Capitalism

 

Charlie says: 

Capitalism needs growth to survive . . . but . . . the planet can’t cope with any more growth.  Capitalism demands ever more production and consumption. 

Capitalism is going to cost us the Earth.

 

The good news is that Capitalism is hopelessly broken.  It is awash with fantasy money, not just in the form of cash but in all the other unreal permutations of money such as shares, bonds and other "financial instruments".  Capitalism is being kept alive by printing yet more money.  The world is waking up to the fact that Capitalism is hideously broken and best left to die a natural death.

 

If the fact that capitalism is an utter fantasy weren't a great opportunity, it would be a nightmare. 

 

"We have seen security prices soar out of sight of earnings, brokers' loans swell till they absorb a third of the banking resources of the country, and the blind pools of ancient days return and multiply by endless crossing and pyramiding as the investment trusts of today. Banks merge and emerge in chains, trailing trusts and holding companies, while industrial corporations pay dividends not by producing goods but by buying each others' stocks and by borrowing and lending everybody's money in the market. But of all these things can anyone say with surety what they signify, whether they are safe and sound, or what they are leading to? We do not even know, or cannot agree, whether inflation exists, what it means, or how it shall be measured." -- Business Week - September 7, 1929

 

 

Some Inconvenient Truths about our free market:

 

The Bankers:  Merrill Lynch ended 2007 with $1,020,050,000,000 worth of assets on its balance sheet  (a little over a trillion dollars). Merrill's tangible equity was 31.566 billion. The firm's assets (what was owed) represented roughly 32 times its equity capital (what it owned). Only a 3% drop in the value of its assets would wipe out its equity capital.  That's exactly what happened.

 

 And what's happened to those bankers?  - In America, top executives of bailed-out banks, who were awarded stock options as the sector bottomed out earlier this year, are set to pocket millions of dollars in profits as prices rebound, according to a report released recently.  The top five executives at 10 financial institutions that took some of the biggest taxpayer bailouts have seen a combined increase in the value of their stock options of nearly $90 million, the report by the Washington-based Institute for Policy Studies said.  "Not only are these executives not hurting very much from the crisis, but they might get big windfalls because of the surge in the value of some of their shares," said Sarah Anderson, lead author of the report, "America's Bailout Barons," the 16th in an annual series on executive excess.

 

Casino capitalism: One of the fundamental causes of the current crisis was the willingness of banks to lend large amounts to highly leveraged unregulated hedge funds. Offshore businesses routinely leveraged the already highly geared hedge funds to the order of three to five times.   

There was a huge build up of hidden risk in the system that went undetected by the Regulators. In hindsight it seems obvious when we compare the strict supervision of the regulated market (?!?!) with the absence of activity in the unregulated financial system. The 46,000 publicly listed companies worldwide were worth about 63 trillion dollars before the slump. They are required to make a constant stream of public disclosures to regulators, engage in discussions on financial news channels and provide quarterly financial statements to make sure that there is trading transparency and enforcement of rules. Yet for the 58 trillion dollar market in credit default swaps there is no regulator, no public information and no one in charge. The two and a quarter trillion-dollar hedge fund industry similarly is barely regulated and is largely based in impenetrable offshore tax havens.

 

And now:  The banks raised money furiously in 2008 until there were simply no private investors left to tap. Now banks cannot raise capital almost at any price.  They can't even sell debt.  The only unsecured debt sold for months in the entire banking sector in the USA that was not backed by government has been a paltry 2 billion raised by Goldman Sachs.

While sub-prime mortgage debt totals about 1.2 trillion dollars the prime mortgage market totals $10 trillion. Even very small percentage losses in that market add up to huge numbers.  The banks have already written off $1.2 trillion, but the IMF believes that we have at least another trillion worth of writedowns to come.

By winter of 2009 economists reckoned that the mark to market losses had almost reached 3 trillion. Banks and insurance companies had already written down more than 1 trillion and received more than $300 billion of government funds.

And it won't end there . . .  

 

 

The fantasy that is Free Market Capitalism: 

 

One of the main problems is money itself.  Money works alright on a small scale, but when it is the cement of large and complex societies, to say nothing of a globalised world, cash reveals itself to be inherently and instinctively inflationary and, far more serious than that, cash separates itself, and the rest of us, from reality. 

"The modern banking system manufactures money out of nothing.  The process is perhaps the most astounding piece of sleight of hand that was ever invented.  Banking was conceived in iniquity and born in sin . . . if you want to continue to be slaves of the banks and pay the cost of your own slavery then let bankers continue to create money and control credit."  Sir Josiah Stamp.  Director, Bank of England. 1928-1941.   

Money is debt.  5% of money is created by government, the remaining 95% is generated by banks creating debt.  These people need us to be in debt.  These people control our world.

"We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilised world, no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men." -- Woodrow Wilson.  U.S President 1913-1921     

I thought the bankers' bonus furore was a distraction, but actually it is a live and relevant issue.  Banks own us all.  They control our world.  The furore over bankers' bonuses is actually a sign that people are waking up to the fact that bankers are pirates.  They are meant to be the brightest of their generation.  It is unlikely therefore that they are unaware that they are part of an unsustainable and unreal system.  They come into the pyramid scheme, fill their pockets, and run (see Lehman's boss - paid himself $400m for breaking the bank and robbing thousands of people of their life savings and pensions).  The bankers and financiers know the system is crippling the world, but that's fine just so it lasts long enough for them to get rich and make their escape. 

"whoever controls the volume of money in our country is absolute master of all industry and commerce . . . . and when you realise that an entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate."  James A. Garfield.  Assassinated president of the US.

The planet’s finite resources cannot support the consumption and growth that are happening now.  The paradox is that capitalism cannot live without this excessive growth and consumption.  The happy chance is that if we kill capitalism, environmental catastrophe might just be averted.

"The Government should create, issue and circulate all the currency and credits needed to satisfy the spending power of the government and the buying power of consumers.  By the adoption of these principles the taxpayers will be saved immense sums of interest.  The privilege of creating and issuing money in not only the supreme prerogative of government, but it is the government's greatest creative opportunity."  Abraham Lincoln.  Assassinated president of the US.  

In September 2009 BBC2s Newsnight ran a special programme to mark the anniversary of the collapse of Lehman Brothers.  The dozen experts and other opinionated individuals assembled looked like a gaggle of startled rabbits.  Paxman asked them what had happened, where we are now, whether measures already taken are adequate to restore stability, and if not what steps should be taken.  The experts that still had the power of speech disagreed about almost everything.  They had different perceptions of what had gone wrong, little grasp of whether things were getting better or actually going to get considerably worse, and absolutely no coherent notion of what should be done next.  Paxman was left repeating a somewhat plaintive and babbled question - “who is touting an alternative?”

 

We are.

 

The most coherent person on Newsnight was, to my utter agnostic amazement, The Archbishop of Canterbury, who shared with us the gem of: “we have been intimidated by expertise”. 

 

Money when it was cash, minted from metal that had some inherent value in itself, had some stability and logic to it.  But when money becomes notes it quickly slips away from reality.  And paper money sprouts all sorts of strange offshoots - public ownerships and share certificates, insurance, hedge funds, Credit Transfer Swaps and ever more elaborate and unreal mechanisms for the people in the Cyst of London to make more and yet more money.

 

We had problems with excessive amounts of money supply, bond printing, share certificate issuing and the like from the start.  But the true extent of the excessive amount of extra cash floating about was kept hidden, partly by governments and partly by the fact that we were still colonising and plundering the world. We were saying how well Free Market Capitalism was working, and how wealthy we were all becoming because of it, without factoring in that some of the money was new money, plundered from elsewhere, and some of it was being printed or created by the proliferation of unregulated money equivalents such as share certificates.  Globalisation has, ironically, brought the reality of Capitalism's failure to the surface.

 

 

The Poker Allegory:

 

Free Market Capitalism disciples were determined for us to believe in the system, never mind its tendency to create vast swilling tubs of cash as if from nowhere.  So all the countries in the world have been invited (or forced - see Chile) to play.  And we all sat around this poker table, with this amazing game where apparently everyone is able to make a profit.  And each player’s chip stack seems to magically grow as if someone has finally found the golden goose, or succeeded with alchemy, or invented the perpetual motion machine.  Free Market Capitalism, the system where every country can be a net exporter, every business can make a profit and money grows on trees. 

 

Then one day all the poker players get up to cash in their chips at the same time and the cashier just laughs.  He can’t begin to refund them, there's nowhere near enough cash to redeem all the chips.  That is what happened when Lehman et al began to implode.  Because, bizarrely, the banks who were lending us money, were borrowing from each other.  If you are a bank you don’t just hold on to money, you get it back out there as fast as possible and make sure it keeps multiplying.  Which is fine while everything is growing and expanding (unless you are the environment of course) but when it hits the buffers, as it always does, the whole thing is revealed to be made of hot air. 

 

Some businesses have an annual stock check.  If we do change our ways it might be an idea to do the same with the world of finance.  We could have a week each year where all trading stops and all debts and trades and bonds are squared up.  If we did that now it would be very frightening but also highly amusing.  We would see the scale of unreality that slops about the financial world, and we might even be moved to step in and stop the madness.

 

LEADERSHIP

 

We are now in one of those Tom and Jerry cartoons, when Tom chases chases Jerry past the end of the branch, or over the cliff, and they are both running in mid-air.  Our leaders are frantically running in mid-air, afraid to look down.  But one day we will have to look down, and we will see the abyss, and we will fall.

 

Our leaders know there aren’t many votes in pointing out to the electorate that the money isn’t real, the wealth is illusory and it all has to stop.  You get votes by offering short term pleasure, not long term pain.  So they don’t tell us the truth, even if they see it.  They just keep putting sticky plasters on the corpse of capitalism and hope it will limp on for a little longer.  They feed more of our money to the banks to keep them going.  They feed more of our children to the Minotaur.

 

 

USURY and DEBT

 

Religion isn’t the heroin of the masses, money is.  Money and debt.  The aptly named “dealers” get us hooked on debt and have absolutely no wish to see us getting out of debt.

 

Our governments, in their endearingly baffled state, are presently trying to “ease the lines of credit” - get banks to lend us more - so we can get the economy moving - borrow money we can’t afford, to buy more things that we don’t need, so that manufacturers can produce more and speed up the demolition of the planet.

 

Since we started using money these problems have been loitering in the background.  Our wiser antecedents, in most of the major religions and their texts, saw the dangers of lending money at interest (usury) and banned it.  We thought we knew better.  The borrowing has brought wealth to a few and misery to many.  

 

Selling the future:

 

Money is an IOU.  So are bonds and shares and the rest.  The more money there is, and the more shares there are, the further we are borrowing into the future.   

 

The US national debt, which has topped the eleven trillion dollar mark or, in practical terms if consolidated into a single stack of dollar bills, would be enough to reach from the earth to the moon twice over.

More significantly this number is approximately thirteen times the amount of US currency in circulation.

 

GAMBLING

 

Markets are laughingly supposed to have insider dealing rules.  Why would a company pay someone a fortune to trade for them if they don't know more than the rest of us?  The workers in finance are all insider dealers, they all know more than we do.  They are the ants, and we are the aphids, and they are milking us.

Markets, often don’t know if the new “financial instruments, investment products, etc.” are real or not.  They might just as well be betting on UFOs.  And this isn’t some esoteric game taking place between stoned geeks in a caravan somewhere, these are the men and women men entrusted with the blood supply of our world.

 

 

DEBTONOMY - DEBTONOMICS

The more I delve into the tawdry world of finance the more I see the need for new terms to define its component parts.

 

The expression “Casino Capitalism” has been helpful in describing the stock market and trading in general.  Though I do think we need better terms to separate cash money, from electronic money, from shares and bonds, through the ever more bizarre layers of currency trading and finally into the stratospherically fantastic world of hedge funds, short selling and credit transfer swaps - “financial instruments” just doesn’t quite do it. 

 

More help was given in creating a coherent vernacular with Lord Turner labelling many in the financial services world as “socially useless”.  That really hit the spot.  [Perhaps we should use the shorthand of SUs when defining financiers -  SUs driving to the City in their SUVs - it works for me.]

 

Another expression that demands redefinition is “Free Market Economy”.  It is far too “feel good” to be accurate.  Modern capitalism, and money itself, is about debt.  Money is an IOU.  The vast amounts of “new money” in our system have been created by bank lending.  Money is Debt. 

 

The word economy derives from the Greek oikonomicos.  It means housekeeping.  I don’t think even the devil’s suckling, Blankfein of Goldman Sachs, who believes his company is “doing god’s work” could claim that the financial system wrapping itself around our modern world could be called “housekeeping”.  I would like to suggest a better term for our system - Debtonomics.  It is a far more truthful definition of a process that is born from lending, and survives by lending more and more.  And more and more lending, means more and more debt. 

 

We live in a system of Global Debtonomy. 

 

A more accurate name than "economics", and more suitably distasteful. 

 

People normally establish systems for themselves that are mutually beneficial - marriage, family, community - that kind of thing.  Debtonomics is presented by bankers and other fans (our politicians) as being mutually beneficial, indeed being the oil that lubricates our prosperity and security.  But debtonomics’ relationship with mankind isn’t symbiotic, it is parasitic. 

 

Humanity flourished before there was money and debtonomics.  We were a sturdy hawthorn tree before the first sproutings of debtonomic ivy nosed their way out of the muck at our base.  But debtonomics is tough and vigorous and has to follow its instincts.  And its instincts tell it to climb and crawl and slither along every branch and into every crevice.

 

The all-pervasiveness of debtonomics is obvious when you look at recent events.  We came off the back of many years of boom, businesses were apparently flourishing and profits were flowing in.  How is it that within days of the credit crunch, large successful companies such as General Motors were saying they couldn’t pay their wages?  Company after company revealed that they borrowed every month to pay their wage bills.  This humiliating truth is concealed, as many such humiliating truths are in the world of debtonomics, by a euphemism.  Companies unable to pay their bills use “commercial paper” to do it.  They borrow money every month, or every week, or every day. 

 

And it wasn’t just industry that showed itself to have no capital - banks themselves suddenly couldn’t function because they were in the habit of borrowing from each other (let’s not even go there!).  All I would like to know is, if there were all those years of profit, why haven’t any of these businesses got money?  Why is everyone still dependent on credit?  Why is everyone in debt? 

 

Answer: when you depend on a system called a Debtonomics, that’s how it works.  Banks survive by lending more and more.  So they need you to borrow more and more.  So they make it irresistible for you to borrow.  So you do borrow.  They hit you with hire-purchase, then credit cards, and now the lending “products” are limitless and often irresistible.  The banks and our governments are busy seducing you to borrow more as we speak.  They are printing money and dropping interest rates to zero for one reason and one reason only, to generate more debt.  If everyone paid back what they owed there’d be no money and the world would be broke - how mad is that?  Without debt there would be no money, no economy, no Blankfein.  Sounds appealing.

 

Recently that murderous ivy got a bit top heavy.  It is estimated, I think by Lord Turner again, that up to 30% of British employees work in some area of financial service. 

 

[That means that 30% of working people make nothing, grow nothing, build nothing - just shunt bits of paper.  Socially useless and, in a an act of breathtaking hubris, even pay themselves many times more than the rest of us for the privilege of contributing nothing to our world. ]

 

So the banks needed more debt to cover this lump of socially useless employees and, the ivy having reached the very ends of the branches, it began to grow into mid air.  The banks started giving 100% (or even 110% mortgages) to people who had no income!

 

Another nice euphemism here - people who have no assets, no work and no prospect of work are called “sub-prime borrowers”.  Sub-prime.  [It’s another example of inflation - coffee cup sizes start at large and go up, English football sides no longer want to be “First” because if you are “First” you are still two divisions below the top because above the “First Division” you have “The Championship” whose teams aren’t actually champions at all because, despite having the First below them they still have “The Premiership” above them.  And so, if you are the most hopelessly broke person on the planet you are not- “hopelessly broke” or “poor” - you are just “sub-prime”.   Mad world.] 

 

Anyway, having lent all this money to people who cannot pay it back the banks have, with the taxpayers' help, “written off” those un-repayable loans as "toxic debts".  Unfortunately the people who moved into new houses - fell in love with them, painted the walls and hung curtains, called the place “home” - they can’t ”write off” their debts and they are thrown out onto the streets.  Were these people helped by the government like the banks were?  No.  But then they are only human beings, the government has a much greater responsibility to help banks and corporations, not lowly individual humans.  You know it makes sense.

 

All this toxic debt was like the big black branches of ivy that had now smothered the hawthorn tree and were killing it.  You could no longer see the tree and the tree could no longer see the sunlight.  In fact the branches were waving in the air, and catching the wind and threatening to bring the whole tree down.  So the ivy got pruned.  Just a little.  Some of those regulations that Thatcher, Reagan, Clinton, Blair and Brown were so keen to remove got put back in place and a few of the worst bankers got moved on to retire with only a few hundred million to keep them warm.  But in no time that old ivy’s right back doing what it does best, looking for suckers and choking us all to death with debt.  

 

An example of how Debtonomics works. 

 

In Bangladesh they have been running a system called micro-lending.  A small cooperative bank, owned by the people who use it, lends small amounts to people from its catchment of 150,000 souls.  A punter might borrow $20 to buy a sewing machine or a cow and thereby get a foot up on the Free Market ladder.  They pay back small amounts until the capital is repaid after a year or two.

 

Blankfein of Goldman Sachs (no I don’t like him) might see this as a “niche market with development potential”.  So he'd find a trainee spawn of the devil 30 floors below and offer him the challenge.  Trainee Spawn wants one thing in life - to be Blankfein one day.  Like his boss he wants to earn $68 million a year to add to his $500 million worth of shares.  So let’s call him Blankfein JNR, in order to gratuitously use that name over and over again.  Blankfein tells Blankfein JNR about the microlending system, pointing out that it is safe as houses (you don't hear that saying so often these days) as it has a wonderful 98% repayment rate (only 2% of people default), and wants to know what JNR thinks.  JNR says he can see how he can “grow the business, year on year, in real terms, going forward”.  That’s just what SNR wanted to hear.   

 

Blankfein JNR arrives in Bangladesh and sets up a small bank next to the existing microlender.  He has a stash of $10 million and he is expected to get lending.  And he does.  He offers slightly better rates, not least because he makes his staff work a good deal harder than the shower of amateurs in the cooperative microbank next door. 

 

Mrs Ashraful, one of his first borrowers, makes her last repayments on the $20 she borrowed.  She is ushered, with a clean and manicured hand placed creepily in the small of her back, into Blankfein JNR’s air-conditioned office.  There she is startled and delighted to find that she is now a “Silver Standard Customer”, with a “Triple-A Credit Rating”.  Imagine her pride and delight.  How she’s come up in the world.  Blankfein JNR says she is eligible for a loan of $200.  She cannot believe her luck.  But what could I do with so much money?  Grow the brand, going forward, he says.  She has no idea what he means.  Buy a herd of cows, and get a herdsman, and do no work at all and earn a fortune - he explains.  Let’s do the math (yes I hate him too).

 

Mrs Ashraful says she can quite easily set up a nice herd for $150.  JNR says she should take the whole $200 and maybe spend the balance on a nice holiday or a hairdo or plastic surgery.  Mrs Ashraful is a actually remarkably beautiful, but she takes the extra money, and a couple of magazines, and goes off to buy her new cows.  Life is good.

 

And, down the line going forward, at a Goldman Sach’s Boastathon in Miami, Blankfein JNR is proud to tell Blankfine SNR that he has “grown the business, year on year, going forward by 340%”.  He is proud.  Bankfine is happy.  Bankfine JNR gets a bonus of “500K”.  And all for doing god’s work.

 

Meanwhile, back in Bangladesh, the catchment of 150,000 people now owe between them $50 million.  Wankfine JNR boasts that in another five years they’ll owe $200 million.  And even if the repayment rate has dropped from 98% to 76% it still means a tidy increase in “profitability”, never mind the extra 22% of people who are defaulting, being evicted, going to prison - that’s just one of the elements that creates a vigorous and successful debtonomy, in the shiny new debtocratic world we live in.  Mrs Ashraful is doing well, perhaps having to work harder than before to keep up the payments and spending less time with her children, but it has meant that she could take Blankbrain JNR’s advice and have a little cosmetic surgery.  So now, instead of being a beautiful Bangladeshi with time for her family, she is a somewhat manic workaholic who looks hauntingly like Joan Rivers.  Progress. 

 

And with every year that Wankfine JNR and his hungry salesmen keep “growing the business” the people of Bangladesh will find themselves owing more and more and more.  While being told that they are richer than ever and Wankstain JNR is doing god’s work nearly as well as his boss, Bankfucker SNR.

 

And that, my friends, is Debtonomics, going forward.

 

Never mind the environment, we have to get rid of this system because it is mad, and bad for us.  It is also dependent on growth, and that isn’t sustainable.  It is also dependent on money that doesn’t exist, and that’s sick.  There will be a moment when it all unravels, so let’s get on and unravel it ourselves.

 

 

GOLDMAN SACHS

 

Our leaders are too intertwined with Blankfein and c/o for us to be able to make a change democratically.  Our politicians have had their mortgages, and probably their banker mates have lent them a bit more so they could buy another house or two.  They have profited, and continue to profit, from the system that is killing the world. 

 

And the politician/banker relationship is deep and insidious.  In the USA Goldman Sachs is in power all the time, elected representatives come and go, but Goldman Sachs is always there - Henry Paulson, George Bush's last Treasury secretary, former Goldman CEO; Robert Rubin, Bill Clinton's Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup; Mark Patterson, the current (at time of writing) Treasury chief of staff, who was a Goldman lobbyist just a year ago; Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board; The heads of the Canadian and Italian national banks are Goldman alumni, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York . . . [all lifted from Matt Taibbi’s magnificent Rolling Stone piece - posted below].

 

But what would we have if we got rid of capitalism, you ask?  

No capitalism for a start, I reply. 

No speculators.  No booms and busts.  No slavery to money.  Some personal debt but no business debt, no corporation debt, no local government debt and no national government debt.  No Blankfein.  We might even try no insurance and no advertising while we’re at it. 

 

 please join us. 

please help us bring this madness to an end. 

please help us to start a new, saner, better world.

 

  

ADVERTISING:

 

I was in Morocco, staying in a hostel and made friends with a local hydraulics engineer called Abdulrahman.  A fine man.  I asked him how they could endure being wailed at by the muezzin every morning.  He said he’d been to England and couldn’t understand how we could endure being wailed at by adverts all day.  He said the muezzin wailed twice or three times a day in his town.  In England he was wailed at by adverts on the radio or TV at breakfast, on posters and on the sides of buses all the way to work.  All day, all night, all the time he was awake he was bombarded by adverts.  Our religion.  His religion. 

 

THE DEPRESSION:

 

Our wise leaders often invoke the Depression to explain why they have to do anything in order to rescuscitate capitalism, or should I call it Debtalism.  They make free credit available, print money, produce rabbits from hats and turn water into wine, just to keep the sick beast alive.  

 

The Depression came out of the Wall Street Crash.  The Wall Street Crash came from euphoric speculation and massive selling of debt.  We were a society borrowing madly to fund the gambling we hoped would satiate our addiction to money. 

 

When someone is being killed by an addiction it is normal to try to get them off that addiction.  That was what was happening after the 1929 crash.  The Depression was cold turkey.  Rough, but when you’ve been addicted to something that is strong enough to kill you the come-down is always going to be rough.

 

Rather than go through this process and come out clean the other side, the West just lost its nerve and pumped the whole system full of heroin again.  That’s what they did in 1933, and it’s what they are doing now in 2009.  They haven’t solved the problem they’ve just postponed it.  And when it comes back it will be bigger and badder than ever.

 

We had a chance to kick the habit, clean ourselves up and start a better life.  Darling (what a great name for someone who’s killing us) is pumping into the system the very substance that has been killing it - money and debt. 

 

We have to be strong.  We have to kick the habit.  The next time we o/d may be the death of us.

 

 

terminology:

 

The world of finance has an appetite for ugly and obfuscating euphemism: 

quantitative easing (printing money),

going forward (in the future),

value added (making something more expensive and making more money from it without actually doing anything more than changing the wrapping paper),

grow the brand (yuk!)

That's enough, I can't stand any more of this crap.

 

Quotes:

 

"Capitalism is killing us.  If you have a dog that is killing your chickens, at some point you have to get rid of the dog.  So it is with capitalism."   Charlie Lennox

 

"The roots of violence are wealth without work, pleasure without conscience, knowledge without character, commerce without morality, science without humanity, worship without sacrifice, and politics without principles."    -- Mahatma Gandhi

 

"To combat depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection or production, we want to create further misdirection- a procedure which can only lead to a much more severe crisis as soon as the credit expansion comes to an end."   -- Fredrich Hayek, 1933

 

"There can be no doubt that besides the regular types of the circulating medium, such as coin, notes and bank deposits, which are generally recognised to be money or currency, and the quantity of which is regulated by some central authority or can at least be imagined to be so regulated, there exist still other forms of media of exchange which occasionally or permanently do the service of money. Now while for certain practical purposes we are accustomed to distinguish these forms of media of exchange from money proper as being mere substitutes for money, it is clear that, other things equal, any increase or decrease of these money substitutes will have exactly the same effects as an increase or decrease of the quantity of money proper, and should therefore, for the purposes of theoretical analysis, be counted as money".
-- Friedrich Hayek, Prices and Production, 1935, p. 96

 

"Ponzi’ finance units must increase its outstanding debt in order to meet its financial obligations. A transition occurs over the course of an expansion as increasingly risky positions are validated by the booming economy that renders the built in margins of error superfluous - encouraging adoption of riskier positions. Eventually, either financing costs rise or income comes in below expectations, leading to defaults on payment commitments."   - Hyman Minsky

 

"Money has no motherland; financiers are without patriotism and without decency; their sole object is gain."
-- Napoleon

 

• "Don’t gamble! Take all your savings and buy some good stock and hold it ‘till it goes up, then sell it. If it don’t go up, don’t buy it."  -- Will Rogers

 

"Central bankers always try to avoid their last big mistake. So every time there's the threat of a contraction in the economy, they'll over stimulate the economy, by printing too much money. The result will be a rising roller coaster of inflation, with each high and low being higher than the preceding one."
-- Milton Friedman

 

"Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works".  -- John Stuart Mill

 

"A government which robs Peter to pay Paul can always depend on the support of Paul."
-- George Bernard Shaw

 

"The period of financial distress is a gradual decline after the peak of a speculative bubble that precedes the final and massive panic and crash, driven by the insiders having exited but the sucker outsiders hanging on hoping for a revivial, but finally giving up in the final collapse."
-- Charles P. Kindleberger, "Manias, Panics, and Crashes: A History of Financial Crises"

 

"The proposal of any new law or regulation which comes from [businessmen], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it."  -- Adam Smith

 

"There are 10^11 stars in the galaxy. That used to be a huge number. But it's only a hundred billion. It's less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers."  -- Richard Feynman

 

"The national budget must be balanced. The public debt must be reduced; the arrogance of the authorities must be moderated and controlled. Payments to foreign governments must be reduced, if the nation doesn't want to go bankrupt. People must again learn to work, instead of living on public assistance."
-- Cicero, 55 BC

 

"Economics exists to make astrology look respectable."  -- John Kenneth Galbraith

 

"The rescue operation brings to mind John Kenneth Galbraith's dictum that in the United States, the only respectable form of socialism is socialism for the rich."   -- John Cassidy, "A Bankers' Bailout"

 

"The process by which banks create money is so simple that the mind is repelled."
-- John Kenneth Galbraith

 

"The Nazi economic policy, it should be noted, was an ad hoc response to what seemed over-riding circumstance. The unemployment position was desperate. So money was borrowed and people put to work. When rising wages and prices threatened stability, a price ceiling was imposed. Although there had been much discussion of such policy in pre-Hitler Germany, it seems doubtful if it was highly influential. Hitler and his cohorts were not a bookish lot.  Nevertheless the elimination of unemployment in Germany during the Great Depression without inflation - and with initial reliance on essentially civilian activities - was a signal accomplishment. It has rarely been praised and not much remarked. The notion that Hitler could do no good extends to his economics as it does, more plausibly, to all else."
-- John Kenneth Galbraith, "Money: Whence it came, where it went", Page 237

 

"Inflation is always and everywhere a monetary phenomenon" 

-- Milton Friedman, Nobel Prize winning economist

 

"All you need in this life is ignorance and confidence; then success is sure." -- Mark Twain 1835-1910

 

"A pessimist is one who makes difficulties of his opportunities and an optimist is one who makes opportunities of his difficulties."  -- Harry Truman

 

The financial crisis in America is really a moral crisis, caused by the series of proofs …that the leading financiers who control banks, trust companies and industrial corporations are often imprudent, and not seldom dishonest. They have mismanaged…funds and used them freely for speculative purposes. Hence the alarm of depositors and a general collapse of credit..." 

-- The Economist, November 2, 1907 during the 1907 crash.

 

"Nations are not ruined by one act of violence, but quite often, gradually, and almost imperceptibly, by the depreciation of their currency, through excessive quantity".  -- Nicolas Copernicus, 1525

  

"Anybody who plays the stock market not as an insider is like a man buying cows in the moonlight."
-- Daniel Drew, 19th century speculator

 

"When buying and selling are controlled by legislation, the first thing to be bought and sold are legislators."
-- P.J. O'Rourke

 

"It's difficult to get a man to understand something when his salary depends on him not understanding it."
-- Upton Sinclair, 1935

 

"And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."  -- Thomas Jefferson, letter to John Taylor, 1816

 

there must be a strict supervision of all banking and credits and investments; there must be an end to speculation with other people's money, and there must be provision for an adequate but sound currency."
-- Franklin Roosevelt, First Inaugural Address

 

Mr. Greenspan: “Let me suggest to you that the monetary aggregates as we measure them are getting increasingly complex and difficult to integrate into a set of forecasts. The problem that we have is not that money is unimportant, but how we define it. By definition, all prices are indeed the “ratio of an exchange of a good for money.” And what we seek is what that is. Our problem is we used M-1 at one point as the proxy of money, and it turned out to be a very difficult indicator of any financial state. We then went to M-2 and had the similar problem. We have never done M-3 per se because it largely reflects the extent of expansion of the banking industry. And when in effect banks expand, in and of itself, it doesn’t tell you terribly much about what the real money is. So our problem is not that we do not believe in sound money. We do. We very much believe that, if you have a debased currency, that you will have a debased economy. The difficulty is in defining what part of our liquidity structure is truly money. We have had trouble ferreting out proxies for that for a number of years. And the standard we employed is whether it gives us a good forward indicator of the direction of finance and the economy.
Regrettably, none of those which (?) have been able to develop, including MZM – has not done that. That does not mean that we think that money is irrelevant. It means that we think our measures of money have been inadequate. And, as a consequence of that, we, as I have mentioned previously, have downgraded the use of the monetary aggregates for monetary policy purposes, until we are able to find a more stable proxy for what we believe is the underlying money in the economy.”
Representative Ron Paul: “So it’s hard to manage something you can’t define?”
Mr. Greenspan: “It is not possible to manage something you can’t define.”
-- Alan Greenspan, Humphrey-Hawkins testimony, February 17^th 2000

 

"As a result of the war, corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands, and the Republic is destroyed. I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of war. God grant that my suspicions may prove groundless."
-- Abraham Lincoln, from a November 21, 1864 letter to Colonel William F. Elkins

 

"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years.
Great nations rise and fall. The people go from bondage to spiritual truth, to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency, from complacency to apathy, from apathy to dependence, from dependence back again to bondage."
-- Attributed to Alexander Fraser Tytler, Lord Woodhouselee. Unverified per the US Library of Congress.

 

"These capitalists generally act harmoniously and in concert to fleece the people, and now that they have got into a quarrel with themselves, we are called upon to appropriate the people’s money to settle the quarrel." -- Abraham Lincoln, speech to Illinois legislature, January 1837

 

"In a system...where the entire continuity of the...process rests upon credit, a crisis must obviously occur -- a tremendous rush for means of payment -- when credit suddenly ceases and only cash payments have validity. At first glance, therefore, the whole crisis seems to be merely a credit and money crisis. And in fact it is only a question of the convertibility of bills of exchange into money. But the majority of these bills represent actual sales and purchases, whose extension far beyond the needs of society is, after all, the basis of the whole crisis. At the same time, an enormous quantity of these bills of exchange represents plain swindle, which now reaches the light of day and collapses; furthermore, unsuccessful speculation with the capital of other people; finally, commodity-capital which has depreciated or is completely unsaleable, or returns that can never more be realized again. The entire artificial system of forced expansion of the [economy] cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values. Incidentally, everything here appears distorted, since in this paper world, the real price and its real basis appear nowhere, but only bullion, metal coin, notes, bills of exchange, securities. Particularly in centers where the entire money business of the country is concentrated, like London...the entire process becomes incomprehensible."
-- Karl Marx, "Capital", Volume 3, Chapter 30, "Money-Capital and Real Capital"

 

 

 

 

 

 

 

 films etc:

 Money is debt - paul grignon

zeitgeist

 

book list:

Fools Gold - Gillian Tetts

The Sellout - Charlie Gasparino

And Then The Roof Caved In - David Faber

Meltdown - Paul Mason

When Corporations Rule The World - David C. Korten

The Growth Illusion - Richard Douthwaite (1992 - talk about prescient)

 

 

other people's work and ideas:

http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine

The Great American Bubble Machine

From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression - and they're about to do it again

MATT TAIBBI   

ROLLING STONE  Posted Jul 13, 2009 1:49 PM

 

The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who's Who of Goldman Sachs graduates.

By now, most of us know the major players. As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup — which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the asshole chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multibilliondollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in goldenparachute payments as his bank was selfdestructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailedout insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York — which, incidentally, is now in charge of overseeing Goldman — not to mention …

But then, any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

The bank's unprecedented reach and power have enabled it to turn all of America into a giant pumpanddump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere — high gas prices, rising consumercredit rates, halfeaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you're losing, it's going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it's going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth — pure profit for rich individuals.

They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They've been pulling this same stunt over and over since the 1920s — and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.

If you want to understand how we got into this financial crisis, you have to first understand where all the money went — and in order to understand that, you need to understand what Goldman has already gotten away with. It is a history exactly five bubbles long — including last year's strange and seemingly inexplicable spike in the price of oil. There were a lot of losers in each of those bubbles, and in the bailout that followed. But Goldman wasn't one of them.

BUBBLE #1 The Great Depression

Goldman wasn't always a too-big-to-fail Wall Street behemoth, the ruthless face of kill-or-be-killed capitalism on steroids — just almost always. The bank was actually founded in 1869 by a German immigrant named Marcus Goldman, who built it up with his soninlaw Samuel Sachs. They were pioneers in the use of commercial paper, which is just a fancy way of saying they made money lending out shortterm IOUs to smalltime vendors in downtown Manhattan.

You can probably guess the basic plotline of Goldman's first 100 years in business: plucky, immigrantled investment bank beats the odds, pulls itself up by its bootstraps, makes shitloads of money. In that ancient history there's really only one episode that bears scrutiny now, in light of more recent events: Goldman's disastrous foray into the speculative mania of precrash Wall Street in the late 1920s.

This great Hindenburg of financial history has a few features that might sound familiar. Back then, the main financial tool used to bilk investors was called an "investment trust." Similar to modern mutual funds, the trusts took the cash of investors large and small and (theoretically, at least) invested it in a smorgasbord of Wall Street securities, though the securities and amounts were often kept hidden from the public. So a regular guy could invest $10 or $100 in a trust and feel like he was a big player. Much as in the 1990s, when new vehicles like day trading and etrading attracted reams of new suckers from the sticks who wanted to feel like big shots, investment trusts roped a new generation of regularguy investors into the speculation game.

Beginning a pattern that would repeat itself over and over again, Goldman got into the investmenttrust game late, then jumped in with both feet and went hogwild. The first effort was the Goldman Sachs Trading Corporation; the bank issued a million shares at $100 apiece, bought all those shares with its own money and then sold 90 percent of them to the hungry public at $104. The trading corporation then relentlessly bought shares in itself, bidding the price up further and further. Eventually it dumped part of its holdings and sponsored a new trust, the Shenandoah Corporation, issuing millions more in shares in that fund — which in turn sponsored yet another trust called the Blue Ridge Corporation. In this way, each investment trust served as a front for an endless investment pyramid: Goldman hiding behind Goldman hiding behind Goldman. Of the 7,250,000 initial shares of Blue Ridge, 6,250,000 were actually owned by Shenandoah — which, of course, was in large part owned by Goldman Trading.

The end result (ask yourself if this sounds familiar) was a daisy chain of borrowed money, one exquisitely vulnerable to a decline in performance anywhere along the line. The basic idea isn't hard to follow. You take a dollar and borrow nine against it; then you take that $10 fund and borrow $90; then you take your $100 fund and, so long as the public is still lending, borrow and invest $900. If the last fund in the line starts to lose value, you no longer have the money to pay back your investors, and everyone gets massacred.

In a chapter from The Great Crash, 1929 titled "In Goldman Sachs We Trust," the famed economist John Kenneth Galbraith held up the Blue Ridge and Shenandoah trusts as classic examples of the insanity of leveragebased investment. The trusts, he wrote, were a major cause of the market's historic crash; in today's dollars, the losses the bank suffered totaled $475 billion. "It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity," Galbraith observed, sounding like Keith Olbermann in an ascot. "If there must be madness, something may be said for having it on a heroic scale."

BUBBLE #2 Tech Stocks

Fast-forward about 65 years. Goldman not only survived the crash that wiped out so many of the investors it duped, it went on to become the chief underwriter to the country's wealthiest and most powerful corporations. Thanks to Sidney Weinberg, who rose from the rank of janitor's assistant to head the firm, Goldman became the pioneer of the initial public offering, one of the principal and most lucrative means by which companies raise money. During the 1970s and 1980s, Goldman may not have been the planet-eating Death Star of political influence it is today, but it was a topdrawer firm that had a reputation for attracting the very smartest talent on the Street.

It also, oddly enough, had a reputation for relatively solid ethics and a patient approach to investment that shunned the fast buck; its executives were trained to adopt the firm's mantra, "longterm greedy." One former Goldman banker who left the firm in the early Nineties recalls seeing his superiors give up a very profitable deal on the grounds that it was a longterm loser. "We gave back money to 'grownup' corporate clients who had made bad deals with us," he says. "Everything we did was legal and fair — but 'longterm greedy' said we didn't want to make such a profit at the clients' collective expense that we spoiled the marketplace."

But then, something happened. It's hard to say what it was exactly; it might have been the fact that Goldman's cochairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. While the American media fell in love with the story line of a pair of babyboomer, Sixtieschild, Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised crush on Rubin, who was hyped as without a doubt the smartest person ever to walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far behind.

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 nightmare about being forced to fly coach. It became almost a national clichè that whatever Rubin thought was best for the economy — a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline The Committee To Save The World. And "what Rubin thought," mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. During his tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy — beginning with Rubin's complete and total failure to regulate his old firm during its first mad dash for obscene short-term profits.

The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren't much more than potfueled ideas scrawled on napkins by uptoolate bongsmokers were taken public via IPOs, hyped in the media and sold to the public for mega-millions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.

It sounds obvious now, but what the average investor didn't know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system — one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman's later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry's standards of quality control.

"Since the Depression, there were strict underwriting guidelines that Wall Street adhered to when taking a company public," says one prominent hedge-fund manager. "The company had to be in business for a minimum of five years, and it had to show profitability for three consecutive years. But Wall Street took these guidelines and threw them in the trash." Goldman completed the snow job by pumping up the sham stocks: "Their analysts were out there saying Bullshit.com is worth $100 a share."

The problem was, nobody told investors that the rules had changed. "Everyone on the inside knew," the manager says. "Bob Rubin sure as hell knew what the underwriting standards were. They'd been intact since the 1930s."

Jay Ritter, a professor of finance at the University of Florida who specializes in IPOs, says banks like Goldman knew full well that many of the public offerings they were touting would never make a dime. "In the early Eighties, the major underwriters insisted on three years of profitability. Then it was one year, then it was a quarter. By the time of the Internet bubble, they were not even requiring profitability in the foreseeable future."

Goldman has denied that it changed its underwriting standards during the Internet years, but its own statistics belie the claim. Just as it did with the investment trust in the 1920s, Goldman started slow and finished crazy in the Internet years. After it took a littleknown company with weak financials called Yahoo! public in 1996, once the tech boom had already begun, Goldman quickly became the IPO king of the Internet era. Of the 24 companies it took public in 1997, a third were losing money at the time of the IPO. In 1999, at the height of the boom, it took 47 companies public, including stillborns like Webvan and eToys, investment offerings that were in many ways the modern equivalents of Blue Ridge and Shenandoah. The following year, it underwrote 18 companies in the first four months, 14 of which were money losers at the time. As a leading underwriter of Internet stocks during the boom, Goldman provided profits far more volatile than those of its competitors: In 1999, the average Goldman IPO leapt 281 percent above its offering price, compared to the Wall Street average of 181 percent.

How did Goldman achieve such extraordinary results? One answer is that they used a practice called "laddering," which is just a fancy way of saying they manipulated the share price of new offerings. Here's how it works: Say you're Goldman Sachs, and Bullshit.com comes to you and asks you to take their company public. You agree on the usual terms: You'll price the stock, determine how many shares should be released and take the Bullshit.com CEO on a "road show" to schmooze investors, all in exchange for a substantial fee (typically six to seven percent of the amount raised). You then promise your best clients the right to buy big chunks of the IPO at the low offering price — let's say Bullshit.com's starting share price is $15 — in exchange for a promise that they will buy more shares later on the open market. That seemingly simple demand gives you inside knowledge of the IPO's future, knowledge that wasn't disclosed to the daytrader schmucks who only had the prospectus to go by: You know that certain of your clients who bought X amount of shares at $15 are also going to buy Y more shares at $20 or $25, virtually guaranteeing that the price is going to go to $25 and beyond. In this way, Goldman could artificially jack up the new company's price, which of course was to the bank's benefit — a six percent fee of a $500 million IPO is serious money.

Goldman was repeatedly sued by shareholders for engaging in laddering in a variety of Internet IPOs, including Webvan and NetZero. The deceptive practices also caught the attention of Nicholas Maier, the syndicate manager of Cramer & Co., the hedge fund run at the time by the now-famous chattering television asshole Jim Cramer, himself a Goldman alum. Maier told the SEC that while working for Cramer between 1996 and 1998, he was repeatedly forced to engage in laddering practices during IPO deals with Goldman.

"Goldman, from what I witnessed, they were the worst perpetrator," Maier said. "They totally fueled the bubble. And it's specifically that kind of behavior that has caused the market crash. They built these stocks upon an illegal foundation — manipulated up — and ultimately, it really was the small person who ended up buying in." In 2005, Goldman agreed to pay $40 million for its laddering violations — a puny penalty relative to the enormous profits it made. (Goldman, which has denied wrongdoing in all of the cases it has settled, refused to respond to questions for this story.)

Another practice Goldman engaged in during the Internet boom was "spinning," better known as bribery. Here the investment bank would offer the executives of the newly public company shares at extra-low prices, in exchange for future underwriting business. Banks that engaged in spinning would then undervalue the initial offering price — ensuring that those "hot" opening-price shares it had handed out to insiders would be more likely to rise quickly, supplying bigger firstday rewards for the chosen few. So instead of Bullshit.com opening at $20, the bank would approach the Bullshit.com CEO and offer him a million shares of his own company at $18 in exchange for future business — effectively robbing all of Bullshit's new shareholders by diverting cash that should have gone to the company's bottom line into the private bank account of the company's CEO.

In one case, Goldman allegedly gave a multimillion-dollar special offering to eBay CEO Meg Whitman, who later joined Goldman's board, in exchange for future i-banking business. According to a report by the House Financial Services Committee in 2002, Goldman gave special stock offerings to executives in 21 companies that it took public, including Yahoo! cofounder Jerry Yang and two of the great slithering villains of the financial-scandal age — Tyco's Dennis Kozlowski and Enron's Ken Lay. Goldman angrily denounced the report as "an egregious distortion of the facts" — shortly before paying $110 million to settle an investigation into spinning and other manipulations launched by New York state regulators. "The spinning of hot IPO shares was not a harmless corporate perk," then-attorney general Eliot Spitzer said at the time. "Instead, it was an integral part of a fraudulent scheme to win new investment-banking business."

Such practices conspired to turn the Internet bubble into one of the greatest financial disasters in world history: Some $5 trillion of wealth was wiped out on the NASDAQ alone. But the real problem wasn't the money that was lost by shareholders, it was the money gained by investment bankers, who received hefty bonuses for tampering with the market. Instead of teaching Wall Street a lesson that bubbles always deflate, the Internet years demonstrated to bankers that in the age of freely flowing capital and publicly owned financial companies, bubbles are incredibly easy to inflate, and individual bonuses are actually bigger when the mania and the irrationality are greater.

Nowhere was this truer than at Goldman. Between 1999 and 2002, the firm paid out $28.5 billion in compensation and benefits — an average of roughly $350,000 a year per employee. Those numbers are important because the key legacy of the Internet boom is that the economy is now driven in large part by the pursuit of the enormous salaries and bonuses that such bubbles make possible. Goldman's mantra of "long-term greedy" vanished into thin air as the game became about getting your check before the melon hit the pavement.

The market was no longer a rationally managed place to grow real, profitable businesses: It was a huge ocean of Someone Else's Money where bankers hauled in vast sums through whatever means necessary and tried to convert that money into bonuses and payouts as quickly as possible. If you laddered and spun 50 Internet IPOs that went bust within a year, so what? By the time the Securities and Exchange Commission got around to fining your firm $110 million, the yacht you bought with your IPO bonuses was already six years old. Besides, you were probably out of Goldman by then, running the U.S. Treasury or maybe the state of New Jersey. (One of the truly comic moments in the history of America's recent financial collapse came when Gov. Jon Corzine of New Jersey, who ran Goldman from 1994 to 1999 and left with $320 million in IPO-fattened stock, insisted in 2002 that "I've never even heard the term 'laddering' before.")

For a bank that paid out $7 billion a year in salaries, $110 million fines issued half a decade late were something far less than a deterrent — they were a joke. Once the Internet bubble burst, Goldman had no incentive to reassess its new, profit-driven strategy; it just searched around for another bubble to inflate. As it turns out, it had one ready, thanks in large part to Rubin.

BUBBLE #3 The Housing Craze

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 excons carrying five bucks and a Snickers bar.

None of that would have been possible without investment bankers like Goldman, who created vehicles to package those shitty mortgages and sell them en masse to unsuspecting insurance companies and pension funds. This created a mass market for toxic debt that would never have existed before; in the old days, no bank would have wanted to keep some addict ex-con's mortgage on its books, knowing how likely it was to fail. You can't write these mortgages, in other words, unless you can sell them to someone who doesn't know what they are.

Goldman used two methods to hide the mess they were selling. First, they bundled hundreds of different mortgages into instruments called Collateralized Debt Obligations. Then they sold investors on the idea that, because a bunch of those mortgages would turn out to be OK, there was no reason to worry so much about the shitty ones: The CDO, as a whole, was sound. Thus, junkrated mortgages were turned into AAArated investments. Second, to hedge its own bets, Goldman got companies like AIG to provide insurance — known as creditdefault swaps — on the CDOs. The swaps were essentially a racetrack bet between AIG and Goldman: Goldman is betting the excons will default, AIG is betting they won't.

There was only one problem with the deals: All of the wheeling and dealing represented exactly the kind of dangerous speculation that federal regulators are supposed to rein in. Derivatives like CDOs and credit swaps had already caused a series of serious financial calamities: Procter & Gamble and Gibson Greetings both lost fortunes, and Orange County, California, was forced to default in 1994. A report that year by the Government Accountability Office recommended that such financial instruments be tightly regulated — and in 1998, the head of the Commodity Futures Trading Commission, a woman named Brooksley Born, agreed. That May, she circulated a letter to business leaders and the Clinton administration suggesting that banks be required to provide greater disclosure in derivatives trades, and maintain reserves to cushion against losses.

More regulation wasn't exactly what Goldman had in mind. "The banks go crazy — they want it stopped," says Michael Greenberger, who worked for Born as director of trading and markets at the CFTC and is now a law professor at the University of Maryland. "Greenspan, Summers, Rubin and [SEC chief Arthur] Levitt want it stopped."

Clinton's reigning economic foursome — "especially Rubin," according to Greenberger — called Born in for a meeting and pleaded their case. She refused to back down, however, and continued to push for more regulation of the derivatives. Then, in June 1998, Rubin went public to denounce her move, eventually recommending that Congress strip the CFTC of its regulatory authority. In 2000, on its last day in session, Congress passed the now-notorious Commodity Futures Modernization Act, which had been inserted into an 11,000-page spending bill at the last minute, with almost no debate on the floor of the Senate. Banks were now free to trade default swaps with impunity.

But the story didn't end there. AIG, a major purveyor of default swaps, approached the New York State Insurance Department in 2000 and asked whether default swaps would be regulated as insurance. At the time, the office was run by one Neil Levin, a former Goldman vice president, who decided against regulating the swaps. Now freed to underwrite as many housingbased securities and buy as much credit-default protection as it wanted, Goldman went berserk with lending lust. By the peak of the housing boom in 2006, Goldman was underwriting $76.5 billion worth of mortgagebacked securities — a third of which were subprime — much of it to institutional investors like pensions and insurance companies. And in these massive issues of real estate were vast swamps of crap.

Take one $494 million issue that year, GSAMP Trust 2006S3. Many of the mortgages belonged to secondmortgage borrowers, and the average equity they had in their homes was 0.71 percent. Moreover, 58 percent of the loans included little or no documentation — no names of the borrowers, no addresses of the homes, just zip codes. Yet both of the major ratings agencies, Moody's and Standard & Poor's, rated 93 percent of the issue as investment grade. Moody's projected that less than 10 percent of the loans would default. In reality, 18 percent of the mortgages were in default within 18 months.

Not that Goldman was personally at any risk. The bank might be taking all these hideous, completely irresponsible mortgages from beneath-gangster-status firms like Countrywide and selling them off to municipalities and pensioners — old people, for God's sake — pretending the whole time that it wasn't gradeD horseshit. But even as it was doing so, it was taking short positions in the same market, in essence betting against the same crap it was selling. Even worse, Goldman bragged about it in public. "The mortgage sector continues to be challenged," David Viniar, the bank's chief financial officer, boasted in 2007. "As a result, we took significant markdowns on our long inventory positions … However, our risk bias in that market was to be short, and that net short position was profitable." In other words, the mortgages it was selling were for chumps. The real money was in betting against those same mortgages.

"That's how audacious these assholes are," says one hedgefund manager. "At least with other banks, you could say that they were just dumb — they believed what they were selling, and it blew them up. Goldman knew what it was doing."

I ask the manager how it could be that selling something to customers that you're actually betting against — particularly when you know more about the weaknesses of those products than the customer — doesn't amount to securities fraud.

"It's exactly securities fraud," he says. "It's the heart of securities fraud."

Eventually, lots of aggrieved investors agreed. In a virtual repeat of the Internet IPO craze, Goldman was hit with a wave of lawsuits after the collapse of the housing bubble, many of which accused the bank of withholding pertinent information about the quality of the mortgages it issued. New York state regulators are suing Goldman and 25 other underwriters for selling bundles of crappy Countrywide mortgages to city and state pension funds, which lost as much as $100 million in the investments. Massachusetts also investigated Goldman for similar misdeeds, acting on behalf of 714 mortgage holders who got stuck holding predatory loans. But once again, Goldman got off virtually scot-free, staving off prosecution by agreeing to pay a paltry $60 million — about what the bank's CDO division made in a day and a half during the real estate boom.

The effects of the housing bubble are well known — it led more or less directly to the collapse of Bear Stearns, Lehman Brothers and AIG, whose toxic portfolio of credit swaps was in significant part composed of the insurance that banks like Goldman bought against their own housing portfolios. In fact, at least $13 billion of the taxpayer money given to AIG in the bailout ultimately went to Goldman, meaning that the bank made out on the housing bubble twice: It fucked the investors who bought their horseshit CDOs by betting against its own crappy product, then it turned around and fucked the taxpayer by making him pay off those same bets.

And once again, while the world was crashing down all around the bank, Goldman made sure it was doing just fine in the compensation department. In 2006, the firm's payroll jumped to $16.5 billion — an average of $622,000 per employee. As a Goldman spokesman explained, "We work very hard here."

But the best was yet to come. While the collapse of the housing bubble sent most of the financial world fleeing for the exits, or to jail, Goldman boldly doubled down — and almost single-handedly created yet another bubble, one the world still barely knows the firm had anything to do with.

BUBBLE #4 $4 a Gallon

By the beginning of 2008, the financial world was in turmoil. Wall Street had spent the past two and a half decades producing one scandal after another, which didn't leave much to sell that wasn't tainted. The terms junk bond, IPO, subprime mortgage and other once-hot financial fare were now firmly associated in the public's mind with scams; the terms credit swaps and CDOs were about to join them. The credit markets were in crisis, and the mantra that had sustained the fantasy economy throughout the Bush years — the notion that housing prices never go down — was now a fully exploded myth, leaving the Street clamoring for a new bullshit paradigm to sling.

Where to go? With the public reluctant to put money in anything that felt like a paper investment, the Street quietly moved the casino to the physical-commodities market — stuff you could touch: corn, coffee, cocoa, wheat and, above all, energy commodities, especially oil. In conjunction with a decline in the dollar, the credit crunch and the housing crash caused a "flight to commodities." Oil futures in particular skyrocketed, as the price of a single barrel went from around $60 in the middle of 2007 to a high of $147 in the summer of 2008.

That summer, as the presidential campaign heated up, the accepted explanation for why gasoline had hit $4.11 a gallon was that there was a problem with the world oil supply. In a classic example of how Republicans and Democrats respond to crises by engaging in fierce exchanges of moronic irrelevancies, John McCain insisted that ending the moratorium on offshore drilling would be "very helpful in the short term," while Barack Obama in typical liberal-arts yuppie style argued that federal investment in hybrid cars was the way out.

But it was all a lie. While the global supply of oil will eventually dry up, the shortterm flow has actually been increasing. In the six months before prices spiked, according to the U.S. Energy Information Administration, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped from 86.82 million barrels a day to 86.07 million. Not only was the shortterm supply of oil rising, the demand for it was falling — which, in classic economic terms, should have brought prices at the pump down.

So what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help — there were other players in the physicalcommodities market — but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the oncesolid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.

As is so often the case, there had been a Depression-era law in place designed specifically to prevent this sort of thing. The commodities market was designed in large part to help farmers: A grower concerned about future price drops could enter into a contract to sell his corn at a certain price for delivery later on, which made him worry less about building up stores of his crop. When no one was buying corn, the farmer could sell to a middleman known as a "traditional speculator," who would store the grain and sell it later, when demand returned. That way, someone was always there to buy from the farmer, even when the market temporarily had no need for his crops.

In 1936, however, Congress recognized that there should never be more speculators in the market than real producers and consumers. If that happened, prices would be affected by something other than supply and demand, and price manipulations would ensue. A new law empowered the Commodity Futures Trading Commission — the very same body that would later try and fail to regulate credit swaps — to place limits on speculative trades in commodities. As a result of the CFTC's oversight, peace and harmony reigned in the commodities markets for more than 50 years.

All that changed in 1991 when, unbeknownst to almost everyone in the world, a Goldmanowned commoditiestrading subsidiary called J. Aron wrote to the CFTC and made an unusual argument. Farmers with big stores of corn, Goldman argued, weren't the only ones who needed to hedge their risk against future price drops — Wall Street dealers who made big bets on oil prices also needed to hedge their risk, because, well, they stood to lose a lot too.

This was complete and utter crap — the 1936 law, remember, was specifically designed to maintain distinctions between people who were buying and selling real tangible stuff and people who were trading in paper alone. But the CFTC, amazingly, bought Goldman's argument. It issued the bank a free pass, called the "Bona Fide Hedging" exemption, allowing Goldman's subsidiary to call itself a physical hedger and escape virtually all limits placed on speculators. In the years that followed, the commission would quietly issue 14 similar exemptions to other companies.

Now Goldman and other banks were free to drive more investors into the commodities markets, enabling speculators to place increasingly big bets. That 1991 letter from Goldman more or less directly led to the oil bubble in 2008, when the number of speculators in the market — driven there by fear of the falling dollar and the housing crash — finally overwhelmed the real physical suppliers and consumers. By 2008, at least three quarters of the activity on the commodity exchanges was speculative, according to a congressional staffer who studied the numbers — and that's likely a conservative estimate. By the middle of last summer, despite rising supply and a drop in demand, we were paying $4 a gallon every time we pulled up to the pump.

What is even more amazing is that the letter to Goldman, along with most of the other trading exemptions, was handed out more or less in secret. "I was the head of the division of trading and markets, and Brooksley Born was the chair of the CFTC," says Greenberger, "and neither of us knew this letter was out there." In fact, the letters only came to light by accident. Last year, a staffer for the House Energy and Commerce Committee just happened to be at a briefing when officials from the CFTC made an offhand reference to the exemptions.

"I had been invited to a briefing the commission was holding on energy," the staffer recounts. "And suddenly in the middle of it, they start saying, 'Yeah, we've been issuing these letters for years now.' I raised my hand and said, 'Really? You issued a letter? Can I see it?' And they were like, 'Duh, duh.' So we went back and forth, and finally they said, 'We have to clear it with Goldman Sachs.' I'm like, 'What do you mean, you have to clear it with Goldman Sachs?'"

The CFTC cited a rule that prohibited it from releasing any information about a company's current position in the market. But the staffer's request was about a letter that had been issued 17 years earlier. It no longer had anything to do with Goldman's current position. What's more, Section 7 of the 1936 commodities law gives Congress the right to any information it wants from the commission. Still, in a classic example of how complete Goldman's capture of government is, the CFTC waited until it got clearance from the bank before it turned the letter over.

Armed with the semi-secret government exemption, Goldman had become the chief designer of a giant commodities betting parlor. Its Goldman Sachs Commodities Index — which tracks the prices of 24 major commodities but is overwhelmingly weighted toward oil — became the place where pension funds and insurance companies and other institutional investors could make massive longterm bets on commodity prices. Which was all well and good, except for a couple of things. One was that index speculators are mostly "long only" bettors, who seldom if ever take short positions — meaning they only bet on prices to rise. While this kind of behavior is good for a stock market, it's terrible for commodities, because it continually forces prices upward. "If index speculators took short positions as well as long ones, you'd see them pushing prices both up and down," says Michael Masters, a hedgefund manager who has helped expose the role of investment banks in the manipulation of oil prices. "But they only push prices in one direction: up."

Complicating matters even further was the fact that Goldman itself was cheerleading with all its might for an increase in oil prices. In the beginning of 2008, Arjun Murti, a Goldman analyst, hailed as an "oracle of oil" by The New York Times, predicted a "super spike" in oil prices, forecasting a rise to $200 a barrel. At the time Goldman was heavily invested in oil through its commoditiestrading subsidiary, J. Aron; it also owned a stake in a major oil refinery in Kansas, where it warehoused the crude it bought and sold. Even though the supply of oil was keeping pace with demand, Murti continually warned of disruptions to the world oil supply, going so far as to broadcast the fact that he owned two hybrid cars. High prices, the bank insisted, were somehow the fault of the piggish American consumer; in 2005, Goldman analysts insisted that we wouldn't know when oil prices would fall until we knew "when American consumers will stop buying gas-guzzling sport utility vehicles and instead seek fuel-efficient alternatives."

But it wasn't the consumption of real oil that was driving up prices — it was the trade in paper oil. By the summer of 2008, in fact, commodities speculators had bought and stockpiled enough oil futures to fill 1.1 billion barrels of crude, which meant that speculators owned more future oil on paper than there was real, physical oil stored in all of the country's commercial storage tanks and the Strategic Petroleum Reserve combined. It was a repeat of both the Internet craze and the housing bubble, when Wall Street jacked up presentday profits by selling suckers shares of a fictional fantasy future of endlessly rising prices.

In what was by now a painfully familiar pattern, the oil-commodities melon hit the pavement hard in the summer of 2008, causing a massive loss of wealth; crude prices plunged from $147 to $33. Once again the big losers were ordinary people. The pensioners whose funds invested in this crap got massacred: CalPERS, the California Public Employees' Retirement System, had $1.1 billion in commodities when the crash came. And the damage didn't just come from oil. Soaring food prices driven by the commodities bubble led to catastrophes across the planet, forcing an estimated 100 million people into hunger and sparking food riots throughout the Third World.

Now oil prices are rising again: They shot up 20 percent in the month of May and have nearly doubled so far this year. Once again, the problem is not supply or demand. "The highest supply of oil in the last 20 years is now," says Rep. Bart Stupak, a Democrat from Michigan who serves on the House energy committee. "Demand is at a 10-year low. And yet prices are up."

Asked why politicians continue to harp on things like drilling or hybrid cars, when supply and demand have nothing to do with the high prices, Stupak shakes his head. "I think they just don't understand the problem very well," he says. "You can't explain it in 30 seconds, so politicians ignore it."

BUBBLE #5 Rigging the Bailout

After the oil bubble collapsed last fall, there was no new bubble to keep things humming — this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.

It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers — one of Goldman's last real competitors — collapse without intervention. ("Goldman's superhero status was left intact," says market analyst Eric Salzman, "and an investmentbanking competitor, Lehman, goes away.") The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.

Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35yearold Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bankholding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding — most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs — and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.

Converting to a bank-holding company has other benefits as well: Goldman's primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflictofinterest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bankholding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman — New York Fed president William Dudley — is yet another former Goldmanite.

The collective message of all this — the AIG bailout, the swift approval for its bankholding conversion, the TARP funds — is that when it comes to Goldman Sachs, there isn't a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. "In the past it was an implicit advantage," says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. "Now it's more of an explicit advantage."

Once the bailouts were in place, Goldman went right back to business as usual, dreaming up impossibly convoluted schemes to pick the American carcass clean of its loose capital. One of its first moves in the postbailout era was to quietly push forward the calendar it uses to report its earnings, essentially wiping December 2008 — with its $1.3 billion in pretax losses — off the books. At the same time, the bank announced a highly suspicious $1.8 billion profit for the first quarter of 2009 — which apparently included a large chunk of money funneled to it by taxpayers via the AIG bailout. "They cooked those firstquarter results six ways from Sunday," says one hedgefund manager. "They hid the losses in the orphan month and called the bailout money profit."

Two more numbers stand out from that stunning first-quarter turnaround. The bank paid out an astonishing $4.7 billion in bonuses and compensation in the first three months of this year, an 18 percent increase over the first quarter of 2008. It also raised $5 billion by issuing new shares almost immediately after releasing its firstquarter results. Taken together, the numbers show that Goldman essentially borrowed a $5 billion salary payout for its executives in the middle of the global economic crisis it helped cause, using halfbaked accounting to reel in investors, just months after receiving billions in a taxpayer bailout.

Even more amazing, Goldman did it all right before the government announced the results of its new "stress test" for banks seeking to repay TARP money — suggesting that Goldman knew exactly what was coming. The government was trying to carefully orchestrate the repayments in an effort to prevent further trouble at banks that couldn't pay back the money right away. But Goldman blew off those concerns, brazenly flaunting its insider status. "They seemed to know everything that they needed to do before the stress test came out, unlike everyone else, who had to wait until after," says Michael Hecht, a managing director of JMP Securities. "The government came out and said, 'To pay back TARP, you have to issue debt of at least five years that is not insured by FDIC — which Goldman Sachs had already done, a week or two before."

And here's the real punch line. After playing an intimate role in four historic bubble catastrophes, after helping $5 trillion in wealth disappear from the NASDAQ, after pawning off thousands of toxic mortgages on pensioners and cities, after helping to drive the price of gas up to $4 a gallon and to push 100 million people around the world into hunger, after securing tens of billions of taxpayer dollars through a series of bailouts overseen by its former CEO, what did Goldman Sachs give back to the people of the United States in 2008?

Fourteen million dollars.

That is what the firm paid in taxes in 2008, an effective tax rate of exactly one, read it, one percent. The bank paid out $10 billion in compensation and benefits that same year and made a profit of more than $2 billion — yet it paid the Treasury less than a third of what it forked over to CEO Lloyd Blankfein, who made $42.9 million last year.

How is this possible? According to Goldman's annual report, the low taxes are due in large part to changes in the bank's "geographic earnings mix." In other words, the bank moved its money around so that most of its earnings took place in foreign countries with low tax rates. Thanks to our completely fucked corporate tax system, companies like Goldman can ship their revenues offshore and defer taxes on those revenues indefinitely, even while they claim deductions upfront on that same untaxed income. This is why any corporation with an at least occasionally sober accountant can usually find a way to zero out its taxes. A GAO report, in fact, found that between 1998 and 2005, roughly twothirds of all corporations operating in the U.S. paid no taxes at all.

This should be a pitchforklevel outrage — but somehow, when Goldman released its post-bailout tax profile, hardly anyone said a word. One of the few to remark on the obscenity was Rep. Lloyd Doggett, a Democrat from Texas who serves on the House Ways and Means Committee. "With the right hand out begging for bailout money," he said, "the left is hiding it offshore."

BUBBLE #6 Global Warming

Fast-forward to today. It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs — its employees paid some $981,000 to his campaign — sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.

Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's cohead of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade.

The new carboncredit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.

Here's how it works: If the bill passes, there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy "allocations" or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billion worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.

The feature of this plan that has special appeal to speculators is that the "cap" on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison's sake, the annual combined revenues of all electricity suppliers in the U.S. total $320 billion.

Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigmshifting legislation, (2) make sure that they're the profitmaking slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for capandtrade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank's environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Paulson's report argued that "voluntary action alone cannot solve the climatechange problem." A few years later, the bank's carbon chief, Ken Newcombe, insisted that capandtrade alone won't be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies) and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time, "We're not making those investments to lose money."

The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utahbased firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There's also a $500 million Green Growth Fund set up by a Goldmanite to invest in greentech … the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energyfutures market?

"Oh, it'll dwarf it," says a former staffer on the House energy committee.

Well, you might say, who cares? If cap-and-trade succeeds, won't we all be saved from the catastrophe of global warming? Maybe — but capandtrade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and-trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private taxcollection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it's even collected.

"If it's going to be a tax, I would prefer that Washington set the tax and collect it," says Michael Masters, the hedgefund director who spoke out against oilfutures speculation. "But we're saying that Wall Street can set the tax, and Wall Street can collect the tax. That's the last thing in the world I want. It's just asinine."

Cap-and-trade is going to happen. Or, if it doesn't, something like it will. The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees — while the actual victims in this mess, ordinary taxpayers, are the ones paying for it.

It's not always easy to accept the reality of what we now routinely allow these people to get away with; there's a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can't really register the fact that you're no longer a citizen of a thriving first-world democracy, that you're no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there.

But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It's a gangster state, running on gangster economics, and even prices can't be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can't stop it, but we should at least know where it's all going.

Watch Matt Taibbi break down the Great American Bubble Machine in our exclusive video, and for more on how Wall Street is taking over Washington, read an excerpt from his "The Big Takeover."

 

 

 

 

other: