Paul Revere by Cyrus Dallin, North End, Boston

Wednesday, March 25, 2009

The Big Takeover by Matt Taibbi, Rolling Stone Magazine

Matt Taibbi is a gifted writer. He explains it all for me and you in this Rolling Stone article, and boy is he pissed!

Excerpts:

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. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

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.

The best way to understand the financial crisis is to understand the meltdown at AIG. AIG is what happens when short, bald managers of otherwise boring financial bureaucracies start seeing Brad Pitt in the mirror. This is a company that built a giant fortune across more than a century by betting on safety-conscious policyholders — people who wear seat belts and build houses on high ground — and then blew it all in a year or two by turning their entire balance sheet over to a guy who acted like making huge bets with other people's money would make his dick bigger.

That guy — the Patient Zero of the global economic meltdown — was one Joseph Cassano, the head of a tiny, 400-person unit within the company called AIG Financial Products, or AIGFP. Cassano, a pudgy, balding Brooklyn College grad with beady eyes and way too much forehead, cut his teeth in the Eighties working for Mike Milken, the granddaddy of modern Wall Street debt alchemists. Milken, who pioneered the creative use of junk bonds, relied on messianic genius and a whole array of insider schemes to evade detection while wreaking financial disaster. Cassano, by contrast, was just a greedy little turd with a knack for selective accounting who ran his scam right out in the open, thanks to Washington's deregulation of the Wall Street casino. "It's all about the regulatory environment," says a government source involved with the AIG bailout. "These guys look for holes in the system, for ways they can do trades without government interference. Whatever is unregulated, all the action is going to pile into that."


As complex as all the finances are, the politics aren't hard to follow. By creating an urgent crisis that can only be solved by those fluent in a language too complex for ordinary people to understand, the Wall Street crowd has turned the vast majority of Americans into non-participants in their own political future. There is a reason it used to be a crime in the Confederate states to teach a slave to read: Literacy is power. In the age of the CDS and CDO, most of us are financial illiterates. By making an already too-complex economy even more complex, Wall Street has used the crisis to effect a historic, revolutionary change in our political system — transforming a democracy into a two-tiered state, one with plugged-in financial bureaucrats above and clueless customers below.

*********************************************************

The most galling thing about this financial crisis is that so many Wall Street types think they actually deserve not only their huge bonuses and lavish lifestyles but the awesome political power their own mistakes have left them in possession of. When challenged, they talk about how hard they work, the 90-hour weeks, the stress, the failed marriages, the hemorrhoids and gallstones they all get before they hit 40.

"But wait a minute," you say to them. "No one ever asked you to stay up all night eight days a week trying to get filthy rich shorting what's left of the American auto industry or selling $600 billion in toxic, irredeemable mortgages to ex-strippers on work release and Taco Bell clerks. Actually, come to think of it, why are we even giving taxpayer money to you people? Why are we not throwing your ass in jail instead?"

But before you even finish saying that, they're rolling their eyes, because You Don't Get It. These people were never about anything except turning money into money, in order to get more money; valueswise they're on par with crack addicts, or obsessive sexual deviants who burgle homes to steal panties. Yet these are the people in whose hands our entire political future now rests.

31 comments:

Time said...

Well written.

The business of greed, not the business practices of good capitalism meant to make a profit, serve customers, and help the nation prosper.

Gordon said...

Hm. I might not agree with every word of that, but yeah, that's pretty much my understanding of the situation.

That's the problem with the administration's plan to "regulate" all sorts of things. These guys will always figure an angle around the regulations. But those same regulations can wind up strangling smaller, growing firms.

Perhaps all we can do is bring back Glass-Stegal and say banks have to be bankers, insurers must underwrite, and commercial banks can invest.

Arthurstone said...

It's time to enforce regulations which serve the population and insure stability & transparency in the markets rather than continue to allow a few insiders to game the system. We've *enjoyed* the experience of de-regulation (the Republican/Conservative mantra) far too long and we are living with the results. I've yet to see a 'smaller, growing firm' strangled through 'regulations' but I've seen a ton fail through lousy management.

dmarks said...

And we can abolish Fannie Mae and Freddie Mac, the cause of much of this mess.

Lynne said...

dmarks: A player or contributor I'll give you but "cause" of the mess, I'm not so sure about that.

On another note, over at Right is Right's blog, it's the end of the world as we know it. Not that I'm trying to start anything but I think they're losing it over there.

Just saying.

Gordon said...

Arthurstone, Glass-Steagal was repealed under Clinton. Bush's egulatory reform was blocked by Chris Dodd and Barney Frank. The ones who cooked the books at Fannie and Freddy so they would get big bonuses were all Democrats--party operatives.

The Republican's hands aren't perfectly clean either. But deregulation was definitely bipartisan. You're smart enough to know this, so quit pretending otherwise.

James Wolfer said...

Gordon-
So how come every time someone mentions the fact that under Clinton we had a budget surplus and it was projected that we would be deficit free by 2008 if that budget were continued Republicans point out that Clinton did that under a Republican congress (the same Congress that later doubled the deficit when under a Republican president) but will then turn around and say Glass-Steagal was repealed by Clinton? Not true whatsoever. From Wikipedia's article on the Glass-Steagal act, from the "Repeal of the Act" Section:

The bill that repealed the Act was introduced in the Senate by Phil Gramm (Republican of Texas) and in the House of Representatives by Jim Leach (R-Iowa) in 1999. The bills were passed by Republican majorities on party lines by a 54-44 vote in the Senate and by a 343-86 vote in the House of Representatives. After passing both the Senate and House the bill was moved to a conference committee to work out the differences between the Senate and House versions. The final, veto-proof bill was passed in the Senate 90-8 (1 not voting) and in the House: 362-57 (15 not voting). The legislation was signed into law by President Bill Clinton on November 12, 1999.

Oh look, it was the Republicans, again.

dmarks said...

James Wolfer said: "the fact that under Clinton we had a budget surplus"

That is because it was not a fact. There was not even one surplus in all of Clinton's 8 years. The national debt went up each year, for a total of about $1.6 trillion for his entire run. If you have a perfectly balanced budget, the national debt stays the same. If you run deficits, it goes up. If you run surplus, it goes down. Under Clinton, it went up every single year.

"and it was projected that we would be deficit free by 2008"

Do you know that if you have a surplus, you don't have a deficit? The two are inversely proportionate to each other.

So, now you contradict yourself in single sentence, with the false statement that Clinton had no deficit, followed by the statement that the deficit would go away 8 years after he left office.

(O)CT(O)PUS said...

Shaw, about that Taibbi article, although I agree with its main conclusions, and might even be inclined to turn up the heat a bit higher, it left me with reservations.

First, where I agree: The arrogance and tone-deafness of these Wall Streeters is palpable and real, and we are well within our rights to be angry. When the savings, pensions, and retirements of millions of good hard-working people are wiped out in a single bubble, it is tantamount to soul-murder, and there is nothing more sad than to see a 90+ year old man bagging groceries because his annuity funds vanished, or the tent cities sprouting up like mushrooms.

One key point: Taibbi mentions Joseph Cassano, a former employee of Drexel Burnham Lambert – the infamous junk bond super-merchant. This connection explained and surprised at the same time. It explains a continuing culture of chicanery that has been extant on Wall Street for decades. It surprises because one would think the hucksters would be cleaned out of the system - never to return.

In fact, here is a radical idea. Like doctors, lawyers, and other professionals, perhaps financial service professionals should be required to pass some form of licensing or certification as a condition of employment. If they screw up, they lose their license to practise and are forced to seek other work. Consider it as a form of malpractice prevention.

The Cassano connection suggests that the same hucksters get recycled back into the system … thus giving continuity to the culture of chicanery …when they should be purged.

Now my reservations: Taibbi’s story is seriously flawed. Examples. “a pudgy, balding Brooklyn College grad with beady eyes and way too much forehead … a greedy little turd …

These are personal ad hom attacks that have nothing to do with events ... and the language of incitement that compromises the credibility of an otherwise timely article. I could make the argument that there is a crisis in journalism almost on a par with the crisis in everything else these days. There is a tendency not to report the news, but to editorialize it.

The language of incitement offends me. It scares me. We should not be engaging in mob journalism.

TAO said...

When President Clinton left office, the federal budget was showing a $127-billion surplus.

The books are closed on fiscal 2008. The surplus the current President Bush inherited has turned into a record deficit: $455 billion.

That is more than twice the 2007 deficit of $162 billion and beyond the previous record of $413 billion in 2004.

But records are made to be broken.

Dmarks, I googled "clintons surplus" and the first link was the LA times from 10/15/08 and this is what came up...

How many more do you want?

If Bush had continued with Clintons economic plan we would have had budget surplus' and have been able to pay down the national debt.

Phil Gramm did everything he could to get GLass Stengall repealed....so he could get his fat ass a big job with USB.

Our financial crisis can be tied to Clinton and boy Bush did everything he could do to add fuel to the fire. As far as fannie mae and freddie mac goes....there was no real attempt outside of a speech or two to do anything about them....a soundbite is a soundbite and it is not legislation.

AIG and deriatives had nothing to do with Fannie Mae and Freddie Mac but rather have everything to do with a bunch of assholes thinking they had figured out a way to make money without any risk...

Gordon said...

You know, nothing you guys have written contradicts my contention: deregulation was a bipartisan exercise. Both Republicans and Democrats participated.

Clinton had many friends on Wall Street; many of them also supported Obama. Certainly they contributed heavily to Obama's campaign.

The idea that Wall Street is a Republican bastion is very out of date. Even Obama's chief of staff, Rahm Emanuel, put in time on Wall Street.

Shaw Kenawe said...

I think Taibbi was trying to channel Hunter S. Thompson and his own style of gonzo journalism.

Arthurstone said...

"Government is not a solution to our problem, government is the problem."

-- Ronald Reagan

So sayeth THE conservative icon of the late 20th century. And all the tiny minded little Newts and Gramms and Norquists and DeLays and suchlike have spent all their time ever since working to make that dream a reality.

And here we are.

A wrecked economy thanks to the 'free marketers' and 'de-regulators' and an endless war in the Middle East.

Mission Accomplished!

James Wolfer said...

Dmarks,
The budget deficit and the national deficit, or public debt, are two different things. George W. Bush and George H.W. Bush both had budgets that spent more than we were bringing in. Clinton's administration balanced the budget, spending less than our revenue was, leaving us with a budget surplus, which if that budget had been kept we could have paid off our national deficit (or public debt) by mid 2008. George W. Bush came into office and between him and the Republican Congress and the budget was in the red again, adding to our national debt.

Yes, under Clinton the national debt grew, but it was slowing down and would have stopped completely had his budget been followed during the Bush years. As I commented on Patrick's page in response to you saying this,

Clinton's national debt went up slightly in terms of actual dollars. But in relation to GDP, it went WAY down. When he came into office, the debt to GDP ratio was 66.2%. Four years later, it was 65.6%. When he left office, it was 57.4% of the GDP.

For example, my wife and I just re-did our household budget. We found about $700 per month that we were spending on things we didn't need to, stopped spending it on those things, leaving us with a budget surplus of $700. Now we are applying that to our debt and will be completely debt free in four years (true story) getting rid of our net worth deficit.

Now if I were Bush, I'd take that $700 a month and spend it instead of paying down my debt, and then I would also take out credit cards and make my student loan payments on those. And then credit cards to pay the first credit card bills. And so on and so on.

See the difference?

(O)CT(O)PUS said...

Shaw: I think Taibbi was trying to channel Hunter S. Thompson and his own style of gonzo journalism.

When the economy is in crisis, and there is human deprivation and anger and incrimination everywhere, this is a situation ripe for demagoguery. Journalists need to be more reflective and less inflammatory.

dmarks said...

James said: "George W. Bush and George H.W. Bush both had budgets that spent more than we were bringing in. Clinton's administration balanced the budget"

See what was written above about the debt vs deficit. The debt is the accumulation of deficits. And the debt can go down if there are any surpluses. It went up every year, that is because Clinton never balanced things. He balanced things more, but not enough. The debt still went up. The only way you can count a Clinton "surplus" is to cook the books and lie about the matter by leaving the debt out of the picture.

"Clinton's national debt went up slightly in terms of actual dollars"

$1.6 trillion was slight? I sense a lack of proportion here. No matter how you cook it, by dividing it against other numbers, it soared under Clinton.

Yes, it soared under Reagan and the Bushes and has started to soar under Obama, but whether or not it soared under them does not change the fact of Clinton piling on $1.6 trillion dollars to the national debt on his own watch.

"For example, my wife and I just re-did our household budget"

But aren't you running a household deficit if, even after cutting the $700, you are more in debt at the end of the year than when you started?

"See the difference?"

The only difference is that among all of these presidents who never ran a surplus during any year, the debt increased by the smallest amount under the Clinton administration. But still, for Clinton to have piled on $1.6 trillion to the national debt was irresponsible. Even if it is not as bad as others.

Arthurstone said...

Wolfer-

Let it go. Democrats are 'irresponsible' in their spending while Republicans who add to the national debt in far larger amounts never are. Much like the assertion that atheism is a religion and mentioning race is racist this little bone of contention is one which sticks in the throat. In this instance, much like a coyote with a leg caught in a cold, hard, steel trap, it's better to chew off the limb and move on. One can't have a discussion with a pair of spring loaded metal jaws.

James Wolfer said...

Dmarks:
In a budget, you don't add debt in. You add debt in an equity sheet, as any accountant would tell you.

In an equity sheet, you have all assets minus your debts, leaving you with equity. The United States has negative equity. Do you owe on your mortgage? Yes. But in your budget, you add in your payments.

The surplus, and there was one Dmarks, would have been added to bringing down the debt. I was watching CSPAN last night because I'm a nerd and nothing good was on TV. If the surplus were to have continued, it would have gone to the debt and brought it down to nothing, leaving us with a national surplus in terms of equity.

In any responsible budget, you account for every dollar. Every dollar has a name. In Clinton's, the "surplus" would have applied to our debt, making larger payments and paying it off. Just as if you redo your budget, find a surplus, and apply it to your debt.

What we are talking about are accounting terms, not cooking the books.

(O)CT(O)PUS said...

Wolfer: Clinton's national debt went up slightly in terms of actual dollars. But in relation to GDP, it went WAY down. When he came into office, the debt to GDP ratio was 66.2%. Four years later, it was 65.6%. When he left office, it was 57.4% of the GDP.

Dmarks, you seem to miss a point Wolfer is making. When the ratio of debt to GDP declines, as Wolfer has shown, it is the functional equivalent of an increase in liquidity.

GDP means "Gross Domestic Product" -- the sum of all goods and services transacted in the U.S. An increase in GDP is like an increase in income. Another term for it is "economic growth." Although debt may increase in raw dollar terms, a larger increase in GDP means a smaller percentage of debt relative to economic performance.

This should not be a difficult concept for you to understand: If your income increases at a faster rate than your debt, your liquidity is actually increasing ... thus improving the serving of debt.

Time said...

mark does not get it guys, give up.

I tried 2 weeks ago, showing him Treasury Dept. figures, but he doesn't understand.

dmark, you must be the only one in the country who does not get it.

Republican leaders get it and claimed the balanced budget was their responsibility. Can't have it both ways, but they try.

President Obama is working under a budget that is projected to have a 1.3 trillion deficit. It is Bush's budget! Of course it's going to change.

President Obama has to spend to fix the problems the Republicans left him.

Health care, a new electric grid and the rest of his plan was always part of his plan and he spoke about it everyday while he was running for President. And yes, that will raise the budget deficit and the national debt.

This was made clear during the election, and the American said yes.

Bush told us we had to have the 1st bailout or our economy would collapse. If Bush were still President he would also be asking for this second bailout.

dmarks said...

I looked at treasury department figures. That is where I found that actual debt kept going up.

Arthur said: "Let it go. Democrats are 'irresponsible' in their spending while Republicans who add to the national debt in far larger amounts never are"

Who said that? I already said that the Republicans were more irresponsible than Clinton on this. Let it go. You are fabricating partisan claims that are the opposite of what I said.

"Much like the assertion that atheism is a religion...."

You yourself eventually admitted that you agreed with the division between the religious atheists and non-religious ones that I had been trying to tell you about.

You are contradicting yourself.

"... and mentioning race is racist"

Well, if someone is bashing Obama or Jindal or others for their race, and judge them primarily on race, isn't it racist? However, I don't recall you engaging in such racist discussion, off the top of my head.

"In this instance, much like a coyote..."

I think you are doing better with going off into Road Runner cartoons than facts.

Lynne said...

I will read all those comments when I have a few hours to spare. Jeez. In the meantime, Gordon, you're claiming bipartisanship in this mess so, explain please why your wingnutty blog friends, some of who are waiting for the reappearance of Jesus right at this very moment, REFUSE to ever acknowledge that ANYTHING is the fault of a republican and that all evil and ills of the world come from liberals. I would love to hear how they explain their blamelessness.

Shaw Kenawe said...

Great discussion.

And thanks to those who understand this budget process, deficits, and debt.

I've learned a lot.

Gordon said...

Lynne,

Were I a Christian, I suppose I would be waiting for Jesus to reappear also. It's one of the fundamental premises of Christianity, after all. Why do you have a problem with it? It seems like an action that doesn't impinge on any of your freedoms.

I'm not responsible for what other people write on their blogs, or say in public. If I were, I'd be sitting down with Nancy Pelosi, who consistently states that nothing bad that ever happens is the fault of house Democrats.

But along those lines, in my opinion, many of the evils of the world can be traced back to liberals, or their actions. I'd say the same thing about conservatives. The Social Security crisis, for example, was a purely liberal-created program that FDR acknowledged would go bankrupt at some point in the future (he thought about 1980; it would have but for the witholding tax increase then). He did it anyway, because a)people needed something at a difficult time, and b)he wanted the votes of its beneficiaries.

If you want these hypothetical wingnutter bloggers to explain themselves, why not ask them to? Most bloggers love commenters, and those who comment against the thread are especially welcome because they generate more comments. Of course, you may not like the answers you get.

Witness this thread. Arthurstone posits that it's all the fault of Republicans. I refute with specific examples of Democratic contributions. Arthurstone then declines to acknowlege my point, and digresses into a metaphor about self-mutilation. Sure, I'd prefer that he abase himself before my razor-sharp wit and intellect, but it ain't gonna happen.

Shaw Kenawe said...

Gordon,

Lynne is referring to a rightwing blog where a commenter declared that he/she was thankful that the End Times were on their way.

And we can thank FDR for Social Security and unemployment compensation. Otherwise, the current financial crises, brought about by greed and stupidity, would be worse for those Americans with the fewest resources.

Even with these minimal safeguards, tent cities, alla The Great Depression, are still forming all over the country.

It is a sad fact of life that there will always be the poor, the uninformed, and cheating, greedy capitalists among us.

The difference is that the cheating, greedy capitalists (see bankers, hedge funds, insurance companies, auto manufactureres) will always be helped by the government with billions of dollars, while the poor and uninformed get the crumbs.

But along those lines, in my opinion, many of the evils of the world can be traced back to liberals, or their actions. I'd say the same thing about conservatives.

Well then why don't you? I'm listening.

Arthurstone said...

Gordon-

Just as a there are a handful of Republican congressmen/women occasionally capable of reasonableness so too are there Democrats capable of acting like conservative, laissez-faire Republicans. No surprise.

But credit where credit's due. that's why I started with the quote from RR. I 'believed' him then and I 'believe' all those tens of thousands who follow in his footsteps (to work in Washington DC) and the millions of voters who allow his legacy to endure. RR's legacy is one of pandering to the rich and powerful at the expense of the weak, the disenfranchised, and let's be honest, the middle-class. Whether red-baiting in Hollywood, opposing civil rights legislation, blocking attempts to organize farm workers and the gleeful encouragement of cracking college students heads RR was remarkably consistent in his 'vision'.

Of course, as we have subsequently learned, he lied.

Govenment isn't MY enemy.

Our government should be (when done correctly) the enemy of every polluter, union-buster, warmonger, imperialist, 'anti-'communist', 'states-rights', free-marketing 'Jesus in the classroom' ideologue and opportunist who need politicians like RR and his ilk to serve his/her narrow interests.

But 'conservatives' over the past thirty years have far too successfully tipped the balance their way.

And as I read so often on these blogs the recalibration of American politics embodied by the election of President Obama is extremely painful for lots of people.

Too bad.

dmarks said...

Anyone who supports the rights of a worker to choose to join or not to join a union gets called a "union buster".

Gordon said...

"Govenment isn't MY enemy. "

Well, duh. I don't think anyone here believes you think otherwise, Arthurstone.

Until, of course, the government grows so large and so oppressive that even statists like you can't stand it. Then you'll be wanting the crazed gun nut states-rights folks like me to fix things for you.

Unless, of course, you're one of those in the Politburo.

"Democrats capable of acting like conservative, laissez-faire Republicans."

Oh, yeah, that Chris Dodd and Barney Frank, they are such laissez-faire guys.

dmarks said...

I blame any President who did not balance the budget. Clinton was dead set against it at the beginning, and the debt soared. He only turned toward it at the end. The second Bush never even bothered. Obama is set to add debt in a few years as fast Bush did in 8, and in his book he said that it is good to run up debt as long as it is for the right reasons. The "right reasons" for any President, including Obama, being whatever they want to blow money on.

They all have a choice. They can push for balanced budgets, and veto any bad one that comes across their desk.

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