Will Goldman Sachs Prove Greed is God?

From http:commondreams.org

Saturday, April 24, 2010 by the Guardian/UK
Will Goldman Sachs Prove Greed is God?
The investment bank's cult of self-interest is on trial against the whole idea of civilization – the collective decision by all of us not to screw each other over even if we can
by Matt Taibbi

So Goldman Sachs, the world's greatest and smuggest investment bank, has been sued for fraud by the American Securities and Exchange Commission. Legally, the case hangs on a technicality.

Morally, however, the Goldman Sachs case may turn into a final referendum on the greed-is-good ethos that conquered America sometime in the 80s - and in the years since has aped other horrifying American trends such as boybands and reality shows in spreading across the western world like a venereal disease.

When Britain and other countries were engulfed in the flood of defaults and derivative losses that emerged from the collapse of the American housing bubble two years ago, few people understood that the crash had its roots in the lunatic greed-centered objectivist religion, fostered back in the 50s and 60s by ponderous emigre novelist Ayn Rand.

While, outside of America, Russian-born Rand is probably best known for being the unfunniest person western civilization has seen since maybe Goebbels or Jack the Ripper (63 out of 100 colobus monkeys recently forced to read Atlas Shrugged in a laboratory setting died of boredom-induced aneurysms), in America Rand is upheld as an intellectual giant of limitless wisdom. Here in the States, her ideas are roundly worshiped even by people who've never read her books or even heard of her. The rightwing "Tea Party" movement is just one example of an entire demographic that has been inspired to mass protest by Rand without even knowing it.

Last summer I wrote a brutally negative article about Goldman Sachs for Rolling Stone magazine (I called the bank a "great vampire squid wrapped around the face of humanity") that unexpectedly sparked a heated national debate. On one side of the debate were people like me, who believed that Goldman is little better than a criminal enterprise that earns its billions by bilking the market, the government, and even its own clients in a bewildering variety of complex financial scams.

On the other side of the debate were the people who argued Goldman wasn't guilty of anything except being "too smart" and really, really good at making money. This side of the argument was based almost entirely on the Randian belief system, under which the leaders of Goldman Sachs appear not as the cheap swindlers they look like to me, but idealized heroes, the saviors of society.

In the Randian ethos, called objectivism, the only real morality is self-interest, and society is divided into groups who are efficiently self-interested (ie, the rich) and the "parasites" and "moochers" who wish to take their earnings through taxes, which are an unjust use of force in Randian politics. Rand believed government had virtually no natural role in society. She conceded that police were necessary, but was such a fervent believer in laissez-faire capitalism she refused to accept any need for economic regulation - which is a fancy way of saying we only need law enforcement for unsophisticated criminals.

Rand's fingerprints are all over the recent Goldman story. The case in question involves a hedge fund financier, John Paulson, who went to Goldman with the idea of a synthetic derivative package pegged to risky American mortgages, for use in betting against the mortgage market. Paulson would short the package, called Abacus, and Goldman would then sell the deal to suckers who would be told it was a good bet for a long investment. The SEC's contention is that Goldman committed a crime - a "failure to disclose" - when they failed to tell the suckers about the role played by the vulture betting against them on the other side of the deal.

Now, the instruments in question in this deal - collateralized debt obligations and credit default swaps - fall into the category of derivatives, which are virtually unregulated in the US thanks in large part to the effort of gremlinish former Federal Reserve chairman Alan Greenspan, who as a young man was close to Rand and remained a staunch Randian his whole life. In the late 90s, Greenspan lobbied hard for the passage of a law that came to be called the Commodity Futures Modernization Act of 2000, a monster of a bill that among other things deregulated the sort of interest-rate swaps Goldman used in its now-infamous dealings with Greece.

Both the Paulson deal and the Greece deal were examples of Goldman making millions by bending over their own business partners. In the Paulson deal the suckers were European banks such as ABN-Amro and IKB, which were never told that the stuff Goldman was cheerfully selling to them was, in effect, designed to implode; in the Greece deal, Goldman hilariously used exotic swaps to help the country mask its financial problems, then turned right around and bet against the country by shorting Greece's debt.

Now here's the really weird thing. Confronted with the evidence of public outrage over these deals, the leaders of Goldman will often appear to be genuinely confused, scratching their heads and staring quizzically into the camera like they don't know what you're upset about. It's not an act. There have been a lot of greedy financiers and banks in history, but what makes Goldman stand out is its truly bizarre cultist/religious belief in the rightness of what it does.

The point was driven home in England last year, when Goldman's international adviser, sounding exactly like a character in Atlas Shrugged, told an audience at St Paul's Cathedral that "The injunction of Jesus to love others as ourselves is an endorsement of self-interest". A few weeks later, Goldman CEO Lloyd Blankfein told the Times that he was doing "God's work".

Even if he stands to make a buck at it, even your average used-car salesman won't sell some working father a car with wobbly brakes, then buy life insurance policies on that customer and his kids. But this is done almost as a matter of routine in the financial services industry, where the attitude after the inevitable pileup would be that that family was dumb for getting into the car in the first place. Caveat emptor, dude!

People have to understand this Randian mindset is now ingrained in the American character. You have to live here to see it. There's a hatred toward "moochers" and "parasites" - the Tea Party movement, which is mainly a bunch of pissed off suburban white people whining about minorities consuming social services, describes the battle as being between "water-carriers" and "water-drinkers". And regulation of any kind is deeply resisted, even after a disaster as sweeping as the 2008 crash.

This debate is going to be crystallized in the Goldman case. Much of America is going to reflexively insist that Goldman's only crime was being smarter and better at making money than IKB and ABN-Amro, and that the intrusive, meddling government (in the American narrative, always the bad guy!) should get off Goldman's Armani-clad back. Another side is going to argue that Goldman winning this case would be a rebuke to the whole idea of civilization - which, after all, is really just a collective decision by all of us not to screw each other over even when we can. It's an important moment in the history of modern global capitalism: whether or not to move forward into a world of greed without limits.

© 2010 Guardian/UK
As Rolling Stone’s chief political reporter, Matt Taibbi's predecessors include the likes of journalistic giants Hunter S. Thompson and P.J. O'Rourke. Taibbi's 2004 campaign journal Spanking the Donkey cemented his status as an incisive, irreverent, zero-bullshit reporter. His latest collection is Smells Like Dead Elephants: Dispatches from a Rotting Empire

© Copyrighted 1997-2009 www.commondreams.org

Wall Streets Bundled Life Insurance Policies...

... are another attempt by those gouls on Wall Street to pass off a different product to you which will more than likely screw you in the end. Remember those mortgage backed securities?
http://www.dailykos.com/storyonly/2009/10/28/798049/-STOP-THEM:-Wall-Street-to-Bundle-Life-Insurance-Policies

STOP THEM: Wall Street to Bundle Life Insurance Policies
by War on Error Wed Oct 28, 2009
Wall Street banks, beaten down by the financial crisis, and propped up by
government bailout money are looking to get their securitization machines humming again. USING LIFE INSURANCE POLICIES.
Personally, I find this repulsive, ghoulish, and possibly dangerous. Please hit the orange REC button on the right side so others can see this. And while we have time to stop this.
The earlier the policyholder dies, the bigger the return — though if people live longer than expected, investors could get poor returns or even lose money.
Either way, Wall Street would profit by pocketing sizable fees for creating the bonds, reselling them and subsequently trading them.
http://www.nytimes.com/...
Call Congress and the SEC to end this brain child NOW, before it launches. Life and death should never be something Wall Street gets to gamble on.

And if Wall Street dices up and securitizes life insurance policies, like they did with mortgages, who will be responsible to pay a Life Insurance claim? Could we see life insurance bankruptcies erupt at the very time the boomers claims become due?
How many ways could seniors be manipulated to die sooner? How many would have to die to insure a large return? Appalling as these questions are, I believe they must be asked.
Indeed, what is good for Wall Street could be bad for the insurance industry, and perhaps for customers, too. That is because policyholders often let their life insurance lapse before they die, for a variety of reasons — their children grow up and no longer need the financial protection, or the premiums become too expensive. When that happens, the insurer does not have to make a payout.
But if a policy is purchased and packaged into a security, investors will keep paying the premiums that might have been abandoned; as a result, more policies will stay in force, ensuring more payouts over time and less money for the insurance companies.
ibid, nytimes
DISCUSSION AND CONCLUSIONS
There is a growing demand for a long-term hedge against improving annuity mortality. We have shown how innovation in swaps and bond contracts can provide new securities which can provide the hedge insurers need.
http://www.allbusiness.com/...

Swaps
The same cash flows, [B.sub.t] to the insurer and [D.sub.t] to the bondholders, can be arranged with swap agreements and no principal payment at time T.
ibid, allbusiness.com
Yes, there will be Hedge Funds that will make new fortunes Betting on our Lives!
HOW GOOD IS THE HEDGE?
We point out that, given the distribution of survivors, there is very little variance in the cash flows.
ibid, allbusiness
I have a hard time seeing the words Hedge and Swap used when the product is a life insurance policy.
Our life span and death date will be packaged in swaps and insurers offering bonds to investors.
It is deja vu Mortgage Default Swaps, only lives, not homes will be the foundation for the Wall Street traders. But, you can't reposses a life!
MetLife could be the next IndyBank if I understand this Wall Street scheme to bet on our very lives.
For a list of failed banks you can go here. They failed because of the Wall Street Housing Bubble:
http://www.fdic.gov/...

Obama And The Federal Reserve

Published on Friday, June 19, 2009 by The Nation
Don't Cede More Economic Authority to Unaccountable Fed
by John Nichols

The reviews are in on Barack Obama's plan to address the crisis of Wall Street speculation and casino capitalism that has dramatically increased the gap between working Americans and the rich, created pressure for the deindustrialization of the United States and depression of wages and income for workers and farmers and created a nasty banking crisis.

Though even Obama acknowledges that this is the big one –- the issue that as much as anything led Americans to elect him last fall –- his "financial overhaul plan" did not merit above-the-fold coverage on the front page of The New York Times, the country's "newspaper of record." Two stories from Tehran and one on a poll about health care reform held the top spots. The overhaul merited only a feature suggesting –- correctly -- that there was "only a hint of Roosevelt" in Obama's plan.

In other words, for the great mass of Americans there will be no new "New Deal." To be sure, there's some good stuff here: creation of a new agency to help protect consumers of "financial products" and some stronger transparency requirements, a few more rules regarding banks and mortgage-backed securities. "But," as Times writer Joe Nocera notes, "it's what the plan doesn't do that is most notable." Nocera focuses, appropriately enough, on the failure of the administration to do much about the problem –- for taxpayers and for democracy –- of banks that are "too big to fail."

But the real concern ought not be focused on what this seemingly tepid plan fails to do.

The real concern is what it does.

The plan dramatically increases the authority and reach of the Federal Reserve, an already too powerful and unaccountable institution that will -- to the delight of the administration's "Fed men": Treasury Secretary Tim Geithner and administration economic adviser Lawrence Summers -- become what the Wall Street Journal says will be "the nation's most powerful financial overseer."

"The proposal, if passed into law, would represent one of the biggest changes ever in the Fed's role," explains Journal writer Sudeep Reddy. "The central bank would win power to monitor risks across the financial system, and sweeping authority to examine any firm that could threaten financial stability, even if the Fed wouldn't normally supervise the institution. The nation's biggest and most interconnected firms would be subject to heightened oversight by the central bank."

In announcing the plan, President Obama claimed "that lines of responsibility and accountability are clear" with regard to the new authority being placed in the Fed's hands.

That is a ridiculous statement.

The Fed is famously unaccountable and resistant to transparency. Even Geithner acknowledged in his Thursday morning session with the Senate Banking Committee that there is a need to look at reforming the Fed's lax governance structure.

But don't expect Geithner of others in the administration to take a lead when it comes to fixing the Fed, an agency that zealously guards –- for logical reasons, as its track record is one of frequent missteps and failures on an epic scale. As Senate Banking Committee chair Chris Dodd said after reviewing the central bank's significant flaws, "There's not a lot of confidence in the Fed at this point, and I'm stating the obvious."

What should be obvious to everyone is that Congress needs to get a grip on the Fed –- which is structured in a manner so that it faces little or no congressional oversight -- before it allows Obama's proposal to advance.

So says Ohio Congressman Dennis Kucinich, the dissident Democrat who responded to Obama's plan by declaring that: "Before Congress gives the Fed any new authority, we must thoroughly examine the Fed's response to our current economic crisis."

Noted Kucinich:

Since August 2007 the Fed has intervened in the economy in an extraordinary way, as a result ballooning their balance sheet from $847 billion to more than $2 trillion. Yet, we still don't know what the Fed has done or who got the money. That is why I introduced the bipartisan HR 2424, which would grant the GAO the authority to audit the Fed's response to our nation's economic crisis, a response that has dwarfed the $700 billion TARP program by more than 2 to 1.
Before we grant the Fed any new authority, we must demand greater transparency from the Fed; an earnest and open audit of the Federal Reserve's response to the economic crisis would be a significant step in the right direction. We can't continue to let the Fed operate within a black box.

Kucinich has proposed HR 2424, a piece of legislation that would amend United States Code "to authorize reviews by the Comptroller General of the United States of any credit facility established by the Board of Governors of the Federal Reserve System or any Federal reserve bank during the current financial crisis, and for other purposes."

Several progressive Democrats and old-right Republicans, including Texas Congressman Ron Paul, have cosponsored Kucinich's measure. Additionally, Paul has proposed H.R. 1207, which would amend the bill "to reform the manner in which the Board of Governors of the Federal Reserve System is audited by the Comptroller General of the United States and the manner in which such audits are reported, and for other purposes."

A majority of House members –- 234, so far, ranging from the most progressive Democrats to the most conservative Republicans -- have signed on as cosponsors of this necessary legislation.

This is one of those issues that makes sense to any honest representative, no matter what the party or what the ideology. Our elected and reasonably accountable federal officials cannot cede more control over the U.S. economy to the unelected and unaccountable Fed without auditing, reviewing and reforming how the Federal Reserve System operates.

© 2009 The Nation
John Nichols is Washington correspondent for The Nation and associate editor of The Capital Times in Madison, Wisconsin. A co-founder of the media reform organization Free Press, Nichols is is co-author with Robert W. McChesney of Tragedy & Farce: How the American Media Sell Wars, Spin Elections, and Destroy Democracy - from The New Press. Nichols' latest book is The Genius of Impeachment: The Founders' Cure for Royalism.

© Copyrighted 1997-2009
www.commondreams.org

Republicans And Bankers

Thomas Frank at the Wall Street Journal said it best so I chose a few of his words as the quote of the day.

Thomas Frank:

Incentives work, all right. Just look at the way our bankers come back to bonuses, finding in every occasion a good opportunity to cut themselves a slice of largess. Their determination is unrelenting, monomaniacal. It's like Republicans returning to tax cuts, the universal solution to every problem.