Understanding How Our Economy Is Where It Is Right Now

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Thread: Understanding How Our Economy Is Where It Is Right Now

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    Post Understanding How Our Economy Is Where It Is Right Now

    Please...NO Obomb, Dem, Lib-Left, Republicrat, Democan, Comments. No personal attack on other forum members. No smart alek bickering or I'll close it to comments and everybody can argue back and forth using the Private Mail feature.


    BTW this is not the complete article but, is only the portion that is available on the Internet.

    I am posting this because...........it ain't over yet. Headed to your front door either directly or indirectly are Cap&Trade & "Carbon Credits" - Hold onto your wallet folks if you are even able to because the winds of Global Warming are about to Huff & Puff & blow much of your money away.

    The Great American Bubble Machine

    Matt Taibbi on how Goldman Sachs has engineered every major market manipulation since the Great Depression

    MATT TAIBBI
    Posted Jul 02, 2009 8:38 AM

    In Rolling Stone Issue 1082-83, Matt Taibbi takes on "the Wall Street Bubble Mafia" — investment bank Goldman Sachs. The piece has generated controversy, with Goldman Sachs firing back that Taibbi's piece is "an hysterical compilation of conspiracy theories" and a spokesman adding, "We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance in being a force for good." Taibbi shot back: "Goldman has its alumni pushing its views from the pulpit of the U.S. Treasury, the NYSE, the World Bank, and numerous other important posts; it also has former players fronting major TV shows. They have the ear of the president if they want it."

    Here, now, are excerpts from Matt Taibbi's piece.

    The first thing you need to know about Goldman Sachs is that it's everywhere.
    The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

    Any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

    They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They've been pulling this same stunt over and over since the 1920s — and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.

    The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren't much more than pot-fueled ideas scrawled on napkins by up-too-late bong-smokers were taken public via IPOs, hyped in the media and sold to the public for megamillions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.

    It sounds obvious now, but what the average investor didn't know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system — one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman's later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry's standards of quality control.

    Goldman's role in the sweeping global disaster that was the housing bubble is not hard to trace. Here again, the basic trick was a decline in underwriting standards, although in this case the standards weren't in IPOs but in mortgages. By now almost everyone knows that for decades mortgage dealers insisted that home buyers be able to produce a down payment of 10 percent or more, show a steady income and good credit rating, and possess a real first and last name. Then, at the dawn of the new millennium, they suddenly threw all that **** out the window and started writing mortgages on the backs of napkins to cocktail waitresses and ex-cons carrying five bucks and a Snickers bar.

    And what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help — there were other players in the physical-commodities market — but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.



    The history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled-dry American empire, reads like a Who's Who of Goldman Sachs graduates. By now, most of us know the major players. As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup — which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the ******* chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multibillion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden-parachute payments as his bank was self-destructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York — which, incidentally, is now in charge of overseeing Goldman.

    But then, something happened. It's hard to say what it was exactly; it might have been the fact that Goldman's co-chairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. While the American media fell in love with the story line of a pair of baby-boomer, Sixties-child, Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised crush on Rubin, who was hyped as without a doubt the smartest person ever to walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far behind.

    Rubin was the prototypical Goldman banker. He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nightmare about being forced to fly coach. It became almost a national clichι that whatever Rubin thought was best for the economy — a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline the committee to save the world. And "what Rubin thought," mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. During his tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy — beginning with Rubin's complete and total failure to regulate his old firm during its first mad dash for obscene short-term profits.

    After the oil bubble collapsed last fall, there was no new bubble to keep things humming — this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.

    It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers — one of Goldman's last real competitors — collapse without intervention. ("Goldman's superhero status was left intact," says market analyst Eric Salzman, "and an investment-banking competitor, Lehman, goes away.") The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.

    Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year-old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bank-holding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding — most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs — and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.

    Converting to a bank-holding company has other benefits as well: Goldman's primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict-of-interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank-holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman — New York Fed president William Dudley — is yet another former Goldmanite.

    The collective message of all of this — the AIG bailout, the swift approval for its bank-holding conversion, the TARP funds — is that when it comes to Goldman Sachs, there isn't a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. "In the past it was an implicit advantage," says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. "Now it's more of an explicit advantage."

    Fast-forward to today. It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs — its employees paid some $981,000 to his campaign — sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.

    Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's co-head of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion- dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade. The new carbon-credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.

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  3. #2
    Senior Member Array PointnClick's Avatar
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    This stuff makes me add a layer to my tinfoil hat...

    You know what America's real problem is...? We don't tar and feather people anymore....
    "Who is to say that I am not an instrument of karma? Indeed, who is to say that I am not the very hand of God himself, dispatched by the Almighty to smite the Philistines and hypocrites, to lay low the dishonest and corrupt, and to bust the jawbone of some jackass that so desperately deserves it?"

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    Senior Member Array ErikGr7's Avatar
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    It's not just America's economy. Iceland is bankrupt..
    and things are looking scary in other parts of Europe.

    I think England, has a 10 percent unemployment rate
    currently.

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    Senior Member Array PointnClick's Avatar
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    I give this article a lot more credence, given it's author... Matt Taibbi is pretty left on the political scale... if HE sez Cap and Trade carbon credits are a scam, I'm inclined to listen.
    "Who is to say that I am not an instrument of karma? Indeed, who is to say that I am not the very hand of God himself, dispatched by the Almighty to smite the Philistines and hypocrites, to lay low the dishonest and corrupt, and to bust the jawbone of some jackass that so desperately deserves it?"

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    Wow. Several different subjects are embedded in that one article.

    A few quick thoughts.

    1) Too much is given in the article to the notion of conspiracy. There may well have been some elements of conspiracy, but for it to work to the firms advantage in a consistent manner seems improbable.

    2) The mortgage mess could not have happened if ordinary people did ordinarily prudent things when shopping for homes, and if mortgage brokers at the street level had been a lot more honest. In 2003 I worked a temporary duty job in the San Bernardino area. A guy in our office earning 15/hour, in a truly temp job--not temp assignment as in my case, was telling me he wanted to buy a 300K home and thought, as his mortgage broker said so, that he could afford it. Something is wrong with that picture. The excess was bound to catch up with us and it did. There was as much blame on the 15/hour buyer (for stupidity) as on the mortgage broker, and on investors such as myself who naively bought such debt as collateralized mortgage obligation because S&P gave them triple A credit ratings. There was just too much blame to go around to blame this mess on a grand conspiracy.

    3) I do not begin to comprehend what the carbon offsets are about or how they will affect much of anything. I do know that we need to promote movement toward non-carbon based electric sources and folks who get in on the ground floor of this new direction will make money. Whether or not a new speculative market has been created, I don't know.

    4) There is plenty of blame to go around. Wall street investment banks, not just Goldman are easy targets, justified or not. Government, of both parties and both immediate past administrations, are also easy targets. Yet, there is plenty of blame on main street as well. Workers who don't work and borrow too much expensive credit from the ever present shysters willing to loan for 30% plus return; these deserve some blame for their own misfortunes. Employers who insist on paying the lowest possible wage and providing no benefits, also drive the problem. Because at its heart right now, the real problem is that wages have not kept pace with 3 1/2 decades of relentless inflation.

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    Senior Member Array PointnClick's Avatar
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    Taibbi's video commentary is worth watching... 4 or 5 short vids here...
    "Who is to say that I am not an instrument of karma? Indeed, who is to say that I am not the very hand of God himself, dispatched by the Almighty to smite the Philistines and hypocrites, to lay low the dishonest and corrupt, and to bust the jawbone of some jackass that so desperately deserves it?"

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    Distinguished Member Array Der Alte's Avatar
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    If you really want to understand the Carbon Credits just follow the money and see who stands to profit. No matter, we will all pay for it if it passes.
    Its a shame that youth is wasted on the young.

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    VIP Member Array Patti's Avatar
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    If it passes, air conditioning will become a luxury of the past.

    It will destroy businesses, and lower job growth.
    Socialism is the philosophy of failure, the creed of ignorance and the gospel of envy. — Winston Churchill

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    Member Array crankinNM's Avatar
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    Greed smoke and mirrors.

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    VIP Member Array mlr1m's Avatar
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    Congress controls many people with handouts. You want your handouts you have to sell your vote.

    Congress controls the rest of the people with tax credits and deductions. A flat percentage tax would stop all this type of graft. But why would congress ever give up that power?

    Michael

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    A fair flat tax would be great...but, there is a possible VAT (Value Added Tax) whispering and floating around in the halls of Congress and that sure would put a final nail in our economic growth coffin.

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    VIP Member Array edr9x23super's Avatar
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    Some good facts for all to digest; I happen to believe some of the conspiracies, because this sort of thing has happened before, as the author of the article described. A good documentary I highly recommend for all to watch is called "the smartest guys in the room", about the rise and fall of Enron. What is described there is an almost carbon copy blueprint of what happened here......

    The root causes of what happened in the housing market I think can be traced to multiple sources. Making the credit too easy to obtain was probably what started it in the first place. What Hopyard described in his post pretty much says it all - How can a guy making 15 bucks an hour afford a 300k home? Multiply that times a million, and you pretty much have the housing bubble.....
    "Guard with jealous attention the public liberty. Suspect everyone who approaches that jewel. Unfortunately, nothing will preserve it but downright force. Whenever you give up that force, you are inevitably ruined". - Patrick Henry

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    VIP Member Array hogdaddy's Avatar
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    Was having a pretty good 4th of July
    A Native Floridian = RARE


    IT'S OUR RIGHTS>THEY WANT TO WRONG
    H/D

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    Senior Member Array mi2az's Avatar
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    A guy a work gave me a link to a news article saying the government burried a story on the green house effect and that there is no green house effect. Its all a government scam
    "When the people fear the government you have tyranny...when the government fears the people you have liberty."

    --Thomas Jefferson --

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    Distinguished Member Array mr.stuart's Avatar
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    I believe a flat tax would help in many ways. We are human and greed has and will always exist with us. Just about every problem we face in our world boils down to greed. There are moments when I think we do not progress past junior high so far as emotional maturity. To observe how our leaders behave is very disturbing at times. I vote and that is about all I can do to bring about change.

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