Monday, October 19, 2009

Foxes Grizzly Bears and Henhouses, etc.

Matt Taibbi's latest financial exposé is in the new Rolling Stone, and it is as infuriating as it is thorough and detailed. It's long—one of those features that when you read the actual magazine was page after page of nothing but columns of text, that "continued on page 96," then 104, then 132...

In it, Taibbi breaks down how the biggest investment banks—namely Goldman-Sachs and Morgan Stanley—conspired, often with the help of the federal government, to cannibalize two of the other Top 5 banks since there were no more suckers on Main Street left to screw over.

Did I mention that it's infuriating? Yes, it is infuriating—but it's a special kind of anger that is tempered by overwhelming dismay that nothing was done at the time to stop it, nothing is being done now to stop it, and nothing ever will be.

Most of the crooks responsible are still running those same banks, only now gambling with our money and making obscene profits with it. And the guys no longer working for those banks? Don't worry about them—they're working for Obama's financial team.

I want to vomit.

UPDATE: Some excerpts:
What really happened to Bear and Lehman is that an economic drought temporarily left the hyenas without any more middle-class victims — and so they started eating each other, using the exact same schemes they had been using for years to fleece the rest of the country. And in the forensic footprint left by those kills, we can see for the first time exactly how the scam worked — and how completely even the government regulators who are supposed to protect us have given up trying to stop it.

This was a brokered bloodletting, one in which the power of the state was used to help effect a monstrous consolidation of financial and political power. Heading into 2008, there were five major investment banks in the United States: Bear, Lehman, Merrill Lynch, Morgan Stanley and Goldman Sachs. Today only Morgan Stanley and Goldman survive as independent firms, perched atop a restructured Wall Street hierarchy. And while the rest of the civilized world responded to last year's catastrophes with sweeping measures to rein in the corruption in their financial sectors, the United States invited the wolves into the government, with the popular new president, Barack Obama — elected amid promises to clean up the mess — filling his administration with Bear's and Lehman's conquerors, bestowing his papal blessing on a new era of robbery.

To the rest of the world, the brazenness of the theft — coupled with the conspicuousness of the government's inaction — clearly demonstrates that the American capital markets are a crime in progress. To those of us who actually live here, however, the news is even worse. We're in a place we haven't been since the Depression: Our economy is so completely fucked, the rich are running out of things to steal.

Hank Paulson's moment of glory:
[...] early on the morning of Friday, March 14th, Bear's CEO, Alan Schwartz, struck a deal with the Fed and JPMorgan to provide an emergency loan to keep the company's doors open. When the news hit the street that morning, Bear's stock rallied, gaining more than nine percent and climbing back to $62.

[...]

The rally proved short-lived — Bear ended the day at $30 — but it suggested that all was not lost. Then a strange thing happened. As Bear understood it, the emergency credit line that the Fed had arranged was originally supposed to last for 28 days. But that Friday, despite the rally, Geithner and then-Treasury secretary Hank Paulson — the former head of Goldman Sachs, one of the firms rumored to be shorting Bear — had a sudden change of heart. When the market closed for the weekend, Paulson called Schwartz and told him that the rescue timeline had to be accelerated. Paulson wouldn't stay up another night worrying about Bear Stearns, he reportedly told Schwartz. Bear had until Sunday night to find a buyer or it could go fuck itself.

Bear was out of options. Over the course of that weekend, the firm opened its books to JPMorgan, the only realistic potential buyer. But upon seeing all the "shit" on Bear's books, as one source privy to the negotiations put it — including great gobs of toxic investments in the subprime markets — JPMorgan hedged. It wouldn't do the deal, it announced, unless it got two things: a huge bargain on the sale price, and a lot of public money to wipe out the "shit."

Wait. It gets better...
So the Fed — on whose New York board sits JPMorgan chief Jamie Dimon — immediately agreed to accommodate the new buyers, forking over $29 billion in public funds to buy up the yucky parts of Bear. Paulson, meanwhile, took care of the bargain issue, putting the government's gun to Schwartz's head and telling him he had to sell low. Really low.

On Saturday night, March 15th, Schwartz and Dimon had discussed a deal for JPMorgan to buy Bear at $8 to $12 a share. By Sunday afternoon, however, Geithner reported that the price had plunged even further. "Shareholders are going to get between $3 and $5 a share," he told Paulson.

But Paulson pissed on even that price from a great height. "I can't see why they're getting anything," he told Dimon that afternoon from Washington, via speakerphone. "I could see something nominal, like $1 or $2 per share."

Just like that, with a slight nod of Paulson's big shiny head, Bear was vaporized. This, remember, all took place while Bear's stock was still selling at $30. By knocking the share price down 28 bucks, Paulson ensured that the manipulators who were illegally counterfeiting Bear's shares would make an awesome fortune.

What's most frustrating about the whole affair is that due to the banks controlling their own regulators and having infiltrated agancies like the Fed, much of this was legal—and if something they wanted to do wasn't, they'd have that regulation changed, dropped or simply not enforced.

Even if Obama (or anyone else) suddenly decided to crack down and haul these crooks in, it's likely they couldn't even be charged with anything.

The critical part of Taibbi's story is his explanation of naked short-selling and how it was the weapon of choice in taking out Bear Stearns and Lehman. Just go read it.

UPDATE 2: This also comes on the heels of TAL's recent update to last year's seminal "The Giant Pool of Money."

10 comments:

Smitty said...

Our economy is so completely fucked, the rich are running out of things to steal.

That sentence sums up my whole feeling on the subject. I can't even react rationally to this right now. NPR had a report on this morning about the housing market, and I couldn't listen. I wanted to scream and swear and bang my head on the steering wheel but I had my kids in the car so I put one of their GODAWFUL children's CDs on. (actually, it's not that bad, it's BNL's kid cd, which is very very good, my point is that I would rather listen to The Wheels On The Bus 1,000,000 times than have to listen to any whiney fuck from Wallstreet).

You are right: nothing will ever happen. None of us understand this well enough to do something about it, and our collective political muscle is dwarfed by theirs. What's next? We can keep "tossing the bums out" in regards to Congress.

ANd then my final worry: what if we do something about it? What if it collapses everything again? Is that a result we want?

It may be...

steves said...

What's next? We can keep "tossing the bums out" in regards to Congress.

Vote from the rooftops?

I am at a loss as to how to comprehend this.

steves said...

I also have to ask where the hell is the rest of the media on this story? Rolling Stone had some good writers in the past, but I had all but given up on them in the last decade. I am glad someone is writing this.

Mr Furious said...

The most dismaying part of the whole thing is how obviously the fix was in. And how nothing has changed. Paulson is gone, but he's been replaced by a hydra of ex-Goldman cleanup hitters.

Smitty said...

What I mean steves is that we can do what we did the past 2 election cycles which is to vote out the people we disagreed with.

I was being a smartass. A lot of good throwing the bums out did; we're right back where we started. So a lot of good it did to exercise our collective political will.

Mr Furious said...

Publicly financed elections is the only way to make a dent. But I'm not sure that will counter the forces at work here.

At this point, with very few exceptions our elected officials in D.C. are nothing more than elected lobbyists.

steves said...

To quote the Who:

Meet the new boss, same as the old boss.

Mr. Smith ain't going to Washington.

Eric Wilde said...

No, nothing will get done. Yes, infuriating. To me it seems an inevitable result of corporate capitalism. We have three choices:

(1) Change the system - that requires sustained political effort from a populist movement. Good luck on that one.
(2) Join the system - this is sorta what I've done, though I chose poorly and gone into IT instead of investment banking. Maybe I'll raise my children to be bankers. So long as I can afford their education they have a chance (at least that's better than no chance at all.)
(3) Violent revolution - not a good choice; but, it seems more feasible every day. The bad part of this option (apart from all the bloodshed) is you usually get whack-jobs in power after a revolution.

Bleak outlook, eh?

DED said...

where the hell is the rest of the media on this story?

In bed with the bankers.

Bleak outlook, eh?

Yes, indeed. One thing that might help get the ball rolling in the right direction, is to finally get Congressional oversight over the Federal Reserve Bank. The Federal Reserve Transparency Act seeks to do just that. While it's no cure, maybe it'll make shady deals at the Fed harder to pull off.

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