July 7, 2009

We're in Deep State

Matt Taibbi has a Rolling Stone article on Goldman Sachs:
After the oil bubble collapsed last fall, there was no new bubble to keep things humming — this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle. ...

The collective message of all of this — the AIG bailout, the swift approval for its bank-holding conversion, the TARP funds — is that when it comes to Goldman Sachs, there isn't a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. "In the past it was an implicit advantage," says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. "Now it's more of an explicit advantage." ...

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. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.

Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's co-head of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion- dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade. The new carbon-credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.


Meanwhile, Barry Ritholtz has a scanned copy of Michael Lewis's Vanity Fair article on AIG's Financial Products division, The Man who Crashed the World. (By the way, Barry, we haven't heard from you lately and we miss you around here. C'mon back)

Lewis makes Joe Cassano sound like the pointy-haired boss on Dilbert.

The basic story is one of predatory securitizing. It took Cassano over a year to realize that the mortgage-backed securities he was insuring had shifted in composition between 2003 and 2005 from only slightly subprime to heavily subprime.
[AIG executive Gene Park] suspected Joe Cassano didn't understand what he had done, but even so Park was shocked by the magnitude of the misunderstanding: these piles of consumer loans were now 95 percent U.S. subprime mortgages. Park then conducted a little survey, asking the people around A.I.G. F.P. most directly involved in insuring them how much subprime was in them. He asked Gary Gorton, a Yale professor who had helped build the model Cassano used to price the credit-default swaps. Gorton guessed that the piles were no more than 10 percent subprime. he asked a risk analyst in London, who guessed 20 percent. ...

Still, Cassano agreed to meet with all the big Wall Street firms and discuss the logic of their deals ... Cassano set out on a series of meetings with Morgan Stanley, Goldman Sachs, and the rest -- all of whom argued unlikely it was for housing prices to fall all at once [across the country.] "They all said the same thing" ... (The lone exception, he said, was Goldman Sachs. ... who said: Between you and me, you're right. These things are going to blow up.) The A.I.G. F.P. executives present were shocked by how little actual thought or analysis seemed to underpin the subprime-mortgage machine: it was simply a bet that U.S. home prices would never fall.

But how did this logic about the reliability of MBSs ever make sense even in the abstract? As it turned out, housing prices didn't go down in large parts of the country, at least not until after the Crash. Before that, they only fell in parts of the country where they had gone up the most, i.e., California. (Also, Greater Detroit, but who cares if a house drops from $65k to $12k? It never amounted to much in the first place.) But California by itself was enough, due to high home prices, to crash the national economy. Add in Florida, Arizona, and Nevada, and there goes the world. So, who cares if home prices are stable in Dallas and Charlotte if they are plummeting in San Bernardino, Las Vegas, Phoenix, and Miami?

Greed is the whole point of Wall Street, but the big question is: Where was Fear? The Greed was based on the increasing Quantity of the population, which should drive up demand for homes, but Fear over the Quality of the population of new home buyers was simply not part of the mental universe of sophisticates.

It still isn't.

Cassano finally admitted this was nuts in 2006, but he didn't try to get out of previous bets on subprimes, he just stopped taking new ones. But, after AIG got out of the game, the investment banks turned out to be willing to hold subprime MBSs unhedged:
The big Wall Street firms solved the problem by taking the risk themselves. The hundreds of billions of dollars in subprime losses suffered by Merrill Lynch, Morgan Stanley, Lehman Brothers, Bear Stearns, and the others were hundreds of billions in losses that might otherwise have been suffered by AIG F.P. Unwilling to take the risk of subprime mortgage bonds in 2004 and 2005 [or, less willing than AIG was], the Wall Street firms swallowed the risk in 2006 and 2007. ... A.I.G. F.P. wasn't an aberration; what happened at A.I.G. F.P. could have happened anywhere on Wall Street ... and did.

When the world finally woke up in the summer of 2007,
The subsequent race by big Wall street banks to obtain billions in collater from A.I.G. was an upmarket version of a run on the bank. Goldman Sachs was the first to the door, with shockingly low prices for subprime-mortgage bonds ... A.I.G. couldn't afford to pay Goldman off in March 2008, but that was O.K. The U.S. Treasury, led by the former head of Goldman Sachs, Hank Paulson, agreed to make good on A.I.G.'s gambling debts. One hundred cents on the dollar.

So, basically, the smart boys at Goldman knew it was nuts, but they figured that no matter who was in the White House, they'd have it all rigged that they would get bailed out. And the not-smart boys at the other Wall Street firms figured that if the smart boys at Goldman weren't worried, why should they be worried? (Other than that they weren't part of the Deep State like Goldman was ...)

My published articles are archived at iSteve.com -- Steve Sailer

57 comments:

headache said...

Same thing is happening in Germany. So it seems to be a worldwide banking conspiracy. There are articles even in the MSM about how arrogant the bankers have become again, now that they have looted the treasuries and pushes all their manure onto the taxpayers. Pols are clueless as usual, and whining about how ungrateful the banksters are and how they should have let more of these institutions go bust, or threatening to force them to lend, all wind which will come to naught.

I guess the pols had that fuzzy feeling in them when the banksters came hat-in-hand last Feb. to beg some cash. Made all the bleeding heart socialists go soft in their hearts that for once the have the “respect” of these “elites”. Just another sheista gangsta ploy and of course our pols fell for it. Gotta give it to the banksters: they could read the minds of our kindergarden pols from 10 miles away.

Reactionary said...

Steve - stop this nutty stuff. I mean, a permanent mandarin class that rotates in and out of government, works for the same well-connected firms, goes to the same schools, view public service as a tool to feather their own nests - that's just crazy talk.

I suppose next you'll tell us they're looting the Treasury or something.

Black Sea said...

Taibbi's article may yield some valuable insights, but when the second sentence reads, "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," I'm afraid I'm going to have to opt for ignorance.

Is this the Rolling Stone house style, and don't they realize that whereas Hunter Thompson could pull this kind of writing off, that's because he was a lot better at it than are his disciples?

Ritholtz said...

We live in very different worlds.

Mine is data and numbers and statistics and facts. In the investment world, by how well your theories of what is really going translates into an investable theme; you are judged by performance, not rhetoric.

Your world is all soft theory and suppositions and squishy reasoning and hard-to-prove causation. In my world, it would be described as "not actionable int he investment realm."

I am happy to visit, but the commute is a bitch.

Anonymous said...

What I don't hear discussed enough is that the population bubble has burst. I remember like 20 years ago, friends tried to explain to me why the stock market goes up. I told them that couldn't work long term because people don't have five or six kids anymore that will grow up and be workers and consumers. They then told me how it always goes up without explaining how it could keep going up without people to buy the products/services/stock at the new higher prices. All you need for a crash is no buyers. We are guaranteed to have fewer buyers in the future. The UN has already collected the data. They know the population is on course to age then contract. The countries with the most intelligent/productive workers will go first. Those of us 50 and under do not have a population structure/income level that will permit those 50 and over to retire comfortably by selling their stock to us. I don't just mean 401k stock. Pension plans and Social Security will not be able to pay because the under 50 group simply does not have the resources. Around 2003, I (foolishly) started to think the US might be okay because we attract immigrants and they could help stave off the inevitable. Then I found these damned HBD folks who say, not so fast there. These immigrants are not nearly as innovative or productive. We will spend as much on welfare, incarceration of these people as they bring in consumption.

To me, it looks like Obama et al. want to control all health care asap so that they won't have to pay the enormous amounts for the aging people. If people at Goldman kinda knew the housing bubble would eventually burst, I bet they kinda know the Western Civ. population bubble is going to burst as well.

This is not a U shaped recession. It is an L shaped recession.

hcl said...

And who really owns/controls Goldman today? I have never seen that tidbit mentioned/written of anywhere, EVER.

Jeff Williams said...

Where is the fear? Here is a quote from Simon Johnson's excellent article in the May issue of Atlantic:

"these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise."

He was talking about oligopolies in Third World countries, but the situation in the US is now similar.

Simon Johnson's article is here

This is how nations are bankrupted: when reckless elites can make huge bets without risk to themselves.

Anonymous said...

"We're in Deep State"

Yep, we are. So, as one man infamously asked once before, what is to be done? Secession? Seems the best option.

Gerry said...

I think Barry was a bit miffed at the pasting he took in the comments section. You can tell the guy has a very high opinion of himself.

Steve F said...

WTF is the world coming to? Rolling Stone is turning on Obama? They are wrong about one thing though. Capitalism still works as long as you don't eliminate the risk from the reward in the equation. There should have been no bail out and those firms should have been allowed to collapse. There is no such thing as "too big to fail." It doesn't matter if you are the mom and pop shop across the street, a big Wall St. firm, or even the U.S. government. Unfortunately, we are destined to learn that the hard way.

Mr. Anon said...

This is an interesting and important point. Goldman-Sachs, a firm that has colonized the finance-related agencies of the federal government, did in fact get a bailout - it's own personal, and very large, bailout.

That bailout was the bailout of AIG which owed G-S money for credit default swaps (otherwise known as "bets") that G-S had placed with AIG. I wasn't aware that government's job was to insure the bets that gamblers place with bookies, but apparently it is. At least it is when the gambler runs the Treasury department and the Fed.

Lucius Vorenus said...

Matt Taibbi: ...And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits - a booming trillion-dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade...

Fanny, Freddie, and Obama
By The Prowler
on 9.8.08 @ 12:08AM
spectator.org

When President George W. Bush nominated Henry Paulson to serve as Treasury Secretary, Republicans raised a red flag that Paulson, who, along with his wife, has strong ties to the Democrat party, would not be an honest broker with Republicans.

That seems to have been borne out, with sources inside of Treasury reporting that Paulson briefed Sen. Barack Obama and his campaign advisers on the Fannie Mae and Freddie Mac bailout plan before offering such a briefing to the McCain campaign...


Paulson and Obama
By The Prowler
on 9.26.08 @ 9:49AM
spectator.org

When Sen. Barack Obama was given the floor to speak during White House negotiations, according to White House aides, he did so raising concerns about a House Republican alternative to the Paulson/Bernanke $700 billion bailout. But those concerns weren't necessarily his, as he was not aware of the GOP plan before reviewing notes provided him by Paulson loyalists in Treasury prior to entering the meeting.

According to an Obama campaign source, the notes were passed to Obama via senior aides traveling with him, who had been emailed the document via a current Goldman Sachs employee and Wall Street fundraiser for the Obama campaign. "It was made clear that the memo was from 'friends' and was reliable," says the campaign source...


PS: As regards the whole "carbon" question in the first place - may I assume that readers of iSteve are well aware that the earth is cooling - not warming - and that in fact it is cooling at such a rapid rate that we are in perilous danger of entering a new mini-Ice Age?

Anonymous said...

victorian dance hall?

Anonymous said...

http://www.humanevents.com/article.php?id=32595

DiverCity said...

The smart guys at Government Sachs (and Barclays too) are up to the same ole shenanigans: See http://tinyurl.com/ommcug

Basically, they're creating CDO's to offload bad bank assets in sort of a private (but I'd wager government sanctioned) PPIP scam.

Anonymous said...

Steve wrote:


"The Greed was based on the increasing Quantity of the population, which should drive up demand for homes"




Steve,
What irks me the most is the financial terrorism of open-borders financial-sector supporters. The know damn well that bringing in hordes of Somalis and Aztecs is going to scare whites half to death and those same whites outbid each other to live in the exurbs, forcing the prices up through the roof out there, and getting people who would be close to paying off their mortgages back into brand new mortgages for decades of more debt. They ruin the price of their old home (so it can be sold cheap to immigrants), so the older whites have much less to put down on the ex-urban "escape" home. Its robbing these people of the equity they worked for decades to get.............putting them back financially 10-20 years.



There are several "older" neighborhoods in our city full of what were paid-off, or close to paid-off houses that had 'FOR SALE' signs up over the past 15 years because the whites therein had enough of the "new, exciting, vibrant" diversity and picked up stakes and moved to the exurbs. They OF COURSE had to get another mortgage for the way overpriced exurb home.


Importing bazillions of immigrants just creates "churn", and forces heretofore happy people to move, so real estate agents, developers, loan officers, underwriters, home appraisers, the guys and gals at these offices, and road builders all to get paid. They dont care about the negative effects on the suckers lives.


It breaks my heart to see people paying a fortune for regular little houses just so they can live where they feel safe, and delaying their retirements to pay for it.

M

Chris Anderson said...

...the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble

In the world of Goldman Sachs, isn't $4.5 million the equivalent of digging in the couch cushions?

It always amazes me how cheaply politicians can be bought.

stari_momak said...

My flatmate works for a major bond rating house in 'the City'. He dealt in rating CDOs. He tells me they just kept plugging the numbers in the models, no one ever looked to see how the pool of mortgagees was changing over the last 5 years. I found this incredible -- surely a major firm would have someone monitoring the mortgagee pool, and the political conditions affecting the size of that pool. Nope.

I found this incredible, but the other day I was at a picnic with an early 30s graduate of one of the elite British universities. Her job -- country analyst for Lithuania for an investment bank. Yapping about the subject, she volunteer 'yeah, it used to be part of the Soviet Union. Well, not actually part, but part of the Eastern bloc." Didn't have the heart to correct her, and I know its a minor error. But it goes to show that a lot of these folks we think know a lot really really don't. They are in place because of connections, good test scores (here 'A' levels) and cheek (chutzpah). Its like to climb up to the top, expecting this great crowd of super sharp people, and you get a bunch of Ariana Huffingtons -- fairly bright but really not all that.

John Anello said...

Two essential components of any free market system are profits and losses. By not allowing companies like Goldman Sachs to fail the government distorts the free market and allows for the type of crony capitalism Mr. Taibbi describes. When companies like Goldman Sachs are successful they should reap the benefits and should not be subjected to draconian corporate taxes. However, when they make mistakes, as they did during the 1999 to 2008 housing bubble, they should not be allowed to pillage the treasury.

A Nonce Lily said...

Steve, are there any comprehensive accounts in English of the Goldman Sachs/ Clinton Treasury/ Harvard Economics Department rape of post-Communist Russia? An essay or book?

It seems another one of those world historical events remembered by no one except the scattered and powerless observers of the deep state. Instead of featuring in every political or economic argument of the day, it's become a a sort of baseball statistic for the conspiracy set.

More and more it seems to me that politics can be understood by two - and only two - cognitive styles, namely the sociopath, who practices politics, and the subclinical Asperger types who compile their Secret Histories of the world, which no one ever reads, and which are the object of immense derision and scorn.

It's sad, because everyone inbetween seems worse than oblivious, and Aspies v. Sociopaths seems a tad uneven as a historical contest.

Anyway, I'm still wondering if one of those laughable losers has written their paranoid and anti-Semitic screed (full of canards!) as to what really went on between GS/ Harvard/ Treasury and Russia. Honestly, I only want to read it so I can laugh at it and further expose these dangerous loonies.

How could it be otherwise? I have always been loyal to Goldman Sachs. As I'm sure the other readers here are, as well. Resistance to International Finance Capital, as the Reverend Ayn Rand would say, is objectively immoral. There simply are no other conclusions.

Anonymous said...

over 100 comments easy.

Anonymous said...

Doesn't Obama get to appoint a new Federal Reserve chairman next year?

It would be nice to have someone closer to main street than Wall Street, especially with no ties to Goldman.

Evil Sandmich said...

My impression is that deep state stuff would be kinda secret; but Goldman has been pretty clear and open about what it's doing.

Their arrogance may be their undoing though if some savvy politician gets traction with demonizing them. Well, we can hope....

Anonymous said...

One measure of Big Finance's clout is that Obama's financial team isn't very diverse, since he wouldn't want to upset the really important people by using such appointments for political pandering.

Mason said...

Steve, I'm not sure if you watch Bloggingheads so I don't know if you caught a recent one between Ann Althouse and Michelle Goldberg. I'm not really familiar with them, but they're both bloggers of some sort.

Anyway, much of the discussion involves Sarah Palin and her stepping down, and one segment of the discussion was particularly interesting. A running theme of the entire discussion is Goldberg's irrational, visceral dislike and hatred (these are Goldberg's own words) of Sarah Palin. She says herself that it's irrational and visceral, and that merely hearing her speak evokes feelings of anger, hatred, dislike.

http://bloggingheads.tv/diavlogs/20965?in=44:10&out=52:33

This much is unsurprising, as I'm sure many coastal liberals hold such feelings, although perhaps not as deep, visceral, and extreme as Goldberg. But what was interesting was when she claimed that Palin evoked thoughts and memories (collective, ancestral memories? spiritual, mystical memories?) of "Weimar" and "Nuremberg rallies." Again, these are her own words.

I guess for this significant subset of liberals, it's always 1939 just like their neocon cousins.

RKU said...

Do you mean "Deep State"...or "Deep Sh*t"???

testing99 said...

Deep STate is a stupid concept STeve, and not helpful to diagnosing the real problem: lack of turnover in the elites.

For elites to function properly, they need to be culled, turned over, pushed aside, what have you so that some semblance of merit rises instead of hereditary. This is the fundamental problem in organizing human beings -- the tendencies towards dynasties and lack of any real ability in the inheritors.

Or looking another way, it's an agency problem. With the agents (elites essentially "hired" to run institutions) maximizing their short-term gain at the expense of the institution. See the Catholic Church at the time of Luther, the late Roman Empire, the Byzantine Empire, the Persian and Egyptian, etc.

Wall Street's basic function is to raise capital for investment in growing businesses. Regardless if it's Apple Computer 1981, or Southwest Airlines 1989, or Google in 2001, that's what Wall Street was supposed to do. Lack of real productivity and thus real, industrial based growth, led to the elites acting like corrupt, unculled, hereditary elites everywhere.

There's no Deep State. There's basic human nature. And the remedy is simple: cull the elites, replace them with new merit based elites, and create more industrial growth and productivity. Jump start if need be with Defense Spending.

David Davenport said...

By the way, Barry, we haven't heard from you lately and we miss you around here. C'mon back

Barry doesn't have time for that, Steve. He's on CNBC often. Barry's really big.

How often does iSteve appear on TV, huh huh huh?

David Davenport said...

For elites to function properly, they need to be culled, turned over, pushed aside, what have you so that some semblance of merit rises instead of hereditary.

Paareto's phrase is, "circulation of the elites."

Fred said...

"And who really owns/controls Goldman today? I have never seen that tidbit mentioned/written of anywhere, EVER."

Goldman's shareholders own Goldman, but the company is controlled and run for the benefit of its employees and alumni.

anony-mouse said...

Let's say that everything negative said about Goldman is true. The beauty of America is that you can buy stock in this all-powerful leviathan. Sure the stock ownership doesn't give you entree into that Taylor Caldwellish tiny dark room where the 'real' decisions about the world get made around a small table, but at least you can profit from them a bit-not like other Deep States.

Anonymous said...

I guess for this significant subset of liberals, it's always 1939 just like their neocon cousins.



It's always 1939 (or 1933) for Americans Jews. Which makes it a lot more likely that their fears will come to pass. Spend enough time telling Americans that they are incipient Nazis and they will start to believe it.

Anonymous said...

In the investment world, by how well your theories of what is really going translates into an investable theme; you are judged by performance, not rhetoric.




Yeah? So how well did your theories translate into an investable theme? Judged by your performace, how do you and the other "investment professionals" rate?

I think it's pretty obvious that the whole lot of you deserve to be sacked.

Anonymous said...

What I don't hear discussed enough is that the population bubble has burst. I remember like 20 years ago, friends tried to explain to me why the stock market goes up.




It does not go up because of population increases, as some ignorant people seem to think.

ricpic said...

"And the remedy is simple: cull the elites..."

How?

Anonymous said...

testing99 said...

" Deep STate is a stupid concept STeve, and not helpful to diagnosing the real problem: lack of turnover in the elites.

For elites to function properly, they need to be culled, turned over, pushed aside, what have you so that some semblance of merit rises instead of hereditary. Lack of real productivity and thus real, industrial based growth, led to the elites acting like corrupt, unculled, hereditary elites everywhere."


As usual, t99 is 100% exactly wrong. The problem is that the elites know that the odds drop of their children being (meritocratic) elite and the odds of their grandchildren being (meritocratic) elite drop even further. As a result, they act like African kleptocrats who steal as much as they can in the time they've got on top. Enough money can buy a family stability over a few generations.

Why are their children less likely to be elite than they are? Regression to the mean. As much as Harvard grads try to indirectly bias the Harvard admissions process to favor people with parents who went to Harvard (the "right" community service, the "right" prep schools, etc.), the kids of Bucknell grads get picked up in the same net. They don't outright rig the game for children of grads because they demonized that when the current elite took over from the last elite group. Next generation, their kids might go to Brown and the kids of the Brown students might go to Harvard.

Hereditary elites are much better in the long run because they leave their elite positions to their children so have an incentive to not blow up the system for a huge short term gain.

" There's no Deep State. There's basic human nature. And the remedy is simple: cull the elites, replace them with new merit based elites, and create more industrial growth and productivity. Jump start if need be with Defense Spending."

The elites we have are merit based. That's the freaking problem. They think they're infallible because they're so merit based. The old elite where they were mertiocratically selected from mainly the old elite plus some highly talented outsiders worked much better because the incentives were better.

-Steve Johnson

Anonymous said...

"The beauty of America is that you can buy stock in this all-powerful leviathan"

Two problems with that:

1. Goldplating. I can't be the only person here to take Econ 101.

2. Leakages out the ying yang. Sure, the investor gets his 10%, but he should be getting 20%, the rest is going to offshore entities, bonii, etc. That's actually a loss, not a gain, he's getting ripped off and subsidizing a scam.

Anonymous said...

"They ruin the price of their old home (so it can be sold cheap to immigrants), so the older whites have much less to put down on the ex-urban "escape" home. Its robbing these people of the equity they worked for decades to get.............putting them back financially 10-20 years."

Yes!! Thank you for this.
And the cruelest cut of all? The SWPLs call us "yahoo losers" -- when the reason for our loserdom, that is, having our equity stolen from us by mass immigration, is a direct result of what they've wrought.

SGOTI said...

"So, as one man infamously asked once before, what is to be done? Secession? Seems the best option."

Oh hell yeah! I'm all for secession, because after all, you get to legally shoot people you don't really know and have a beef with- and you don't have to travel so far and to hot places with no booze.

But from whom/from where do we secede? And who does the seceding?

Anthony said...

http://arstechnica.com/tech-policy/news/2009/07/goldmans-secret-sauce-could-be-loose-online-markets-beware.ars

When US government prosecutors claim that the release of Goldman's secret sauce could potentially expose markets to manipulation, what they're really saying is that some unknown party could use it to out-manipulate Goldman

Anonymous said...

"It does not go up because of population increases, as some ignorant people seem to think."



Does the stock market go up when the intelligent productive workers are replaced by those less productive and more inclined to crime and sitting on welfare?

Does it go up when the aggregate demand declines for companies' products and services?

Does it go up when the government hires more workers?

Does it go up when people are unemployed?

Does it go up when the dollar is inflated?

Or does it go up when Goldman Sachs gets involved in trading carbon credits?


Help me out here.

Peter A said...

For elites to function properly, they need to be culled, turned over, pushed aside, what have you so that some semblance of merit rises instead of hereditary.

This was what Stalin and Mao believed as well. But even in those totalitarian societies where leaders actually had power to physically cull the elites, the idea failed miserably and sclerosis settled in within 40 years after the revolution in the USSR and even more quickly in China. The first thing any elite person does is make every effort for his children and grand-children to share that status.

Anonymous said...

Does the stock market go up when the intelligent productive workers are replaced by those less productive and more inclined to crime and sitting on welfare?



Is there a point to the silly rhetorical questions?

Help me out here.



Tell me what help you need and I'll be happy to.

jack strocchi said...

Ritholtz says:

Your world is all soft theory and suppositions and squishy reasoning and hard-to-prove causation. In my world, it would be described as "not actionable int he investment realm."

I googled the phrase
"not actionable in the investment realm" and came up with one instance - the very one just quoted.

No doubt some such construction is prevalent in this industry. But the fact that finance is awash with buzz-words, catch-phrases and technical jargon is a bug, not a feature, for an industry that needs to be more transparent.

Ritholtz deserves alot of credit for pouring cold water on the whole housing bubble led recovery meme. A trawl through the Big Picture shows him making bearish comments about housing way back in 2005-06. This post from 02/12/06 is fairly typical, and contains the first mention of "subprime" in his own posts, that I can find. (His commenters seem pretty clued in on this, especially Bob_in_MA).

Ritholz is also correct to point the finger at Wall Street financial hustlers as being the driving force in the corruption of US corporate accountability. With suitable blame accorded to Chicago free-market "efficient market" theorists.

But he needs to get his head around the fact that the finance is not just driven by supply. There is also demand, in this case an extra-ordinary spike in demand for subprime finance by minority groups who had hitherto, for various reasons, found themselves excluded from the housing market.

No doubt the new minority demand for housing finance fell outside the jurisdiction of CRA. But thats because most housing finance was falling outside the jurisdiction of traditional regulatory and legislative instruments.

The sub-prime crisis is very much a story of how outsider lenders (like Morillo) catered for outside borrowers (like CA Hispanics), facilitated by the ultimate insiders: Bush, Greenspan + Wall St.

The extra-ordinary breadth and depth of bad loans turned this housing boom into a bubble and the economic downturn into a recession.

AmericanGoy said...

First comment, (s)he does not get it.

"Pols are clueless as usual, and whining about how ungrateful the banksters are"

OK.

They are PAID to be ignorant.

Just like the "experts" on TV are PAID to blather on and on and push the agendas that they are paid to push.


Example:
Some time ago, the meme on TV financial shows was "record oil price is due to demand from China and India, and has nothing to do with speculation, and anyone who thinks so is a tin foil nutter, haha".

So, um, to continue, I guess India and China have lost all this demand now, huh? Their population has shrunk by a few billion in those few months and they no longer want to drive cars.

AmericanGoy said...

Testing99 sez:

"For elites to function properly, they need to be culled, turned over, pushed aside, what have you so that some semblance of merit rises instead of hereditary. This is the fundamental problem in organizing human beings -- the tendencies towards dynasties and lack of any real ability in the inheritors."

Holy s**t!!

Stalin WAS right!!!

Reactionary said...

Mr. Ritholtz,

Mine is data and numbers and statistics and facts. In the investment world, by how well your theories of what is really going translates into an investable theme; you are judged by performance, not rhetoric.

Is that the justification for trillion dollar taxpayer bailouts of failed business models?

I thought, I mean forgive me, I'm a lawyer and one of those squishy 'concepts' kind of guys, that 'performance' means you can't perform you get kicked to the curb and liquidated, not that you qualify for above-market subsidy.

Surely you can explain this to us, being a cold, hard numbers guy and all.

TCO said...

Anyone else notice that GS is first in line to repay their TARP money and lose compensation restrictions...but nothing is being said about the AIG money funnelled to them.

Subclinical Asperger Type said...

A Nonce Lily said: "Steve, are there any comprehensive accounts in English of the Goldman Sachs/ Clinton Treasury/ Harvard Economics Department rape of post-Communist Russia? An essay or book?"

This might not be exactly what you're looking for -- and perhaps you've seen it already -- but you might want to check out:

How Harvard lost Russia
by David McClintick from Institutional Investor Magazine, January 24, 2006

Subclinical Asperger Type said...

Anonymous said: "Regression to the mean."

I prefer Galton's original term for the phenomena: Regression towards mediocrity.

I think it would be great if we could bring his original term back into circulation. ;-)

Anonymous said...

"But what was interesting was when she claimed that Palin evoked thoughts and memories (collective, ancestral memories? spiritual, mystical memories?) of "Weimar" and "Nuremberg rallies." Again, these are her own words."


Talk about fantasizing! Was she present in Weimar? Weimar was the capital of democratic Germany, that version of Germany Americans preferred over the monarchy. Too bad Hitler undermined it. With the Kaiser still in charge there would not have been a Hitler. But the Wilson so badly wanted the Kaiser out.
Anyway, in Weimar nothing of significance happened, apart from a dysfunctional government. So she must be talking about Nuremberg. Was she present? I doubt it; otherwise she will be about 90 now. And I doubt her parents attended. So what is all this fantasy about?
Could it be that she dreads the day that the goy take charge again of their own country?

Anonymous said...

Wall Street's basic function is to raise capital for investment in growing businesses.
Bah ha ha ha ...Testing99 your take on WS is funnier than your middle east policy.

Anonymous said...

"Anyway, in Weimar nothing of significance happened, apart from a dysfunctional government."

Why are you harshing Weimar? Besides dysfunctional gov't, Weimar produced Weimaraners and die Brucke. Great dogs and oddball impressionistic, depressive art.
Seriously, though, I was stunned by this woman's ignorance and hysteria (and I'm an ignorant hysteric, so I know).

PS: regarding Russia being looted, Summers was involved in that little debacle. When Putin put a stop to the looting of Russia, it was decided that from then on, Russia would only get bad press.

Big Bill said...

Anonymous, there has been some oblique discussion of the population bubble, but not direct.

NPR has a piece that described the bubble as a primary cause of the crash. In their analysis, the crash was caused by boomer investors who are unable to find anything in which to invest.

Although they didn't say it directly: no people = no markets = no companies = no investment vehicles

The bankers had a choice: either (1) create a high yield investment vehicle out of thin air, or (2) lose customers.

Worldwide banking responded by creating the housing bubble and the various high (imaginary) yield derivatives necessary to keep it going.

In short, with the creative races dying off, there is nothing worth investing in and thus the economy and standards of living (and boomer retirement!) collapse.

On a related note, it seemed real smart 40 years ago for white women to shuck their baby-making duty to the race and become consumers.

Without a "next generation" there aren't any new consumers and creators to keep an economy going.

American businessmen feel this and therefore want to import hundreds of millions of new consumers. But if the new consumers are as dumb as a box of rocks, they aren't going to be able to create or buy anything. Look at Mexico from which we get tens of millions of "new consumers".

Hell, if all it took was more "consumers", then Mexico, China and India would be filty rich by now without any help from us.

Instead, greedy race-traitor Mexicans, Indians and Chinese are abandoning their own people to starvation and destitution in order to come to America where they can make and sell trinkets to an ever-declining number of Westerners.

Our housing crash was basically a last ditch collapsing demographic investment vehicle. We make and sell trillions of dollars of houses in the hope that dumb homeowners will somehow earn enough money in the future to pay us back.

The sure sign that we are still without a demographic clue is if we keep "investing in the future" by (among other things) pumping tens of billions into Mestizo education in hopes that they can be magically turned into Albert Einstein.

Instead, we should be paying white women to make babies and we should demand that Mexico pay for the education and medical care of its citizens.

Anonymous said...

I know a jewish guy who told me, seriously, that Lehman was not bailed out because of George Bush's antisemitism.

It reminded me of Richard Perles' "there are no neocons' big lie.

I wonder if anti semitism defense is going to be used on goldman as well.

Anonymous said...

Why are jews allowed to vent such visciral hatred of gentiles - ie Palin, yet they constantly accuse us of hate? I am no longer baffled, like many, I am just really tired of their hypocrisy.

Anonymous said...

Big Bill,

Thanks for the sincere and intelligent reply to my population bubble questions. I don't mind when people tell me how I am mistaken, or misinformed, if they have the courtesy to explain their own view. However, when people just say that my views are ignorant (how clever) but can't be bothered to even offer their own ideas, I wonder why they decided to reply.