Bailout

Matt Taibbi vs Goldman Sachs

By Felix Salmon

Matt Taibbi’s 12-page screed on Goldman Sachs has appeared on newsstands; Zero Hedge has scans, but I can’t link to the piece itself because Rolling Stone hates the internet. Suffice to say that in the second sentence of the piece Taibbi describes Goldman as “a great vampire squid wrapped around the face of humanity”; later on, he calls it “the planet-eating Death Star of political influence”. He’s also a dab hand at the pen-portrait:

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 nighmare about being forced to fly coach.

Taibbi makes the case that it’s not just wheat futures which have been overrun by index speculation, but commodities in general and oil in particular. Indeed, Taibbi puts Goldman, Zelig-like, at the center of no fewer than four speculative bubbles: one in the 1920s in which Goldman-controlled entities ended up losing an astonishing $475 billion in today’s dollars; the tech bubble; the housing bubble; and the oil-price bubble ending in 2008. He calls the US “a gangster state, running on gangster economics”, and is very explicit about exactly who he thinks the gangsters are. (Clue: they paid just $14 million in tax on $2 billion in 2008 profits.)

I don’t agree with all of Taibbi’s article, but I’m surprised at how much of it I do agree with, especially when it comes to the subject of regulatory capture. Taibbi spends no little time looking at Goldman subsidiary J Aron, and the semi-secret letter it was issued by the CFTC in 1991, the existence of which wasn’t even known to Brooksley Born, who was then the chair. The letter allowed Goldman to ramp up its activities in Chicago by orders of magnitude. When Congress asked to see the letter, the CFTC was careful to ask Goldman first if that would be OK.

I can’t, off the top of my head, think of a single government regulation over the past couple of decades which has remotely harmed Goldman Sachs; by contrast, there are many which have done it a world of good. The chances that the Fed, or any other systemic risk regulator, will be able to rein in this powerful organization are probably slim. The best we can hope for, I think, is that Goldman will unilaterally decide to be a force for good in the world, rather than an inflator of bubbles and profiteer in busts.

Full post as published by Macroprudential on June 24, 2009 (boomark / email).