Revisiting the Squid
Back when we wrote a brief critique of Matt Taibbi's latest populist jeremiad against 'God's workers', a.k.a. Goldman Sachs, we were of course aware that the topic would be controversial. Quite a few people seem to have misread that piece as an apologia for Goldman Sachs (judging from some comments on the Seeking Alpha reproduction of the post and e-mails we received), so perhaps we didn't express our point clearly enough. Yesterday, another writer dared to speak up in Goldman's defense, specifically with regards to the questions surrounding its trades and Taibbi's allegation that GS executives are guilty of perjury. Just as we suspected, the case is not as clear-cut as Taibbi makes it out to be – not by a long shot.
We are thus taking the opportunity to briefly revisit the topic today. Our problem with Taibbi's approach is that for one thing he throws out grave allegations that are far from proved as though they should be accepted at face value on his mere say-so. He is of course banking (pardon the pun) on the righteous anger of his readers in the face of economic crisis and the envy the highly-paid 'masters of the universe' inevitably arouse. For another thing, he focuses exclusively on one private sector firm and its trading activities. He is thereby attacking precisely the one activity of GS that strikes us as perfectly legitimate – its trading in the markets. His assertion that 'from tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression – and they're about to do it again' is plainly ridiculous. It suggests implicitly that every movement in the markets that people don't like (no-one was enamored by the collapse of stock prices after 1929 or after the tech stock bubble, just as no consumer is happy when gas prices rise) is somehow illegitimate, while ascribing almost god-like powers to what is in the end just one market participant who has as little control over the markets as anyone else. In Taibbi's portrayal, these investment bankers are described as omnipotent – they're not merely 'doing God's work', they are God, or rather his polar opposite, the devil. He doesn't waste a single sentence on the fact that without a fractionally reserved fiat money system it would be impossible to create any of these damaging bubbles. Goldman Sachs is not the 'bubble machine' – it is merely a cog in the bubble machine.
Taibbi neglects to look too closely on the interaction between financial firms and the State, this amalgamation of interests that is at the core of not only the crisis but also the inexorable slide from what was once free market capitalism toward a collectivist state-capitalistic system.
We certainly don't think Goldman or other members of the banking cartel are not deserving of critique. Alas, to us what is mainly worth criticizing is the fact that Wall Street and the government have melded together into a state-capitalistic combine, whose main raison d'etre is the maintenance of privileges for the banking class and the maintenance of the statist fiat-money based welfare/warfare system for the political class. Not coincidentally, one of the nicknames Goldman was stuck with over time is 'Government Sachs', in reference to the fact that an unusually large number of its executives tends to end up in high government posts, where they are then in a position of enacting policies that are favorable to the firm and its activities. Former treasury secretary Hank Paulson is a case in point. He at one point allegedly even if Congress and the Senate were to fail to go along with the bailout of the big banks.
(Photo by R. Flood)
Meet the man from Government Sachs, Hank Paulson. If we had not showered the worst stewards of capital with oodles of free money, the world would surely have stopped turning.
(Photo via shortsalemagicorder.com)
Regulations Favor The Banking Cartel
In this connection it is worth mentioning the 'Frank-Dodd' regulatory monstrosity again. Many people erroneously believe that the banks will somehow be 'punished' for their transgressions during the bubble and 'put on a tight leash' by this telephone-book sized law. In other words, one would suppose that the big bankers really hate it. We tend to think that it is more likely that they actually wrote it. All the 'too big to fail' banking institutions are today even bigger than they were before the crisis. The impenetrable thicket of regulations meanwhile ensures that they have even less to worry about the competition from upstarts than before. Not surprisingly, the smaller banks are the only ones that are vehemently protesting that the new regulations are making life impossible for them. You'll never hear Citigroup or Bank of America seriously complaining about the new laws. They know that in the end, these regulations have only created an even more powerful cartel of big banks. Consumers will over time end up paying through the nose for all of this, as whatever additional administrative costs the new regulations are creating will be passed on to bank customers. One must also keep in mind here that the more highly concentrated a banking system becomes, the less constraints there are on the concerted expansion of circulation credit and fiduciary media. In short, it makes inflation of the money supply that much easier. As it were, the privilege of creating new money from thin air is functionally not different from legally sanctioning the counterfeit money printing press in Tony Soprano's cellar. Obviously, this privilege has remained untouched.
We have yet to hear Taibbi mention this particular aspect of the system, although we must admit he did a fairly good job of getting closer to the central issue when he wrote a critique of the Fed's 'emergency' measures during the crisis ('The real house wives of Wall Street'). This article is valuable because it hits on the above mentioned amalgamation of private and State interests and shines a light on the big fat spider in the center of the web – the Federal Reserve. Alas, even this otherwise worthy piece is deficient. Taibbi mentions that all these bailout deals that evidently favored mainly well-connected insiders were done on the 'tax payer's dime'. Partly this is correct, but he fails to note where the 'Fed dollars' as he calls the flood of money showered on the clearly undeserving really came from – namely, thin air.
As such it is not only detrimental to tax payers, but to every participant in the economy who is a 'late receiver' of the newly created money. Those who got first dibs on the funds (like apparently the wily wives of Wall Street executives who had the presence of mind to quickly set up 'TARP' related companies on the Cayman Islands before the money began to rain down) certainly profited from the inflation of the money supply. Every other holder of dollars drew the short stick in this exercise.
Yesterday an article in the NYT caught our eye that nicely exemplifies the incestuous relations between government and the big banks. One of the authors of the new banking regulations, the self-anointed 'top cop' of Wall Street, Barney Frank, has just held a fundraiser – on Wall Street!
You would think that the banks must hate the man's guts. In his public utterances he frequently demonizes them. He is selling himself as a 'man of the people', supposedly representing the interests of the common man against the greedy inhabitants of the money temple. It would seem logical if the bankers were financing whoever tries to unseat him in elections. Alas, this is evidently not the case. On the contrary, they shower Frank with significant amounts of money. As :
“Representative Barney Frank proved Tuesday night that it never hurts to ask, even when you are asking longtime foes to fork over cash.
The Massachusetts Democrat held a Wall Street fund-raiser on Tuesday, less than a year after authoring the Dodd-Frank Act, a sweeping crackdown on the financial industry.
While some bankers saw the event as a striking display of chutzpah, even by Wall Street standards, other industry players were not about to miss the chance to hobnob with one of the nation’s top financial cops. JPMorgan Chase, Goldman Sachs and Morgan Stanley all dispatched officials to the event, hosted by the Securities Industry and Financial Markets Association, one of Wall Street’s most vocal advocates on the Dodd-Frank financial regulatory law. The attendees were a who’s who of Wall Street’s legal and lobbying community.
Apparently the NYT really thinks that Frank and the big banks are 'foes' and that the Dodd-Frank Act is a 'sweeping crackdown' on the financial industry. Both assumptions are erroneous. Their public enmity is nothing but political theater for the rubes, while the regulatory monstrosity further cements the domination of the big banks.
“But even Mr. Frank, known for his hard-edged political style and sarcastic wit, has shown a penchant for compromise. He has supported efforts to delay new restrictions on debit card fees, the scorn of bankers big and small. And that was not lost on his audience of donors, some of whom praised Mr. Frank’s recent efforts before entering the fund-raiser.
Still, banks complain that the Dodd-Frank law threatens to cost the industry several billion dollars.
And after the fund-raiser on Tuesday, Wall Street’s pockets were sure to be even lighter. “Frank for Congress” was charging $5,000 for a “host,” $2,500 for a “supporter” and $1,000 just to be a “guest.”
The event was hardly the pugnacious lawmaker’s first attempt to draw from the Wall Street well. In his most recent campaign, which raised roughly $4 million, Mr. Frank received $356,316 from the securities and investment industry, according to the Center for Responsive Politics.
He is a natural target for donations from bankers and the like. During the crisis, Mr. Frank was chairman of the influential House Financial Services Committee. Now that Congress is in the hands of the Republicans, Mr. Frank is the ranking Democrat on the panel and still wields significant power.”
As noted above, the only banks that really 'complain' about the cost of the law are the small banks for whom the law makes competing in the market place against the big guys all the more onerous. And surely no-one can be as naïve as to think that the bankers are bankrolling Mr. Frank because they are happy that there is a 'tough regulator' who really steps on their toes. Will they really get nothing in return for their generosity? Frank himself does indeed possess a good portion of 'chutzpa', as he is making just this assertion:
“Mr. Frank says campaign contributions do not influence his policy decisions. The congressman’s spokesman on Tuesday: “If Wall Street is trying to buy influence with him, it has been a dramatic failure.”
And we have a bridge in Brooklyn for sale.
Barney Frank, the 'Wall Street Top Cop' – surely no-one thinks that the bankers get anything in return for showering him with money?
(Photo via mediabistro.com)
You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.
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