Matt Taibbi on economic death by short-selling

In this month's Rolling Stone, Matt Taibbi once again takes on Wall Street with an article entitled "Wall Street's Naked Swindle." This article is not yet available online. Taibbi's focus this time is naked short selling. Taibbi has proven to be an excellent teacher of abstruse financial concepts, including the concept of short selling, and also including the insidious practice of naked short selling. With this technique (and others) Wall Street has turned the economy into "a giant asset-stripping scheme, one whose purpose is to suck up the last bits of meat from the carcass of the middle class." Taibbi's article is an excellent read, which is not at all surprising given Taibbi's track record. The bottom line is that naked short selling is a "flat-out counterfeiting scheme." How bad is the widespread use of this technique?

That this particular scam played such a prominent role in the demise of [Bear and Lehman] was supremely ironic. After all, the boom that had ballooned both companies to fantastic heights was basically a counterfeit economy, a mountain of paste that Wall Street had built to replace the legitimate business it no longer had. By the middle of the Bush years, the great investment banks like Bear and Lehman no longer made their money financing real businesses and creating jobs.

As Taibbi then reminds us, there is more than one way to counterfeit. Consider credit default swaps:

If you squint hard enough, you can see that the derivative-driven economy of the past decade has always, in a way, been about counterfeiting. At their most basic level, innovations like the ones that triggered the global collapse-credit default swaps and the collateralized debt obligations-were employed for the primary purpose of synthesizing out of thin air those revenue flows that are dying industrial economy was no longer pumping into the financial bloodstream. The basic concept in almost every case with the same: replacing hard assets with complex formulas that, once unwound, would prove to be backed by promises and IOUs instead of real stuff.

In this related piece, Taibbi further discusses "naked short selling":

Again, a lot of this stuff is complicated and not only hard for people outside the finance world to follow, but kind of, well, boring as well. But it’s through these tiny regulatory loopholes, these little nooks and crannies, that the economy gets manipulated. The effect of all of these regulatory gaps has been to transform Wall Street from a means of connecting capital to good business ideas into a giant casino, where the object of the game is shaving little slices off the great flows of money as you push them back and forth using a great big toolbox of manipulative techniques. This is one of the tools.

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Matt Taibbi goes to war against Goldman Sachs

Rolling Stone's Matt Taibbi is one of my heroes. I've often recommended his investigative pieces at DI. Taibbi's latest Rolling Stone article is an all-out attack on Goldman Sachs as the culprit behind the bubbles and busts. No, they don't "just happen." [Note: the full article is here]. No, Goldman Sachs isn't the only culpable entity, but Goldman serves well as a deserving target for the kinds of criminal abuses that have destabilized the U.S. economy and crushed the savings of so many people. Here's one example of many by Taibbi, this one explaining how it was that so many shitty mortgages were approved by lenders across the United States. Step One for this problem (as it is for so many other problems with the economy) is to eliminate sane standards for evaluating the economic worth of commodities, individuals and entities. The first step has the intentional function of destroying the possibility of honest valuation, thereby setting the stage for confusing and misleading investors:

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 shit 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.

Beware, that if you watch the videos of Taibbi explaining this blatant robbery of investors and taxpayer, as well as the Democrat complicity with this mess, you will seethe. You will feel betrayed.

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Republicans as clowns

Matt Tabbi of Rolling Stone is one of my favorite political writers. Once again, he's on the money with this week's article (entitled "The Class Clowns"), when he points out the buffoonery of the Republicans during the Obama era. Truly, do these guys have any clue as to how they would begin to address any of the major issues facing us?

Following the Republican Party of late has been a movingly depressing experience, sort of like watching Old Yeller die — if Old Yeller were a worm-infested feral bitch who spent the past eight years biting children at bus stops and shitting in neighborhood swimming pools. As a useful force in American politics, the Republicans have been dead for a while now. But in the seven months since Sarah Palin's nomination, they have taken on an intriguing new role: providing much-needed comic relief during dark times, serving as the unofficial rodeo clowns of the Financial Crisis Era.

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Matt Tabbi’s take on the economic meltdown

I've long-admired Matt Tabbi's thought-process and writing style. This week at Rolling Stone, Tabbi weighs in on what he thinks is really going down in Washington DC and on Wall Street:

People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations. The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess . . . .

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

In the process of writing this article, Tabbi shows no mercy for AIG or any other company dabbling in CDO's (collateralized-debt obligations) or CDS's (credit-default swaps). This feels right to me: Showing no mercy to those who dabbled in speculative financial instruments as if they were conservative investments. After all, those financial "gurus" who made these decisions were highly educated people with legions of financial and accounting experts working for them. They should have known better. They have no excuses. Nor does the federal government have excuses. Case in point: Who was regulating AIG? One inept guy.

Among other things, the GAO report noted that the entire OTS had only one insurance specialist on staff — and this despite the fact that it was the primary regulator for the world's largest insurer!

I don't know enough about economics to really weigh in on this crisis. I am highly suspicious about the need for these "bailouts," however. I do know that this money is already gone and that there is almost no accountability for the money we've paid out. I do know that the government has almost no hope of tracing the use of the trillions it is spraying out, almost all of it to proven irresponsible politically-connected financial bigshots. And I do know enough to understand that far too many prominent economists are looking and acting bewildered. I also suspect that many Wall Street power brokers, the same ones that got us into this mess, are still in charge. I know enough to understand that many people who seem to be well-positioned to understand this mess are looking clueless. I hope I'm wrong in all my assumptions.

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George W. Bush in a nutshell

Matt Tabbi of Rolling Stone is among the most flamboyant and sharp-edged writers out there. In the January 22, 2009 edition of Rolling Stone, Tabbi fantasized about a farewell interview in which George W. Bush actually apologizes. It was at the very end this article that Tabbi unleashed this verbal…

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