FedUpUSA

Archive for May 5th, 2010

Heh….if this isn’t proof that the Wall Street criminals are completely confident in their cohorts in Congress, I don’t know what is.

Confessions Of A Wall St. Nihilist: Forget About Goldman Sachs, Our Entire Economy Is Built On Fraud

by Mark Ames

There was a strange moment last week during President Obama’s speech at Cooper Union. There he was, groveling before a cast of Wall Street villains including Goldman Sachs chief Lloyd Blankfein, begging them to “Look into your heart!” like John Turturro’s character in Miller’s Crossing…when out of the blue, the POTUS dropped this bombshell: “The only people who ought to fear the kind of oversight and transparency that we’re proposing are those whose conduct will fail this scrutiny.”

The Big Secret, of course, is that every living creature within a 100-mile radius of Cooper Union would fail “this scrutiny”–or that scrutiny, or any scrutiny, period. Not just in a 100-mile radius, but wherever there are still signs of economic life beating in these 50 United States, the mere whiff of scrutiny would work like nerve gas on what’s left of the economy. Because in the 21st century, fraud is as American as baseball, apple pie and Chevrolet Volts–fraud’s all we got left, Doc. Scare off the fraud with Obama’s “scrutiny,” and the entire pyramid scheme collapses in a heap of smoldering savings accounts.

That’s how an acquaintance of mine, a partner in a private equity firm, put it: “Whoever pops this fraud bubble is going to have to escape on the next flight out, faster than the Bin Laden Bunch fled Kentucky in their chartered jets after 9/11.”

And that’s why this SEC suit accusing Goldman Sachs of fraud is really just a negotiating bluff to give Obama’s people some leverage–or it’s supposed to be, anyway–according to the PE guy. He dismissed all the speculation that the fraud investigations would turn on other obvious villains like Deutsche, Merrill, Paulson & Co., the Rahm Emmanuel-linked Magnetar and so on.

“You don’t get it, Ames. Even Khuzami, the SEC guy in charge of the Goldman case, is a fraud; the fucker was Deutsche’s general counsel when they pulled the same CDO scam as Goldman. You have no idea how deep this goes.”

And it’s clear that a lot more people here are aware of how fundamentally rotten things are but they’re not willing to face the big fraudonomics bummer yet, preferring instead to stick with specific accusations.

My position on this was, “Good, throw the book at those crooks too, I don’t see what the problem is here.”

This was exactly what I argued a week ago, during a verbal slapfight with that acquaintance of mine. We were making a scene in a Midtown yuppie restaurant, arguing over just how much damage Wall Street had caused, and what to do about it.

His position was indefensible, and he knew it, so he switched tactics:

“OK Ames, which bankers would you throw the book at? Because you’re arguing that they’re all guilty. So which ones do you go after? Two of them? Three? Half of them?”

“Every last one of them. Lock ‘em up in one of their private prisons.”

“Not gonna happen, Che.”

“Che? Me? Listen, Scarface, I’m about law and order. Don’t any of you PE degenerates believe in that anymore?”

“OK, here’s the deal, Che. I’m going to walk you through this nice and slow so that even an agave-sweetened hippie like you can understand this. Stick with me, this is gonna be a little complicated. Ready?” And so he began.

“Let’s say the government decides one day, ‘You know, we oughta listen to Che here, let’s throw the book at every firm and every executive that our people can make a case against. Because you know, gosh, it’s all about rule of law and blind justice, just like Che says.’ OK, so now this means indicting just about every serious player in finance, so they take down Goldman Sachs, they take down Citigroup, JP Morgan, BofA… and they also serve all the big funds who are at least as guilty, if not more. So they shut down Pimco, Blackrock, Citadel… maybe they indict Geithner and Summers, haul in some of Bush’s crooks… right?”

“Too bad they don’t serve popcorn here, this is getting good.”

“OK, now guess what you’ve just done? You’ve just caused the markets to completely tank. Remember what happened after the Lehman collapse? Remember how popular that made every politician in Washington? Still wondering why they coughed up a trillion bucks? They were scared for their lives; that’s why they voted for that bailout. You’d have done the same goddamn thing. But if we go after everyone guilty of fraud and theft, the market crash this country would see would make 2008 look like Sesame Street. Open that can of worms labeled ‘Fraud’ and the whole fucking economy collapses. You may as well prosecute people for masturbating. No one will know where the fraud investigation stops and who will be charged next–everyone will try to cash out, and the markets will tank to zero. And guess what happens when the markets tank to zero? Every fucking American with a retirement plan, or an investment portfolio, or a 401k–every state pension plan in the country, every teacher’s pension fund, every fireman’s pension–every last one of them will be wiped out. That’s what the Lehman collapse taught us.”

“Us? It didn’t teach anything but that this country is run by maniacs.”

“Jesus H. Christ, Ames– you’re even more clueless than the idiots who managed the Lehman collapse. I mean, didn’t everyone get it how badly those idiots screwed up with Lehman? It was the biggest screw-up this hemisphere has ever seen. You had Secretary Paulson and Fed Chief Bernanke scratching their asses not knowing what to do, so then they go, ‘OK, we’re supposed to be a free market economy, and we’re supposed to be the Republicans–let’s try something different for a change since nothing else is working. Let’s go out on a limb and actually give this “free market” thing a whirl. Who knows? Maybe the “free market” really works the way we always say it does. Nothing else seems to work, let’s let the free market decide Lehman’s fate. Maybe corporate-socialism isn’t the answer.’ So they hung Lehman out in the free-market, and BAM! The. Shit. Hit. The. Fan. No shit, dudes–the free market is for suckers, didn’t your daddy teach you idiots that? Not only did Lehman collapse–everything collapsed; confidence in the entire system collapsed. And here’s what I’m trying to explain to simpletons like you: Our economy is just a confidence game. Don’t ask me how it got this way, don’t care.”

I tried saying something insulting to him, but he just talked right over me, lurching forward baring his laser-whitened teeth.

“I’m sure you have the answer, you and Ron Paul and all the other pot-smoking libertarian do-gooders have it all figured out. But what I’m saying is, no confidence means end of the confidence game. That’s what Lehman showed. Every single player in finance suddenly had to face the fundamental problem–this whole fucking economy is built on fraud and lies and garbage. So when Lehman collapsed, every single player panicked, going, ‘If Lehman was nothing but a Ponzi scheme–and I know what I’m running is a Ponzi scheme–holy shit, that means everyone else is running a Ponzi scheme too! Run for the exits!’ No one trusted anyone else, everyone pulled out, and the entire global economy collapsed just like that. And that meant your parents, my parents, every teacher, every fireman, every person in the country going into retirement, every price on every asset–wiped out.

“And here’s what I’m trying to get you to understand: In the grown-up world, when an entire country’s savings accounts are wiped out because of some do-gooder and his law books and his Thomas Jefferson ‘What about free and fair markets?’ crap, that is a big problem–people don’t give a fuck about Jefferson and ‘free and fair markets,’ they just want their savings to be worth something. And people are right: Jefferson was an imbecile. He should have been a folk singer, not a Founding fucking Father. But that’s another issue that’s over your head–the point is, the guy who destroys this economy because it’s ‘the right thing to do’ will have to flee for his life, and whatever president or political party was in power when that decision was made will be out of power for the next 200 years. That’s why Washington panicked and passed ‘the bailout,’ they didn’t want to be the fools whom all the Ponzi victims blame for tanking the Ponzi scheme, so they broke the glass and pumped up a newer, bigger Ponzi scheme. It was an expensive 14 trillion dollar lesson in, ‘Stay the fuck away from free-market experiments, assholes!’ How naive are you people to actually believe that ‘free market’ crap? The problem is when people in power are stupid enough to listen to guys like you: all the do-gooder libertarians and the do-gooder free-market Republicans who forgot that they’re supposed to lie. Hello!”

“Libertarian, me? Since when was I ever a libertarian?”

“That’s my point: Fools like you don’t even know who you are anymore. They forgot that they’re supposed to lie about all that libertarian free-market shit, keep it far the fuck out of policy. But instead of just lying about free-markets while secretly propping up Lehman, the idiots actually tried pulling off a ‘free-market’ miracle, and we had to pay $14 trillion just to find out what I could have told them for no fee at all, which is: ‘Hey, assholes, you’re supposed to be hypocrites, OK? You’re supposed to be two-faced free-market liars, not libertarian Quakers! You’re not supposed to believe in anything–your job is to get up in front of the public and lie about free markets and the rest. Period.’

“That’s it, how fucking hard is it? Look, watch my face: Say one thing out of one side… and do the other out of the other side. Got that? Let everyone else whine and cry about, ‘Ooh, that’s not fair, ooh, that’s a bailout, that’s socialism, that’s corruption.’ That’s what losers do–they whine. You, for example, Che–you whine all the time, and look at you… Can you pay the bill for this meal? Is there a libertarian on earth who can afford to buy a decent meal in Manhattan? And now, look at me: I’m a hypocrite. Hell yes I am! I lie every day of my life, I lie to myself in my sleep. Hell, I’m lying to you right now, in fact I don’t even know what the fuck I’m saying anymore because I’m so used to lying. And yet–who’s the guy with the black card? Who’s the one who’s going to pick up the check tonight? Guys with power, guys like me, we lie. You got that? ‘Lie’ as in ‘My Lai’ the massacre–as in, ‘My Lai you long time, me so free-markety.’ You distract the dumbshits with free-market B.S. because hey, for whatever reason, that’s what the public likes to hear, it doesn’t really matter what lie you feed them so long as it’s the lie that puts them in a trance. And then behind the scenes, you do the very opposite: You fix the game, you cover up this problem here with those funds there, you move shit around, you skim budgets and you subsidize the system, you cover up the bad shit and once in a while throw a has-been to the wolves to keep the public entertained–that’s the way the system works, and anyone who’s an adult understands that. And everyone who doesn’t understand that can go form an online libertarian chat group and complain with all their little libertarian friends about free markets and Jekyll Island and ‘Wahhh! It’s not not fair, waahhhh!’”

“What’s with the libertarian accusation?”

“It’s just that you all sound the same to me. Libertarians, hippies–is there really a difference? You all whine alike: ‘It’s not fair, man! Ooh! You can’t do that, it’s fraud, it’s corruption, ooh no!’ Or: ‘It’s the income inequality, man; Goldman Sachs controls us all man; it’s socialism for the rich; it’s all too scary for my retarded 5-year-old libertarian brain!’ Seriously, anytime I meet libertarians like you–”

“Listen–I’m not a fucking libertarian, OK? I want free handouts. How clear do I have to make this? Me–handouts. Me–Big Government. I want to collectivize your productive cash, because I am a resentful parasite. Are you capable of processing a single word of what I’m saying to you, Spaz?”

“Uh-huh, sure, whatever. Here’s the thing: I think it’s great that you and your friends memorized Road to Serfdom in between Star Trek episodes–no really, I’m happy for you. Yeah, we’re all so proud. But here’s the thing: We grown-ups are really, really busy now trying to sort out the free-market mess you made with that Lehman move of yours. Yeah, so why don’t you run along to your libertarian chat rooms and have your little debates about Jekyll Island and the gold standard, because it really means a lot to us. And report back to me as soon as you have it all figured out, m’kay? Just get the fuck out of my face and leave the adults alone.”

It got a lot more vicious and personal than this, but when our verbal slap-fight ended–and he paid the bill–I thought about what he said, and it made a lot more sense. Fraud has become so endemic in this country that it’s woven its way into America’s DNA, forming a symbiotic relationship that can’t be undone without killing off the host. If they push it just a little too hard, the entire American economy could crash, asset values could tank, and that means tens of millions of extremely pissed off retirees and Baby Boomers. As the Wall Streeter put it: “Whoever is responsible for bursting this latest bubble by exposing all the fraud–and tanking all the markets–will not only be out of power for at least a generation, but they’ll all have to get radical reconstructive surgery on their faces and seek political asylum somewhere remote. No one wants to be that guy, and that’s why it’s not going to happen.”

That may be true, but all bubbles to eventually burst, all Ponzi schemes do collapse. The only question is when. For those of us not on the verge of retiring, the sooner we have this day of reckoning and get it over with, the better.

Fraudonomics: 10 Fun Fraud Facts

Ever since I got kicked out of Russia and forced back home, I’ve been collecting all kinds of news articles about fraud, in a document file titled “America Is Russia.” Here’s a little taste of the wonderful world of American Fraud:

1). Accounting Fraud: Last year, America’s leading banks were insolvent. They had tens or hundreds of billions in losses on their books, and the only way to wipe those losses out would be to either a) own up to the mess, raise enormous amounts of money on top of all the bailout money; or b) get out a big fat eraser, and wipe those losses off the books as if they never existed. The first option was nice and all, but a real hassle. So Geithner and Larry Summers chose Door Number Two: Accounting Fraud. They forced the FASB to accept a rule-change in the accounting methodology called “mark-to-model” which let banks decide how much their assets were worth, rather than letting the markets decide. So if for example a BofA owned a complex security called “Orion Butt Fungus” that was worth 5 pesos on the open market, but BofA was too broke to go out and raise 5 pesos to cover that loss, under the new accounting rules, the government told BofA that rather than pricing “Orion Butt Fungus” at what the market will actually pay for it, why not first ask, “How much would BofA like ‘Orion Butt Fungus’ to be worth, in a perfect world?’” If BofA answers, “Doyee, gee I dunno, how about $500 million?” then under the “mark-to-model” accounting rules, BofA could now value “Orion Butt Fungus” at $500 million, and voila! Their problems are over. That wasn’t so hard, was it? Suddenly, BofA looks like it knows how to pick winners! And no one’s going to second-guess them, because everyone else is mark-to-modeling their “Orion Butt Fungi” too! The end result: under the old rules, BofA would have had to raise money just to cover its debts, sort of like you and me have to do, and that’s just a lot of money going to waste. But now that its portfolio is so profitable, BofA has a much easier time raising money, which it uses to pay ginormous bonuses to its executives.

2). Big Pharma Fraud. Remember that scene early in Fight Club, when Edward Norton explained his job, when it was more profitable to let a car defect go and pay whatever lawsuit settlements come from the deaths, and when it’s better to recall the cars because the number of deaths will result in too many lawsuits? This is humanitarian do-gooder stuff compared to the savage real-world fraud-for-profit model that drives America’s drug companies. It’s really simple and it goes like this: the more fraud a drug company commits, so long as it’s off-the-scale fraud with the most horrible consequences for the victims, the drug company’s profits always outdo the criminal fines and lawsuits by factors of 20, 30, 100… It’s as simple as that. Because the billion in penalties here or the two billion in class action lawsuit settlements there are always far less than the tens of billions you earn from pushing harmful drugs on unsuspecting idiots. To wit: Between May 2004 and March 2010, a handful of top drug companies like Pfizer, Eli Lilly and Bristol-Myers paid over $7 billion in criminal penalties for bribing doctors to prescribe drugs for unapproved uses, with sometimes deadly consequences. However, as a Bloomberg report noted, the fines are always a fraction of the profits–Pfizer alone paid almost $3 billion in criminal fines since 2004, yet that was just one percent of their total revenues; Eli Lilly got busted bribing doctors to prescribe a schizophrenia drug, Zyprexa, to elderly patients suffering from dementia, even though company-run clinical trials showed an alarming death rate of 31 people out of 1,184 participants (double the placebo rate). Whatever–the market for elderly dementia patients meant billions in extra revenues. So Eli Lilly continued pushing Zyprexa on the elderly for another four years until it the Feds busted them. Eli Lilly got hit with $1.42 billion fine, but that was peanuts compared to the $36 billion it earned on Zyprexa sales from 2000-2008. To make it happen, the drug companies buy off all the checks and balances: lawsuits revealed the enormous bribes they pay to doctors, and even America’s medical journals are so corrupted by drug company influence that they’re no longer reliable as much more than hidden advertisements, according to a recent UCSF study. Medical journals are 5 times more likely to publish “positive” drug reviews than negative reviews, and one-quarter of all clinical trials are never published at all, leading doctors to prescribe drugs assuming they have all the information. The result: prescription drugs kill one American every five minutes …while Americans pay more for drugs than anyone in the world, spending a total of $12 billion on drugs in 1980 to spending $291 billion in 2008–a 1,700% increase. America is ranked only 17^th in the world in life expectancy.

3). Alan Greenspan: Fraudonomics Maestro. America’s central banker from 1987-2006 once told a do-gooder regulator not to fuck with the bankers’ fraud schemes, because in Greenspan’s mind, fraud was not a crime and didn’t need to be regulated. Then Greenspan forced the regulator, Brooksley Born, to resign. Just in time for his next and final act as Central Bank chief: from 2001-2004, Greenspan pumped up the biggest housing bubble in human history by holding rates down to nothing, while touring the country promoting the glories of subprime and Alt-A mortgages. Then in late 2005, when the bubble was ready to burst, Greenspan tendered his resignation and switched over to the other side, signing lucrative contracts with three investment firms all of which bet big against gullible American homeowners, and reaped billions. First, Greenspan signed up to work for Deutsche Bank, which is being sued for securities fraud for selling an Abacus-like CDO to a Warren Buffett-owned bank, M&T; Greenspan also worked for Pimco, which earned $2 billion in a single day in September 2008, when Fannie Mae and Freddie Mac were nationalized with Greenspan’s lobbying help; and lastly, Greenspan went to work for Paulson & Co., the hedge fund that raked in $1 billion off the same Abacus CDO deal that brought the SEC fraud suit against Goldman Sachs. It’s an unusually perfect record for Greenspan, given his atrocious forecasting record at the Fed. It recalls the old Greenspan circa 1984-5, when he worked as a lobbyist for Charles Keating trying to push regulators off his back and vouching on the record for Keating’s character…Keating was eventually jailed for fraud in the worst savings and loan collapse of all.

4). Municipal Debt Fraud. America’s $2.8 trillion municipal bond market is rife with fraud of the sort you’d expect in an emerging tinpot economy: opacity rather than transparency, plenty of corruption and kickbacks, resulting in decimated budgets and services cutbacks in communities across the country. The problem all stems from way the bonds are issued these days: instead of holding open tenders, nearly all are the result of backroom deals. Back in 1970, only 15 percent of municipal bond contracts were awarded through no-bid contracts; last year, 85% of muni bond deals were assigned in no-bid, non-transparent agreements. Studies show that no-bid bonds invariably cost municipalities more than bonds resulting from open tenders. So far, fraud and corruption charges have been leveled against state employees and city councilors in Florida, New York, New Mexico, Alabama and California, to name a few. Muni bond defaults soared from just $348 million in 2007 to $7.4 billion in 2008–that’s an increase of 20 times– with growing numbers of cities, counties and states on the verge of bankruptcy.

5). Journalism fraud. The Washington Post got caught whoring out their venerable editorial staff to corporate lobbyists for anywhere from $25,000 to $250,000 a date, depending on the access. The Atlantic Monthly admitted to TalkingPointsMemo that it routinely sold access to its editorial staff for cash. As for business journalism, all sorts of articles and studies have asked the obvious question: “How did every mainstream business outlet miss the financial collapse of 2008?” Among all the self-flagellating mea-kinda-culpas, you won’t find the word “fraud” in their answer. Speaking of business journalism and fraud, The Business Insider, one of the top business news blogs, published a pair of articles defending Goldman Sachs against the SEC fraud charges. The author of the articles defending Goldman Sachs is Business Insider’s co-founder and editor, Henry Blodget. In 2003, Blodget himself was charged with securities fraud by the SEC for repeatedly misleading clients into buying stocks of companies that in private emails Blodget referred to as “piece of shit.” Under the terms of Blodget’s settlement with the SEC, he agreed to a lifetime ban from the securities industry, and he paid $4 million in fines and disgorgements. Since he is not barred from the world of business journalism, Blodget was able to post an article last Friday headlined: “HOLD EVERYTHING: The SEC’s Fraud Case Against Goldman Seems VERY Weak.”

6). Fraudonomics K-12. If you want your kid to grow up to succeed in a fraud-based economy, you need to teach him the ABC’s of cheating starting at a young age. This is one area where America’s schools aren’t failing their students. Cheating is so rampant in schools that nowadays if the student doesn’t cheat on his exam, chances are his teacher or administrator will cheat on his test for him. One in five elementary schools in Georgia are currently being investigated for tampering with the students’ standardized test scores–although suspicious patterns of erasing and remarking answers showed up in half of the state’s elementary schools. In California, as many as two-thirds of its public schools admitted to fudging its students’ standardized test scores. A survey of graduate school students found that 53 percent of business school grad students admitted to cheating, more than any other grad school discipline. Overall, up to 98 percent of college students today admit to cheating, compared to just 20 percent who cheated in 1940.

7). Boardroom Fraud. Corporate America’s boardrooms are stacked up these days in tight, intertwined relationships that turn public companies into crime scenes, plundering money from unsuspecting shareholders and divvying up the loot among the directors and top executives. In 2008, Chesapeake Energy’s stock price collapsed from $74 per share to $9.84, wiping out $33 billion in shareholder value. The CEO, Aubrey McClendon, gambled and lost 94% of his stock in the company on a margin call, personally losing about $2 billion. So what did the board of directors do? They voted to award McClendon $112 million for 2008, the highest of any CEO in America. Shareholders were outraged, calling it a “bailout,” and several pension funds tried suing Chesapeake, but the courts in Oklahoma blocked the lawsuits. That’s because Aubrey McClendon is sort of the George Bush of Oklahoma–a spoiled fuck-up with a rich and powerful granddaddy–Robert Kerr, former governor and senator, and founder of Kerr-McGee–meaning plenty of VIP connections for the loser grandkid. So on Chesapeake’s board, you had Aubrey’s cousin, Breene Kerr; Frank Keating, Republican ex-governor of Oklahoma whose son Chip (and Chip’s wife) works for Chesapeake; Don Nickles, Republican ex-Senator of Oklahoma who co-funded with Aubrey the Republican anti-gay marriage campaign in 2004; Richard Davidson, the former head of Union Pacific, whose corrupt board of directors lavished Davidson with tens of millions in bonuses and a $2.7 million per year pension when he retired… Now multiply a board of directors like this by the sum total of “Corporate America” and you get…a corrupt, tin-pot corporate culture masquerading as a civilized First World corporate culture. That’s us. (You can read about this problem in an excellent new book Money For Nothing: How The Failure of Corporate Boards is Ruining American Business and Costing Us Trillions.)

8). Corrupt credit rating agencies. The only way big institutional investors like pension funds could justify buying a piece of the Orion Butt Fungus CDO pie was if ratings agencies like S&P or Moody’s gave it a top-notch seal of approval: AAA rated, with a little star on the forehead for good behavior. And in the world of fraudonomics, good behavior looks like this email from a Standard & Poor ratings analyst in December 2006:

“Rating agencies continue to create an even bigger monster _ the CDO market. Let’s hope we are all wealthy and retired by the time this house of cards falters.”

The happy ending to this story is that a huge percentage of thieving scum like this emailer saw their hopes become reality: they got wealthy and retired before the CDO market crashed in a trillion-plus dollar heap of shit. And if they didn’t retire, even better–because bonuses in 2009 were soaring, thanks to the always-gullible American taxpayer.

9). Regulatory Fraud: In the OTS, OCC, Fed, pension benefit guaranty agency and of course the SEC, where whistleblowers were routinely ignored because the regulators were too busy painting their monitors while surfing sites like www.fuck-my-wife.com.

10). Judicial Fraud: Juvenile court judges in Pennsylvania took millions of dollars in kickbacks from privately run prisons in exchange for sentencing thousands of innocent kids to juvenile prison terms. Chronic on-the-bench masturbation is running rampant: an Oklahoma judge was accused of using a penis pump on the bench, while nearby in Texas, a Harris County judge masturbated and ejaculated on a defendant’s hand. Speaking of Texas, the entire juvenile prison system there was turned into a sex abuse racket involving Texas state officials–over 750 official complaints about prison administrators molesting or raping underaged inmates in all 13 juvenile facilities had been officially logged between 2000 and 2007.

The list goes on and on. Hell, even our literature was corrupted with fraud: James Frey’s addiction “memoir” A Million Little Pieces turned out to be A Million Pieces of Bullshit, the biggest literary fraud of our time. Fooled readers sued, Oprah chewed him out and Frey is now a bestelling “fiction” author.

This is just scratching the surface, but you get the point. We’re way past the point of redemption. No wonder everyone’s dreaming of a violent apocalypse to wipe the slate clean, and take us away to another plane where everything would be better. Anything but this.

Most Senators Who Questioned Goldman Sachs Also Took Money From Its PAC and Employees

By Matt Cover, Staff Writer

(CNSNews.com) – Most of the 10 members of the Senate committee who grilled top-ranking employees of Goldman Sachs last month have accepted campaign contributions from either the bank’s political action committee (PAC) or its employees.

 
Goldman executives – including CEO Lloyd Blankfein – were called before the Senate Homeland Security and Government Affairs Committee’s Permanent Investigations Subcommittee on April 27 to answer questions about the bank’s conduct during the run-up to the 2008 housing crisis.
 
However, according to Federal Elections Committee information collected by OpenSecrets.org, all but one of the subcommittee’s 10 members have taken thousands of dollars in campaign contributions from Goldman’s official political arm or from individual employees.
 
One senator, Ted Kaufman (D-Del.) was appointed to replace now-Vice President Joe Biden and is not running for reelection – and thus is not in need of campaign funds. The remaining nine members of the subcommittee have accepted contributions from Goldman Sachs’s PAC or its employees.
 
While the contributions received by members of the subcommittee pale in comparison to the more than $1 million the company and its employees gave to President Obama’s 2008 campaign, they are not insignificant amounts.
 
Senator John McCain, a presidential candidate in 2000 and 2008, has received $337,065.00 from Goldman’s PAC and Goldman employees since 1998. Most of that money ($329,610) came from individual Goldman employees during McCain’s two presidential runs. The other $7, 455 came from Goldman Sachs PAC.
 
In 2008, Goldman’s PAC and its employees gave $230,095 to McCain’s presidential campaign.
 
The next highest recipient of campaign donations from Goldman Sachs is Sen. Susan Collins (R-Maine) who has accepted $33,650 — $18,500 from Goldman Sachs PAC and $15,150 from Goldman employees.
 
During the hearing, Collins said that Goldman’s trading and investment activity was “unseemly,” and she said the time had come for Congress to pass tougher regulations.
 
“There is something unseemly about Goldman betting against the housing market at the same time it was selling mortgage-backed securities,” Collins said at the April 27 hearing. “Clearly, this system must be reformed so that Wall Street banks are not seen and do not act as unscrupulous operators who seek to profit from the public’s misfortune even as they’re pitching toxic investments and even as hard-working struggling taxpayers are left to pick up the tab.”
 
Collins was referring to two different activities Goldman engaged in. The first, known as market-making, involves investment deals structured by Goldman Sachs at the request of a client – usually a professional or institutional investor. In such a transaction, Goldman structures the deal and then offers it to the client, who may either invest in it directly – called a long position – or buy an insurance policy against it – known as going short. Goldman often takes the opposite position of its client.
 
The other activity, known as proprietary trading, is when Goldman uses its own money to invest directly in financial markets – making money directly from these investments instead of from the fees collected through market making. The ethics of doing both market-making and proprietary trading at the same time – and on the same investment products – was a recurring theme of the April hearing.
 
The Democrat who has collected the most money from Goldman’s PAC and its employees is Sen. Tom Carper (D-Del.) who has taken $23,500 since being elected in 2001 — $13,500 from Goldman Sachs PAC and $10,000 from Goldman employees.
 
Another major recipient of contributionsis Sen. Mark Pryor (D-Ark.) who has accepted $21,100 since being first elected in 2003 — $10,000 from Goldman Sachs PAC and $11,000 from Goldman employees.
 
The remaining sub-committee members have all taken less than $20,000 from Goldman’s PAC or its employees over their careers, according to OpenSecrets.org. Sen. Claire McCaskill (D-Mo.) has received the most out of this group — $15,750, all from Goldman employees.
 
McCaskill compared Goldman’s business to “raw gambling” and compared Goldman’s complex financial deals to sports book-making.
 
“It’s gambling: pure and simple, raw gambling,” she said. “You are the bookie, you are the house. You have less oversight and less regulation as you all began this wild, wild west of tranches, waterfalls, equity tranches, residentials, warehousing, as you began all that, you have less oversight than a pit boss in Las Vegas.”
 
Democratic Sen. John Tester (D-Mont.) also cracked the $10,000 ceiling, raking in $10,800 from Goldman employees since being elected in 2006.
 
Republican Sen. John Ensign (R-Nev.), who disputed McCaskill’s Las Vegas analogy, has received $8,250 from Goldman and its employees since 2000. Ensign said that in Las Vegas, every gambler knows that the odds are stacked against them. Ensign said that on Wall Street, investors don’t always know what is going to happen.
 
The subcommittee’s two most senior members, Sens. Carl Levin (D-Mich.) and Tom Coburn (R-Okla.) are the recipients of the least amount of money from Goldman Sachs. Coburn has received only $5,500 from Goldman employees and none from Goldman Sachs PAC.
 
Levin, perhaps the bank’s harshest critic, received only $7,500 – all from Goldman employees. Levin accused Goldman of manipulating its clients for its own profit, actions which contributed to the collapse of the overall financial system.
 
“Goldman’s actions demonstrate that it often saw its clients not as valuable customers, but as objects for its own profit. This matters because instead of doing well when its clients did well, Goldman Sachs did well when its clients lost money. Its conduct brings into question the whole function of Wall Street, which traditionally has been seen as an engine of growth, betting on America’s successes and not its failures.”

World Markets Worried About Sovereign Debt Crisis

By Joel Bowman

05/05/10 Hong Kong, China – “Voted the best people-watching spot in Hong Kong.”

There you have it, emblazoned on the back of the waitresses’ dark blue, button down shirts. And who are we to argue? Certainly, from our perch here on the corner of Staunton and Shelley, a few feet away from the world’s longest escalator, the view is an interesting one.

We wonder what these passers-by are thinking…

A rough looking man, perhaps of Middle-Eastern descent, ambles along the narrow sidewalk. He is unkempt and carries on his shoulders a tattered rucksack full of who-knows-what. A group of Asian schoolgirls, dressed in white blouses and pleated skirts, cross the street when they see him approaching. Hurtling along the winding thoroughfare, a red cab threatens for a moment to swipe the stragglers off their feet. They giggle to each other as they bound up the curb, casting a second glance back at our wanderer. If he has noticed anything at all, his expression doesn’t reveal it. He just continues along his way, on and on, up the hill…

A trendy young couple takes a seat at the front of the restaurant. He wears his collar turned up and flashes a toothpaste-advertisement grin. His legs are shaved. Maybe he’s a cyclist? Or a swimmer? Wait…no…now he’s smoking. Well, who knows? She is a petite Asian beauty with slightly darker skin, perhaps from the Philippines or Malaysia. Her body language is confident, but for the briefest moment we catch an almost imperceptible sadness in her eyes. Then, in a flash, it’s gone. The waiter arrives with the couple’s drinks. They raise their glasses, looking pleased with themselves, more or less…

Another rambler, a Sikh wearing a football jersey and a Dastar, passes by the window. And there goes a young woman, a European foreigner, perhaps, walking behind a hundred dogs. Did she come here to walk other people’s pets? We can’t say for sure. Times are tough. And here, in walks another young lady, this one with her parents in tow. She directs them to a table opposite the counter, throwing a warm, familiar wave to the handsome Nepalese barkeep. She’s been here before. Her folks, with shirts tucked into their jeans, are most likely visiting. She looks at dad before ordering a glass of wine. He glances at mom and smiles. They look proud…

A kilometer or so down the hill, a few escalator stops away, the financial markets are selling off. The Hang Seng is down almost 2% so far today. Taiwan, South Korea, India, Indonesia are all down heavily, too. Australia’s markets, mostly resource driven, were under pressure early, off 1.3% when we checked a few moments ago. Miners there led the move to the downside for a second straight day, with BHP Billiton Ltd. slipping more than 4% in Sydney before we’d even had the chance to order a glass of wine and a few nibbles.

The general trend lower across the region echoes similar moves by markets in Europe and the US overnight. The S&P 500 slid 2.3% during yesterday’s trading, despite some enthusiastic hollerings out of the manufacturing sector. Major indexes were off for a third consecutive day in Europe. Bourses from the Thames to the Rhine and beyond were last seen languishing near their lows for the session.

Investors around the world have suddenly become wary of sovereign debt “contagion” in Europe. They’re worried that Greece’s financial woes might soon learn to speak Spanish…and Italian…and Portuguese. The problem, folks are coming to realize, is that government balance sheets are riddled with the hot potato debts of other government balance sheets. Dan Denning, filing his reckonings from his DR office in Melbourne, sent us this helpful little graphic, courtesy of The New York Times.

As the song goes, “the Greek bone’s connected to the…other bones” …or something like that. And now, with lenders pushing the cost of capital ever higher for the languishing Euro economies, the whole skeletal structure threatens to collapse into a pile of broken bones before too long. It’s not a new story, to be sure…just a convenient reason to sell. Sometimes, that’s all an overbought market standing atop a phony recovery needs to hit the skids.

Unsurprisingly, the euro continued its southbound trajectory today. Some, including Guy Wyser-Pratte, whose investment fund targets undervalued European equities, suggested the beleaguered currency could even hit parity with the greenback, something not seen since 2002. Currently it sits just under $1.30.

Meanwhile, Down Under, investors were clobbered again today after the government-commissioned Henry Tax Review recommended onerous tax increases on resource companies. More on that kerfuffle later in the week but, suffice to say, the Rudd administration looks bent on slaying the goose that mined Australia’s golden egg.

What Civil Unrest in Greece Looks Like

By Rocky Vega

05/05/10 Stockholm, Sweden – Today, some 18,000 Greeks took to the streets in intense and violent protest against the new austerity measures recently launched. Greece, to lock in EU and IMF support, has instituted measures including reduced salaries for public workers, pension freezes, and increased sales tax.

Bloomberg reports that despite the presence of about 1,700 police officers, a fire started at Marfin Egnatia Bank SA spread quickly and tragically resulted in three deaths.

The picture below is from The Business Insider, and to get a better sense of the civil unrest taking place there you can visit its coverage of the most violent Greek riot yet.

An Even Better Trade of the Decade, Part II

By Bill Bonner

05/04/10 Baltimore, Maryland – Part II of our speech in Las Vegas, in which we explain why the US will go broke:

What does it mean when the financial intelligentsia seems to have no idea what is going on? It means they’ve got the wrong idea about the way things work…and probably no incentive to have the right one.

Goldman Sachs had 21 billion reasons to think it was a good idea to bail out AIG. The bankers who hold Greek debt have 146 billion reasons to like the bailout announced yesterday. And the US government has about 2 trillion reasons to believe the economy is growing.

[As we explained yesterday], there were 8,000 billion numbers between Hank Paulson’s estimate of how much taxpayers’ money would be put at risk rescuing Wall Street and the actual fact. But Hank Paulson is by no means the only major authority or financial celebrity to be wrong. The folks running money for Harvard and Yale – the crème de la crème of financial managers – were spectacularly wrong too.

And so were the people running major banks. But today I will mention just one of them…someone who had already settled up when the financial crisis of ’07-09 arrived. Walter Wriston was the Chairman of Citibank…the bank that eventually got taken over the federal government in the general panic of 2008…he remarked that:

“Governments can’t go broke.”

And here I’ll do a little speculation – I bet that Citibank would NOT have had to seek government support if it had been run by a historian.

Financial history is full of government bankruptcies. The first modern nation to go broke was Spain – which did so 4 times in the 16th century.

The book by Ken Rogoff and Carmen Reinhardt has a nice list of these state bankruptcies. You’ll see there are dozens of them. Some countries seem to be bankrupt all the time. Greece, for example. According to Rogoff and Reinhardt, Greece has been in default about every other year since it gained its independence in the 1820s.

And I’ll offer you a prediction, before this decade is over…or perhaps the next one…dozens of countries will go broke, including the United States of America.

I don’t mean they will close down and go out of business. But they will default on their debts – either by ceasing payment, by forced restructuring, or by intentional inflation.

How do I know that? Well, I don’t. It’s just a guess. And it’s a guess that comes from reading history…not from doing mathematics.

Generally, as I told an audience in India, we seem to be at some major inflation point. I call this period the Great Correction, because it appears that there are several things that are in the process…or perhaps only the very beginning…of being corrected.

1. There is the 50+ year credit expansion – centered in the US…largely a product of the modern, numbers-oriented way of looking at economics
2. There is the bull market in stocks, begun in 1982…correction began in 2000 and still is not fully realized. That bull market too owed a lot to modern financial thinking
3. There is the 28-year-old bull market in bonds, which apparently came to an end in the fall of 2008…but has not yet been completed. Again, this was made possible and sustained by the financial ideas of the mid-20th century
4. There is even a 400-year boom in Anglo-Saxon culture – backed by military and economic force – which may be beginning a correction too. And it wouldn’t surprise you to know that these new, modern financial theories are almost entirely the product of Anglo-Saxon academics…

All of these things are connected. The common thread is the 5th thing that needs to be corrected…and the thing I’m going to focus on here today. It’s the rise of a body of thought concerning the way the world works – at least the world of money – which began in England and then was developed in the United States…

…on Friday, I called it “Fab Finance” after the Frenchman who got charged with fraud by the SEC. The idea is to put together slimy packages of debt and sell them to people who don’t know what’s in them. “Lumps for Chumps,” you might call it.

Poor Fabulous Fab got stuck in the hot seat, but he was only following the logical development of a whole body of thinking that dates back almost 100 years….

…and which now seems to be leading the world to something much bigger and much more dangerous than just blowing up a few hedge funds and German banks…

Now, practically all the world’s countries are using Fab Finance. They’re gradually absorbing all the world’s financial risks and putting them on the public accounts…ultimately backed by the full faith and credit of the United States of America.

This year, governments around the globe will issue $4.5 trillion in debt – three times the average over the last 5 years. About $2 trillion of that will be issued by the US.

What’s more, there is NO EXIT from this debt build up. Only about 10% of these deficits is really caused by the financial downturn. Most of it is structural. That is, it is the result of programs that have been in place for years…

These programs just grow and grow…year after year…until they become unsupportable. And most of these programs are sold as Fab Finance…they transfer small, individual risks onto the balance sheet of the whole country.

In fact, if you had to sum up the entire effect of Fab Finance – the whole body of ideas and theories of modern, anglo-saxon economics in the 20th century – you could say that they took small problems and turned them into big ones.

Instead of running the risk that a few people will retire without sufficient funds, we now face the risk that the whole country will run out of money.

Instead of taking the risk that some people will not be able to afford health care, we now run the risk that the whole nation will be bankrupted by public health care costs.

Instead of allowing a few badly managed financial institutions to go under, the feds have put the entire credit of the United States of America at risk.

And in Europe, we see the same thing. Instead of allowing tiny little Greece to go bust, the Europeans are spreading the risks out all over the Eurozone.

I’m sure other speakers will talk about this, so I won’t go into details. It’s the most important economic event of our time. After a huge run up in debt in the private sector, now the public sector is having a go at it…and rolling it up into bigger and heavier balls.

And what happens when the government spends too much and borrows too much? History tells us what happened in the past. Philosophy tells us what should happen. Governments go broke. Always have. Always will.

But I’d like to share with you a headline from The Washington Post on Wednesday. The Post is the paper the politicians and bureaucrats read. So you can imagine how penetrating its insights are.

Well, the headline that made me laugh was this:

“Task force to tackle National Debt.”

Not many things are certain in this life. But I can guarantee you that the bipartisan task force will not get close enough to the National Debt to read the number on its jersey, let alone tackle it.

The Great Depression convinced economists that they needed to be more activist. Now, our economy is responding to economic activism. And it will be destroyed by these modern ideas…and then, and only then, will new ideas arise.

We’re going to see a correction…a regression to the mean of a number of things…including the way people think.

It is not normal to think you can spend your way out of debt.

It’s not normal to think you can consume capital and get richer.

It’s not normal to believe that central economic planning will make the world a better place. The Soviets proved that central planning doesn’t work. We got to see that experiment. But instead of learning from it…we seem destined to repeat it.