All in a Daze work
This confidential strategy paper
from the November 15, 2008 G-20 summit in Washington DC. is a C.F.R. mandate.
It's steered agenda is obvious, the attempt to impose the dictatorship of the
International Monetary Fund (IMF) on the entire planet, wiping out all hope of
economic recovery, the modernization of the developing countries, and national
sovereignty at the same time.
Under this plan, the IMF would dictate the economic policies
of all states. The IMF orthodoxy is austerity, sacrifice, deregulation,
privatization, union busting, wage reductions, free trade, the race to the
bottom, and prohibitions on advanced technologies. These policies would strangle
The Brazil-Russia-India-China bloc is reportedly objecting to
putting so much power into the hands of the IMF, which is dominated by the US
and the British, with Prime Minister Gordon Brown and the new U.S. Treasury Secretary laying down the party line.
The new Chinese economic measures are the opposite of the bankers' bailouts
imposed so far in the wealthier countries. The Chinese will spend $585 billion
on infrastructure, transportation, housing, and food production, with special
attention to railroads, airports, and roads. The Chinese package is in the
spirit of the Franklin D. Roosevelt New Deal, and it will maintain forward
progress for China. The US $819 +++ billion bailout and the UK and EU versions are a
futile attempt to prop up the $1.5 quadrillion derivatives bubble. Sensible
economic policy starts with wiping out the derivatives cancer.
The interest of humanity can only be served by preventing the
Washington conference from carrying out the plan outlined below. If Russia,
China, and the developing countries can mount an effective opposition, the world
will divide into two blocs - a pro-derivatives, anti-production
Malthusian-monetarist bloc, which will tend to fall behind because of its own
policies; and, on the other hand, an anti-derivatives, pro-production bloc of
nations seeking modern technology, and the full fruits of scientific and
economic progress. Persons of good will in all nations are encouraged to
mobilize to make sure that their own country joins the pro-production,
Preparations the for economic summit in Washington on November 15
are well advanced. Here are the five points which are currently on the agenda to
be adopted by the invited heads of state. The overall philosophy is to continue
globalization by reinforcing free trade and by creating a world economic
government under the IMF.
The IMF program reads as follows:
1) require the credit rating agencies to be registered and monitored and submit
to rules of governance;
2) halt the principle of a convergence of accounting standards and re-examine
the application of the fair market value rule in the financial field, so as to
improve its coherence with the rules of prudence and conservatism;
3) to resolve that no market segment, territory, or financial institution shall
escape from a proportionate and adequate regulation, or at the least,
4) set up a code of conduct to avoid excessive risk-taking in the financial
industry, including in the area of compensation. Supervisors will have to follow
this code in evaluating the risk profiles of financial institutions;
5) to entrust to the IMF the primary responsibility, along with the FSF
(Financial Stability Forum - Basel), to recommend the necessary measures to
restore confidence and stability. The IMF must be equipped with the essential
resources and suitable instruments to support countries in difficulty, and to
exert its role of macroeconomic surveillance to the fullest.
Witnessing the current worldwide
economic crisis, many are wondering ... what is the significance of it? Some
people think it is just another downturn in the business cycle. For
those who believe this way, they like to make estimates for us about when the
'recession' will end and what is the bottom in the stock market. To them, they
believe that some of the usual
business cycle remedies will allow the economy to recover again. Normally, this
remedy consists of two things:
#1) Monetary stimulus (lowering interest rates and printing more money)
#2) Fiscal stimulus (congress borrowing money)
Regarding monetary stimulus, the Federal
Reserve has dropped the 'Fed Funds' rate from around 5% to now nearly 0%.
However, things aren't getting any better in the USA or
around the world.
Regarding fiscal stimulus, the US
government during 2008 decided to make $600 - $1200 available as a 'tax rebate'.
The 'tax rebates' didn't make things any better.
The upcoming Obama administration is
pledging to pass a massive fiscal stimulus package of at least $819 +++ billion
dollars. If the Obama administration does pass a fiscal stimulus
package, it won't help to make things better in the USA or around the world
WHY MONETARY AND FISCAL STIMULUS WON'T WORK THIS TIME
The fiscal and monetary
measures which are being tried won't work this time. They are just 'window
dressing' to try and make it appear that 'they' (President, Congress and the
Reserve) care about the problem and are trying to do something about it.
Even though our politicians and Federal Reserve policy makers fail us over and
over, most Americans still want to believe and trust in them. However, since
most Americans don't understand basic macro economics and the
working of monetary policy, they will believe (for a while until the recession
becomes a depression) that our 'powers to be' are trying to help solve the
problem. They won't understand why the solutions attempted are not working.
The US and world
economy will fail for one main reason. That reason is that banks have stopped
making money available (lending) to those who need it to keep the economy going.
You see, it
doesn't make any difference if interest rates are near zero if the banks aren't
lending money. It doesn't make any difference if the Federal Reserve prints more
money if the banks don't lend the money. Banks failure to lend money to
individuals and businesses who need the money is what causes the economy to go
into a depression.
Expanding the money supply and banks freely lending to individuals and
businesses who are credit worthy is what causes the economy to grow and expand.
Decreasing the money supply causes the economy to contract. At this moment, the
Federal Reserve is MASSIVELY INCREASING the
money supply. So, this is not the problem. The problem is that banks worldwide
are failing to make money available to individuals and businesses who are credit
worthy. If banks fail to make loans available to credit worthy individuals and
businesses on a macro scale then this is what causes a
WHY DO CENTRAL BANKERS WANT THE WORLD ECONOMY TO FAIL?
Our present global economic
system is based upon Bretton Woods model established after WW 2. Bretton
Woods was a gold based monetary system. It established global institutions such
as the (IMF: International Monetary Fund and IBRD - World Bank) to work with and
help govern the monetary policies of nation states. A detailed explanation of
the Bretton Woods financial model can be found at:
In 1971, President Nixon,"I'm
not a crook" took
the USA off the gold standard from which the Bretton Woods model was based. This
caused the US dollar to become the 'reserve currency' of the world.
Eventually, the currencies of
nation states were allowed to "float". This made it increasingly easier to
manipulate the value of the currencies of nation states. Macro manipulation of
the currencies of nation states (what is happening in this present economic
crisis) creates instability in the world's
In 1973, the Trilateral
commission was born.
In 1980, Holly Sklar
wrote a book about the Trilateral Commission. It is entitled: "The
Commission and Elite Planning for World Management".
The basic idea of the
Trilateral commission is to begin the process to 'regionalize' the world as a
stepping stone to world government.
The "Tri" in
Trilateral Commission is: Europe, the USA and Asia. The goal would be to
regionalize the world into trading blocs with its own currency and regional
government. Europe became the first to establish this model. Europe now has a
common currency, a European Parliament and Constitution.
trading blocs following the European model is now being developed all around the
world. There has been much debate about the "North American Union". This
proposed new "North American Union" (consisting of Canada, USA and Mexico) is
now being called the "Security and Prosperity Partnership". There is a website
for the SPP:
There is now
a "Mediterranean Union".
likely, a future peace agreement between Israel and the PLO will seek to merge
the European Union and Mediterranean Union.
This effort was originally called the "Euro-Mediterranean Partnership".
It seeks to achieve a peace agreement between Israel and the PLO.
why there is such an intensified effort for
Israel and the PLO to reach a peace settlement. The ultimate goal is economic
integration of the European Union and the Mediterranean Union.
order to help to ensure this peace agreement, the United Nations passed UN
Resolution 1850 on December 16, 2008.
are discussions about creating an African Union.
In order to follow the European model, newly formed regional trading blocs need
to have their own common currency. In order to help the people of the world to
accept the European model in their own region of the world, they have to see a
'need' for it. That 'need' comes from the planned collapse of the Bretton Woods
system and of the national currencies of countries in various designated
regional trading blocs.
The "collapse" of currencies around the world becomes inevitable when the
'reserve currency' of the world - the US dollar - collapses and cannot maintain
its status and confidence of the world trading system for it to be the 'reserve
currency' of the world.
The collapse of a nations currency comes about when the debt of a nation state
(in this case the USA) becomes so large that others lose confidence in the
currency of that nation
state (in this case the US dollar) who has that debt. The USA is now the world's
largest debtor nation. So, what does our government try to tell us is the
solution to our economic problems? You got it: more debt.
How do other nations show that they have lost confidence in our currency (the US
dollar) and our debt which is tied to the value of our currency? It is simple.
They no longer desire to finance the debt. Right now, the debt of the USA is
being unattractive to foreign investors. What makes it
unattractive? The answer is a low rate of return (a 10 year government bond is
now yielding less than 3%) and a lack of confidence in the US economy and its
financial system (because of rising job losses, business and banking failures)
caused by banks not willing to lend money to credit worthy
individuals and businesses.
IS 2009 THE YEAR OF THE COLLAPSE OF THE US DOLLAR ?
many well respected people who are forecasting the collapse of the US dollar in
2009 (for those who truly understand the relationship between macro economics,
monetary and fiscal policy -- it really doesn't take a genius to realize the US
dollar will eventually collapse -- it is only a matter of time).
are 'Trend Forecaster' (Gerald Celente).
is an organization based in Europe (a think-tank) that releases information
about Global economic trends who predicts that the US dollar will collapse and
the US government
will not be able to pay its debt in 2009.
This website is: (http://www.leap2020.eu).
The collapse of the US dollar is mentioned in the October 2008 edition.
Pravda (the Russian news agency) reports that the 'Amero'
will replace the US
dollar when it collapses?
Russian Foreign Ministry sources are reporting that the USA "Council on Foreign
Relations" (which IS the 'Shadow Government' of the USA) has stated that the US
dollar will collapse by the summer of 2009. A recent United Nations reports suggests that the US dollar will have a
'hard landing' in 2009.
In an interview with Charlie Rose, Henry Kissinger suggests that the current
economic crisis would be an excellent opportunity to bring about a new
"political and economic international order".
book of Revelation mentions several times about the fall of economic/commercial Babylon. Since WW2, the USA has been the "head" of the effort to
globalize the world. So, the USA is the HEAD of the "beast". In Revelation 13,
the "head" of the beast gets wounded. WE believe that the economic collapse of
the USA through the collapse of the US dollar and the US government unable to
pay its bills, will result in the formation of world government with a world
currency (the wound being healed).
World government is one of the two signs of Revelation 12 which indicates the
start of the 'Great Tribulation' and the final 3 1/2 years before Malki Tzedik Yahusha sets
His feet down on the Mount of Olives (Zechariah 14:4).
reality: The debt crisis that first appeared in the U.S. sub prime mortgage
market … then precipitated a Wall Street meltdown … and has now driven the
American economy into its sharpest decline since the Great Depression … has
now spread to the entire world.
crisis is driving the economies of Western Europe and Japan into an
unprecedented tailspin. It threatens the economic — and potentially political —
stability of Russia, China
and several emerging market nations. And it’s setting the stage for a global
depression of epic dimensions.
At the same time, however, I trust you are not counting on the latest
holiday rally in the stock market — or the most recent incarnation of the Obama
rescue package — to transform 2009 into a positive year for the economy.
The reasons: In addition to the massive wealth destruction I told you
about two weeks ago and the continuing debt collapse I’ve been warning you about
for many months now, the overseas engines of global growth are also collapsing.
This does not negate my long-term view that certain overseas economies
offer great future opportunities. But it does represent a major short-term
threat to U.S. investors, U.S. companies and the U.S. economy as a whole.
Here are some of the most vulnerable major economies …
Russia Smashed by Oil price Collapse
Never in modern history has the success or failure of a major
emerging economy been so dependent on one single commodity! And never before has
that commodity fallen so far and so fast as Russian crude oil!
Russia does have other resource and revenue sources. But in just
the past six months, Urals crude, Russia’s primary export blend, has plunged
from a high of nearly $141 per barrel to a low of a meager $32.34 — a 77% crash
that’s pounded Russian stocks like a sledgehammer and sliced through the Russian
economy like a serrated sickle.
The big dilemma: To balance its federal budget,
Russia must get a
minimum of $70 per barrel for its crude oil.
But at $32 and change, it’s getting less than HALF that amount. The entire
country is losing money hand over fist.
No wonder Russia’s stock market has plunged 72%, forcing 25 separate stock
Transneft, the Russian oil transporter, is down from $2,025 in January
2008 to a recent low of $270. Gazprom, the natural gas monopoly, has lost more
than two-thirds of its market capitalization since May. Meanwhile, Lukoil fell
from a May peak of $113 to a recent low of $32.
Russia’s oil-driven real estate bubble is also collapsing. That’s why
Russian construction and real estate giant Sistema-Hals lost more than 94% of
its value last year alone … why PIK Group, another major construction giant,
collapsed by 96% … and why the entire RCP Shares Index of Russian developers has
sunk 92% since its record high in June 2007.
Ford, Renault and Volkswagen are halting production at Russian assembly
lines. Unemployment is likely to surge to 10% and beyond. Massive amounts of
foreign capital are fleeing the country.
In a desperate attempt to stem the tide, the Russian government has
devalued the ruble 11 times since November, and thrown a quarter of its foreign
currency reserves at the raging debt crisis. But it’s still not enough. Russia’s
primary source of revenues — energy exports — is in shambles; and unless crude
oil prices could somehow DOUBLE in a big hurry, Russia’s economic and financial
decline cannot end.
Standard & Poor’s has cut Russia’s long-term debt rating for the first
time in nine years, citing dangerous outflows and a “rapid depletion” of
currency reserves. And more downgrades are in the offing. Even a major debt
default is not unthinkable.
The biggest danger: Political upheaval and social unrest.
Even before this crisis, Russia’s middle class earned less than $500 per
month. Now, with the devastating plunge in oil revenues already in place, those
numbers are falling to even lower levels. For a nation with a cost of living
that rivals that of the U.S., Western Europe and Japan, the last thing the
Russian people needed was a depression. Yet that’s exactly what they’re getting.
From everything I have read, I had anticipated signs of greater
prosperity. Instead, I see how little average citizens had benefited from the
recent years of rapid economic growth.
Yes, they have more access to a wider variety of goods that were scarce
during the Soviet era. But most professionals — such as teachers, doctors,
nurses and government employees — are still living on the edge of poverty.
Equally surprising is the popular disgust and disdain for the government.
Public opinion surveys and press reports may indicate broad support for the
Kremlin’s foreign policy, and they seem to be accurate. But support for domestic
policies is another matter entirely.
My view: Any major disappointment with respect to pocketbook issues could
lead to major political changes, the outcome of which is largely unpredictable.
China Far More Vulnerable Than Expected
China’s extraordinary expansion of the past decade fueled booms in
global trade, commodities and emerging markets. It was a major growth engine
that turbo-charged Australia, Brazil, Southeast Asia and even Japan.
Now, however, that engine is grinding to a screeching halt.
Indeed, when historians look back to major pivot points of this global economic
crisis, they will undoubtedly point to the abrupt end of China’s boom.
Many of us assumed that because China’s economy was growing so quickly —
at a breakneck pace of 10% or more per year — it could easily afford to slow
down by a few percentage points and still be in far better shape than most other
But now I seriously question that theory. Indeed, more often than not,
companies, industries and entire nations that enjoy the biggest booms are also
vulnerable to some of the biggest busts. Instead of a mere slowdown, as many
still seem to expect, China’s economy could suffer a wholesale collapse.
Exports, which still represent two-fifths of the Chinese economy, are
already sinking fast. And the domestic economy, much of which depends directly
or indirectly on the revenues flowing from exports, is also beginning to sink.
Warning signs are everywhere: Stocks, down 60% just in the last 12 months;
imports, down 17.9% in November alone; foreign investments
to China, off 36.5% last year.
In response, the government has slashed interest rates and pledged a $582
billion stimulus package. But that’s mere pocket change compared to China’s
trillions in vulnerable exports. Moreover, it has done little to help millions
of small- and medium-sized businesses which are already shutting down and laying
A big problem: 45% of the Chinese government bailout is earmarked for the
cement and housing industry. Meanwhile, cash-flow problems are sweeping through
the entire economy, downing airlines, manufacturers and property companies.
Airlines like China
Southern and China Eastern,
for example, have been losing money hand over fist. China’s auto sales are
plunging. Its shipbuilding industry is in a tailspin. And its real estate market
Next, expect surging unemployment … mass reverse migrations from urban
centers to the countryside … spreading popular unrest … and a major challenge to
authority. Chinese leaders have already admitted that an economic downturn would
test their ability to govern. Now, that downturn is here — and the ultimate
test, on the near horizon.
, also heavily dependent on foreign demand for its goods, is
suffering its worst export slump in recent memory. Overseas shipments plunged
12.1% in October and another 9.9% in
November, forcing companies like Tata Motors, India’s biggest truck maker, and
Hyundai Motor to cut output, fire workers and shut down factories.
which was growing at a record pace until the third quarter, has suddenly
frozen in its tracks. Much of the foreign money it counted on has vanished,
leaving acute capital shortages in its wake. Auto sales have gone dead, leaving
biggest-ever inventories of unsold cars. Credit, abundantly available just a few
months ago, is now gone.
has been slammed by its worst recession since World
war II … with stock
prices plunging to new 18-year lows … industrial output suffering
the largest monthly drop since records were kept … Toyota reporting its first
loss in 70 years … layoff victims filling tent parks … and worse. Everywhere
from Argentina and Mexico to Australia, New Zealand and even the once-rich
Middle East, the worldwide debt crisis, the bust in commodities and the sharp
slowdown in global trade are transforming massive booms into instant recessions.
*Who Designed This Really Bad Monster Movie Anyway?
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. In fact, the history of the recent financial
crisis, which doubles as a history of the rapid decline and fall of the suddenly
swindled-dry American empire ,reads like a Who's Who of Goldman Sachs graduates.
By now, most of us know the major players. As George Bush's last Treasury
secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a
suspiciously self-serving plan to funnel trillions of Your Dollars to a handful
of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury
secretary, spent 26 years at Goldman before becoming chairman of Citigroup -
which in turn got a $300 billion taxpayer bailout from Paulson. There's John
Thain, the rear end in a top hat chief of Merrill Lynch who bought an $87,000
area rug for his office as his company was imploding; a former Goldman banker,
Thain enjoyed a multibillion-dollar handout from Paulson, who used billions in
taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert
Steel, the former Goldmanite head of Wachovia, scored himself and his fellow
executives $225 million in golden parachute payments as his bank was
self-destructing. There's Joshua Bolten, Bush's chief of staff during the
bailout, and Mark Patterson, the current Treasury chief of staff, who was a
Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom
Paulson put in charge of bailed-out insurance giant AIG, which forked over $13
billion to Goldman after Liddy came on board. The heads of the Canadian and
Italian national banks are Goldman alums, as is the head of the World Bank, the
head of the New York Stock Exchange, the last two heads of the Federal Reserve
Bank of New York - which, incidentally, is now in charge of overseeing Goldman -
not to mention ...
But then, any attempt to construct a narrative around all the former Goldmanites
in influential positions quickly becomes an absurd and pointless exercise, like
trying to make a list of everything. What you need to know is the big picture:
If America is circling the drain, Goldman Sachs has found a way to be that drain
- an extremely unfortunate loophole in the system of Western democratic
capitalism, which never foresaw that in a society governed passively by free
markets and free elections, organized greed always defeats disorganized
The bank's unprecedented reach and power have enabled it to turn all of America
into a giant pump-and-dump scam, manipulating whole economic sectors for years
at a time, moving the dice game as this or that market collapses, and all the
time gorging itself on the unseen costs that are breaking families everywhere -
high gas prices, rising consumer-credit rates, half-eaten pension funds, mass
layoffs, future taxes to pay off bailouts. All that money that you're losing,
it's going somewhere, and in both a literal and a figurative sense, Goldman
Sachs is where it's going: The bank is a huge, highly sophisticated engine for
converting the useful, deployed wealth of society into the least useful, most
wasteful and insoluble substance on Earth - pure profit for rich individuals.
They achieve this using the same playbook over and over again. The formula is
relatively simple: Goldman positions itself in the middle of a speculative
bubble, selling investments they know are crap. Then they hoover up vast sums
from the middle and lower floors of society with the aid of a crippled and
corrupt state that allows it to rewrite the rules in exchange for the relative
pennies the bank throws at political patronage. Finally, when it all goes bust,
leaving millions of ordinary citizens broke and starving, they begin the entire
process over again, riding in to rescue us all by lending us back our own money
at interest, selling themselves as men above greed, just a bunch of really smart
guys keeping the wheels greased. They've been pulling this same stunt over and
over since the 1920s - and now they're preparing to do it again, creating what
may be the biggest and most audacious bubble yet.
If you want to understand how we got into this financial crisis, you have to
first understand where all the money went - and in order to understand that, you
need to understand what Goldman has already gotten away with. It is a history
exactly five bubbles long - including last year's strange and seemingly
inexplicable spike in the price of oil. There were a lot of losers in each of
those bubbles, and in the bailout that followed. But Goldman wasn't one of them.
IF AMERICA IS NOW CIRCLING THE DRAIN, GOLDMAN SACHS HAS FOUND A WAY TO BE THAT
BUBBLE #1 - THE GREAT DEPRESSION
Goldman wasn't always a too-big-to-fail Wall Street behemoth, the ruthless face
of kill-or-be-killed capitalism on steroids - just almost always. The bank was
actually founded in 1869 by a German immigrant named Marcus Goldman, who built
it up with his son-in-law Samuel Sachs. They were pioneers in the use of
commercial paper, which is just a fancy way of saying they made money lending
out short-term IOUs to small-time vendors in downtown Manhattan.
You can probably guess the basic plot line of Goldman's first 100 years in
business: plucky, immigrant-led investment bank beats the odds, pulls itself up
by its bootstraps, makes loads of money. In that ancient history there's really
only one episode that bears scrutiny now, in light of more recent events:
Goldman's disastrous foray into the speculative mania of pre-crash Wall Street
in the late 1920s.
This great Hindenburg of financial history has a few features that might sound
familiar. Back then, the main financial tool used to bilk investors was called
an "investment trust." Similar to modern mutual funds, the trusts took the cash
of investors large and small and (theoretically, at least) invested it in a
smorgasbord of Wall Street securities, though the securities and amounts were
often kept hidden from the public. So a regular guy could invest $10 or $100 in
a trust and feel like he was a big player. Much as in the 1990s, when new
vehicles like day trading and e-trading attracted reams of new suckers from the
sticks who wanted to feel like big shots, investment trusts roped a new
generation of regular-guy investors into the speculation game.
Beginning a pattern that would repeat itself over and over again, Goldman got
into the investment-trust game late, then jumped in with both feet and went
hog-wild. The first effort was the Goldman Sachs Trading Corporation; the bank
issued a million shares at $100 apiece, bought all those shares with its own
money and then sold 90 percent of them to the hungry public at $104. The trading
corporation then relentlessly bought shares in itself, bidding the price up
further and further. Eventually it dumped part of its holdings and sponsored a
new trust, the Shenandoah Corporation, issuing millions more in shares in that
fund - which in turn sponsored yet another trust called the Blue Ridge
Corporation. In this way, each investment trust served as a front for an endless
investment pyramid: Goldman hiding behind Goldman hiding behind Goldman. Of the
7,250,000 initial shares of Blue Ridge, 6,250,000 were actually owned by
Shenandoah - which, of course, was in large part owned by Goldman Trading.
The end result (ask yourself if this sounds familiar) was a daisy chain of
borrowed money, one exquisitely vulnerable to a decline in performance anywhere
along the line; The basic idea isn't hard to follow. You take a dollar and
borrow nine against it; then you take that $10 fund and borrow $90; then you
take your $100 fund and, so long as the public is still lending, borrow and
invest $900. If the last fund in the line starts to lose value, you no longer
have the money to payback your investors, and everyone gets massacred.
In a chapter from The Great Crash, 1929 titled "In Goldman Sachs We Trust," the
famed economist John Kenneth Galbraith held up the Blue Ridge and Shenandoah
trusts as classic examples of the insanity of leverage-based investment. The
trusts, he wrote, were a major cause of the market's historic crash; in today's
dollars, the losses the bank suffered totaled $475 billion. "It is difficult not
to marvel at the imagination which was implicit in this gargantuan insanity,"
Galbraith observed, sounding like Keith Olbermann in an ascot. "If there must be
madness, `something may be said for having it on a heroic scale."
BUBBLE #2 - TECH STOCKS
Fast-Forward about 65 years. Goldman not only survived the crash that wiped out
so many of the investors it duped, it went on to become the chief underwriter to
the country's wealthiest and most powerful corporations. Thanks to Sidney
Weinberg, who rose from the rank of janitor's assistant to head the firm,
Goldman became the pioneer of the initial public offering, one of the principal
and most lucrative means by which companies raise money. During the 1970s and
1980s, Goldman may not have been the planet-eating Death Star of political
influence it is today, but it was a top-drawer firm that had a reputation for
attracting the very smartest talent on the Street.
It also, oddly enough, had a reputation for relatively solid ethics and a
patient approach to investment that shunned the fast buck; its executives were
trained to adopt the firm's mantra, "long-term greedy." One former Goldman
banker who left the firm in the early Nineties recalls seeing his superiors give
up a very profitable deal on the grounds that it was a long-term loser. "We gave
back money to 'grownup' corporate clients who had made bad deals with us," he
says. "Everything we did was legal and fair - but 'long-term greedy' said we
didn't want to make such a profit at the clients' collective expense that we
spoiled the marketplace."
But then, something happened. It's hard to say what it was exactly; it might
have been the fact that Goldman's co-chairman in the early Nineties, Robert
Rubin, followed Bill Clinton to the White House, where he directed the National
Economic Council and eventually became Treasury secretary. While the American
media fell in love with the story line of a pair of baby-boomer, Sixties-child,
Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised
crush on Rubin, who was hyped as without a doubt the smartest person ever to
walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far
Rubin was the prototypical Goldman banker. He was probably born in a $4,000
suit, he had a face that seemed permanently frozen just short of an apology for
being so much smarter than you, and he exuded a Spock-like, emotion-neutral
exterior; the only human feeling you could imagine him experiencing was a
nightmare about being forced to fly coach. It became almost a national cliche
that whatever Rubin thought was best for the economy - a phenomenon that reached
its apex in 1999, when Rubin appeared on the cover of Time with his Treasury
deputy, Larry Summers, and Fed chief Alan Greenspan under the headline THE
COMMITTEE TO SAVE THE WORLD. And "what Rubin thought," mostly, was that the
American economy, and in particular the financial markets, were over-regulated
and needed to be set free. During his tenure at Treasury, the Clinton White
House made a series of moves that would have drastic consequences for the global
economy - beginning with Rubin's complete and total failure to regulate his old
firm during its first mad dash for obscene short-term profits.
The basic scam in the Internet Age is pretty easy even for the financially
illiterate to grasp. Companies that weren't much more than pot-fueled ideas
scrawled on napkins by up-too-late bong-smokers were taken public via IPOs,
hyped in the media and sold to the public for mega millions. It was as if banks
like Goldman were wrapping ribbons around watermelons, tossing them out 50-story
windows and opening the phones for bids. In this game you were a winner only if
you took your money out before the melon hit the pavement.
It sounds obvious now, but what the average investor didn't know at the time was
that the banks had changed the rules of the game, making the deals look better
than they actually were. They did this by setting up what was, in reality, a
two-tiered investment system - one for the insiders who knew the real numbers,
and another for the lay investor who was invited to chase soaring prices the
banks themselves knew were irrational. While Goldman's later pattern would be to
capitalize on changes in the regulatory environment, its key innovation in the
Internet years was to abandon its own industry's standards of quality control.
"Since the Depression, there were strict underwriting guidelines that Wall
Street adhered to when taking a company public," says one prominent hedge-fund
manager. "The company had to be in business for a minimum of five years, and it
had to show profitability for three consecutive years. But Wall Street took
these guidelines and threw them in the trash." Goldman completed the snow job by
pumping up the sham stocks: "Their analysts were out there saying Bull.com is
worth $100 a share."
The problem was, nobody told investors that the rules had changed. "Everyone on
the inside knew," the manager says. "Bob Rubin sure as hell knew what the under
writing standards were. They'd been intact since the 1930s."
Jay Ritter, a professor of finance at the University of Florida who specializes
in IPOs, says banks like Goldman knew full well that many of the public
offerings they were touting would never make a dime. "In the early Eighties, the
major underwriters insisted on three years of profitability. Then it was one
year, then it was a quarter. By the time of the Internet bubble, they were not
even requiring profitability in the foreseeable future."
Goldman has denied that it changed its underwriting standards during the
Internet years, but its own statistics be lie the claim. Just as it did with the
investment trust in the 1920s, Goldman started slow and finished crazy in the
Internet years. After it took a little-known company with weak financials called
Yahoo! public in 1996, once the tech boom had already begun, Goldman quickly
became the IPO king of the Internet era. Of the 24 companies it took public in
1997, a third were losing money at the time of the IPO. In 1999, at the height
of the boom, it took 47 companies public, including stillborns like Webvan and
eToys, investment offerings that were in many ways the modern equivalents of
Blue Ridge and Shenandoah. The following year, it underwrote 18 companies in the
first four months, 14 of which were money losers at the time. As a leading
underwriter of Internet stocks during the boom, Goldman provided profits far
more volatile than those of its competitors: In 1999, the average Goldman IPO
leapt 281 percent above its offering price, compared to the Wall Street average
of 181 percent.
How did Goldman achieve such extraordinary results? One answer is that they used
a practice called "laddering," which is just a fancy way of saying they
manipulated the share price of new offerings. Here's how it works: Say you're
Goldman Sachs, and Bull.com comes to you and asks you to take their company
public. You agree on the usual terms: You'll price the stock, determine how many
shares should be released and take the Bull.com CEO on a "road show" to schmooze
investors, all in exchange for a substantial fee (typically six to seven percent
of the amount raised). You then promise your best clients the right to buy big
chunks of the IPO at the low offering price - let's say Bull.com's starting
share price is $15 - in exchange for a promise that they will buy more shares
later on the open market. That seemingly simple demand gives you inside
knowledge of the IPO's future, knowledge that wasn't disclosed to the day-trader
schmucks who only had the prospectus to go by: You know that certain of your
clients who bought X amount of shares at $15 are also going to buy Y more shares
at $20 or $25, virtually guaranteeing that the price is going to go to $25 and
beyond. In this way, Goldman could artificially jack up the new company's price,
which of course was to the bank's benefit - a six percent fee of a $500 million
IPO is serious money.
Goldman was repeatedly sued by shareholders for engaging in laddering in a
variety of Internet IPOs, including Webvan and Net Zero. The deceptive practices
also caught the attention of Nichol as Maier, the syndicate manager of Cramer &
Co., the hedge fund run at the time by the now-famous chattering television rear
end in a top hat Jim Cramer, himself a Goldman alum. Maier told the SEC that
while working for Cramer between 1996 and 1998, he was repeatedly forced to
engage in laddering practices during IPO deals with Goldman.
"Goldman, from what I witnessed, they were the worst perpetrator," Maier said.
"They totally fueled the bubble. And it's specifically that kind of behavior
that has caused the market crash. They built these stocks upon an illegal
foundation -manipulated up - and ultimately, it really was the small person who
ended up buying in." In 2005, Goldman agreed to pay $40 million for its
laddering violations - a puny penalty relative to the enormous profits it made.
(Goldman, which has denied wrongdoing in all of the cases it has settled,
refused to respond to questions for this story.)
Another practice Goldman engaged in during the Internet boom was "spinning,"
better known as bribery. Here the investment bank would offer the executives of
the newly public company shares at extra-low prices, in exchange for future
underwriting business. Banks that engaged in spinning would then undervalue the
initial offering price - ensuring that those "hot" opening price shares it had
handed out to insiders would be more likely to rise quickly, supplying bigger
first-day rewards for the chosen few. So instead of Bull.com opening at $20, the
bank would approach the Bull.com CEO and offer him a million shares of his own
company at $18 in exchange for future business - effectively robbing all of
Bullshit's new shareholders by diverting cash that should have gone to the
company's bottom line into the private bank account of the company's CEO.
In one case, Goldman allegedly gave a multimillion-dollar special offering to
eBay CEO Meg Whitman, who later joined Goldman's board, in exchange for future i-banking
business. According to a report by the House Financial Services Committee in
2002, Goldman gave special stock offerings to executives in 21 companies that it
took public, including Yahoo! co-founder Jerry Yang and two of the great
slithering villains of the financial-scandal age - Tyco's Dennis Kozlowski and
Enron's Ken Lay. Goldman angrily denounced the report as "an egregious
distortion of the facts"- shortly before paying $110 million to settle an
investigation into spinning and other manipulations launched by New York state
regulators. "The spinning of hot IPO shares was not a harmless corporate perk,"
then-attorney general Eliot Spitzer said at the time. "Instead, it was an
integral part of a fraudulent scheme to win new investment-banking business."
Such practices conspired to turn the Internet bubble into one of the greatest
financial disasters in world history: Some $5 trillion of wealth was wiped out
on the NASDAQ alone. But the real problem wasn't the money that was lost by
shareholders, it was the money gained by investment bankers, who received hefty
bonuses for tampering with the market. Instead of teaching Wall Street a lesson
that bubbles always deflate, the Internet years demonstrated to bankers that in
the age of freely flowing capital and publicly owned financial companies,
bubbles are incredibly easy to inflate, and individual bonuses are actually
bigger when the mania and the irrationality are greater.
GOLDMAN SCAMMED HOUSING INVESTORS BY BETTING AGAINST ITS OWN CRAPPY MORTGAGES.
Nowhere was this truer than at Goldman. Between 1999 and 2002, the firm paid out
$28.5 billion in compensation and benefits - an average of roughly $350,000 a
year per employee. Those numbers are important because the key legacy of the
Internet boom is that the economy is now driven in large part by the pursuit of
the enormous salaries and bonuses that such bubbles make possible. Goldman's
mantra of "long-term greedy" vanished into thin air as the game became about
getting your check before the melon hit the pavement.
The market was no longer a rationally managed place to grow real, profitable
businesses: It was a huge ocean of Someone Else's Money where bankers hauled in
vast sums through whatever means necessary and tried to convert that money into
bonuses and payouts as quickly as possible. If you laddered and spun 50 Internet
IPOs that went bust within a year, so what? By the time the Securities and
Exchange Commission got around to fining your firm $110 million, the yacht you
bought with your IPO bonuses was already six years old. Besides, you were
probably out of Goldman by then, running the U.S. Treasury or maybe the state of
New Jersey. (One of the truly comic moments in the history of America's recent
financial collapse came when Gov. Jon Corzine of New Jersey, who ran Goldman
from 1994 to 1999 and left with $320 million in IPO-fattened stock, insisted in
2002 that "I've never even heard the term 'laddering' before.")
For a bank that paid out $7 billion a year in salaries, $110 million fines
issued half a decade late were something far less than a deterrent - they were a
joke. Once the Internet bubble burst, Goldman had no incentive to reassess its
new, profit-driven strategy; it just searched around for another bubble to
inflate. As it turns out, it had one ready, thanks in large part to Rubin.
BUBBLE #3 - THE HOUSING CRAZE
Goldman's role in the sweeping disaster that was the housing bubble is not hard
to trace. Here again, the basic trick was a decline in underwriting standards,
although in this case the standards weren't in IPOs but in mortgages. By now
almost everyone knows that for decades mortgage dealers insisted that home
buyers be able to produce a down payment of 10 percent or more, show a steady
income and good credit rating, and possess a real first and last name. Then, at
the dawn of the new millennium, they suddenly threw all that poo poo out the
window and started writing mortgages on the backs of napkins to cocktail
waitresses and ex-cons carrying five bucks and a Snickers bar.
None of that would have been possible without investment bankers like Goldman,
who created vehicles to package those lovely mortgages and sell them en masse to
unsuspecting insurance companies and pension funds. This created a mass market
for toxic debt that would never have existed before; in the old days, no bank
would have wanted to keep some addict ex-con's mortgage on its books, knowing
how likely it was to fail. You can't write these mortgages, in other words,
unless you can sell them to someone who doesn't know what they are.
Goldman used two methods to hide the mess they were selling. First, they bundled
hundreds of different mortgages into instruments called Collateralized Debt
Obligations. Then they sold investors on the idea that, because a bunch of those
mortgages would turn out to be OK, there was no reason to worry so much about
the lovely ones: The CDO, as a whole, was sound. Thus, junk-rated mortgages were
turned into AAA-rated investments. Second, to hedge its own bets, Goldman got
companies like AIG to provide insurance - known as credit-default swaps - on the
CDOs. The swaps were essentially a racetrack bet between AIG and Goldman:
Goldman is betting the ex-cons will default, AIG is betting they won't.
There was only one problem with the deals: All of the wheeling and dealing
represented exactly the kind of dangerous speculation that federal regulators
are supposed to rein in. Derivatives like CDOs and credit swaps had already
caused a series of serious financial calamities: Procter & Gamble and Gibson
Greetings both lost fortunes, and Orange County, California, was forced to
default in 1994. A report that year by the Government Accountability Office
recommended that such financial instruments be tightly regulated - and in 1998,
the head of the Commodity Futures Trading Commission, a woman named Brooksley
Born, agreed. That May, she circulated a letter to business leaders and the
Clinton administration suggesting that banks be required to provide greater
disclosure in derivatives trades, and maintain reserves to cushion against
More regulation wasn't exactly what Goldman had in mind. "The banks go crazy -
they want it stopped," says Michael Greenberger, who worked for Born as director
of trading and markets at the CFTC and is now a law professor at the University
of Maryland. "Greenspan, Summers, Rubin and [SEC chief Arthur] Levitt want it
Clinton's reigning economic foursome - "especially Rubin," according to
Greenberger- called Born in for a meeting and pleaded their case. She refused to
back down, however, and continued to push for more regulation of the
derivatives. Then, in June 1998, Rubin went public to denounce her move,
eventually recommending that Congress strip the CFTC of its regulatory
authority. In 2000, on its last day in session, Congress passed the
now-notorious Commodity Futures Modernization Act, which had been inserted into
an 1,000-page spending bill at the last minute, with almost no debate on the
floor of the Senate. Banks were now free to trade default swaps with impunity.
But the story didn't end there. AIG, a major purveyor of default swaps,
approached the New York State Insurance Department in 2000 and asked whether
default swaps would be regulated as insurance. At the time, the office was run
by one Neil Levin, a former Goldman vice president, who decided against
regulating the swaps. Now freed to underwrite as many housing-based securities
and buy as much credit-default protection as it wanted, Goldman went berserk
with lending lust. By the peak of the housing boom in 2006, Goldman was
underwriting $76.5 billion worth of mortgage-backed securities - a third of
which were sub prime - much of it to institutional investors like pensions and
insurance companies. And in these massive issues of real estate were vast swamps
Take one $494 million issue that year, GSAMP Trust 2006-S3. Many of the
mortgages belonged to second-mortgage borrowers, and the average equity they had
in their homes was 0.71 percent. Moreover, 58 percent of the loans included
little or no documentation - no names of the borrowers, no addresses of the
homes, just zip codes. Yet both of the major ratings agencies, Moody's and
Standard & Poor's, rated 93 percent of the issue as investment grade. Moody's
projected that less than 10 percent of the loans would default. In reality, 18
percent of the mortgages were in default within 18 months.
Not that Goldman was personally at any risk. The bank might be taking all these
hideous, completely irresponsible mortgages from beneath-gangster-status firms
like Countrywide and selling them off to municipalities and pensioners - old
people, for God's sake - pretending the whole time that it wasn't grade-D
horseshit. But even as it was doing so, it was taking short positions in the
same market, in essence betting against the same crap it was selling. Even
worse, Goldman bragged about it in public. "The mortgage sector continues to be
challenged," David Viniar, the bank's chief financial officer, boasted in 2007.
"As a result, we took significant markdowns on our long inventory positions ....
However, our risk bias in that market was to be short, and that net short
position was profitable." In other words, the mortgages it was selling were for
chumps. The real money was in betting against those same mortgages.
"That's how audacious these assholes are," says one hedge-fund manager. "At
least with other banks, you could say that they were just dumb - they believed
what they were selling, and it blew them up. Goldman knew what it was doing." I
ask the manager how it could be that selling something to customers that you're
actually betting against - particularly when you know more about the weaknesses
of those products than the customer - doesn't amount to securities fraud.
"It's exactly securities fraud," he says. "It's the heart of securities fraud."
Eventually, lots of aggrieved investors agreed. In a virtual repeat of the
Internet IPO craze, Goldman was hit with a wave of lawsuits after the collapse
of the housing bubble, many of which accused the bank of withholding pertinent
information about the quality of the mortgages it issued. New York state
regulators are suing Goldman and 25 other underwriters for selling bundles of
crappy Countrywide mortgages to city and state pension funds, which lost as much
as $100 million in the investments. Massachusetts also investigated Goldman for
similar misdeeds, acting on behalf of 714 mortgage holders who got stuck holding
predatory loans. But once again, Goldman got off virtually scot-free, staving
off prosecution by agreeing to pay a paltry $60 million - about what the bank's
CDO division made in a day and a half during the real estate boom.
The effects of the housing bubble are well known - it led more or less directly
to the collapse of Bear Stearns, Lehman Brothers and AIG, whose toxic portfolio
of credit swaps was in significant part composed of the insurance that banks
like Goldman bought against their own housing portfolios. In fact, at least $13
billion of the taxpayer money given to AIG in the bailout ultimately went to
Goldman, meaning that the bank made out on the housing bubble twice: It hosed
the investors who bought their horseshit CDOs by betting against its own crappy
product, then it turned around and hosed the taxpayer by making him payoff those
And once again, while the world was crashing down all around the bank, Goldman
made sure it was doing just fine in the compensation department. In 2006, the
firm's payroll jumped to $16.5 billion - an average of $622,000 per employee. As
a Goldman spokesman explained, "We work very hard here."
But the best was yet to come. While the collapse of the housing bubble sent most
of the financial world fleeing for the exits, or to jail, Goldman boldly doubled
down- and almost single-handedly created yet another bubble, one the world still
barely knows the firm had anything to do with.
BUBBLE #4 - $4 A GALLON
By the beginning of 2008, the financial world was in turmoil. Wall Street had
spent the past two and a half decades producing one scandal after another, which
didn't leave much to sell that wasn't tainted. The terms junk bond, IPO, sub
prime mortgage and other once-hot financial fare were now firmly associated in
the public's mind with scams; the terms credit swaps and CDOs were about to join
them. The credit markets were in crisis, and the mantra that had sustained the
fantasy economy throughout the Bush years - the notion that housing prices never
go down - was now a fully exploded myth, leaving the Street clamoring for a new
BS paradigm to sling.
Where to go? With the public reluctant to put money in anything that felt like a
paper investment, the Street quietly moved the casino to the
physical-commodities market - stuff you could touch: corn, coffee, cocoa, wheat
and, above all, energy commodities, especially oil. In conjunction with a
decline in the dollar, the credit crunch and the housing crash caused a "flight
to commodities." Oil futures in particular skyrocketed, as the price of a single
barrel went from around $60 in the middle of 2007 to a high of $147 in the
summer of 2008.
That summer, as the presidential campaign heated up, the accepted explanation
for why gasoline had hit $4.11 a gallon was that there was a problem with the
world oil supply. In a classic example of how Republicans and Democrats respond
to crises by engaging in fierce exchanges of moronic irrelevancies, John McCain
insisted that ending the moratorium on offshore drilling would be "very helpful
in the short term," while Barack Obama in typical liberal-arts yuppie style
argued that federal investment in hybrid cars was the way out.
GOLDMAN TURNED A SLEEPY OIL MARKET INTO A GIANT BETTING PARLOR - SPIKING PRICES
AT THE PUMP.
But it was all a lie. While the global supply of oil will eventually dry up, the
short-term flow has actually been increasing. In the six months before prices
spiked, according to the U.S. Energy Information Administration, the world oil
supply rose from 85.24 million barrels a day to 85.72 million. Over the same
period, world oil demand dropped from 86.82 million barrels a day to 86.07
million. Not only was the short-term supply of oil rising, the demand for it was
falling -which, in classic economic terms, should have brought prices at the
So what caused the huge spike in oil prices? Take a wild guess. Obviously
Goldman had help - there were other players in the physical-commodities market -
but the root cause had almost everything to do with the behavior of a few
powerful actors determined to turn the once-solid market into a speculative
casino. Goldman did it by persuading pension funds and other large institutional
investors to invest in oil futures - agreeing to buy oil at a certain price on a
fixed date. The push transformed oil from a physical commodity, rigidly subject
to supply and demand, into something to bet on, like a stock. Between 2003 and
2008, the amount of speculative money in commodities grew from $13 billion to
$317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded
27 times, on average, before it was actually delivered and consumed.
As is so often the case, there had been a Depression-era law in place designed
specifically to prevent this sort of thing. The commodities market was designed
in large part to help farmers: A grower concerned about future price drops could
enter into a contract to sell his corn at a certain price for delivery later on,
which made him worry less about building up stores of his crop. When no one was
buying corn, the farmer could sell to a middleman known as a "traditional
speculator," who would store the grain and sell it later, when demand returned.
That way, someone was always there to buy from the farmer, even when the market
temporarily had no need for his crops.
In 1936, however, Congress recognized that there should never be more
speculators in the market than real producers and consumers. If that happened,
prices would be affected by something other than supply and demand, and price
manipulations would ensue. A new law empowered the Commodity Futures Trading
Commission - the very same body that would later try and fail to regulate credit
swaps - to place limits on speculative trades in commodities. As a result of the
CFTC's oversight, peace and harmony reigned in the commodities markets for more
than 50 years.
All that changed in 1991 when, unbeknownst to almost everyone in the world, a
Goldman-owned commodities-trading subsidiary called J. Aron wrote to the CFTC
and made an unusual argument. Farmers with big stores of corn, Goldman argued,
weren't the only ones who needed to hedge their risk against future price drops
- Wall Street dealers who made big bets on oil prices also needed to hedge their
risk, because, well, they stood to lose a lot too.
This was complete and utter crap - the 1936 law, remember, was specifically
designed to maintain distinctions between people who were buying and selling
real tangible stuff and people who were trading in paper alone. But the CFTC,
amazingly, bought Goldman's argument. It issued the bank a free pass, called the
"Bona Fide Hedging" exemption, allowing Goldman's subsidiary to call itself a
physical hedger and escape virtually all limits placed on speculators. In the
years that followed, the commission would quietly issue 14 similar exemptions to
Now Goldman and other banks were free to drive more investors into the
commodities markets, enabling speculators to place increasingly big bets. That
1991 letter from Goldman more or less directly led to the oil bubble in 2008,
when the number of speculators in the market - driven there by fear of the
falling dollar and the housing crash - finally overwhelmed the real physical
suppliers and consumers. By 2008, at least three quarters of the activity on the
commodity exchanges was speculative, according to a congressional staffer who
studied the numbers - and that's likely a conservative estimate. By the middle
of last summer, despite rising supply and a drop in demand, we were paying $4 a
gallon every time we pulled up to the pump.
What is even more amazing is that the letter to Goldman, along with most of the
other trading exemptions, was handed out more or less in secret. "I was the head
of the division of trading and markets, and Brooksley Born was the chair of the
CFTC, "says Greenberger, "and neither of us knew this letter was out there." In
fact, the letters only came to light by accident. Last year, a staffer for the
House Energy and Commerce Committee just happened to be at a briefing when
officials from the CFTC made an off hand reference to the exemptions.
"I had been invited to a briefing the commission was holding on energy," the
staffer recounts. "And suddenly in the middle of it, they start saying, 'Yeah,
we've been issuing these letters for years now.' I raised my hand and said,'
Really? You issued a letter? Can I see it?' And they were like, 'Duh, duh.' So
we went back and forth, and finally they said, 'We have to clear it with Goldman
Sachs.' I'm like, 'What do you mean, you have to clear it with Goldman Sachs?'"
The CFTC cited a rule that prohibited it from releasing any information about a
company's current position in the market. But the staffer's request was about a
letter that had been issued 17 years earlier. It no longer had anything to do
with Goldman's current position. What's more, Section 7 of the 1936 commodities
law gives Congress the right to any information it wants from the commission.
Still, in a classic example of how complete Goldman's capture of government is,
the CFTC waited until it got clearance from the bank before it turned the letter
Armed with the semi-secret government exemption, Goldman had become the chief
designer of a giant commodities betting parlor. Its Goldman Sachs Commodities
Index- which tracks the prices of 24 major commodities but is overwhelmingly
weighted toward oil - became the place where pension funds and insurance
companies and other institutional investors could make massive long-term bets on
commodity prices. Which was all well and good, except for a couple of things.
One was that index speculators are mostly "long only" bettors, who seldom if
ever take short positions- meaning they only bet on prices to rise. While this
kind of behavior is good for a stock market, it's terrible for commodities,
because it continually forces prices upward. "If index speculators took short
positions as well as long ones, you'd see them pushing prices both up and down,"
says Michael Masters, a hedge-fund manager who has helped expose the role of
investment banks in the manipulation of oil prices. "But they only push prices
in one direction: up."
Complicating matters even further was the fact that Goldman itself was
cheerleading with all its might for an increase in oil prices. In the beginning
of 2008, Arjun Murti, a Goldman analyst, hailed as an "oracle of oil" by The New
York Times, predicted a "super spike" in oil prices, forecasting a rise to $200
a barrel. At the time Goldman was heavily invested in oil through its
commodities-trading subsidiary, J. Aron; it also owned a stake in a major oil
refinery in Kansas, where it warehoused the crude it bought and sold. Even
though the supply of oil was keeping pace with demand, Murti continually warned
of disruptions to the world oil supply, going so far as to broadcast the fact
that he owned two hybrid cars. High prices, the bank insisted, were somehow the
fault of the piggish American consumer; in 2005, Goldman analysts insisted that
we wouldn't know when oil prices would fall until we knew "when American
consumers will stop buying gas-guzzling sport utility vehicles and instead seek
But it wasn't the consumption of real oil that was driving up prices - it was
the trade in paper oil. By the summer of 2008, in fact, commodities speculators
had bought and stockpiled enough oil futures to fill 1.1 billion barrels of
crude, which meant that speculators owned more future oil on paper than there
was real, physical oil stored in all of the country's commercial storage tanks
and the Strategic Petroleum Reserve combined. It was a repeat of both the
Internet craze and the housing bubble, when Wall Street jacked up present-day
profits by selling suckers shares of a fictional fantasy future of endlessly
In what was by now a painfully familiar pattern, the oil-commodities melon hit
the pavement hard in the summer of 2008, causing a massive loss of wealth; crude
prices plunged from $147 to $33. Once again the big losers were ordinary people.
The pensioners whose funds invested in this crap got massacred: CalPERS, the
California Public Employees' Retirement System, had $1.1 billion in commodities
when the crash came. And the damage didn't just come from oil. Soaring food
prices driven by the commodities bubble led to catastrophes across the planet,
forcing an estimated 100million people into hunger and sparking food riots
throughout the Third World.
Now oil prices are rising again: They shot up 20 percent in the month of May and
have nearly doubled so far this year. Once again, the problem is not supply or
demand. "The highest supply of oil in the last 20 years is now," says Rep. Bart
Stupak, a Democrat from Michigan who serves on the House energy committee.
"Demand is at a 10-year low. And yet prices are up."
Asked why politicians continue to harp on things like drilling or hybrid cars,
when supply and demand have nothing to do with the high prices, Stupak shakes
his head. "I think they just don't understand the problem very well," he says.
"You can't explain it in 30 seconds, so politicians ignore it."
BUBBLE #5 - RIGGING THE BAILOUT
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.
It began in September of last year, when then-Treasury secretary Paulson made a
momentous series of decisions. Although he had already engineered a rescue of
Bear Stearns a few months before and helped bail out quasi-private lenders
Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers - one of
Goldman's last real competitors - collapse without intervention. ("Goldman's
superhero status was left intact," says market analyst Eric Salzman, "and an
investment-banking competitor, Lehman, goes away.") The very next day, Paulson
green lighted a massive, $85 billion bailout of AIG, which promptly turned
around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort,
the bank ended up getting paid in full for its bad bets: By contrast, retired
auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for
every dollar they are owed.
Immediately after the AIG bailout, Paulson announced his federal bailout for the
financial industry, a $700 billion plan called the Troubled Asset Relief
Program, and put a heretofore unknown 35-year-old Goldman banker named Neel
Kashkari in charge of administering the funds. In order to qualify for bailout
monies, Goldman announced that it would convert from an investment bank to a
bank holding company, a move that allows it access not only to $10 billion in
TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding -
most notably, lending from the discount window of the Federal Reserve. By the
end of March, the Fed will have lent or guaranteed at least $8.7 trillion under
a series of new bailout programs -and thanks to an obscure law allowing the Fed
to block most congressional audits, both the amounts and the recipients of the
monies remain almost entirely secret.
Converting to a bank-holding company has other benefits as well: Goldman's
primary supervisor is now the New York Fed, whose chairman at the time of its
announcement was Stephen Friedman, a former co-chairman of Goldman Sachs.
Friedman was technically in violation of Federal Reserve policy by remaining on
the board of Goldman even as he was supposedly regulating the bank; in order to
rectify the problem, he applied for, and got, a conflict-of-interest waiver from
the government. Friedman was also supposed to divest himself of his Goldman
stock after Goldman became a bank-holding company, but thanks to the waiver, he
was allowed to go out and buy 52,000 additional shares in his old bank, leaving
him $3 million richer. Friedman stepped down in May, but the man now in charge
of supervising Goldman - New York Fed president William Dudley - is yet another
The collective message of all 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."
Once the bailouts were in place, Goldman went right back to business as usual,
dreaming up impossibly convoluted schemes to pick the American carcass clean of
its loose capital. One of its first moves in the post-bailout era was to quietly
push forward the calendar it uses to report its earnings, essentially wiping
December 2008 - with its $1.3 billion in pretax losses - off the books. At the
same time, the bank announced a highly suspicious $1.8 billion profit for the
first quarter of 2009 - which apparently included a large chunk of money
funneled to it by taxpayers via the AIG bailout. "They cooked those
first-quarter results six ways from Sunday," says one hedge-fund manager. "They
hid the losses in the orphan month and called the bailout money profit."
Two more numbers stand out from that stunning first-quarter turn around. The
bank paid out an astonishing $4.7 billion in bonuses and compensation in the
first three months of this year, an 18 percent increase over the first quarter
of 2008. It also raised $5 billion by issuing new shares almost immediately
after releasing its first-quarter results. Taken together, the numbers show that
Goldman essentially borrowed a $5 billion salary payout for its executives in
the middle of the global economic crisis it helped cause, using half-baked
accounting to reel in investors, just months after receiving billions in a
Even more amazing, Goldman did it all right before the government announced the
results of its new "stress test" for banks seeking to repay TARP money -
suggesting that Goldman knew exactly what was coming. The government was trying
to carefully orchestrate the repayments in an effort to prevent further trouble
at banks that couldn't pay back the money right away. But Goldman blew off those
concerns, brazenly flaunting its insider status. "They seemed to know everything
that they needed to do before the stress test came out, unlike everyone else,
who had to wait until after," says Michael Hecht, a managing director of JMP
Securities. "The government came out and said, 'To pay back TARP, you have to
issue debt of at least five years that is not insured by FDIC - which Goldman
Sachs had already done, a week or two before."
And here's the real punch line. After playing an intimate role in four historic
bubble catastrophes, after helping $5 trillion in wealth disappear from the
NASDAQ, after pawning off thousands of toxic mortgages on pensioners and cities,
after helping to drive the price of gas up to $4 a gallon and to push 100
million people around the world into hunger, after securing tens of billions of
taxpayer dollars through a series of bailouts overseen by its former CEO, what
did Goldman Sachs give back to the people of the United States in 2008?
Fourteen million dollars.
That is what the firm paid in taxes in 2008, an effective tax rate of exactly
one, read it, one percent. The bank paid out $10 billion in compensation and
benefits that same year and made a profit of more than $2 billion - yet it paid
the Treasury less than a third of what it forked over to CEO Lloyd Blankfein,
who made $42.9million last year.
How is this possible? According to Goldman's annual report, the low taxes are
due in large part to changes in the bank's "geographic earnings mix." In other
words, the bank moved its money around so that most of its earnings took place
in foreign countries with low tax rates. Thanks to our completely hosed
corporate tax system, companies like Goldman can ship their revenues offshore
and defer taxes on those revenues indefinitely, even while they claim deductions
upfront on that same untaxed income. This is why any corporation with an at
least occasionally sober accountant can usually find a way to zero out its
taxes. A GAO report, in fact, found that between 1998 and 2005, roughly
two-thirds of all corporations operating in the U.S. paid no taxes at all.
This should be a pitchfork-level outrage - but somehow, when Goldman released
its post-bailout tax profile, hardly anyone said a word. One of the few to
remark on the obscenity was Rep. Lloyd Doggett, a Democrat from Texas who serves
on the House Ways and Means Committee. "With the right hand out begging for
bailout money," he said, "the left is hiding it offshore."
BUBBLE #6 - GLOBAL WARMING
Fast-Forward to today. 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 bail out
era, Goldman is once again back to its old business, scouting out loop holes in
a new government-created market with the aid of a new set of alumni occupying
key government jobs.
AS ENVISIONED BY GOLDMAN, THE FIGHT TO STOP GLOBAL WARMING WILL BECOME A "CARBON
MARKET" WORTH $1 TRILLION A YEAR.
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 ground breaking 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
Here's how it works: If the bill passes; there will be limits for coal plants,
utilities, natural-gas distributors and numerous other industries on the amount
of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the
companies go over their allotment, they will be able to buy "allocations" or
credits from other companies that have managed to produce fewer emissions.
President Obama conservatively estimates that about $646 billions worth of
carbon credits will be auctioned in the first seven years; one of his top
economic aides speculates that the real number might be twice or even three
times that amount.
The feature of this plan that has special appeal to speculators is that the
"cap" on carbon will be continually lowered by the government, which means that
carbon credits will become more and more scarce with each passing year. Which
means that this is a brand-new commodities market where the main commodity to be
traded is guaranteed to rise in price over time. The volume of this new market
will be upwards of a trillion dollars annually; for comparison's sake, the
annual combined revenues of an electricity suppliers in the U.S. total $320
Goldman wants this bill. The plan is (1) to get in on the ground floor of
paradigm-shifting legislation, (2) make sure that they're the profit-making
slice of that paradigm and (3) make sure the slice is a big slice. Goldman
started pushing hard for cap-and-trade long ago, but things really ramped up
last year when the firm spent $3.5 million to lobby climate issues. (One of
their lobbyists at the time was none other than Patterson, now Treasury chief of
staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally
helped author the bank's environmental policy, a document that contains some
surprising elements for a firm that in all other areas has been consistently
opposed to any sort of government regulation. Paulson's report argued that
"voluntary action alone cannot solve the climate-change problem." A few years
later, the bank's carbon chief, Ken Newcombe, insisted that cap-and-trade alone
won't be enough to fix the climate problem and called for further public
investments in research and development. Which is convenient, considering that
'Goldman made early investments in wind power (it bought a subsidiary called
Horizon Wind Energy), renewable diesel (it is an investor in a firm called
Changing World Technologies) and solar power (it partnered with BP Solar),
exactly the kind of deals that will prosper if the government forces energy
producers to use cleaner energy. As Paulson said at the time, "We're not making
those investments to lose money."
The bank owns a 10 percent stake in the Chicago Climate Exchange, where the
carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue
Source LLC, a Utah-based firm that sells carbon credits of the type that will be
in great demand if the bill passes. Nobel Prize winner Al Gore, who is
intimately involved with the planning of cap-and-trade, started up a company
called Generation Investment Management with three former big wigs from Goldman
Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their
business? Investing in carbon offsets. There's also a $500 million Green Growth
Fund set up by a Goldmanite to invest in green-tech ... the list goes on and on.
Goldman is ahead of the headlines again, just waiting for someone to make it
rain in the right spot. Will this market be bigger than the energy-futures
"Oh, it'll dwarf it," says a former staffer on the House energy committee.
Well, you might say, who cares? If cap-and-trade succeeds, won't we all be saved
from the catastrophe of global warming? Maybe - but cap-and-trade, as envisioned
by Goldman, is really just a carbon tax structured so that private interests
collect the revenues. Instead of simply imposing a fixed government levy on
carbon pollution and forcing unclean energy producers to pay for the mess they
make, cap-and trade will allow a small tribe of greedy-as-hell Wall Street swine
to turn yet another commodities market into a private tax-collection scheme.
This is worse than the bailout: It allows the bank to seize taxpayer money
before it's even collected.
"If it's going to be a tax, I would prefer that Washington set the tax and
collect it," says Michael Masters, the hedge fund director who spoke out against
oil-futures speculation. "But we're saying that Wall Street can set the tax, and
Wall Street can collect the tax. That's the last thing in the world I want. It's
Cap-and-trade is going to happen. Or, if it doesn't, something like it will. The
moral is the same as for all the other bubbles that Goldman helped create, from
1929 to 2009. In almost every case, the very same bank that behaved recklessly
for years, weighing down the system with toxic loans and predatory debt, and
accomplishing nothing but massive bonuses for a few bosses, has been rewarded
with mountains of virtually free money and government guarantees - while the
actual victims in this mess, ordinary taxpayers, are the ones paying for it.
It's not always easy to accept the reality of what we now routinely allow these
people to get away with; there's a kind of collective denial that kicks in when
a country goes through what America has gone through lately, when a people lose
as much prestige and status as we have in the past few years. You can't really
register the fact that you're no longer a citizen of a thriving first-world
democracy, that you're no longer above getting robbed in broad daylight, because
like an amputee, you can still sort of feel things that are no longer there.
But this is it. This is the world we live in now. And in this world, some of us
have to play by the rules, while others get a note from the principal excusing
them from their fricking homework till the end of time, plus 10 billion free
dollars in a paper bag to buy lunch. It's a gangster state, running on gangster
economics, and even prices can't be trusted anymore; there are hidden taxes in
every buck you pay. And maybe we can't stop it, but we should at least know
where it's all going.
START BUYING SILVER NOW!