems, it's essentially how it plays out in principle, but in practice the power of choice is eroded. No one recognizes or admits the severity of their own situation until it is far too late.

NTL, I think you're right that this will be the heralding move for some new Unitarian effort to default on obligations - postured as a new era of peace and prosperity. In reality it is nothing more than the consolidation of crony power and dissolution of traditional provisional entitlements (such as the first ten amendments to our constitution) across a larger land mass.

Think of it this way - no one knows the freedom of the press better than it's owner. If you have the keys to the mint, then you know the opiate of the masses is backed by nothing but a falling house of cards - what are you going to do to ensure your own survival?

Orchestrated destruction is preferable to blind organic creation, from the perspective of consolidated power. Otherwise the free and the brave may get some ideas about what freedom really means.

Thu, 02/18/2010 - 22:43 | 236960 Dburn
Dburn's picture

Power, and the ability to completely dominate the creation of the new landless serf system, and installing their idiot children as heirs in a new system of financial primogeniture.  Except it's not entirely new, aka Rothchilds.


That would imply they thought long term. They are con people and raging thieves, but they aren't thinking of their kids. Right now they are kids. They are thinking of their own aircraft carrier sized yacht so they can cruise until they are bored. . It's a competition for who owns the bestest and the mostest when they aren't doing a circle jerk with the press and the govt.

Thu, 02/18/2010 - 13:08 | 235575 theprofromdover
theprofromdover's picture

Think of them as addicts, then it all makes sense.

Such an obsession with money is an illness. They would steal from their grannies.

They can never have enough.

Thu, 02/18/2010 - 16:34 | 235992 dark pools of soros
dark pools of soros's picture

actually it works more like aging rock/pop stars...  you really think Spears or Hannah Montana can just stop doing what they are doing without ALL their peeps & managers revolting on them to keep the gravy train going??


so it is with this corruption.. too many hands still waving to get their cut since they all feel they are on the inside and deserve their slice..


so it will keep going until another wave, etc etc

Thu, 02/18/2010 - 13:09 | 235578 mikla
mikla's picture

And this is the bit that I don't understand. If they pull the whole casino down on their heads, what's in it for them?

  1. I agree with SWRichmond above.  The best way to create a new system with yourself in power is to absolutely destroy the previous system, with yourself holding all the real assets.  "How do democracies die?  To thunderous applause."
  2. Individuals are getting personally rich by crashing their companies into a brick wall at high speed.  They don't care about the public, their company, or the aftermath, because they are personally able to loot tremendous amounts within this very small window.

Sadly, to understand the system intimately, is to understand that these conclusions are not accidents.  The man-made crisis will result in the public whole-heartedly embracing a new system out of desperation, without understanding the new system's implications.

That's my fear regarding "The Fall":  It's inevitable, and it's necessary, and it's quite possibly Good.  However, it's also possible that this transition births such a dark blight upon humanity that we should have wished for the abominations of the previous system.

Thu, 02/18/2010 - 13:06 | 235570 theprofromdover
theprofromdover's picture

They have already set in place the mechanism for unlimited bail-outs. They do not have to go back to Congress -or anywhere else for that matter *- for new approvals.

* well of course Sgt. Lloyd (Ernest) Blanko has to give his approval......


Thu, 02/18/2010 - 11:16 | 235373 Anonymous
Anonymous's picture

Solution: - THE only choice, is actually a two-part solution:

1)Debtors/Taxpayer revolt (unfolding as we speak)

2)Ballot Box revolt (people loose their minds come election time...keep ya posted)
3) Tar & Feathers- watch the Mini-series John Adams - we need some mob mentality/fear....especially in D.C.

Thu, 02/18/2010 - 12:17 | 235481 Careless Whisper
Careless Whisper's picture

4) the chinese

Thu, 02/18/2010 - 11:23 | 235381 Tomified
Tomified's picture

I would be willing to buy a momento of Goldman's New York Broad Street offices on Ebay, if there are any fragments left after the people have vented their anger.

Thu, 02/18/2010 - 14:52 | 235707 Anonymous
Anonymous's picture

The people will vent their anger only at those who don't deserve it, and can't do anything to stop it.

We love a Martyr.

Thu, 02/18/2010 - 11:23 | 235382 Anonymous
Anonymous's picture

Financial terrorism, enabled by complicit Government
(Dems AND GOP ... let's not get distracted and enervated
by politicians' divide-and-conquer techniques).

Bottom line ... the only deterrent will come when Corporatocratic heads roll .... figuratively, and literally.

Thu, 02/18/2010 - 11:26 | 235387 Anonymous
Anonymous's picture

All that time Taibbi pissed away, bashing Palin, has left him so far behind the curve. That, this B.S. sounds like it came from one of Marvels comic books. LOL
Taibbi lost his creds a long time ago.

Thu, 02/18/2010 - 12:07 | 235462 Anonymous
Anonymous's picture

lol at you attacking taibbi´s character/credibility without bothering to point out any examples where he is wrong.

Thu, 02/18/2010 - 12:45 | 235532 gmrpeabody
gmrpeabody's picture


Thu, 02/18/2010 - 14:37 | 235691 snakeboat
snakeboat's picture

Indeed, name thyself, coward.

Thu, 02/18/2010 - 15:40 | 235831 Anonymous
Anonymous's picture

@ #235387 - you have no cred... in fact you're just a number... #235387 hello?????

Wed, 02/24/2010 - 01:51 | 242833 Anonymous
Anonymous's picture

I forwarded this article to so many friends I've been trying to explain this ponzi scheme to since 2008. I finally got some replies - it appears that now, they're outraged.

Great timing. Sheeeesh

Anyhooo, outstanding work Mr. Taibbi. And, if you excuse me guys, I have to catch Bristol Palin as a guest star on The Secret Life of the American Teenager. She's playing the teenage mommmy!!!

Thu, 02/18/2010 - 11:28 | 235389 DavidC
DavidC's picture

Unfortunately, WE don't have the power to do anything about it. Vote in a new President or Prime Minister and as soon as they're in it's back to the same corruption etc.

That's why, when the bubble goes, it will go big time. And yet, for all their education, the boys in power or in the banks, just DON'T get it. They really do NOT have the wisdom to see what they're doing.


Thu, 02/18/2010 - 11:33 | 235392 Going Down
Going Down's picture


Save The Date


Check out your SPX charts. Looks like "third of a third" has just gotten underway. Thanks, Matt, for setting the mood.





Thu, 02/18/2010 - 11:36 | 235396 Anonymous
Anonymous's picture

Don't Goldman executive officers now carry guns. Thus we now have the charge of armed robbery to lay at the feet of those in charge of law and order.

Isn't one person of rank in this entire country who could apply the law and rid us of psycho vampire squid? One person?

This is partly why the volitility index is at its bottom. No one in the function of the law wants to deal with the problem. Fines, oh yes, go to jail, nope.

Thu, 02/18/2010 - 11:39 | 235400 Andrei Vyshinsky
Andrei Vyshinsky's picture

Lest anyone forget, Blankfein and the other trash like him are only half of this picture. The other half: A whore government of pigs and sows with whittened teeth, bloated, undeserved salaries and poisoned souls. You won't get rid of one without getting rid of the other. Like some foul weed the whole thing will regenerate if simply tugged at. It must be pulled up down to the feeder roots.

Here's Michael Hudson this week on Wall Street:

Thu, 02/18/2010 - 11:52 | 235423 Ripped Chunk
Ripped Chunk's picture

Then there are the un-named, unseen ultra wealthy who are the big picture manipulators of the world. How many of them are there?

Next time the Trilateralists & Bilderbergers meet, examine the level of security involved. Then scheme.

Thu, 02/18/2010 - 12:01 | 235449 macfly
macfly's picture

If you've read Danny Estulin's excellent book on the Bilderberg Club then you already have a good insight, but you need to look at Sir Cecil Rhodes dictum of collectivism to really get the full picture.

Thu, 02/18/2010 - 12:33 | 235512 Ripped Chunk
Ripped Chunk's picture

Thank you George, I will pick that up.

The picture is pretty clear to me as far as what needs to be done.

I would not be suprised if the meetings become totally secret soon.

Thu, 02/18/2010 - 12:43 | 235527 Ripped Chunk
Ripped Chunk's picture

George, are you referring to this elitist fraternity scumbag?

His type of thinking is over and his kind need to be euthanized. 


Thu, 02/18/2010 - 11:42 | 235406 jedwards
jedwards's picture

WHY WHY WHY would anyone ever be IDIOTIC enough to being a counter party against Goldman?  Obviously they are always playing with a stacked deck.  No one should EVER go against Goldman in a transaction.

I hope that their "success" leads to overall less business because everyone is afraid to do business with them.

Thu, 02/18/2010 - 15:45 | 235845 Anonymous
Anonymous's picture

Excellent point - maybe logic is blind to greed?

Thu, 02/18/2010 - 11:47 | 235412 Anonymous
Anonymous's picture

Con #8 - We're all in this together.

Thu, 02/18/2010 - 14:55 | 235710 Anonymous
Anonymous's picture

Con #9: YOU can fix it with hard work and discipline.

Thu, 02/18/2010 - 11:49 | 235415 macfly
macfly's picture

What a great piece, clear and concise enough to be easily understood by everyone. I do hope it gets syndicated widely beyond the miniscule circulation of Rolling Stone.

Thu, 02/18/2010 - 12:02 | 235451 financial illiterate
financial illiterate's picture

I post these things on other blogs, Sports, Music, Yoga, doesn't matter. If only 1 person reads it and tells 1 other person. A rising tide of global rage is the only thing that can possibly stop these people. Obviously the systems in place for checks and balances no longer work. Continuing to expose them to the spotlight is about all we seem to have at the level of the man in the street.
I believe Tyler Durden will become a global folk hero or at least win a pulitzer if there is any integrity left in journalism. I look at the business pages of murdoch and fairfax broadsheets and it doesn't appear to have any relation to reality any more (if it ever did). I feel like I'm taking crazy pills.

Thu, 02/18/2010 - 12:43 | 235463 BernankeCo
BernankeCo's picture

Agree. we need to get the word out

When folks finally see that they can’t just get someone else to pay for all this, there will likely be a

href="" target="_blank">huge tax rebellion

which will cause more short term problems, but may in the long term (hopefully) have the effect of getting the government to manage our

money better. In the meantime, let’s hope we don’t have too many large national


, military conflicts, pandemics or the like to deal with. This country is in a lot of trouble and we need

to start thinking like Americans instead of Republicans or Democrats if we’re going to get through this mess……Meanwhile experts say the

market will crash sometime this year..
Fasten your seatbelts...

Thu, 02/18/2010 - 11:49 | 235416 Anonymous
Anonymous's picture

Hail Matt!!!

Thu, 02/18/2010 - 11:53 | 235426 Anonymous
Anonymous's picture

The goldman and JPM and Wall Street in general are just mercenaries for the US Government, much like Blackwater is for iraq they act doing financial assassinations with their CDS, earning and growing with others death. People in power in these banks are inside the government, an orgy that says everything there is to say.

The big market fall of 2008 was caused in advance, as there was a secret meeting in congress two months prior to that, so everything was pre-planed, and GS and JPM had the time to close long positions and get short positions over the worldwide markets.

Thu, 02/18/2010 - 12:00 | 235446 Gordon_Gekko
Gordon_Gekko's picture

Nothing's going to change UNTIL and UNLESS we completely repudiate their biggest enabler - the Federal Reserve Note a.k.a. the fiat dollar.

Thu, 02/18/2010 - 12:04 | 235457 Anonymous
Anonymous's picture


Thu, 02/18/2010 - 12:31 | 235503 Rusty_Shackleford
Rusty_Shackleford's picture

F-ing aye.

Thu, 02/18/2010 - 12:33 | 235505 Trifecta Man
Trifecta Man's picture

One simple act - abolish the Fed - would go a long way to grind this madness to a halt.

Thu, 02/18/2010 - 13:40 | 235615 Stranger
Stranger's picture

That would kill not only the banks but also the Federal Government (whose deficit is about 80-90% of its tax income, at last check).


Abolishing the Fed will be done over their dead bodies.

Thu, 02/18/2010 - 12:01 | 235447 Gimp
Gimp's picture

Goldman/Bankstas = Government, Government = Goldman/Bankstas

A win-win for the ultra greedy.

Now do what you are told and take it we know you won't do anything about it.

Thu, 02/18/2010 - 12:03 | 235453 Anonymous
Anonymous's picture

Goldman doesn't need to be "broken up." It's pretty simple, end the TBTF doctrine from now on, in which case, Goldman and JP Morgan et al, will die.

Then Audit the Fed, although this would most likely crash the dollar, which begs the question, why shouldn't we Audit the Fed now, while the dollar holds reserve currency status!?


Thu, 02/18/2010 - 15:12 | 235754 Anonymous
Anonymous's picture

You've answered your own question, provided the goal is to crash the dollar.

The only thing stopping it now is that the power structure is not entirely secured.

Currency is still necessary, since our armies are fighting abroad and cannot be mobilized quickly enough to prevent a populist uprising should our currency suddenly become worthless.

Reminds me of Sun Tsu. Essentially the victorious general chooses the ground and means of the battle through deception, and wins without a single loss...

Much like the 2008 Presidential election...

Thu, 02/18/2010 - 12:06 | 235460 Anonymous
Anonymous's picture

"Why big institutional investors like pension funds continually come to Wall Street to get raped is the million-dollar question that many experienced observers puzzle over. "

In Illinois, we know that pension fund managers don't invest to get safe returns, they invest where intermediaries direct them, earning big finders' fees. Usually these intermediaries are not strangers to the fund managers.

Thu, 02/18/2010 - 12:09 | 235467 Anonymous
Anonymous's picture

In one of the most succinct descriptions of the causes of our current financial plight, Matt Taibbi hits the heart of the issue in the last paragragh.

"The real problem is that it doesn't matter what regulations are in place if the people running the economy are rip-off artists. The system assumes a certain minimum level of ethical behavior and civic instinct over and above what is spelled out by the regulations. If those ethics are absent — well, this thing isn't going to work, no matter what we do."

It is the beginning of the end for society when the rule of law is ignored or eliminated. The current government is of no use if it cannot protect and defend the people of this country from thieves and con artists currently residing on Wall Street. If this great experiment is to survive we must make a change in direction and take back control of our government.

Thu, 02/18/2010 - 12:20 | 235479 MarketTruth
MarketTruth's picture

It is time, the time is now.

Are you there yet?


Are you ready to finally pull out all your funds from banks and Wall Street?


Sell off all stocks/trades?


Perhaps even go on a labor strike with your co-workers and picket your State government?


Or are you just sitting there like a good sheeple?


"And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale. " -- Thomas Jefferson wrote on May 28, 1816






Thu, 02/18/2010 - 12:19 | 235483 juangrande
juangrande's picture

The amazing thing to me is the attitude of "incredulousness" everyone has on these threads. If "we" collectively could figure out that our head is buried in our nether regions and we are driven off of the cliff by our own fear, then these symptoms will disappear. The gov., the bankers, the military indus. complex, etc. are all just symptoms. I believe we are headed, inevitably, for a collective consciousness awakening. The choice is we go kicking and screaming or, individually, we make some serious effort to remove the veils of illusion through which we view ourselves. This is the universal message which is older than " gold as a store of value". This realization is " the kingdom of heaven". But I could be wrong.

Thu, 02/18/2010 - 12:24 | 235487 Crab Cake
Crab Cake's picture

My nomination for best sentence in piece.... drum roll...

"The real problem is that it doesn't matter what regulations are in place if the people running the economy are rip-off artists."

Correct omundo for $500!

I would add, that in addition to running our economy these, "rip-off artists", are also running our government by payoff proxy practices, perpetrated by the very same putrid pusillanimous pig f(&*^ s.

I could almost open up a Howard Beal "quote" here. I am mad as hell, and I can't take it much longer.

There's really no point in working, or saving, or paying taxes at this point beyond your immediate needs.  The whole system is insolvent. We're all one big happy family in the F'd boat floating out into a hurricane.

In fact everyone should just stop working (if you are lucky enough to have one), take your money out of TBTF banks, stop paying the mortgage, and don't buy anything you don't absolutely have to. 

This doesn't have to come to violence.  Just stop playing ball, organize with others of a like mind to encourage still more to stop cooperating, and make sure everyone knows what you're doing and why.  I don't care if you are right left, red blue purple, or green; we need our country back.  It doesn't work with Rip Off artists running the show. 

Jubilee, justice delivered, and a renewal of the social contract at a 50 state Constitutional convention. 

Where are the cops?  Where is Andrew Jackson?  WTF!?

"Those who make peaceful revolution impossible, make violent revolution inevitable." John F. Kennedy

Thu, 02/18/2010 - 12:27 | 235495 Going Down
Going Down's picture


Banana Republic


2007. 400 American households. $345 million average income. That's $138 Billion, folks. Think about it.

Thu, 02/18/2010 - 12:31 | 235502 Anonymous
Anonymous's picture

I don't think the second crash will be tolerated as well as the first from the general public.

The mob rules...

Thu, 02/18/2010 - 12:33 | 235509 Anonymous
Anonymous's picture

What does he mean that Goldman didn't learn anything?

Sure they did - they learned that no matter what, they win.

Thu, 02/18/2010 - 12:37 | 235510 williambanzai7
williambanzai7's picture

The Goldman Sting Part I:

Thu, 02/18/2010 - 12:39 | 235520 Anonymous
Anonymous's picture

Everybody knows the old lady is geting mugged, but they are all just closing their blinds. Any "terrorist" who decides to drive a stake into the dragon will be excoriated by the media, condemned by Cungress, and undefended by the victim.

Thu, 02/18/2010 - 12:43 | 235523 Anonymous
Anonymous's picture

Taibbi total asset towards truth in media...

Disinformation Tactics: The Methods Used To Keep You In The Dark

There was a time, not too long ago (relatively speaking), that governments and the groups of elites that controlled them did not find it necessary to conscript themselves into wars of disinformation. Propaganda was relatively straightforward. The lies were much simpler. The control of information flow was easily directed. In fact, during the early Middle-Ages in most European countries commoners were not even allowed to own a Bible, nor was the Bible allowed to be interpreted from Latin to another language, let alone any other tome that might breed “dangerous ideas”. This was due in large part to the established feudal system and its hierarchy of royals and clergy. Rules were enforced with the threat of property confiscation and execution for anyone who strayed from the rigid socio-political structure. Those who had theological, metaphysical, or scientific information outside of the conventional and scripted collective world view were tortured and slaughtered. The elites kept the information to themselves, and removed its remnants from mainstream recognition, sometimes for centuries before it was rediscovered.

Part 2

Thu, 02/18/2010 - 12:44 | 235529 Astute Investor
Astute Investor's picture

and he raped her and killed her, then he took her home

Excitable boy, they all said...

Thu, 02/18/2010 - 12:54 | 235548 DaveyJones
DaveyJones's picture

Zevon is so good

Thu, 02/18/2010 - 12:51 | 235543 DaveyJones
DaveyJones's picture

"when one of its employees, a Russian named Sergey Aleynikov, allegedly stole the bank's computerized trading code. In a court proceeding after Aleynikov's arrest, Assistant U.S. Attorney Joseph Facciponti reported that "the bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways."

When I first read this months ago, I though Facciponti's ignorant, ironic statement is the pure embodiment of our broken and corrupt country.   

Thu, 02/18/2010 - 12:55 | 235553 Anonymous
Anonymous's picture

Isn't posting this article a copyright violation?

Thu, 02/18/2010 - 13:03 | 235566 Anonymous
Anonymous's picture

It's odd to see Goldman defenders getting uptight about Taibbi and Rolling Stone. Lots of Taibbi bad-mouthing in the NYC trading community.

I've rarely seen such denial among so many otherwise smart guys. It's as if Goldman is sacred and must never be subject to any kind of if it's Church or something.

Thu, 02/18/2010 - 23:33 | 237019 Anonymous
Anonymous's picture

Perhaps it's because when you read Taibbi's article you realize he doesn't actually know what he's talking about e.g., the nonsense he writes about flash trading and front running.

Thu, 02/18/2010 - 13:08 | 235576 williambanzai7
Thu, 02/18/2010 - 13:13 | 235580 theprofromdover
theprofromdover's picture

Perhaps if a judge somewhere made the ruling the CDS's are (illegal and) unenforceable, that might throw a spanner in the works.

Thu, 02/18/2010 - 13:15 | 235584 theprofromdover
theprofromdover's picture

Perhaps if a judge somewhere made a ruling that CDS's are (illegal and) unenforceable, that might throw a spanner in the works.

If my fingers could only spell......

Thu, 02/18/2010 - 13:40 | 235614 Gimp
Gimp's picture

Two words for our financial system:



Thu, 02/18/2010 - 14:25 | 235674 Anonymous
Anonymous's picture

I can say it in one:


Thu, 02/18/2010 - 13:42 | 235617 Stranger
Stranger's picture

I always knew that banking was just scamming government welfare at an enormous scale. (Welfare queens are nothing compared to the welfare demi-gods of Wall Street.)


What I didn't know was that bankers were experts at all sorts of different scams.

Thu, 02/18/2010 - 13:49 | 235626 Thoreau
Thoreau's picture

A brilliant elucidation of the Wall Street-end of the shaft. Where's a Jeffrey-Dahmer-with-a-taste-o-wallstreet-meat when you need him?

Thu, 02/18/2010 - 14:11 | 235655 Real Estate Geek
Real Estate Geek's picture

I wish Obama would get off his butt and appoint an Attorney General.  That position has been vacant for too long.

Thu, 02/18/2010 - 17:35 | 236230 gmrpeabody
gmrpeabody's picture


Thu, 02/18/2010 - 14:24 | 235671 ShankyS
ShankyS's picture

Every representative in Washington is a spineless bastard. They should all be prosecuted as well for allowing this to happen and then not doing a damn thing to stop it.

Thu, 02/18/2010 - 14:31 | 235682 Hephasteus
Hephasteus's picture

Now THAT'S a goddamn article about our financial system.

Thu, 02/18/2010 - 15:20 | 235686 BernankeCo
BernankeCo's picture

Glaring VIOLATIONS= Bush+Paulson+Shelby+Dodd+Rubin+Greenspan+Summers+Geithner+ Bernake+ClintonThis elite group knows precisely why derivatives should have been regulated, and the dangers related to the use of excessive credit!

Some people believe Wall Street is a huge Ponzi scheme about to fold by late 2010

Thu, 02/18/2010 - 15:24 | 235789 Anonymous
Anonymous's picture

Great article, easy to understand.

I am 12 and now I know what this is.

Thu, 02/18/2010 - 16:19 | 235945 Andrew_Miller
Andrew_Miller's picture

In 2008 Moscow oblast (Moscow region) defaulted on debts of a couple of companies directly owned by the regional government. Goldman was the only creditor payed in full and on time.

Thu, 02/18/2010 - 17:12 | 236147 naiverealist
naiverealist's picture

As always, Taibbi can eviscerate the beast in language most laypeople can understand.


In an interview, Matt said that he wasn't so scared of GS as he was of their lawyers.  It takes a lot of guts to write (and publish) this expose.

Thu, 02/18/2010 - 17:37 | 236237 gmrpeabody
gmrpeabody's picture

Maybe ZH will help in setting up a defence fund if needed. What say you, Marla?

Fri, 02/19/2010 - 20:40 | 238298 Anonymous
Anonymous's picture

I think populist anger is being applied to the wrong villain. The government enabled them to monopolize markets. As far as I can tell, they are just experts at political arbitrage. If I was a Lloyd, I would pay out my employees too! Really, what would you expect them to do with all that money? Just horde it? Maybe wipe your ass with all that paper?

Besides, rich Goldmanites would much more effective at injecting this capital back into the economy than the government could ever hope to be.

Mon, 04/19/2010 - 08:28 | 307586 Tom123456
Tom123456's picture

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