Doing God’s work in Greece

So is anyone shocked to discover that Goldman Sachs was actively conspiring with the Greek government to load additional debt onto the country that didn’t look like debt to outside financial analysts? No? Me either.

How about that Goldman, knowing that the Greek treasury was in much worse condition than everyone thought, was an active investor in financial instruments that bet on a further deterioration of the Greek economy?

An analogy would be if I sold you a used car that I knew had seriously bad brakes, and then I went out and bought a life insurance policy on your life with me as the beneficiary. This is apparently what Lloyd Blankfein had in mind when he told Congress that Goldman was “doing God’s work.” I guess God is diversifying his portfolio.

Not that Goldman is alone. Merrill Lynch paid Harold Ford Jr. a $2 million salary – more than the salary of Merrill’s CEO, for some amorphous marketing duties. That was a pretty good first job in the securities industry for the former Tennessee Congressman who is now contemplating a run for a New York Senate seat.

We already have Chuck Schumer as the Senator from Wall Street, but it’s never enough for those guys. As long as there is even a hint of an unrigged game or a sucker getting an even break, they’ll be looking to put in the fix.

For a deeper look at how they do it, the most recent Matt Taibbi piece on Goldman for Rolling Stone is a great read. (thanks Birdman). Taibbi writes with great clarity about complex issues. In this piece he likens various Goldman strategies to con games from old movies, and makes even complex transactions understandable for laymen.

He is also the only journalist I know of who is willing to call these guys what they are: con men and thieves. They are the kings of the “I drink your milkshake” school of business.

Liar of the year

It was a highly competitive race this year, but in the end the clear winner was Goldman Sachs CEO Lloyd Blankfein for the scale of the lie in his assertion to the Times of London that “we’re doing God’s work here at Goldman.” I mean there are plenty of liars out there, but to make a claim like this one when you’re paying yourself $68 million (2007) while taking billions in taxpayers’ money and invoking the Almighty as your reference point…well, how do you top that?

Closer to the truth would be Matt Taibbi’s decription in Rolling Stone: “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.”

Secretary of Homeland Security Janet Napolitano made a strong late run when she claimed this week that “the system worked” in reference to the recent attempted fire bombing of a Detroit-bound jetliner.

It’s quite a system we have in place. The guy’s father drops the dime on him to the American embassy, the British had already barred him from entering their country, he bought a ticket with cash and checked no luggage, but that wasn’t enough to raise any red flags. I once got stripped searched because I had a outbound airplane ticket from New York to San Francisco but the return ticket was LA-NY. Apparently this was highly suspicious.

This leads me to ask, how in the world did they talk this kid into this mission? I understand suicide bombers. You put on the vest, you push the button, and you are vaporized in a millisecond. How bad could it hurt? And the next thing you know you are frolicking with your 72 virgins.

But this guy had to pack a half pound of napalm around his package, use a hypodermic needle to inject the napalm with acid, and then light it with a match. If all had gone well he’d have gone up in flames that eventually would have burned a hole in the plane. There were bound to have been a few minutes of discomfort involved if all had gone according to plan. (Plus then, what can you do with the virgins?) The New York Post captured it perfectly on today's front page with this headline: Great Balls of Fire!

That had to have been a tough sell. I’d like to see the video of the pitch. Whoever delivered it must have made Alec Baldwin’s character in Glengarry Glen Ross look like Willie Loman on a bad day.

Chinese justice

According to Mao: The Untold Story, Mao Zedong was directly responsible for the deaths of more than 70 million Chinese. He once ordered 10,000 men buried alive. He sent his own brother out to be ambushed, and then refused to help him when he survived – allowing him to freeze to death in the mountains.

He was a real bastard, but if you believe the old saying, “that which does not kill you makes you stronger” you can only imagine how tough the Chinese people who survived may be.

Last week the Chinese government was planning to sell a state owned steel mill to private owners. (I can’t help but wonder if Goldman Sachs represented either party.). The workers demonstrated forcefully in anticipation of layoffs. The new owners sent the factory boss out to crack down, and the workers beat him to death. Beat him to death.

I’m not advocating violence, but it makes me wonder what it would take to stir an American mob to this level of political passion. Tonghua Iron & Steel was contemplating laying off 10% of their 30,000 workers. Tragic if you are in the 10%, but not that bad as these things go.

How do you think the Chinese would have dealt with Bernie Madoff if he’d been fleecing the Han rather than the Jew?

And what about Goldman Sachs? I still can’t believe there has been no meaningful public outcry in America against this organization. (I’m still surprised no one has killed O.J. either.)

To understand how deeply GS has its hooks into our economy, our government, and our pockets, I strongly recommend Matt Taibbi’s most recent piece in Rolling Stone, “The Great American Bubble Machine.”

Here’s the opening paragraph: “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.” So you know it’s balanced.

Once you read that you want to read Matt’s account of what happened to the financial markets last fall in, “The Big Takeover.”

After reading, either, let a lone both, you might find yourself daydreaming about a little Chinese justice for the Goldman crowd.

My brain hurts

Does the world of credit default swaps (CDOs), derivatives, counter parties and such, make your brain hurt (as Jethro Bodine was found of saying)? Try this analogy:

Imagine that A.I.G. wrote insurance policies (CDOs), for a specific period of time, for fleets of cars owned by Goldman Sachs, Merrill Lynch and a bunch foreign banks (the counter parties). A.I.G.’s credit rating was cut last September, which required it to put up additional capital in reserve against potential claims. They didn’t have the money, so in order to prevent the cascading collapse of counter parties, the government gave A.I.G. a series of capital infusions which have now reached $170 billion -- money supplied by the taxpayers.

Either A.I.G. didn’t tell the government, or the government didn’t tell us, how that money was going to be used, but this week we found out that A.I.G. used almost $50 billion of the money to buy the fleet of cars from Goldman, Merrill and the foreign banks, paying them the full value of the cars even though there has been no accident claims against them so far. Here are a couple of things A.I.G. and the government could have done instead:

1. They could have waited until one of the cars was in an accident, and paid that claim only; after all, it’s unlikely that all the cars are going to have accidents. If an accident did occur, they could have negotiated with the clamant, offering, say 75 cents on the dollar, since this was taxpayer money. What could Goldman do about it?

2. They could have offered the banks fifty cents on the dollar for the cars. Then at the end of the insurance time period they could have sold the cars at market value and had the possibility of making a profit. (But, since they paid full value, that possibility no longer exists.)
So A.I.G. was simply a clearing house for the funds which were passed on to other large financial firms that may, or may not, have had a pressing need for the funds.

This analogy is flirting with the border of Oversimplificationland, but is essentially the reality of what has gone on. The five largest sums went to:

Société Générale $11.0 B
Goldman Sachs 8.1 B
Deutsche Bank 5.4 B
Merrill Lynch 4.9 B
UBS 3.3 B

This, you will notice, is quite a lot more money than the $165 million in bonuses that everyone has their knickers in a twist over now. And while I don’t think those bonuses should be paid, the bonus flap is a pimple on Lawrence Summer’s behind compared to this. If one guy on Wall Street ever earned his money, I think we can say the Henry Paulson earned every penny Goldman ever paid him for arranging this deal for his long-time employer. And he’ll never have to buy a meal again when traveling through France, Germany or Switzerland.