Goldman Sachs responds to Taibbi
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I just got off the phone with Lucas van Praag, the top flack at Goldman Sachs, who called Matt Taibbi’s piece on the bank “hysterical”. He also sent me an email, which makes some specific responses to Taibbi’s points:
Having read your piece about Matt Taibbi’s article in Rolling Stone, I wanted to set the record straight, particularly about “regulatory capture”.
Background: Under the Commodity Exchange Act, the CFTC (for agricultural futures) or exchanges (for energy/metals futures) established speculative position limits. As much as anything else, the limits are intended to prevent market imbalances that would result in failures of the ultimate settlement of the futures contracts.
The CFTC rules exempt “bona fide hedging” transactions from these spec limits. A bona fide hedging transaction was originally understood to be an actual producer/consumer who was selling or buying the underlying commodity and wanted to hedge risk of the price moving up or down. In 1991, J. Aron wanted to enter into one of its first commodity index swap transactions with a pension fund. In order to hedge our exposure on the swap, we wanted to buy futures on the commodities in the index. We applied to the CFTC for exemption from position limits on the theory that even if we weren’t buying the commodity, we had offsetting exposure (in our swap) that put us in a balanced/price neutral position. The CFTC agreed with our argument and granted exemption. By the way, each of the then Commissioners signed off, so it was hardly a secret…
The CFTC published a report in August 2008, indicating that there were few instances when entities would have exceeded spec limits, had they applied to OTC positions.
Yesterday, as you probably know, the Senate Permanent Sub-Committee on Investigations issued a report on wheat futures in which they concluded that divergence between prices for actual wheat v. wheat futures is being caused solely by index investment. The Committee’s recommendation is that hedge exemptions which support indices should be phased out.
Not quite so recently, the elimination of Glass Steagall doesn’t exactly provide a robust argument for regulatory capture. And Taibbi’s bubble case doesn’t stand up to serious scrutiny either. To give just two examples, even with the worst will in the world, the blame for creating the internet bubble cannot credibly be laid at our door, and we could hardly be described as having been a major player in the mortgage market, unlike so many of our current and former competitors.
Taibbi’s article is a compilation of just about every conspiracy theory ever dreamed up about Goldman Sachs, but what real substance is there to support the theories?
We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance of being a force for good.
Van Praag is right that if the Senate is recommending that Goldman’s exemptions in the futures market be phased out, then the Senate, at least, has not been captured by Goldman. And he’s also right that Goldman can’t really be blamed for creating either the tech-stock bubble or the housing bubble — it was a relatively minor player in both.
But you don’t read a Taibbi rant for an evenhanded look at both sides of a complex story. It’s more a forcefully-put case for the prosecution: some of his charges might not stick, but he’ll throw a few chancers in as well for good measure. (Interestingly, though, even Taibbi didn’t try to include Ben Stein’s ridiculous conspiracy theory about Goldman’s chief economist trying to drive down the prices of mortgage bonds in order that Goldman could profit from its short positions.)
I disagree with van Praag that the CFTC exemption given to J Aron “was hardly a secret” — as far as I know, there was no contemporaneous reporting of it at all, either in the press or in Goldman’s own filings. And although there’s a strong case to be made that Goldman has failed to capture the legislative branch (see for instance Chris Dodd jumping on the Ben Stein bandwagon), I think there’s a pretty compelling case that both the executive branch (home to countless Goldman alumni) and the regulators, like the CFTC, have a pretty strong track record of doing whatever was in the best interests of Goldman Sachs.
Van Praag told me that in the wake of the events of the past year or two, Goldman’s partners have pretty much lost their appetite for going into public service. Maybe that’s for the best. They are generally smart and talented and knowledgeable people, and I daresay that many of them have done a lot of good after leaving the firm and joining government. At the same time, however, we’re supposed to have a government of the people, not a government of multimillionaire Goldman Sachs technocrats. And when you have the latter, you’re inevitably going to end up with a lot of mistrust and conspiracy theories sooner or later, whether they’re well-founded or not.
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Goldman Sachs is part of the Wall Street cabal that blew up the financial system. Now Goldman Sachs tells us that they are losing their appetite for “public service”. Is there anything left to loot?
“Van Praag told me that in the wake of the events of the past year or two, Goldman’s partners have pretty much lost their appetite for going into public service. ”
My cynical take on this is that, with the economy down and GS’s reduced competition, this would be a poor time for a government-mandated divestiture of GS stock.
So, no wonder they aren’t interested.
“I disagree with van Praag that the CFTC exemption given to J Aron “was hardly a secret” — as far as I know, there was no contemporaneous reporting of it at all, either in the press or in Goldman’s own filings.”
It only shows that you are talking above your head. It’s routine for the CFTC to grant exemptions from position limits for bona fide hedging. This is Reuters, not Rolling Stone, YOU should know that.
“…we are painfully conscious of the importance of being a force for good.”
LOL.
“Van Praag told me that in the wake of the events of the past year or two, Goldman’s partners have pretty much lost their appetite for going into public service.”
This is great news for the middle-class in this country – we can’t afford any more G-S “public service.” But G-S stakeholders won’t need G-S alumni to multiply their wealth at our expense; Geithner and Summers will do the job just fine. They are cut from the same cloth.
Watch as Team Obama extends the Bush tax cuts for the wealthiest Americans in the name of economic “stimulus”, keeps the capital gains tax rate at 15%, and maintains the hedge fund tax policy in its current state.
Interesting if they do stop moving into government. The company’s importance would then decline. A case of cutting off one’s nose to spite the face.
Taibbi’s article forgot to mention that Obama’s second largest donor was…you guess it right..Goldman. I would not believe either side. they’re all crooks that are out to get your money. I do not touch buy anything coming from Goldman or Rolling stones. LIARS….
How about “journalistic capture”? I can’t believe you accepted the GS flack’s spin that Taibbi was laying the blame for both the tech and housing bubbles on GS’s door. All Taibbi was saying was that GS profited immensely from the bad behavior that caused both of the bubbles. And that is why GS is envied and admired. They are like a fast destroyer to the rest of Wall Street’s aircraft carriers. Whereas Cit and BofA likely will sink beneath the waves as they continue to take on water from the housing/credit bubble, GS will live to fight another day on its owns terms because it could get out of the way of the mines. Taibbi’s perfect setup was starting with the start of the Great Depression – the last time that GS almost died from eating its own cooking. Except for the fact that it did indeed live to another day, it came very close to being that era’s Bear Stearns or Lehman. In any event, it was humbled for a half century and its partners never took their eyes off risk ever again until they went public and the risk would be mostly someone else’s problem.
Taibbi isn’t saying GS was the master puppeter of the two bubbles – they merely exploited them better than anyone else did. Which makes it ludicrous why anyone is spending one red cent of taxpayer money to keep these crooks going. A good start would be campaign finance reform and a ban on all golf/travel/food junkets for politicians paid for by any industry. If you want to influence legislation – write letters like the rest of us little people.
You forgot to mention that they are all jews. They also drink the blood of little christian children.
NB – don’t read this post for an evenhanded look at both sides of a complex story. It’s more a forcefully-put case for the prosecution.
I just emailed Matt to let him know that he forgot to mention Goldman being the second largest donor for Obama since I know he’s in the tank for Obama. They are all liars trying to make news. Ignore these crooks/losers, they don’t contribute to anything in your own life. Break free from these evil people.
The fact that they would respond at all is, I think,surprising and says quite a lot right there. Coupled with the fact that their response seems to be pretty weak tea.
You mention, as people often do, how intelligent they are. But intelligence doesn’t stand alone. People are complicated. For example, their putative intelligence could be offset by arrogance and avarice.
Take Corzine (please). A rabid Democrat acquaintance of mine told me recently that even the Democrats can’t stand him.
Whatever you want to say about Taibbi, there’s a lot to be questioned about the way the system works and who it enriches. Rob Johnson also just made this case, on the force of some serious econ street cred, rather a rant. http://www.newdeal20.org/?p=2677
Or, if that coding doesn’t work, you can copy this: http://www.newdeal20.org/?p=2677
>>Goldman’s partners have pretty much lost
>>their appetite for going into public service.
Now that the jig’s up, they no longer want to serve mankind?? Gee, what a shocker!
Matt Taibbi, I salute you.
I’m surprised Goldman hasn’t had one of its alums appointed to the CIA so Matt Taibbi can be “eliminated.”
But only after Goldman takes out a life insurance policy on him.
Hey rs: You said:
“I just emailed Matt to let him know that he forgot to mention Goldman being the second largest donor for Obama since I know he’s in the tank for Obama.”
But, here’s this from the article:
“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.”
I know it’s a long read, but maybe you should try it before commenting on whazt is or isn’t in it.
Taibbi’s article forgot to mention that Obama’s second largest donor was…you guess it right..Goldman
except that he more than mentioned it. did you read the article?
It’s fun reading flailing posts from members of ‘The Party of Personal Responsibility’.
It would be refreshing if you people ever, for a minute, took any personal responsibility for what you’ve wrought through your greed.
You actually beleive any thing Lucas the Sith Lord says? He’s to honest journlaism what Dick Cheney is to warm hugs.
I hear they are scheduling the surgery so that Obama can have his lips permanently sutured to Goldman Sachs collective ass..( ! )..!
Get ready, Salmon.
Your defense of greed may be tested again.
I just heard that Ida Tarbell is about to go after Standard Oil.
I also hear that Rockefeller’s already saying that it’s all lies.
Lost all respect for you, Felix. Taibbi’s article was fairer than it needed to be. I guess I can add you to my list of GS shills.
“[W]e are painfully conscious of the importance of being a force for good.”
Now that is truly “hysterical”!
Forget Al Qaeda, Goldman Sachs is the Real Terrorist Organization we need to worry about. They’ve destroyed our country in the name of greed and used taxpayer money to do it:
http://zerohedge.blogspot.com/2009/05/gu est-post-good-bad-and-gdp.html
It is time to come down hard on the criminal parasites known as Goldman Sachs and start prosecuting them to the fullest extent of the law.
.
. if Taibbi had a brain ,
—– he would be dangerous
I just loved the comment that “This is Reuters, not Rolling Stone, YOU should know that” referring to blogger’s ignorance of CFTC operating policies. Commenter is right. Reuters, you can’t BS your way through the regulation battles.
I agree with this writer’s Salmon’s comments.
I also know Taibbi is not an idiot or hysterical, and he presents a lot of examples to support his charges. The problem always ends up as the fact that Goldman has too many GoldMen running the show in DC. They pretty much own the place, and in my opinion, they may not be the ones actually committing the fraud, or instigating it directly, but they are one of the largest puppeteers pulling the strings on the mice below them, from other CEOs to politicians including presidents.
They PLAN Long term, 20-30 yrs down the line pushing legislation that will enable the plans they put in place, they have spent hundreds of millions on research, and statistical analysis paying the top financial product engineers for decades to dream up scenarios they can manipulate from afar and rake in billions.
Whats really scary is they’ve accomplished all that now and are likely planning for 20 yrs from now, to rake in Trillions.
Funny that no matter what the politicians and Goldman have to say the public reacts quite violently.
Can it be, we just don’t buy it anymore.
And we’re to believe anything Goldman says ‘why’? Give me a break. This is like a burglar telling why he was justified in torching your house after he robbed it. I’ll take Matt Taibbi’s word over any capitalist swine any day.
Goldman Sachs got what they wanted. Destruction of competitors ML, BSC and LEH now they will roll in the dough over the coming years. Sorry if I don’t consider Goldman Sachs the smartest traders on Wall Street, when you own all the information its easy to make money. At some point ask Lucas van Praag about the weekly market manipulation by Goldman Sachs. Simple example: ask Lucas van Praag who leaked the news prior to the Insurers getting access to TARP? Option volume doesn’t lie.
Having read the article in full, I fail to see how Goldman refuted any of the claims. Sure, they were not the only actors and may have been portrayed as a larger portion than they truly were, but the foundation remains.
It seems clear that the piecemeal removal of the safeguards of the depression were strategically initiated by actors fully aware of the benefits provided, blinded by the gravy train, and blissfully and willfully ignorant of the consequences – because they don’t care.
The way I see it, if the “parlor” games can be described so succinctly in an article then it is not feasible to purport that the participants of the greatest knowledge were not aware.
I want to say “shame on them”, but as I sit on my couch, I know with the fullness of my being that they don’t care. They really don’t care. The system of protections and laws priviledge them to such a great extent in their grand opulence that they have nothing to fear.
Let’s get down to brass tacks in respect of Taibbi’s article. If Goldman massively shorted a product on its own book it was selling to other investors as ‘appropriate’ then on record there MUST be indications/Emails/ research/ opinions that the product(s) being shorted were good, bad or ugly or simply worthless.
If this indeed exists (no one invests billions on the basis of a hunch, not even (especially) Goldman) then there would be a reasonable case against them in terms of their duties to the other clients they were managing who did not partake of this opinion and who should have been protected.
As an aside, has anyone worked out why they had so little -if any- exposure to Madoff?
@ Jon S,
“They don’t care”. But they will care. Public opinion is massively against them. If they think that doesn’t matter, then they’re not as intelligent as advertised.
I’m surprised Goldman hasn’t ordered one of its alums at the CIA to have Taibbi “eliminated.”
We are being governed by “Corporate Terrorists” and unfortunately nothing can be done to change this. They have complete and total control over this “Fake Capitalism”, this “Fake Democracy” and this so called “Free-Market”.
Curious that BP Oil Chairman, Mr. Peter D. Sutherland is also the Chairman of Goldman Sachs International.
Since BP Oil (British Petroleum) is owned by the British government does that mean that Henry Paulson, was working indirectly for the British government?
Matt Taibbi is one courageous, if outrageous, and efficacious MF (Master Factchecker.) I applaud his audacity and patriotism…could be wrong about 9-11 though.
If everyone understood his message, we might be able to stall the juggernaut long enough to survive as a species.
i believe taibbi says gs donated close to a million to obama
What Goldman Sach’s Van Praag’s defense tells me is that the scandal is not what Goldman Sachs and the other financial parasites did that was illegal.
To the contrary, the scandal is they did that was legal.
Correction to sentence two above:
To the contrary, the scandal is what they [Goldman Sachs] did that was legal.
reads like a hissy fit rather than a rebuttal
public, you have just been serviced by wall street.
From Iron Maiden, slightly modified “Run to the Hills”
Goldman Sachs came across Wall Street
Getting rich while bringing us pain and misery
Killed our dreams and killed our creed
Took our lives for Goldman’s own need
We need to fight them hard and fight them well
Out on Main Street we’ll give Goldman hell
But Goldman owns our Government mightily
Oh will we ever be set free?
Riding through dust clouds and barren wastes of Wall Street
Goldman gallops hard onto Constitution Avenue’s deceit
Chasing the taxpayers back to their holes
Fighting citizens in the name of free markets is their goal
Manipulating markets with taxpayer money is a stab in the back
It is time for women and children and cowards to attack
Run to the hills run for your lives
It’s Goldman Sachs that tells lies
Soldier Goldman sitting on his ass in glass towers
Manipulating and cheating is Goldman’s game
Raping the women and wasting the men
The only good citizens are tame
Selling them CDOs and taking their gold
Enslaving the young and destroying the old
Run to the hills run for your lives
It’s Goldman Sachs that tells lies
After reading Matt Taibbi’s article in Rolling Stone, could you all remind me again why Martha Stewart went to prison??
Thank you Matt!!! Everyone should read this, and hopefully people will demand answers and get some decent reactions. Congress spends their time doing what? Does anyone there have a clue? They are the robots doing GS’s will. Let me also include whatever president we have at the time.
Now I understand why I lost most of my money in the stockmarket in 2000 and I was blaming my Merrill Lynch broker. I thought I became wiser and starting handling my own money but got knocked again last year with the latest stockmarket mess.
I’m alerting everyone I know to read this article. It’s an eye opening alarm.
Where were all the tv news channels and commentators? Why did it take a journalist at Rolling Stone to make us aware of GS’s swindling ways?
It’s time for all Americans to wake up, read, think and also we might as well vote out all the politicans and see if the new group can do any better.
Goldman are simply excellent at making money.
This is because they capture the best talent and brains and do not take excessive risks. To suggest that they are behind a global conspiracy that manipulates governments and markets to fill the pockets of its partners is simply absurd and ridiculous. A team at J.P.Morgan were the inventors of credit derivatives which debunks the myth that Goldman created and engineered the current CDO meltdown for their profit.
The article mentioned private contributions to Obama. Is that separate from the corporate contribution that is listed as the second biggest contribution to the campaign?
When Chutzpa is elevated to CHUTZPA. Goldman Sachs along with Wall Street did a “MADOFF” on taxpayers. While “bankers” continue to enjoy a life they have quickly become accustomed to (think Bernie’s uptown move from Eastern Queens NY to Park Avenue — faster than you can say, where is my money), the country is suffering in ways that are just too painful. Where is the remorse? Where is the morality? Where is the restitution? We need a museum of financial atrocities.
Actually, this statement doesn’t really address much of the article. The global warming “bubble” is a bit of a leap to stick the rhetorical conceit of the article, and the connections become less tight toward the end, but GS’ statement does not address any of the main issues in the piece. And I do not believe their description here of entering into the futures commodities market actually contradicts anything that Taibbi wrote.
This reminds me of Bush and Cheney who ignore millions of protestors outside of their window in DC during the Iraq war, because they know the protestors do not matter. And GS is clearly not afraid of one journalist.
Finally, for the actual blogger, the Taibbi article presents a theory of a conspiracy, which is not the same as classical “conspiracy theory,” and yes, there’s a BIG difference.
What a joke – the Stock Market is a sham – the high’s in the 14,000+ was a lie – amazing what a little info can do for the average joe schmoe out here – well, we can either go to work for Goldman Sachs or just wait out the sham of a market, let it go higher and then pull our money out – I didn’t realize that we are all here to fill the pockets of Goldman Sachs – yea yea yea, free market economics – NO SUCH THING – it is all a joke on us out here but not any more -
It is amazing when a little truth comes out – watch as many will jump all over Taibbi’s article and try and discredit him – that alone should tell you something – hmmmmmm – how about those Hedge Funds! How about other investment funds – I wonder if they are legit – I think this article is a wake-up for many.
Regulation, regulation and more regulation – you cannot have a free market without it – the biggest joke of all is T.Boone Pickens buying up water rights – the next will be air rights – since when can an element be privatized that is a need of sustaining life – gee, I wonder if Goldman Sachs is investing in T.Boone Picken’s business – could someone check that out for me?
I think Taibbi played fast and loose with the truth but that said, the creation of a $2 trillion dollar derivatives market from cap & trade appears to be valid and some of the other criticisms have valid points as well.
Here is a post with the relevant legislative passages on the cap & trade bill which just passed the house.
http://www.economicpopulist.org/content/ cap-trade-new-derivatives-market-wall-st reet
A GS trader wouldn’t just sell his mother for some cash – he would deliver.
Fascism, Corporatism at its finest.
Yes, they make a ton of cash.
You would too if you had a Ponzi in the pocket of the Treasury…