Why I won’t dismiss Matt Taibbi…
I want to congratulate Matt Taibbi for his First Amendment Award for Outstanding Journalism: Best Reporter award. I think that both The Big Takeover and The Great American Bubble Machine cover territory not ventured into if not ignored entirely by most of the financial media, and it thrills me to see people excoriate CNBC and other rosy optimists who were engaged in cognitive dissonance while the wheels were coming off both the financial markets and the economy. Having spent three years on Wall Street sitting on an investment banking floor and experiencing some of the sorts of larger than life personalities and the Wall Street culture perhaps best described in Michael Lewis’ Liars Poker, I don’t find Matt’s attacks on that culture particularly offensive. His caricatures may not be spot-on 100% accurate but they do not have to be because it is a different world compared to anything else that I have experienced professionally.
Those who are (or were) not aware of the influence Wall Street has on Washington will find Matt’s work informative and it will likely promote outrage amongst readers. While his hyperbole and chacterizations of scum sucking vampire squids helps to push readers over that cliff, the story itself should provoke outrage and if takes a hyper-rhetorical approach to get the point across, then I’m all for it. For people to really understand the root causes of this financial crisis, it is important to recognize that Wall Street played a significant role in areas including but not limited to: 1) the push for deregulatory measures like the repeal of Glass-Steagall and changes in leverage limits which allowed these firms to lever to the hilt; 2) its role in funding the subprime boom by providing credit lines to mortgage finance companies (or, in some cases, acquiring companies); 3) the securitization process as a whole.
Digging deeper, a lot of it can become technical jargon that can lose readers not familiar with these elements of modern finance, but why should that matter? Why dismiss Matt for a lack of a financial pedigree? That’s nonsense. The larger story here is that a relatively small group of actors played a significant role in what will likely be the largest financial crisis in our lifetimes causing an untold amount of damage to our financial system, our economy and millions of individuals. To be outraged by this requires no pedigree, only common sense. People should be outraged by this. I am outraged by this. I may not be comfortable with some of Matt’s factual distortions, especially in The Great American Bubble Machine, but that should not take away from the bigger picture, as Barry Ritholtz writes:
The best way to enjoy it is to think of it as the culmination of frustration by the public, with the struggling masses infuriated at Goldman’s role in this crisis — their CEO requesting a special exemption for more leverage from the SEC (and getting it for themselves and 4 other firms), that same CEO becoming Treasury Secretary, and then doling out trillions of dollars to inept and insolvent financial companies, and finally, Goldman Sachs hoovering up billions. We know they sucked out $12.9 billion dollars via from AIG direct pass thru of bailout monies — must be nice to get 100 cents on the dollar! Most people are probbly unaware that Goldman also grabbed $5.9 billion dollars just before AIG collapsed — a treansfer that if AIG went thru the bankruptcy processs, most likely would not have been permitted to stand.
Add in Goldman’s record profits, its enormous bonus pool, and you have an ideal recipe for a massive GS backlash.
Did they cause the crash themselves? Certainly not, but their role in it, and their uncanny ability to profit/squeeze/steal billions in unsavory and perhaps borderline legal ways — while everyone else is suffering — is why Taibbi’s piece still has resonance months later . . .
Yes, but there is more than just a backlash here. Even if Matt’s rhetoric leveling charges of securities fraud toward Goldman Sachs is a bit over-the-top, does a crisis of this magnitude not beg a whole host of questions? By my lights, the crash began in earnest almost two years ago around the time that news of the Bear Stearns hedge funds collapsing due to their exposure to subprime mortgages, but the warnings signs existed for months. During that time, securities were being sold to investors and new securitizations were being brought to the market. How much do we know about the interactions between the ratings agencies and the investment banks (other than the ratings agencies were basically paid whores)? Did banks holding securities believe one thing while representing something else to potential investors? Does it not raise some suspicion when some of those securities lost the majority of their value in a short time after they were purchased? There are probably others.
While I do not have the same interest in headhunting Wall Street executives and describing them in being born in $4,000 suits, I have a very strong interest in seeing reforms in our financial markets. If it takes a Matt Taibbi to get people off their asses to see that there are unanswered questions and a system where the political faction (Wall Street) that should have a leash tightened around its neck is the single biggest obstacle to reform, then so be it. I don’t have to agree with his ideas, style or his politics to see what he is trying to do, and I see nothing wrong with that.