Frank Rich is taking on Goldman Sachs today in the New York Times. Itâ€™s not his best written column but there are some parts that are essential reading.
It was hard not to think of Rockefellerâ€™s old P.R. playbook while watching Goldman Sachsâ€™s behavior when the Dow hit 10,000 last week. As leader of the Wall Street pack, Goldman declared surging profits, keeping it on track to dispense a record $23 billion in bonuses for 2009. But most Americans know all too well that only the intervention of billions of dollars in taxpayer bailout money saved Goldman from the dire fate of its less well-connected competitors. The growing ranks of under-and-unemployed Americans, meanwhile, are waiting with increasing desperation for a recovery of their own.
Goldman is this centuryâ€™s octopus â€” almost literally so. The most-quoted sentence in financial journalism this year, by Matt Taibbi of Rolling Stone, describes the company as a â€œgreat vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.â€ Thatâ€™s why Goldmanâ€™s chief executive, Lloyd Blankfein, recycled Rockefellerâ€™s stunt last week: The announcement of Goldmanâ€™s spectacular third-quarter earnings ($3.19 billion) was paired with the news that the company was donating $200 million to its own foundation, which promotes education. In Goldman dollars, that largess is roughly comparable to the nickels John D. handed out to children a century ago. At least those kids could spend the spare change on candy.
Teddy Rooseveltâ€™s trust-busting crusade ultimately broke up Standard Oil. Though Goldman did outlast three of its four major rival firms during last fallâ€™s meltdown, it is not a monopoly. And there is one other significant way that our 21st-century vampire squid differs from Rockefellerâ€™s 20th-century octopus. Americans knew what oil was, and they understood how Standard Oilâ€™s manipulations directly affected their pocketbooks. Even now many Americans donâ€™t know what Goldmanâ€™s products are or how it makes its money. The less we know, the easier it is for reckless gambling to return to capitalismâ€™s casino, and for Washington to look the other way as a new financial bubble inflates.
Here is the money quote
The first stab at corrective legislation emerging from Barney Frankâ€™s Financial Services Committee in the House is porous. While unregulated derivatives remain the biggest potential systemic threat to the worldâ€™s economy, Frank said that â€œthe great majorityâ€ of businesses that use derivatives would not be covered under his committeeâ€™s much-amended bill. Itâ€™s also an open question whether the administrationâ€™s proposed consumer agency to protect Americans from mortgage and credit-card outrages will survive the banking lobbyâ€™s attempts to eviscerate it. As that bill stands now, more than 98 percent of Americaâ€™s banks â€” mainly community banks, representing 20 percent of deposits â€” would be shielded from the new agencyâ€™s supervision.
If itâ€™s too early to pronounce these embryonic efforts at financial reform a failure, itâ€™s hard to muster great hope. As the economics commentator Jeff Madrick points out in The New York Review of Books, the American public is still owed â€œa clear account of the financial events of the last two years and of who, if anyone, is seriously to blame.â€ Without that, there will be neither the comprehensive policy framework nor the political will to change anything.
On of the links in the column go back to a Rolling Stone article about how Goldman Sachs has manipulated the markets over the years.
Then there is this article about how the markets sure look like they were manipulated to kill off Bear Stearns and Lehman Brothers while the SEC hasnâ€™t bothered even doing a thorough investigation.
On Tuesday, March 11th, 2008, somebody â€” nobody knows who â€” made one of the craziest bets Wall Street has ever seen. The mystery figure spent $1.7 million on a series of options, gambling that shares in the venerable investment bank Bear Stearns would lose more than half their value in nine days or less. It was madness â€” "like buying 1.7 million lottery tickets," according to one financial analyst.
But what’s even crazier is that the bet paid.
At the close of business that afternoon, Bear Stearns was trading at $62.97. At that point, whoever made the gamble owned the right to sell huge bundles of Bear stock, at $30 and $25, on or before March 20th. In order for the bet to pay, Bear would have to fall harder and faster than any Wall Street brokerage in history.
What a mess.