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May 11, 2011 2:22 PM   Subscribe

The People vs. Goldman Sachs. Matt Taibbi's latest magnum opus (previous coverage) lays out the full case for federal prosecutions against the Vampire Squid according to Sen. Carl Levin's Senate Subcommittee on Investigations. [Wall Street and the Financial Crisis: Anatomy of a Financial Collapse 650 page pdf].
posted by T.D. Strange (176 comments total) 36 users marked this as a favorite

 
Timely:

The conviction of billionaire hedge fund manger Raj Rajaratnam on all 14 counts in a sprawling, unprecedented insider trading case will serve as a powerful warning shot to Wall Street, legal and financial experts say.
posted by Trurl at 2:29 PM on May 11, 2011


Screw charges and lawsuits. Blankfiend has such a lovely head fit for a guillotine revival.
posted by Horselover Phattie at 2:30 PM on May 11, 2011 [4 favorites]


Raid the compound with trained seals.
posted by clavdivs at 2:34 PM on May 11, 2011 [1 favorite]


Raid the compound with trained seals.

Show them the errors of their ways with cuteness?
posted by kmz at 2:41 PM on May 11, 2011 [5 favorites]


the thing to understand about Taibbi is that he (at the eXile) watched the oligarchs loot Soviet Russia with the connivance of western financial interests.

same interests, new country.
posted by ennui.bz at 2:43 PM on May 11, 2011 [17 favorites]


From the article, it appears that the New York AG would file charges?

The Office of the Attorney General of New York

E-Mail Form for Contacting the Office of the Attorney General of New York

Please join me in asking Attorney General Eric Schneiderman to open criminal charges.
posted by 235w103 at 2:43 PM on May 11, 2011 [7 favorites]


I'll supply the herring.
posted by indubitable at 2:55 PM on May 11, 2011 [1 favorite]


The United States of America is being looted in exactly the same way that I watched large software companies that I worked for being looted of their wealth in the 80's (and just like the Soviet era oligarchs referenced by ennui.bz above). In five or seven more years we will be in the depths of a huge financial depression , jobless, homeless starving people will gather in the street while the Kochs and the other wealthy 400 oligarchs in this country take an extended European vacation in one of their many houses to escape the backlash.

Unregulated Capitalism is evil. It is precisely as evil as Naziism and if you think that I have stretched an analogy then you do not understand how many people die each year from lack of health care, housing or frankly adequate nutrition. If you think that I've gone over the top then you do not remember the Bhopal disaster, Enron, The Exxon Valdez or last year on the Gulf coast.

Unregulated Capitalism kills.
posted by Poet_Lariat at 3:07 PM on May 11, 2011 [84 favorites]


Now we get down to the meat of the matter. Either the corporations own America, or the people do. If the AG nails Goldman Sachs and its executives to the wall the way they so 'richly' deserve, there's a chance the US will once again be "by the people, for the people." Otherwise, it's pretty damn clear that there's no turning back from our kleptoligarchical future.

WHO RUN BARTERTOWN?
posted by seanmpuckett at 3:07 PM on May 11, 2011 [15 favorites]


Suppose that they were put on trial and found guilty. How difficult would it be to get the money back? Is it just sitting on a known account somewhere or is it under a very large mattress in an unknown location?
posted by Anything at 3:11 PM on May 11, 2011


Does Raj Rajaratnam really need to go to jail? Isn't it enough that he knows deep down in his black little heart that he obtained all those piles of money illegally enough punishment it and of itself?

Also, I don't see how unregulated capitalism is as evil as Nazism? I mean, isn't maximizing wealth and profit, in theory, actually a good thing? Killing undesirables is never such.
posted by gagglezoomer at 3:18 PM on May 11, 2011 [1 favorite]


Also, I don't see how unregulated capitalism is as evil as Nazism?

You do not see because you will not open your eyes.
posted by Poet_Lariat at 3:22 PM on May 11, 2011 [4 favorites]


If you think that I've gone over the top then you do not remember

Please don't presume my weariness of your tone is a defect on my part.

I think government has a proper role in regulating the market. I do not think people who draw the line somewhere else are Nazis.
posted by spaltavian at 3:23 PM on May 11, 2011 [5 favorites]


Capitalism has never been unregulated, the history is a constant back and forth between more and less regulation, over generational time scales. Which is good, regulations get outdated, removed, new updated ones added, etc.. we would benefit from a better system of removing and adding regulation to keep up with the constant changes.
posted by stbalbach at 3:23 PM on May 11, 2011 [2 favorites]


Everyone is angry at the banks and investment houses. I get it.

But Matt Taibbi is an idiot. He doesn't know the first thing about the law, and what is and is not available to prosecutors. So he spins these exciting fantasies with powerful words that just don't correspond to what powers the government has, and then everyone gets pissed off at the government because they follow the laws.
posted by Ironmouth at 3:25 PM on May 11, 2011 [5 favorites]


Does Raj Rajaratnam really need to go to jail? Isn't it enough that he knows deep down in his black little heart that he obtained all those piles of money illegally enough punishment it and of itself?

No. It's not a punishment at all, in fact. Try to apply that same logic to assault.
posted by spaltavian at 3:25 PM on May 11, 2011 [6 favorites]


I mean, isn't maximizing wealth and profit, in theory, actually a good thing? Killing undesirables is never such.

WTF how am I supposed to maximize wealth and profit? There's only limited resources on this planet and if I am going to maximize the amount I have then someone is going to have to lose out and die.

posted by fuq at 3:27 PM on May 11, 2011 [3 favorites]


Godwin in 5, 4, 3, 2 . . .oh, shoulda looked up thread.

As evil as Nazism? Get a grip. Seriously. You want change but you can't seem to change your tone enough to get joe suburbia on board? Because this is a democracy and the key is to convince the voters we need more regulation. And throwing out the word "nazi" like that totally discredits your position.

And people wonder why these views don't get votes. More regulation of business is a perfectly logical policy choice. But you only put the gun in the enemy's hands when you rant like this.
posted by Ironmouth at 3:28 PM on May 11, 2011 [11 favorites]


It is precisely as evil as Naziism

Are varieties of evil commensurable? Gleefully extracting grandma's retirement money doesn't involve genocide, but it's contemptible and skeevy in a way that Hitler isn't.

Also, it's possible to imagine non-evil versions of capitalism.

Anyhow, do the Godwin everybody!
posted by justsomebodythatyouusedtoknow at 3:30 PM on May 11, 2011


But Matt Taibbi is an idiot. He doesn't know the first thing about the law, and what is and is not available to prosecutors. So he spins these exciting fantasies with powerful words that just don't correspond to what powers the government has, and then everyone gets pissed off at the government because they follow the laws.

So when Daniel Sparks testified in front of Congress that he thought the package would "perform," then an email surfaced where Sparks said he expected the package to "underperform," Matt Taibbi is making up a charge of perjury? I am not a lawyer, so perhaps you can explain how perform = underperform in legal terms.
posted by ryoshu at 3:32 PM on May 11, 2011 [10 favorites]


I mean, isn't maximizing wealth and profit, in theory, actually a good thing? Killing undesirables is never such.

WTF how am I supposed to maximize wealth and profit? There's only limited resources on this planet and if I am going to maximize the amount I have then someone is going to have to lose out and die.


well, it doesn't matter anyway. The planet will be stripped of resources and humanity will die out. If not now, then in 15 billion years when the sun goes red giant. Even if we miraculously violate the law of physics and move to a million other systems, extinction is still our end.

So the question is how to maximize our time. A mix of capitalism and government control seems like the way to go. Capitalism is efficient, as needs are met by those wishing to make a profit. But it has drawbacks too, when you are talking about basic needs like housing, food, health care, clothing, etc. So you have the government help there. So regulated capitalism for X-boxes, but not for medical care. Plus the government won't make video games like "Susie and Steve Get Lemonade" which suck.

Complicated situation is complicated. So no "back on the gold standard!" "Communism for All" or "No Regulations ever!" That simplistic crap is for appeal to the emotions, not for policy.
posted by Ironmouth at 3:34 PM on May 11, 2011 [4 favorites]


The Godwin!

1) Stand at attention
2) Extend right arm, slightly elevated, hand open, palm down
3) Hula the hips
posted by justsomebodythatyouusedtoknow at 3:35 PM on May 11, 2011 [9 favorites]


But Matt Taibbi is an idiot. He doesn't know the first thing about the law, and what is and is not available to prosecutors. So he spins these exciting fantasies with powerful words that just don't correspond to what powers the government has, and then everyone gets pissed off at the government because they follow the laws.

So when Daniel Sparks testified in front of Congress that he thought the package would "perform," then an email surfaced where Sparks said he expected the package to "underperform," Matt Taibbi is making up a charge of perjury? I am not a lawyer, so perhaps you can explain how perform = underperform in legal terms.


The set of facts you describe constitute perjury. But that isn't the People v. Goldman Sachs. That's the People v. Daniel Sparks.
posted by Ironmouth at 3:35 PM on May 11, 2011 [1 favorite]


Also, it's possible to imagine non-evil versions of capitalism.

It certainly is possible.
A version where workers are paid an appropriate, comfortable, living wage.

A version where the highest level management is not protected (via the corporate legal umbrella)from and in fact would be held legally accountable for decisions that adversely affect the lives and safety of their consumers.

A version where caps are placed on the amount of wealth that can be accumulated by the highest level management vs. the lowest paid workers.

A version where the physical resources drained form a country in order to create profit is balanced by taxes that benefit the surrounding community.

There is no reason why people who are bright, have good ideas and/or work very hard should not become nicely comfortable in life. There is every reason why 400 people in the country should not own as much wealth as 160 million people in the country.
posted by Poet_Lariat at 3:40 PM on May 11, 2011 [15 favorites]


But Matt Taibbi is an idiot. He doesn't know the first thing about the law, and what is and is not available to prosecutors. So he spins these exciting fantasies with powerful words that just don't correspond to what powers the government has, and then everyone gets pissed off at the government because they follow the laws.

Jesus, man did you even read past the first couple paragraphs? Taibbi is talking about the methods that we used to use, successfully I might add, to prosecute financial wrongdoing, and how those methods have been cut out of the system.

Everyone gets mad because we used to have a regulated banking system that didn't spontaneously collapse then demand handouts from the taxpayer. Starting with Clinton, we got rid of that.

Can I refer you to:

" In 1995, according to an independent study, banking regulators filed 1,837 referrals. During the height of the financial crisis, between 2007 and 2010, they averaged just 72 a year."

He's not the only one documenting this. He's just the best writer doing it.

Whereas you are, I don't know, in favor of banking deregulation at the cost of the middle class?
posted by lumpenprole at 3:42 PM on May 11, 2011 [15 favorites]


Capitalism is efficient, as needs are met by those wishing to make a profit.

Where does this happen and can I move there cheaply? P.S. I'm poor and I need healthcare.

Anyhow, invisible hand of mob justice and all that.
posted by fuq at 3:47 PM on May 11, 2011 [6 favorites]


The set of facts you describe constitute perjury. But that isn't the People v. Goldman Sachs. That's the People v. Daniel Sparks.

Add the People vs. Lloyd Blankfein, the head of Goldman Sachs, and the People vs. Joshua Birnbaum, the head of Goldman Sachs' structured-products trading. Sen. Levin certainly thought it was worth turning over to the DoJ, so I guess we'll have to wait and see what happens. Past performance is no guarantee of future gains, but my guess is nothing will be done, even when presented with blatant acts of perjury.
posted by ryoshu at 3:48 PM on May 11, 2011 [1 favorite]


Jesus, man did you even read past the first couple paragraphs? Taibbi is talking about the methods that we used to use, successfully I might add, to prosecute financial wrongdoing, and how those methods have been cut out of the system.


No, he's talking about a criminal case against Goldman Sachs.

Here it is, and the evidence has been gift-wrapped and left at the doorstep of federal prosecutors, evidence that doesn't leave much doubt: Goldman Sachs should stand trial.
posted by Ironmouth at 3:51 PM on May 11, 2011


Ironmouth: I'm a bear of very little brain, and I read the Taibbi article and then I read your criticisms of it, and I am not quite sure what you mean when you say that he has no knowledge of the law or understand of this and that.

I'd welcome a point-by-point refutation by you to help me understand where he's gone wrong with his reasoning. It might help educate me well enough that I am not taken in by populist journalism against Wall Street in the future.

Because the Taibbi article seems entirely sensible to me. So obviously I'm missing something, and the statements you've made so far in this thread are far too broad and detail-free for me to have a clear picture of where he's led me astray.
posted by hippybear at 4:02 PM on May 11, 2011 [20 favorites]


No, he's talking about a criminal case against Goldman Sachs.

Right, which our prosecutors would be able to bring if we not for:

"In 2004, in an extraordinary sequence of regulatory rollbacks that helped pave the way for the financial crisis, the top five investment banks — Goldman, Merrill Lynch, Morgan Stanley, Lehman Brothers and Bear Stearns — persuaded the government to create a new, voluntary approach to regulation called Consolidated Supervised Entities. CSE was the soft touch to end all soft touches. Here is how the SEC's inspector general described the program's regulatory army: "The Office of CSE Inspections has only two staff in Washington and five staff in the New York regional office.""

And the removal of anything other than voluntary regulation.

So, the point is that previous to the mid-90's our country prosecuted financial fraud. See the S&L debacle. Those tools were "available to prosecutors" as you put it. And now, the laws are still there somewhat, but the manpower and willingness to prosecute them is not.

There are reasons for this, and Taibbi is not making them up.

You might like to listen to Harry Shearer's interview with Bill Black for a little more background on this.
posted by lumpenprole at 4:03 PM on May 11, 2011 [6 favorites]


>He doesn't know... what is and is not available to prosecutors.

Ironmouth, sorry if this looks like a pile-on, but isn't that the point?

Wall Street has succeeded in changing the laws, and therefore, the tools available.

In any case, given how deeply the Dems are beholden to the banks (and perhaps moreso, to Wall Streeters' personal contributions), and how enthusiastic the GOP is about any group with money, this isn't a situation likely to improve any time soon.
posted by darth_tedious at 4:07 PM on May 11, 2011 [3 favorites]


Is there any indication that Raj Rajaratnam's prosecution amounts to more than revenge for his financing of the Tamil Tigers?

Ain't saying the SEC won't prosecute anyone else that rich for insider trading. Just say'n he's an exceptionally political case.
posted by jeffburdges at 4:12 PM on May 11, 2011


IANAL but this is pretty obvy.

case closed.
posted by nutate at 4:14 PM on May 11, 2011


So obviously I'm missing something, and the statements you've made so far in this thread are far too broad and detail-free for me to have a clear picture of where he's led me astray.

I think the thing you're missing is that Ironmouth believes anybody who criticizes the current administration, and more than that, the current political structure in the United States (Taibbi, Glenn Greenwald, Julian Assange, etc.) is an idiot.

It comes down to a fundamental belief in whether you think the current system is broken and doesn't serve the needs of the citizens or whether it isn't broken and just needs some adjustments.

Greenwald, Taibbi, and Assange all think there are some fundamental issues with the American government, issues that go beyond which administration is currently in charge. These people are for the most part equally critical of whichever party is in charge.

Ironmouth, from what I can gather, is a career Democrat. He has a strong investment in that party and is loyal to it. This is fine, the Democrats push policies that are more friendly to normal people than the Republicans. But he's naturally going to be critical of more radical policies and movements.

The Taibbi piece is, at its heart, a criticism of the current administrations Justice Department. Obviously somebody who is closely aligned with that team, whatever the relationship may be, is going to be wary of a hit piece on it.

Personally, I think Taibbi, Greenwald and the like are pointing out real shortcomings with the current situation, and I'm not confident we can correct them without more comprehensive changes.
posted by formless at 4:22 PM on May 11, 2011 [30 favorites]


A massive crime was perpetrated, and many of the perps are known (both individuals, and organisations)

I don't mean crime in the secondary sense of "a specific written law was violated", I mean in the primary sense of "the kind of extreme wrongdoing that we try to ensure that our (imperfect) laws will prohibit"

There is no question a massive crime was perpetrated. The questions are, is our imperfect legal system capable of recognizing and addressing that kind of crime? And is our imperfect justice and political system capable of using this legal tool (or another) to bring justice to the perps, even when they are its own people?

If the answer to either of those questions turns out to be "no", then what other avenues should be taken to ensure justice and deterrence?
posted by -harlequin- at 4:39 PM on May 11, 2011 [3 favorites]


Is there any indication that Raj Rajaratnam's prosecution amounts to more than revenge for his financing of the Tamil Tigers?


Raj is the first in a series of insider trading cases they've got going on. The other South Asians caught up in it aren't tamil. AFAIK the only people putting forth they are going after Raj because of the Tigers is Raj. he was just the most brazen about his insider trading and was caught on several wire taps himself., so they took him down first. There has been zero discussion of his role in Sri Lanka in the media or in the trial.

They really want to nail the Stevie Cohen universe, but to get that to happen they need people to roll, and to get people to roll they needed a conviction and real time - Raj is looking at 19 years or so, and I'm guessing the Feds are hoping this will "encourager les autres" as it were. If they take down SAC it'll be a really big deal. Personally I think they basically force him to shut down unless they find a disgruntled lieutenant to roll over, but Stevie is famous for treating the people he fires very well - probably for just such a reason. Chuck Grassley has even started rambling about SAC.

WRT to Taibbi - the real problem with his argument is that he assumes Goldman had an underwriting relationship with their clients, but its seems that Goldman claims they were trading relationships. If its the former what they did is fraud, the latter, just really sleazy. That it, that's the entire issue. I suspect the DoJ feels the same way, given the avenue they used to pursue Goldman on the Paulson securitizations. But I'm not a securities lawyer, so who the fuck knows.

(Excluding any contempt of court issues for lying on the stand, which indeed should be prosecuted)
posted by JPD at 4:44 PM on May 11, 2011 [4 favorites]


If the answer to either of those questions turns out to be "no", then what other avenues should be taken to ensure justice and deterrence?

Civil disobedience.

A rash of unexplained fires that inevitably burn just-foreclosed homes to the ground.

Coordinated consumer withdrawals to literally bring down the banks that have caused the damage.

just off the top of my head .... I am sure there are many more. One thing is clear: we are beyond the point where political or legal action is possible when so much wealth and power is owned by the very people who are criminally abusing the system.
posted by Poet_Lariat at 4:49 PM on May 11, 2011 [4 favorites]


"Why should Carl Levin be the one who needs to do this?" asks Spitzer. "Where's the SEC? Where are any of the regulatory bodies?"

They're on page 91.
posted by anigbrowl at 4:56 PM on May 11, 2011


anigbrowl: from the (free) source: Note 27: Legal proceedings
posted by nutate at 5:09 PM on May 11, 2011


Matt Taibbi is actually not an idiot. Just FYI.
posted by Brocktoon at 5:27 PM on May 11, 2011 [7 favorites]


Obama took office 2 years ago and the regulatory agencies and DOJ were both overrun by Republican cronies and Goldman sympathizers. As a consequence of the TARP bailout and FDIC promises the country had no leverage over Goldman. The temporary convergence of our interests made it impossible to move against them. Now circumstances are changing.

I suspect we'll see the prosecutions pick up speed over the next two years. This is a bit like taking down a mob boss though, it might tale a decade to see this through.
posted by humanfont at 5:37 PM on May 11, 2011 [1 favorite]


Nutate - the reason I mentioned page 91 is because the first 10 pages of note 27 discuss private civil litigation. Page 91 summarizes what the US government is doing as regards the firm. This was filed yesterday, and that's all I can say about it.
posted by anigbrowl at 5:50 PM on May 11, 2011


I'm perfectly happy to have DOJ nail the Goldman malefactors, encourage it in fact, but the sense of personal outrage here is a little disproportionate. I mean, the little green bouncing ball here is what, 16 billion? That's peanuts. In the past decade we have spent over a trillion and all we got was a head shot of one middle aged terrorist. (Obama's #1 priority for the CIA, I hear tell.)

If you want to get angry, forget Blankfein. The serious blood on the tracks country destroying depression inducing train wreck is going to be down to all those bad IOUs our government is writing to keep us #1. Or something.

That's what our grandchildren are not going to forgive us for.
posted by IndigoJones at 6:01 PM on May 11, 2011 [4 favorites]


No, he's talking about a criminal case against Goldman Sachs.

Right, which our prosecutors would be able to bring if we not for:

"In 2004, in an extraordinary sequence of regulatory rollbacks that helped pave the way for the financial crisis, the top five investment banks — Goldman, Merrill Lynch, Morgan Stanley, Lehman Brothers and Bear Stearns — persuaded the government to create a new, voluntary approach to regulation called Consolidated Supervised Entities. CSE was the soft touch to end all soft touches. Here is how the SEC's inspector general described the program's regulatory army: "The Office of CSE Inspections has only two staff in Washington and five staff in the New York regional office.""


This is precisely fucking it. What does the SEC have to do with criminal prosecution? Nothing. The regulations discussed have nothing to do with criminal prosecution. Zero. I spent half of my last year in law school in the Enforcement Division at SEC headquarters. Those penalties are administriative.

Second, these sales are special. They are to a special class of investors to whom less regulation applies because they are termed "sophisticated" investors. They are uber rich companies. They are rich beyond compare. Taibbi wants you to think these poor saps need protection. They don't. What is needed is protection from them and their reckless investing.

What I mean is this--what caused the problem (and the bailout) is that jokers like this had positions in the regular economy which made the speculation dangerous because if they went down, a lot of financial services that affected a lot of regular people would go down. You know, cry me a fucking river for a bunch of rich fucks getting ripped off by even richer fucks.

The problem is the repeal of Glass-Stegal and other regulations allowing the entities who did this to also hold critical roles in the economy. But waste one moment of scare prosecutor time to revenge some Austrailan hedge fund? Why? What a waste!

What jokers like Taibbi do is they flash a name like Goldman Sachs and wait for everyone to get mad. Did you read the ridiculous metaphors in there? It explains nothing. If he's got a code section, let me see it. But he doesn't. This article is power-trolling at its worst.
posted by Ironmouth at 6:13 PM on May 11, 2011 [6 favorites]


I can still get outraged over 16 billion.
posted by newdaddy at 6:14 PM on May 11, 2011 [4 favorites]


The problem is the repeal of Glass-Stegal and other regulations allowing the entities who did this to also hold critical roles in the economy. But waste one moment of scare prosecutor time to revenge some Austrailan hedge fund? Why? What a waste!

What jokers like Taibbi do is they flash a name like Goldman Sachs and wait for everyone to get mad. Did you read the ridiculous metaphors in there? It explains nothing. If he's got a code section, let me see it. But he doesn't. This article is power-trolling at its worst.


Of course he is. But the point is that Glass-Stegal didn't get repealed and the regulatory framework didn't get repealed on a whim or because some Treasury wonk thought it was a good idea. It was repealed because, regulatory capture is too weak a word, wall street was invited into a Democratic white house by clinton i.e. bob rubin.

The crash happened because of political corruption. No amount of "responsible" reporting is going lead to new regulatory framework when Wall Street can play both political parties off each other. And if you think that Wall Street has any interest in compromise now that the barn door is wide open with regards to regulatory capture, you are fooling yourself. Taibbi is trying to create political room for running against Wall Street in form the "vampire squid." If Democratic candidates can get Mau-Maued by their opponents for being soft of the "giant vampire squid" then you have the possibility of actually forcing players like Goldman Sachs to accept a new regulatory regime, if they have to face the uncertainty of a populist shit flinging election.

Otherwise we just have to wait for Great Depression II, and hope that the biblically based Treasury department of President Huckabee, or whoever, can figure out what Jesus would do...
posted by ennui.bz at 6:38 PM on May 11, 2011 [14 favorites]


Also worth knitting Goldman is Taibbi's favorite whipping boy. He's got a major axe tom grind against the, for some reason. They were one of any players in a very corrupt game., and probably not the worst player (see AIG) Also what Ironmouth said.
posted by humanfont at 6:38 PM on May 11, 2011


With respect to Ironmouth, who I think is mostly right, and to Taibbi, who I think is on the right moral track even if his brush is ludicrously broad, there are a couple of important points here:

1. The losses got socialized. Which means, essentially, the American (and global) public paid for this shit, not the 'victims', who were banks who should have known better.

2. The correct response is not prosecutions but legislation, which Goldman et al are MUCH more scared of than prosecution. Glass-Steagal for a start, and then we take Berlin.
posted by unSane at 6:41 PM on May 11, 2011 [7 favorites]


The capitalism/socialism continuum is relevant, but it has become more and more of a sidetrack.

We are not a capitalist society just because it is (supposedly) the most free and accessible system. We are also a capitalist society because it is (again, supposedly) a workable system to base our society on; people help the society in general by helping themselves. Enlightened self-interest.

The problem is that things don't work that way anymore. The fulcrum has moved from the middle, and what benefits big business no longer benefits society. In fact, in many cases what serves business is actually antithetical to a workable society.

Things need to change. If we can't hold people accountable for gross crimes against our society - and there is ample evidence that gross crimes have been committed - then we are incompetent.
posted by Benny Andajetz at 6:42 PM on May 11, 2011 [3 favorites]


also, the Basis Capital/Timberwolf deal is being litigated in civil court: Basis Yield v. Goldman Sachs, 1:10-cv-04537, U.S. District Court, Southern District of New York (Manhattan) basis report[pdf], and Goldmann does appear to be the underwriter.
posted by ennui.bz at 6:45 PM on May 11, 2011


.... flash a name like Goldman Sachs and wait for everyone to get mad.

Getting people mad is one of the finest traditions in American investigative journalism. And if you're bothered by the lack of precision and rough mis-characterization in jumping up and down on Goldman-Sachs, it's precisely this sort of simplistic drum beating that gets things done in America. Remember, "We're gonna get Bin Laden" was enough for Bush & Friends to start two wars, one of which had less than zero to do with getting Bin Laden.

So "is is accurate" is one question we can ask; "is it effective" is a different one. And I'm tired of losing elegantly while watching the bastards win ugly.
posted by benito.strauss at 6:48 PM on May 11, 2011 [9 favorites]


If only there were more Matt Taibbi's in the press - even the financial press! Look, law formalities aside, these people stole our money as they professed to "invest" it for us; they stole entire futures; they stole businesses; they stole money that was supposed to pay for college educations; they stole the American Dream (by using it against itself); they stole our trust in government, by buying that trust right under our noses; they stole what was left of the shrinking upward mobility fo the middle and lower-middle classes; they stole the idea that money - the gauge of American success - isn't earned - rather, it's cleverly leveraged and stolen.

Because of these greedy slimebags, how many people have died because they lost everything and couldn't afford health care? How many suicides? How many broken families? How many broken neighborhoods and communities? How many MILLIONS of lives set back or ruined? How many kids with no education. How many people put out of jobs and still unemployed? How many doctor's visits? How many new criminals? How many poor neighborhoods with lost hopes? How many ghost town communities made up of dilapidated, foreclosed homes? How many broken municipal budgets? How much lost national pride? How much lost international status? How many broken countries (Ireland, Greece, Portugal, Iceland, etc.).

Matt Taibbi? Give me a special clone of the most vengeful judge in American history for this job! I want every one of the greedy bastards who have been getting away with this crap - and are STILL getting away with it - in jail, or worse. I want to see them suffer, and I want every $$$ of any asset they own stripped from their slimy little hands. I want to see them beg for mercy, on their knees, with tears streaming down their faces - with no mercy shown. I want to be there to see all that, and feel the revenge. I want every American to be able to watch a slow motion film of the grief on their greedy little faces as they're walked off to jail, preceded by two days on display in a pubic pillory. How about "American Criminal". Make 'em sing for mercy, in public!

In other words, I want to see these people lose everything - their pride, their money, their position, their family, their health insurance, their homes, their futures - everything. Minimum, mandated 10 year sentences of hard time, in the worst prisons.

Then, I want to see American policymakers stop pussyfooting around with monied assholes who would sell their own mother for a new angle of bilking people. Until that stops, we're going to see more of this.

Matt Taibbi? He is way too soft on those SOBs.
posted by Vibrissae at 6:56 PM on May 11, 2011 [24 favorites]


In the wake of the Levin report it seemed briefly that Goldman execs might face perjury charges regarding their testimony to Congress, but the possibility of that happening now seems diminished.

Either way, there is a strong case that there was criminal intent on Goldman's part in the case in question.

Eliot Spitzer, appearing on Anderson Cooper along with Taibbi when the Levin report broke (see video here, well worth watching, particularly comments beginning at the 7:26 mark), answered Cooper's queries (and Cooper did a good job pushing whether criminality is in fact at issue) in one part as follows (from the transcript, in bold a page or two in):

COOPER: Eliot, do you believe Goldman broke the law and lied?

ELIOT SPITZER: Yes, I do. And I know people are going to say how can you say that as a lawyer? I have read this report. It confirms our worst fears about double dealing, lying. Goldman Sachs has zero, none, nada credibility in my book. They have scammed the American public, lied to Senator Levin's committee. That's what he said.

posted by Papaver somniferum at 6:58 PM on May 11, 2011 [3 favorites]


Obama took office 2 years ago and the regulatory agencies and DOJ were both overrun by Republican cronies and Goldman sympathizers.

This is a line mainstream Dems repeat mindlessly, and it's horseshit - Obama appointed a central architect of securities deregulation, Larry Summers, and an overseer of key profiteers, Timothy Geithner, to key positions involved in dealing with the economic "crisis" that they helped to create.

Obama is every bit as guilty of assisting in the defrauding of the American people.
posted by ryanshepard at 6:59 PM on May 11, 2011 [16 favorites]


Goldman does appear to be the underwriter.

no - Levin's committee, and Basis quite reasonably assert that Goldman was an underwriter. That's not the same thing as saying "Goldman does appear to be an underwriter". Goldman claims they weren't. I mean the levin/basis view is very very reasonable - but the goldman position also has merit. The fact that Basis was a "qualified investor" makes it much harder to prove the "Goldman is an underwriter, not a market maker" arguement. Its splitting hairs, but its hairsplitting that matters.
posted by JPD at 7:00 PM on May 11, 2011


Look, law formalities aside, these people stole our money as they professed to "invest" it for us;

No.

These are the extremely rich stealing from one another. These are "qualified investors." The kind that voluntarily forego SEC protection. Were there frauds? Dunno. Should we care that some rich people swindled other rich people? No. But it should be kept away from major banking systems.
posted by Ironmouth at 7:08 PM on May 11, 2011


Obama took office 2 years ago and the regulatory agencies and DOJ were both overrun by Republican cronies and Goldman sympathizers.

I'm sure he'll announce radical changes around there, probably at his next town hall meeting at the company that had recently had a $500 million dollar investment from Goldman -- an act which has pressured the SEC to promise to look at further deregulation.
posted by RobotVoodooPower at 7:08 PM on May 11, 2011 [3 favorites]


Should we care that some rich people swindled other rich people? No.

But sometimes the low hanging fruit is the best legal option, kind of like how Al Capone was busted for tax evasion.
posted by Papaver somniferum at 7:13 PM on May 11, 2011 [2 favorites]


Dunno. Should we care that some rich people swindled other rich people? No.

You're not a stupid person, Ironmouth, so you cannot be ignorant of the fact that the most toxic of the toxic assets are now sitting on the books of the US government and the losses have not yet been realized.
posted by unSane at 7:14 PM on May 11, 2011 [7 favorites]


Obama took office 2 years ago and the regulatory agencies and DOJ were both overrun by Republican cronies and Goldman sympathizers.

I'm sure he'll announce radical changes around there, probably at his next town hall meeting at the company that had recently had a $500 million dollar investment from Goldman -- an act which has pressured the SEC to promise to look at further deregulation.


I haven't formed an opinion on this regulation, but what, specifically is wrong with the regulatory change being contemplated in that article?
posted by Ironmouth at 7:16 PM on May 11, 2011


Dunno. Should we care that some rich people swindled other rich people? No.

You're not a stupid person, Ironmouth, so you cannot be ignorant of the fact that the most toxic of the toxic assets are now sitting on the books of the US government and the losses have not yet been realized.


Because the investments were so hooked into the economy that it would all go down with it. The problem is letting the bets on this stuff occur in the first place, not wasting precious criminal prosecution assets be wasted on obtaining justice for the already rich.
posted by Ironmouth at 7:19 PM on May 11, 2011


I haven't formed an opinion on this regulation, but what, specifically is wrong with the regulatory change being contemplated in that article?

Regulated capitalism is Stalinism.
posted by furiousxgeorge at 7:20 PM on May 11, 2011


Should we care that some rich people swindled other rich people? No.

But sometimes the low hanging fruit is the best legal option, kind of like how Al Capone was busted for tax evasion.


Really? This is "low hanging fruit?"
posted by Ironmouth at 7:21 PM on May 11, 2011


The problem is letting the bets on this stuff occur in the first place, not wasting precious criminal prosecution assets be wasted on obtaining justice for the already rich.

I don't see how you can get to the justice being just for them when you don't disagree the losses were socialized.
posted by furiousxgeorge at 7:21 PM on May 11, 2011


Capitalism is efficient, as needs are met by those wishing to make a profit. But it has drawbacks too, when you are talking about basic needs like housing, food, health care, clothing, etc.

So Capitalism is the most efficient way of meeting our needs, except for how it can't be relied on to meet our basic needs? Which "needs" is capitalism efficient about then? I have to tell you, lately I've secretly begun to suspect that I don't actually need an iPod. (shhh don't tell Steve Jobs)

I love the saying "Democracy is the worst form of government, except for all the others that have been tried." It applies wonderfully to capitalism. But just because something's the best solution we've tried, does that mean we should stop trying?

But that's a derail, and I'm a ways from being convinced there are no smaller, more immediate fixes to talk about first. For instance: making it clear to everyone who apparently it needs to be made clear to (a depressingly large number of people) that taking peoples' money in exchange for nothing more than whispered promises of dreams come true is (despite being terribly efficient capitalism) very much Not Okay. That it's Not Okay to build an empire around a vision of capitalism that is focused on getting as much money for as little actual product or value as possible - regardless of who you're ripping off. Whether that's done through the laws already (read:still) on the books, passing new laws, or just provoking so much populist outrage that the greedy schmucks are afraid to step out on the sidewalk*, is really a secondary concern. The content and successful delivery of the message matters more than the specific choice of carrier pigeon.

So yes, Taibbi is all about stoking a vague and not-very-constructive outrage (so is Roger Ebert these days, it seems). But he does it well, and it needs doing.

On preview: Of course I'd rather see justice obtained for the people who are literally starving to death or homeless as a result of this mess. But I'm also pragmatic enough to recognize the odds of that are slim and none, and I'd rather see justice for the other rich than justice for nobody. Justice is partly intended as a deterrent, after all.



*(note that I do not advocate actual violence against anyone, regardless of their douchebaggery-levels.)
posted by mstokes650 at 7:26 PM on May 11, 2011 [1 favorite]


Matt Taibbi may or may not have original compelling points to make about Wall Street misbehavior and why/how this needs to be investigated/punished more. I can never tell, because I find it a grinding chore to read his articles and swiftly give up - because of his "gruff" I'm-just-one-of-the-rough-but-honest-blue-collar-guys-working-down-at-the-docks/college-newspaper-op-ed-sophomoric-and-melodramatic-insults-and-analogies prose style.

If Taibbi is coming up with original compelling analysis, it'd be a public service if he shipped the evidence, plus executive summary of the key bullet points (in powerpoint please), over to Michael Lewis for the actual communication to the reading public.
posted by Bwithh at 7:31 PM on May 11, 2011 [2 favorites]


This is "low hanging fruit?"

I take it you are aware that Levin and Coburn are, among other things, accusing Goldman execs of committing perjury when they testified before Congress?

If Eliot Spitzer, who as NY AG saw through successful criminal probes into Wall Street firms, thinks there is sufficient material in the Levin Report indicating criminality on the part of Goldman Sachs, and if William K. Black, who undertsands financial crime as well as anyone, thinks that there is enough evidence to warrant criminal prosecution, then I tend to take their opinions as lawyers over yours with all due respect.
posted by Papaver somniferum at 7:31 PM on May 11, 2011 [11 favorites]


The DoJ does not just sit on its hands as sometimes suggested, but has brought both civil and criminal fraud cases in relation to the financial crisis.

Taibbi's assertion that Farkas 'was almost completely unconnected to the systematic corruption that led to the crisis' is simply not true. He and his cronies stole almost $3 billion. TBW was one of the largest mortgage brokerages in the US and Colonial bank was one of the largest US commercial banks, with more than 300 branches. That's quite a big deal, and it's not going to be the last conviction either. Farkas will likely die in jail, and some of his employees will be going away for a long time as well.
posted by anigbrowl at 7:49 PM on May 11, 2011


Okay, Ironmouth, how do we get justice then? If its not defending rich people from being swindled by other rich people, then how? Because I'm in California watching massive the kind of government budget cuts that affect everyone in the state, and on some fronts it seems likely to yet get worse over the next three years. So you say, "don't take out your anger on the banks whose gambles nearly brought down the economy here, this case is not populist enough." So, okay fine, where? Otherwise I say, let's take what we can get.
posted by salvia at 7:54 PM on May 11, 2011


Whoops, that should be "the kind of massive government budget cuts"
posted by salvia at 7:55 PM on May 11, 2011


This is rapidly becoming the Ironmouth show, but no matter. I've read enough Taibbi articles to know he's no fool (and one of his books), and not to discount his conclusions out of hand. If Goldman Sachs hasn't done anything illegal then the laws need to be changed immediately, and step one for doing that would be to remove former Goldman Sachs officials from all regulatory positions. (William Cohan, author of Money and Power: How Goldman Sachs Came to Rule the World, did interview on The Daily Show that's an eye-opener. It is here. warning -- probably obnoxious video ad before clip)

I do find myself agreeing with Bwithh's summation of Taibbi's writing style. He may in fact be the "power-troll" Ironmouth calls him. But it's starting to look like the Age of the Troll. Regulators seem powerless, but WikiLeaks and Anonymous blow crooks away. The braveness of this particular new world is a bit more than my stomach can accept, but it's more than anything I've done to fix things other than post and vote.

Ironmouth:
well, it doesn't matter anyway. The planet will be stripped of resources and humanity will die out. If not now, then in 15 billion years when the sun goes red giant. Even if we miraculously violate the law of physics and move to a million other systems, extinction is still our end.
So the question is how to maximize our time. A mix of capitalism and government control seems like the way to go.

I have never seen anyone bring the lifespan of the sun into a regulatory discussion before.

Complicated situation is complicated. So no "back on the gold standard!" "Communism for All" or "No Regulations ever!" That simplistic crap is for appeal to the emotions, not for policy.

None of these arguments have been brought up in the thread up to this point. I've not read all of Taibbi's article here, but I don't think he's advocating any of them either. We all know our economic systems are more complicated than this.
posted by JHarris at 8:14 PM on May 11, 2011 [4 favorites]


Related: New York Times, May 4, 2011: The first known whistle-blower lawsuit to assert that... taxpayers were defrauded when the federal government bailed out the American International Group was unsealed on Friday...The lawsuit, filed by a pair of veteran political activists... asserts that A.I.G. and two large banks [Goldman Sachs and Deutsche Bank] engaged in a variety of fraudulent and speculative transactions, running up losses well into the billions of dollars. Then the three institutions persuaded the Federal Reserve Bank of New York to bail them out by giving A.I.G. two rescue loans, which were used to unwind hundreds of failed trades. The loans were improper, the lawsuit says, because the Fed made them without getting a pledge of high-quality collateral from A.I.G., as required by law. [...] Although the bailout of A.I.G. took place over many months and involved a total commitment of $182 billion, the lawsuit focuses on just part of it — two emergency loans, totaling about $44 billion, made at the end of October 2008.

***

The DoJ does not just sit on its hands as sometimes suggested, but has brought both civil and criminal fraud cases in relation to the financial crisis.

True, and there's the Deutsche Bank lawsuit, and the fact that the SEC and DOJ also make settlements (Countrywide CEO Mozilo settles with SEC for $67.5M; Gen Re settles AIG fraud claims for $92.2M), but I think we never saw and never will see any real thorough investigation about what went on prior to Obama taking office (i.e. the near certainty that Goldman received preferable treatment and inside information from Treasury during the height of the crisis, etc).
posted by Papaver somniferum at 8:24 PM on May 11, 2011


Ooops; boinked my last link; here it is.
posted by Papaver somniferum at 8:28 PM on May 11, 2011


precious prosecutorial resources

This is just preposterous! Do you know what prosecutors work on? The drug war! When they aren't working on the drug war they work on prosecuting immigrants for 'illegal reentry'. But usually its just busting people for doing drugs that everybody does, or dealing drugs that everybody wants. There are seemingly no limits to prosecutorial resources. They'll spend millions of dollars prosecuting some low level yahoo for no apparent reason.

Some dude just got life without possibility of parole for distributing marijuana in Louisiana. We have the highest incarceration rate in the world. The whining and gnashing of teeth over the possibility of a couple of hyper rich men doing time is disgusting.

Sorry for the hysterical nature of this post. I have to go to bed and not read threads like this!
posted by goneill at 8:29 PM on May 11, 2011 [12 favorites]


I own a business. I operate ethically and with respect for my employees, my customers, and my city/state/country. I pay taxes, make profits, and I hope I contribute in some small way to the common good. I don't see a shred of that kind of capitalism in what Wall Street has been engaged in in the past 15 odd years. Their methods are destructive to the type of Businesspeople like me who enjoy taking risks and creating something out of nothing, but operate within the bounds of the law and ethical norms. What some people on both sides don't seem to understand is that preserving the current system means destroying the rights and regulations that make the US an attractive place to do business. Very very few people benefit from that destruction.
posted by cell divide at 8:41 PM on May 11, 2011 [9 favorites]


cell divide:What some people on both sides don't seem to understand is that preserving the current system means destroying the rights and regulations that make the US an attractive place to do business. Very very few people benefit from that destruction.

I don't see anyone in the thread arguing for the destruction of one's ability to run a business and make money. Certainly I am not and I am arguably one of the most anti-current-capitalism voices in the thread. What I , and others I have seen in this thread, appear to be arguing for is precisely what you were talking about: the imposition of just laws, limits and penalties on those who would otherwise ruin us all to turn a penny. That's not happening at the moment.
posted by Poet_Lariat at 8:51 PM on May 11, 2011


very few people benefit from that destruction.

Ah, but we know who they are, and there is no shortage of them:

May 11, 2011: Meredith Attwell Baker, one of two Republican FCC commissioners, voted in late January to approve the merger of Comcast and NBC. Less than four months later, she announced that she is leaving the FCC to become a lobbyist for the merged company. This Is Why People Hate Washington
posted by Papaver somniferum at 8:51 PM on May 11, 2011 [3 favorites]


no - Levin's committee, and Basis quite reasonably assert that Goldman was an underwriter. That's not the same thing as saying "Goldman does appear to be an underwriter". Goldman claims they weren't. I mean the levin/basis view is very very reasonable - but the goldman position also has merit. The fact that Basis was a "qualified investor" makes it much harder to prove the "Goldman is an underwriter, not a market maker" arguement. Its splitting hairs, but its hairsplitting that matters.

I'll admit to not being anywhere close to being a lawyer, but it seems like showing underwriter leads to a straightforward criminal fraud case. Has there actually been a full trial of a CDO/S related suit/case? even on the civil side? ABACUS was settled... If it's hairsplitting and given the amount of smoke in air re: criminality: why wouldn't a prosecutor want to go to trial on one of these things and see what comes out?

When I look at the situation it feels like Goldman is acting as if they are untouchable. The performance at the Levin committee makes it seem like GS didn't think it was worth their time and they were sloppy. The performance of DoJ makes me think they are right...
posted by ennui.bz at 9:20 PM on May 11, 2011


Poet, I think if wall street is allowed to continue its current path, it will destroy the US economy and greatly impact my business.
posted by cell divide at 9:56 PM on May 11, 2011 [3 favorites]


May 11 (Bloomberg) -- Bank of America Corp. and JPMorgan Chase & Co., along with three other U.S. mortgage servicers, proposed paying $5 billion to settle a probe of their foreclosure practices by state and federal officials, two people familiar with the matter said. Banks Said to Offer $5 Billion to End Probe of Foreclosures

5-11-11: U.S. House lawmakers are battling over rules to expand oversight of the $583 trillion swaps market as Republicans aim to delay the measures required by the Dodd- Frank Act until the end of next year: Dodd-Frank Derivatives Debate Reopens on Proposed Delay of Rules (see also: 5-11-11: Senate Democrats Still Making the Case for Dodd-Frank)
posted by Papaver somniferum at 10:29 PM on May 11, 2011


Disclaimer: Dear god this got long. IAAL, and I represented clients (but not Goldman) in litigation related to subprime mortgage backed securities over the last three years. So I will not take personally any impulse you might have me to burn me alive, I don't blame you one bit.

I think its important to be clear about two things going on in this article. First, the firm case against Goldman for perjury, and second, the soft case against Goldman as the Vampire Squid. I don't know enough about the first, but based on what Taibbi has here, it looks solid.

But I do have a problem with the second, for a bunch of reasons, some broad, some specific. I'm going to highlight a few:

But Goldman, as the Levin report makes clear, remains an ascendant company precisely because it used its canny perception of an upcoming disaster (one which it helped create, incidentally) as an opportunity to enrich itself, not only at the expense of clients but ultimately, through the bailouts and the collateral damage of the wrecked economy, at the expense of society.

I think its a dangerous idea to punish people or companies for making good business decisions (leaving aside the "helped create" and "expense of clients" issues, which I'll get to below). It's better that Goldman made a series of good business decisions to get rid of bad assets and make money, rather than get sunk like companies such as Washington Mutual, Merrill Lynch, Bear Stearns, Lehman, etc., which had far worse impacts on the average American livelihood. If someone makes a mistake installing pipes in their house, do you want to punish them for fixing it? Do you want them instead to just let it continue flooding their house? That seems bizarre to me.

How did Goldman sell off its "cats and dogs"? Easy: It assembled new batches of risky mortgage bonds and dumped them on their clients, who took Goldman's word that they were buying a product the bank believed in. The names of the deals Goldman used to "clean" its books — chief among them Hudson and Timberwolf — are now notorious on Wall Street. Each of the deals appears to represent a different and innovative brand of shamelessness and deceit.

Taibbi is eliding the truth here to make his case. He's making it sound like Goldman took a bunch of bad mortgages, put them in deals, and sold them to helpless investors. That's not what happened. From what I can tell, Hudson and Timberwolf were synthetic CDOs, and this particular type of security makes a big difference as to whether Goldman was bad or not.

http://fcic-static.law.stanford.edu/cdn_media/fcic-docs/2006-10-00_Hudson%20Mezzanine%20Funding%202006-1_CDO%20Term%20Sheet.pdf

A primer / review: in a regular mortgage backed security, a bunch of mortgage loans are pooled together, and the money that the home owners pay each month is collected and distributed to investors who purchased notes issued by the security. What's important is this: the source of money for the investor is the home owner.

In a fully synthetic security, there are no loans in the deal at all. Instead, the collateral in the deal are swaps, usually credit default swaps. A credit default swap is essentially a bet on some security floating out there in the world (the "reference obligation:): one party thinks, "I think that security is going to fail, and I will pay you $$$ once a month, in exchange for a big payout if/when the security eventually does fail." The other party thinks, "No way is that security going to fail, and so I'll offer to pay you off in the event it does fail, in exchange for giving me some money every month."

So, in these synthetic securities, you take a bunch of swaps, pool them together, and pay the investors with the monthly payments from all these people on the other side of the swap (the synthetic security itself is the party who offers to pay the bettors in the event of failure, using the money invested by investors). What's important is this: the source of money for the investor IS A BUNCH OF PEOPLE WHO, BY DEFINITION, ARE BETTING AGAINST YOU.

Now sometimes, its not purely a bet on failure. Many times, swaps act as insurance so that people who actually own the reference obligation can hedge their investment. And lots of companies would do this, because it would minimize their risk, and they didn't really care that they were earning 5% on their investment and paying 4.5% for insurance on the swap, because they made money off the deal in various other ways (underwriting fees, etc).

But often, it IS a bet on failure. And no matter what the intent of the bet (failure or hedging), in a credit default swap, it is always the case that someone will win, and someone will lose, because either the reference obligation will either perform or fail. This is not so with a non-synthetic deal: both the homeowner and the investor can win, because the homeowner gets a loan they need to buy a home, and the investor gets a return on their money. Of course, if the homeowner can't make payments, both they and the investor lose.

As Ironmouth has pointed out above, the only investors who can purchase these notes are super rich, super savvy investors, who have the knowledge and the resources to fully investigate the products they're investing in. These are supposed to be the best of the best, and they're only allowed to play with these types of securities because they've shown to the SEC they can handle it. So when a "qualified investor" gets into one of these synthetic securities, they have the muscle to check out the "reference obligations" that underly all the swaps in the investment, and decide whether to bet that those reference obligations are going to perform or fail.

So even assuming that Goldman is betting 100% against the investor, or is helping someone else who's betting 100% against the investor, in a synthetic security, I don't think that makes a case against Goldman. The investor knows, by the very nature of the security, that every single piece of collateral in the deal is a bet against their investment. And they, by definition, have the ability and wherewithal to check out the collateral, and see if its a good investment or not. I'm fairly confident its this reasoning that led to the cheap settlement of the Abacus case by the SEC.

And this is not some broker talking up an internet stock in 1998 to a hapless person off the street. This is Morgan Stanley, one of the best of the best, making an investment that turned out poorly. And in fact, I want this kind of outcome: I want the smarter of two institutions getting the money, because it means they'll probably make better decisions with it (even if all that does is end up making those people super rich). I want to reward better investing decisions. And if Morgan Stanley or Basis Capital can't figure out they're being duped or that the collateral in their security is likely to fail in less than 2 months, I don't feel bad that they failed to do their due diligence. You want to reward good decision making, and punish bad decision making. If there are no consequences for making awful decisions, we'll have a lot more awful decisions, and I submit that that's a bad thing.

After all, the entire point of the transaction was to screw its own clients so Goldman could "clean its books." The crime was far from victimless: Morgan Stanley alone lost nearly $960 million on the Hudson deal, which admittedly doesn't do much to tug the heartstrings. Except that quickly after Goldman dumped this near-billion-dollar loss on Morgan Stanley, Morgan Stanley turned around and dumped it on taxpayers, who within a year were spending $10 billion bailing out the sucker bank through the TARP program.

I agree its bad that the losses were eventually socialized, but this is not Goldman's fault - it's the fault of American democracy, bad regulation, bad models, and bad incentive structures at virtually every level. Ideally, we'd let Morgan Stanley just eat it for being bad investors, but Americans just don't have the brains or guts to vote in good government, and so we have all sorts of capture by powerful institutions. I still think it's preferable that Goldman that recognize profitable situations and capitalize on them: it gives everyone the incentive to look for those situations, or avoid being on the bad side of those situations.

I could go on, but this is getting long enough as it is. Maybe some other time I'll discuss the subprime mortgage securities market in detail and bloviate on how the accepted narrative is wrong there too.
posted by shen1138 at 11:24 PM on May 11, 2011 [9 favorites]


Woah, that is long, but I'll stop you right at "good business decision to get rid of bad assets"

They created or bought the bad assets and LIED to their customers about it.

This is like if you built a car with faulty brakes and bald tires and sold it to me saying it was in tip-top shape! Look, it was audited and has a AAA rating!

Then, when I crash and burn. You say "Well, I shouldn't be prosecuted for getting rid of 'bad assets'"

That's absurd and outrageous!
posted by j03 at 11:32 PM on May 11, 2011 [3 favorites]



And they didn't "fix" the pipes. They sold them to your mothers pension claiming they were good as new!
posted by j03 at 11:34 PM on May 11, 2011 [6 favorites]


> I think its a dangerous idea to punish people or companies for making good business decisions

But these "good business decisions" involved lying to a large number of people. They involved deliberately lying to people to convince them that shit was gold, and then selling them that shit. They involved things that are clearly felonious under securities laws, but more, are contrary to the very spirit of a contract, the concept of negotiating in good faith.

> I still think it's preferable that Goldman that recognize profitable situations and capitalize on them

That's an interesting euphemism for fraud, but it doesn't make what they are doing legal.

> Maybe some other time I'll discuss the subprime mortgage securities market in detail and bloviate on how the accepted narrative is wrong there too.

Be our guest. I wrote mathematical models for MBS and derivatives for Drexel Burnham Lambert in the 80s, I've stayed in touch, and I at least think the accepted narrative is that they mortgage crash occurred because industry professionals with a fiduciary responsibility to make a best effort to value risk instead systematically and knowingly misrepresented garbage as having value.
posted by lupus_yonderboy at 11:41 PM on May 11, 2011 [3 favorites]


the source of money for the investor IS A BUNCH OF PEOPLE WHO, BY DEFINITION, ARE BETTING AGAINST YOU

So then why not disclose the short? Why lie (expected to perform, 60% return, we are buying a piece of it)? Is lying and not disclosing ok when dealing with qualified investors?
posted by salvia at 11:46 PM on May 11, 2011 [2 favorites]


Having come to the realization - on the basis of knowledge and information within its own exclusive purview - that the value of residential mortgage-backed securities ("RMBS") was set to implode, Goldman embarked upon a deliberate strategy to offload its exposure to risky RMBS upon unsuspecting client investors, through carefully structured securities that insured huge profits would flow to Goldman when the assets underlying those securities inevitably failed. As part of that scheme, Goldman defrauded the plaintiff Heungkuk by misrepresenting a Goldman-structured collateralized debt obligation ("CDO") known as Timberwoif I, Ltd. ("Timberwolf') as a highly rated, secure and profitable long-term investment in which Heungkuk's interests would be aligned with Goldman's. The truth, however, was that Goldman had utilized its specialized knowledge of the subprime mortgage market to make a massive, concealed bet against the very CDO that it sold to Heungkuk. When, as Goldman secretly anticipated, the Timberwolf notes that Goldman had created and sold to Heungkuk became worthless, Heungkuk lost tens of millions of dollars while Goldman wrongfully collected close to one billion dollars. Goldman's own view of its creation, which was never disclosed to Heungkuk, was summed up by a Goldman trader's infamous description of the TimberwolfCDO as "one shitty deal."
HEUNGKUK LIFE INSURANCE vs GOLDMAN SACHS (pdf)
posted by j03 at 11:47 PM on May 11, 2011 [4 favorites]


And as for Ironmouth's comments... calling the writer "an idiot" and such is pretty well self-refuting, and the rest of it appears to simply be a repeated claim that all this is legal without any legal arguments as to why you are allowed to dramatically and deliberately mispresent the value of an asset you own in order to sell it, without committing fraud (and in the case of a security, breaking a host of other securities laws).
posted by lupus_yonderboy at 11:54 PM on May 11, 2011 [2 favorites]


I agree its bad that the losses were eventually socialized, but this is not Goldman's fault - it's the fault of American democracy, bad regulation, bad models, and bad incentive structures at virtually every level. Ideally, we'd let Morgan Stanley just eat it for being bad investors, but Americans just don't have the brains or guts to vote in good government, and so we have all sorts of capture by powerful institutions.

I hear America dresses slutty too.

I still think it's preferable that Goldman that recognize profitable situations and capitalize on them: it gives everyone the incentive to look for those situations, or avoid being on the bad side of those situations.

The key is the everyone and incentive in this statement. But you're right, it is an issue of incentives.

Goldman knew that they would be classed "too big to fail" when the bubble finally burst. If Goldman wins either way, what incentive do they have to engage in honest business, when they can make more money through dishonest sales?

Alright, how about the other actors? Like, say, the super rich, super savvy investors you mention. One of those is Morgan Stanley, one of Goldman's biggest clients. They also knew they would be bailed out. So what reason do they have to investigate the products thoroughly?

But all of this talk of "super rich, super savvy" investors ignores the fact that Morgan Stanley and other Goldman clients were trusted by non-savvy investors. Retirement accounts, 401k plans, all of these things suffered during the collapse. And this is ignoring the effect the crash had on liquidity in other markets.

If someone makes a mistake installing pipes in their house, do you want to punish them for fixing it?

A better question might be, what if they purposefully sold broken pipes to millions of houses? Do we give them a bailout to fix it? Or do we actually punish the damn criminals who engaged in negligent sales.

But this blaming the victim thing you have going is just... amazing. I suggest you spread your message far and wide, because the more Americans without "brains and guts" who hear your message, the bigger chance we'll have to introduce some of these Vampire Squids to American-style Justice.
posted by formless at 12:29 AM on May 12, 2011 [3 favorites]


Sorry, that American-Style Justice comment was bitterness at the fact that some people are more willing to support vigilante justice against d-bag terrorists than they're willing to consider the radical act of federal prosecutions against financial institutions that have ruined countless more lives.

1.2 million foreclosures and counting.
posted by formless at 12:49 AM on May 12, 2011 [1 favorite]


Goldman's Facebook Fiasco

Obama's town hall event at Facebook being part of some Goldman Sachs conspiracy seems a bit of a stretch.
posted by humanfont at 2:15 AM on May 12, 2011


They created or bought the bad assets and LIED to their customers about it.

That's why it's important whether Goldman is considered an underwriter or a trader here. An underwriter sells to their customers and has certain responsibilities to them. When a trader sells you something, you are a counterparty - not a customer.

The argument that Goldman is making is that the nature of these synthetic CDOs was such that by definition they were dealers and not underwriters.
If I sell you an option to buy IBM stock at the current price valid for 30 days, then I am betting that IBM stock will not rise in value during that time. If it does go up, then you make money I lose money, if it doesn't then I made money and you lose it. Goldman argues that:

a) Synthetic CDOs, like options are zero sum between the buyer and seller
b) The buyers and sellers both knew that
c) The buyers must have known that Goldman was betting that the value would go down (otherwise why would they offer this trade?)
d) The buyers thought that the value would not go down (otherwise they wouldn't have bought it)
e) This zero sum relationship is characteristic of a trading and not an underwriting relationship
f) Therefore this was a trading relationship

You can go after a trader for lying about facts, and for not disclosing things about the deal which they are legally required to disclose. You can't go after them for selling something that they think is a better deal for them than for the buyer.

So if Goldman told the buyers "we think this is going to make you a lot of money", well... the only way that the buyer can make money is if Goldman loses it. Would Goldman do that deal? No. Would this constitute fraud? Goldman will argue that obviously the client should do their due diligence and that Goldman didn't actually misrepresent the trade, that when a zero sum relationship exists any expressed opinion of the seller is a sales pitch rather than a claim about the trade.

The perjury claims look pretty solid though. I hope they go after them hard on that.
posted by atrazine at 5:19 AM on May 12, 2011 [5 favorites]


A better question might be, what if they purposefully sold broken pipes to millions of houses? Do we give them a bailout to fix it? Or do we actually punish the damn criminals who engaged in negligent sales.

Basically if they were in an underwriting relationship then they sell their clients what they think are good deals + their markup. Like a guy selling pipes. In those cases they have certain responsibilities, they can't sell you things that they know are broken. Any cases will turn on whether this was a relationship like that.

A trading relationship is a gambling one. If I bet you that I think that the Red Sox will win the world series then we've established a relationship where one of us will win and the other will lose. If you're a baseball expert and have good reasons to believe that you're right, then it is not fraud for you to withhold that from me. Remember, I know how bets work, so I'm under no illusion as to you having an interest in me winning.

These cases will turn on whether Goldman was playing the role of a gambler or of a plumber.
posted by atrazine at 5:26 AM on May 12, 2011 [1 favorite]


I can't favorite atrazine's comment enough. Every time Taibbi does his Goldman schtick, the same group of us points out the same issue - but it feels wrong to people that the counterparty not underwriter argument serves as some get out of jail free card for GS. But its that fact that the law itself is sort of complicated and not totally clear to layperson that makes these sort of cases so hard to pursue in criminal court. All you need is one person to agree that it was a trading relationship and the state loses. I mean look at the Abacus prosecutions - they didn't even try pursuing the charges pertaining to the mis-selling of the CDO, but rater attempted to sue on behalf of a third party that didn't have an economic interest in the structure. And even then they felt like the had to roll-over.

I mean look at the Galleon case- it took a jury two weeks to decide - on evidence that to me, as an investment person looked laughably strong. Why? I don't know - probably debating the poorly defined "mosaic theory" that was his alibi. I mean to me, as someone who has a well thought out idea of what Mosaic theory is, it was a laughable defense, but to someone not well versed...
posted by JPD at 5:32 AM on May 12, 2011 [1 favorite]


I'm completely down with the Nazi comparison.

Tar and feathers are too good for those people. I dislike waterboarding, but could whistle really loud during a truth serum experiment.
posted by Twang at 5:33 AM on May 12, 2011


Zero sum? Ha.

These guys, besides all the other devious horseshit they were engaged in, were fee-churning. They were, quite literally, creating money out of thin air. (Fees are the new pot 'o gold these days, in case you havn't noticed.) And now the rest of us are on the hook.

Mortgages were sliced and diced and sold and resold to the point that, in a lot of cases, the mortgage companies can't even demonstrate that they own the paper. This was a shell game, this is a shell game, and I can't see any responsible way to defend it.
posted by Benny Andajetz at 5:48 AM on May 12, 2011 [1 favorite]


Because this is a democracy

Its actually a Republic.

With an economic system now modeled as cancer - unlimited growth.
posted by rough ashlar at 6:51 AM on May 12, 2011 [1 favorite]


And as for Ironmouth's comments... calling the writer "an idiot" and such is pretty well self-refuting, and the rest of it appears to simply be a repeated claim that all this is legal without any legal arguments as to why you are allowed to dramatically and deliberately mispresent the value of an asset you own in order to sell it, without committing fraud (and in the case of a security, breaking a host of other securities laws).

"Show me where it says this is illegal! Show me your law degree!"
posted by T.D. Strange at 6:59 AM on May 12, 2011


"Show me where it says this is illegal! Show me your law degree!"

I believe Juries decide on legal issues and most of 'em lack law degrees.

And having a law degree doesn't make you right. Look at, oh, say Yoo.
posted by rough ashlar at 7:02 AM on May 12, 2011


I believe Juries decide on legal issues and most of 'em lack law degrees.

Juries decide guilt or innocence; they do not decide what a law means. A law degree can help with that part. (Or when making specious claims about what Congress can do, such as the power to declare war, for example.)

There certainly were crimes comitted here, but Matt Taibbi has never written a convincing sentence in his life. His outrage, his holier than thou tone and his lefty pandering do not hide his lack of knowledge of the legal issues at play here. What Taibbi thinks should be is not a basis for anything. Read shen1138 comment to see some examples of Taibbi having no idea what he's talking about.

I don't know if Taibbi is an idiot, but he's certainly an uninformed blowhard. He has never had anything new or interesting to say. There have been better, more informed takedowns of those responsible for the crisis, and they didn't resort to the silliness of the "vampire squid".
posted by spaltavian at 7:14 AM on May 12, 2011 [1 favorite]


Juries decide guilt or innocence

And how is that not tied to the legality or illegality of an issue?
posted by rough ashlar at 7:21 AM on May 12, 2011


If you finish the rest of that sentence, rather than playing this silly game, the point is self evident. Juries do not decide if something is illegal or not. They determine if someone is guilty of something that has already been declared unlawful.

People with actual legal experience need to look at this in order to determine what crimes happened and what evidence there is to proceede with indictment and trial. Taibbi's "investigations" may or may not be good journalism, but I'm not going to read his legal pronoucements with any authority, especially regarding one of the more complicated areas of law.
posted by spaltavian at 7:44 AM on May 12, 2011


the rest of it appears to simply be a repeated claim that all this is legal without any legal arguments as to why you are allowed to dramatically and deliberately mispresent the value of an asset you own in order to sell it, without committing fraud (and in the case of a security, breaking a host of other securities laws).



I don't understand what's hard about this. There is underwriting and market-making. The responsabilities of an underwriter are different from those of a market-maker. The problem with the law is that there is no clear definition of "This is underwriting, this is market-making, " especially when you are dealing with "qualified investors". "Qualified Investors" is actually a legal term, that excludes them from nearly all of the consumer protection laws designed around the securities industry. There are reasons why I, as a qualified investor like that. I don't want to justify my decisions to the broker-dealers when I want to buy some security that they think is a piece of crap, but that I think isn't - which is essentially what I do for a living. The thing, is I'm a big boy, when I buy something that actually turns out to be a piece of crap my immediate reaction isn't to sue the guy who sold it to me. Basis et al. know the game, they knew the rules. They were the dumb money, and suffered the consequences.

Now there are other seperate issues surrounding the GFC that I think need to be dealt with, but in the case of dumb hedgies getting ripped off? Allow me to play the world's smallest violin. They should be out of the business.
posted by JPD at 7:54 AM on May 12, 2011


I just had an epiphany based on reading shen1138's comment. Wall Street is legalized gambling for really, really rich people. Basically, high finance is no longer a system of trading commodities and using capitol to achieve material goals, it has become simply a wagering game between parties that feel that because they are rich they can simply make bets like they're in a casino, instead of using investments as a means to increase the availability of capitol for businesses that produce goods and services for the general economy. It's like we've gone back to (or never left, just hid) the bad old days of having an aristocracy, who hold all the wealth (capitol) and simply trade it amongst themselves in "games of skill". The only thing missing is the powdered wigs.

This seriously bothers me. I mean, I understand the necessity for the trading of stocks and bonds and the "risks" associated with these types of financial tools. But what I don't understand is why in the world would someone let the necessary financial tools that support the real economy (you know, jobs, manufacturing, services, etc) be intermingled with STUPID wagers based on "I bet this will fail/I bet it won't, pay me until it does". Last time I checked, that game was called Craps, and instead of mortgage backed securities, what the parties were betting on was a pair of dice. If these super rich people want to gamble, Las Vegas has been hurting for whales and just opened a couple brand new casinos, so they could go there and play with all their money, but somehow the lack of supervision and everything else seems to have basically allowed gambling addicts to make deals with other peoples money and then when they "lost", the government came in a paid their tab. Guillotines aren't good enough. Unless someone can please explain how this analogy is "wrong." Did we really let trading companies basically become gambling houses for the rich?
posted by daq at 8:15 AM on May 12, 2011 [6 favorites]


...credit default swap ... only investors who can purchase these notes are super rich, super savvy investors, who have the knowledge and the resources to fully investigate the products they're investing in. These are supposed to be the best of the best, and they're only allowed to play with these types of securities because they've shown to the SEC they can handle it. So when a "qualified investor" gets into one of these synthetic securities, they have the muscle to check out the "reference obligations" that underly all the swaps in the investment, and decide whether to bet that those reference obligations are going to perform or fail. ...

Metaphor time:

Being allowed to buy credit swaps (default insurance) when you don't actually have a position in the credit being insured is like being allowed to buy fire insurance on other people's houses that pays you in the case that those houses burn down.

What would be your expectation for number of incidences of arson in that situation?
posted by de void at 8:41 AM on May 12, 2011 [3 favorites]


Ironmouth: "... everyone gets pissed off at the government because they follow the laws."

No - we get pissed off at the government because, in conjunction with the owners of capital for the last 30+ years they have continued to chip away at the protections for "the little guy", enabling corporate malfeasance by LIMITING those laws (you know "making it weak enough so you can drown it in a bathtub" in the words of one particular right-wing ideologue)...

THAT is why we're pissed.
posted by symbioid at 8:42 AM on May 12, 2011 [3 favorites]


Ironmouth: "That simplistic crap is for appeal to the emotions, not for policy."

Ah, the old "appeal to righteous vindication of superior (potentially pretensive) logical reasoning."

(note: I don't like capitalism, but I'm willing to go a social democratic route, which is what you espouse, apparently - so we don't disagree on what may be the best (most attainable?) compromise)
posted by symbioid at 8:49 AM on May 12, 2011


At this point, I'm pretty sure the only way things are going to get better involves pitchforks, torches, and heads on pikes.
posted by entropicamericana at 9:17 AM on May 12, 2011 [2 favorites]


Poet_Lariat: "Unregulated Capitalism is evil. It is precisely as evil as Naziism"

fuq: "WTF how am I supposed to maximize wealth and profit? There's only limited resources on this planet and if I am going to maximize the amount I have then someone is going to have to lose out and die."

-harlequin-: "There is no question a massive crime was perpetrated."

Vibrissae: "I want every one of the greedy bastards who have been getting away with this crap - and are STILL getting away with it - in jail, or worse. I want to see them suffer, and I want every $$$ of any asset they own stripped from their slimy little hands. I want to see them beg for mercy, on their knees, with tears streaming down their faces - with no mercy shown."

formless: "Goldman knew that they would be classed "too big to fail" when the bubble finally burst."

Twang: "Tar and feathers are too good for those people. I dislike waterboarding, but could whistle really loud during a truth serum experiment."

How does something qualify for the mythical list of things "Metafilter doesn't do well"? Because I think this topic (INVESTMENT BANKERS GRAR) should be in there. Let's not forget the ink is still fresh on a very similar thread.
posted by falameufilho at 9:21 AM on May 12, 2011 [2 favorites]


At this point, I'm pretty sure the only way things are going to get better involves pitchforks, torches, and heads on pikes.

I have CDO squared pitchfork securities available for anyone who is interested.
posted by ryoshu at 9:29 AM on May 12, 2011


Because I think this topic (INVESTMENT BANKERS GRAR) should be in there.

Are you part of that class? Or is your local area existing because of a parasite class of bankers/investment and such makes ya nervous?
posted by rough ashlar at 9:35 AM on May 12, 2011 [2 favorites]


At this point, I'm pretty sure the only way things are going to get better involves pitchforks, torches, and heads on pikes.

I have a different dream, which involves the administration seizing all of the assets of the banks and people involved in this, and using it to fix the economy and infrastructure.

The nation would collectively freak the fuck out, but it would be worth it to watch the ultra wealthy, who have thrived on the belief that no matter what they did, they wouldn't go to jail and would stay rich suddenly realize that at least one of those things wasn't true anymore.
posted by quin at 9:49 AM on May 12, 2011 [1 favorite]


rough ashlar: "Are you part of that class? Or is your local area existing because of a parasite class of bankers/investment and such makes ya nervous?"

Your misguided indignation towards abstract figures of authority makes you no different than the tea partier on the street corner holding a WHO IS JOHN GALT sign. Hope you realize that one day.
posted by falameufilho at 9:55 AM on May 12, 2011 [3 favorites]


Woah, that is long, but I'll stop you right at "good business decision to get rid of bad assets"

They created or bought the bad assets and LIED to their customers about it.

This is like if you built a car with faulty brakes and bald tires and sold it to me saying it was in tip-top shape! Look, it was audited and has a AAA rating!

Then, when I crash and burn. You say "Well, I shouldn't be prosecuted for getting rid of 'bad assets'"

That's absurd and outrageous!


These aren't customers in the same sense that you and I are. These are massively rich people trying to make money by making bets. They agree to be free of the SEC rules so they can get the chance to make lots of money. One bettor says, I bet this will fly and the other one says I'll take that bet. And both bettors get to look at the information underlying the bet. One is just dumber than the other.
posted by Ironmouth at 10:06 AM on May 12, 2011


These aren't customers in the same sense that you and I are. These are massively rich people trying to make money by making bets. They agree to be free of the SEC rules so they can get the chance to make lots of money. One bettor says, I bet this will fly and the other one says I'll take that bet. And both bettors get to look at the information underlying the bet. One is just dumber than the other.

This is true, and if they kept their betting to it's a mad mad mad mad world style hi-jinx it's fine and dandy. When the underlying assets are real property that have real consequences in the real world, that's where the problem lies.
posted by cell divide at 10:37 AM on May 12, 2011 [1 favorite]


These aren't customers in the same sense that you and I are. These are massively rich people trying to make money by making bets. They agree to be free of the SEC rules so they can get the chance to make lots of money. One bettor says, I bet this will fly and the other one says I'll take that bet. And both bettors get to look at the information underlying the bet. One is just dumber than the other.

This is true, and if they kept their betting to it's a mad mad mad mad world style hi-jinx it's fine and dandy. When the underlying assets are real property that have real consequences in the real world, that's where the problem lies.


My point exactly. It is the connections between this crap and our world that is the problem, not the fact that some titanic hedge fund named Basis Capital or Morgan Stanley needs "justice done." This is literally what Taibbi wants. Its wrong. Why not spend our prosecutorial efforts on people who high pressured consumers into mortgages or refis which were terrible for them or committed fraud in selling such mortgages for customers?
posted by Ironmouth at 10:44 AM on May 12, 2011


GodDAMNIT Ironmouth. Do you NOT UNDERSTAND that the people affected by this shit is NOT just uber-elite-wealth-motherfuckers. The people affected by this are pension plans run by states and governments for the government workers. The people affected by this are the millions of people now jobless. The people who are being foreclosed upon, the overloaded court system to deal with all this shit.

I don't know if you've noticed but there's a whole goddamned collapsed economy out there, and it's due in no small part to these financial shenanigans.
posted by symbioid at 10:46 AM on May 12, 2011 [6 favorites]


OK - I just read your reply that happened. The problem is that you make it sound that all these things exist in a vacuum. I agree that we should also focus on low level corruption. But if you don't have names and the big guys aren't afraid (and make no mistake, that's where the power is wielded. Joe Blow Loan Officer is just existing in an environment that was created at the top, and that's why the strike must happen at the top, to get things correct.

Shit ain't gonna change if you lock up small time crooks, the big system continues to go on.

(sorry for my tone in the previous thread, but it really seemed at first that you really thought it's no big deal that this shit was going on, since it seemed the only people affected were the gamblers at the top of the pyramid).
posted by symbioid at 10:49 AM on May 12, 2011


(finally: i'm out - i'm obviously letting my shit get the better of me - have fun guys and gals!)
posted by symbioid at 10:52 AM on May 12, 2011


How does something qualify for the mythical list of things "Metafilter doesn't do well"?

Yeah, being accepting of widespread fraud and theft is definitely in that list.
posted by fuq at 10:59 AM on May 12, 2011 [4 favorites]


"Are you part of that class? Or is your local area existing because of a parasite class of bankers/investment and such makes ya nervous?"

Your misguided indignation towards abstract figures of authority makes you no different than the tea partier on the street corner holding a WHO IS JOHN GALT sign.


Bankers and wall street investors aren't figures of authority, abstract or otherwise. They manipulate those in authority to game the system in their favor at the expense of the rest of the populace, but they have no actual authority of their own.
posted by hippybear at 11:00 AM on May 12, 2011


There are many kinds of authority besides the explicit legal variety. Scratch a radical and you'll often find an authoritarian, as the ubiquitous references to guillotines and mob violence in threads about finance demonstrates.
posted by anigbrowl at 11:08 AM on May 12, 2011 [2 favorites]


s/tes/te. /
posted by anigbrowl at 11:09 AM on May 12, 2011


> And both bettors get to look at the information underlying the bet. One is just dumber than the other.

No, you keep claiming this but in fact one bettor deliberately lied to the other and thus committed a felony.

The line between "aggressively trying to make money" and "criminal fraud" is not a thin one. Once you start deliberately saying things that you know aren't true, you have stepped across that line in a big way.

You can continue to talk over this and ignore it, but the fact is that it is a crime to lie to people to take their money, and no amount of talking will be make it legal.
posted by lupus_yonderboy at 11:09 AM on May 12, 2011 [3 favorites]


Actually, I think we do this sort of thing pretty damned well. I've learned a very great deal about the subject from being on here and doing research. The few people who claim, "No, this widespread fraud is really how the system works," keep up honest and force us to do our homework.

A lot of people are understandably angry about this, because of the tremendous human cost that, unless you're a rich person, you see the consequences of every day, and are quite likely suffering the direct consequences of the criminal diversions of the ultra-rich. Looking at it in this light, the somewhat harsh responses to people who claim that this is actually the way things are supposed to be and we should have no complaints are really quite temperate.
posted by lupus_yonderboy at 11:14 AM on May 12, 2011 [1 favorite]


There are many kinds of authority besides the explicit legal variety. Scratch a radical and you'll often find an authoritarian, as the ubiquitous references to guillotines and mob violence in threads about finance demonstrates.

Nah, I'm talking about figures of authority, not authoritarians.

Bankers and their ilk are completely and totally the definition of authoritarians.
posted by hippybear at 11:19 AM on May 12, 2011


Nah, I'm talking about figures of authority, not authoritarians.

I shouldn't have segued from one to the other like that. Many people in this thread consider Matt Taibbi to be an authority on how the financial system works, for example.
posted by anigbrowl at 11:25 AM on May 12, 2011


Bankers and their ilk are completely and totally the definition of authoritarians.

Complete rubbish.
posted by unSane at 11:27 AM on May 12, 2011 [2 favorites]


Oh, and two more ridiculous claims that we keep seeing here.

First, when a broker or a trader sells you a stock, it absolutely is not the case that he's doing it because he expects that stock to go down. In fact, market makers and traders traditionally and practically keep a more or less balanced book - they don't make large bets on the market and they hedge their inventory against market moves, because that's not traditionally how they make their money, but instead they made their money on spreads, on underwriting fees and that sort of thing - and they made a shitload of it, even before they got into criminal fraud.

The classic comment is, "We sell them on the way up, and we sell them on the way down" - i.e. we make money both ways.

So this claim that you should just be expecting your broker, dealer or counterparty to be unloading shit onto you that they expect to to fail as a matter of course is simply wrong. Aside from "boiler room" operations and penny stocks, both areas where there is constant regulatory activity and a steady flow of criminals to jail, up until recently you could correctly assume that your counterparty was a financial professional who would correctly represent what he was selling you just as the law demands.

Second, there are definitely different rules applying to retail brokers (who deal with the public) and institutional trading, and it's quite correct that you have to baby the institutional customers a heck of a lot less. But lying is still a criminal activity, and in most cases, even just failing to reveal all relevant information can be grounds for unwinding a trade.

The poker comparison is pretty apt for once. As an adult, it's your problem if someone fleeces you at poker legitimately - but it's cheating if only the dealer knows that the deck is missing the ace and king of spades...
posted by lupus_yonderboy at 11:28 AM on May 12, 2011 [1 favorite]


Let's not waste time as to whether bankers are really "authoritarians" or not - the word seems poorly defined if some people think that an anti-government, anti-banking, anti-business writer for a music magazine is an authoritarian.

I think we can all agree that bankers are very much part of the establishment, very much favoured by government and those people in charge, yes?

Perhaps use the word "establishment"?
posted by lupus_yonderboy at 11:31 AM on May 12, 2011


Exactly. Market neutral positions are extremely common -- where you short MSFT and go long AAPL, to take a trivial example. Let's say you decide that is no longer a position you wish to hold. You liquidate both holdings, selling AAPL and buying MSFT. Not because you think MSFT is going to go up, or because you think AAPL is going down, but because you are no longer confident that AAPL will outperform MSFT, or because you no longer consider it a market neutral position.
posted by unSane at 11:32 AM on May 12, 2011


No, you keep claiming this but in fact one bettor deliberately lied to the other and thus committed a felony.

If I offer you a box of rocks and tell you it's a piano and it's for sale, am I lying to you? This is a serious question, because a) it is not fraud if the lie I am telling you is so obviously untrue that nobody could possibly be taken in by it, and because b) investors and consumers are subject to different rules, as are underwriters and traders.

It's one thing to say 'oh this is fraud' but it's another to make that allegation stand up in court, because the law is a lot more complex than you seem to think it is. That doesn't mean people can just get away with stuff, but it does mean that it is complex, challenging, and time-consuming to prosecute.
posted by anigbrowl at 11:33 AM on May 12, 2011


'bankers' is a stupidly broad population segment to generalize about. There are anarchistic bankers, libertarians, socialists (really), conservatives, liberals and so on. There are retail bankers, investment bankers, sales guys, risk management guys -- it's a whole fucking industry. They are not all the same person in a slightly different suit.
posted by unSane at 11:35 AM on May 12, 2011


I don't care if Basis Capital has "justice done" on their behalf. But I ask -- given that there were connections between these shenanigans and the wider economy, and given that these connections have caused widespread suffering (I thought about whether "suffering" was inaccurate or too inflammatory, and I don't believe it is), what are the best leverage points for making the unemployed, the pensioners, the public employees on furlough, etc., "whole?"

I would argue that at minimum, those who are on unemployment now should have the cold comfort of knowing that those who deliberately took unethical actions that led to the collapse were prosecuted to the fullest extent of the law. I don't care if that prosecution is superficially on behalf of Zillionaires R Us, as long as it ensures that those whose actions led directly or indirectly to this collapse, and who disobeyed laws, receive the penalties that the law provides for that illegal behavior.

Even if you disagree with my moral and emotional rationale, from a pragmatic perspective, prosecution is important. It's no different from failing to enforce traffic laws -- people stop obeying the "no parking" signs if they never get a ticket. The lawlessness is bad enough given the apparent paucity of laws and regulations. At least the laws that do exist should be enforced.

I do agree that reform is a higher priority, but I don't think we have to choose. If leaders called for enforcement and additional reform as two strategies toward a single end, that would create some efficiencies (e.g., one press conference instead of two) and greater momentum toward both objectives.
posted by salvia at 11:35 AM on May 12, 2011


I too think prosecution is important. But when that process works and there's a conviction, Matt Taibbi just pooh-poohs it, because good news doesn't make people angry and Matt Taibbi is in the business of milking people's anger for money. So he thumps the table and rants about injustice, but dismisses a CEO's conviction for trying to run a $3 billion fraud as an irrelevant sideshow, even though said CEO directly caused the collapse of the 6th largest bank in the US and attempted to replace the lost money with TARP funds.

Matt Taibbi could do a gripping and detailed report on how the DoJ worked for 2 years to put that guy behind bars and how he will probably now die in prison for his crimes. This guy was head of a 2000-employee mortgage brokerage that was breaking the law since 2002 and is partially responsible for the lamentable state of the real estate market in Florida. His firm, TBW, was the largest non-bank mortgage lender in the US, and sold large numbers of mortgages to Freddie Mac. His conviction demonstrates that progress is in fact being made in bringing financial fraudsters to justice, but Taibbi doesn't want to talk about that.
posted by anigbrowl at 12:05 PM on May 12, 2011 [1 favorite]


> 'bankers' is a stupidly broad population segment to generalize about. [...] They are not all the same person in a slightly different suit.

They work in the same field, they are subject to the same laws, and a large and visible subset of these people committed very similar crimes, made very similar terrible mistakes or whatever the phrase you care to use is. Sorry, we can't take the time to individually coddle these monsters and find out about their political beliefs and taste in food.


> If I offer you a box of rocks and tell you it's a piano and it's for sale, am I lying to you? This is a serious question,

Stop. Re-read this again and think about it.

Any system that allows you to sell a box of rocks as a piano and not call it a lie is terminally broken.

> a) it is not fraud if the lie I am telling you is so obviously untrue that nobody could possibly be taken in by it,

! This is an... interesting legal idea. I'm not a lawyer, but I think you're completely wrong here.

This is anyway completely inapplicable to the current scenario, because numerous trained professionals were in fact taken in by the fraud.

> b) investors and consumers are subject to different rules, as are underwriters and traders.

I talked about that in detail above but I can summarize it by saying, "Deliberate deception is a crime under all these rules."

> It's one thing to say 'oh this is fraud' but it's another to make that allegation stand up in court, because the law is a lot more complex than you seem to think it is.

When did I say that the law is not complex? But, did you read the article? It provides numerous examples of Goldman deliberately telling lies to customers to convince them to purchase securities that later collapsed, to Goldman's huge benefit. Yes, of course reading an article isn't legal evidence, etc. etc. but the actions detailed in the article in question are definitely felonious as described and if the article is accurate you would think that a conviction might be easy to attain.

This is not a court. We are discussing the legality of these actions, not conducting a trial and we are all aware of this. If you believe the actions described in the article are not illegal, please explain in detail why, rather than telling us how complicated it is.
posted by lupus_yonderboy at 12:09 PM on May 12, 2011 [1 favorite]


Many people in this thread consider Matt Taibbi to be an authority on how the financial system works, for example.

Taibbi is a muckraker prone to fits of purple pique, who has nevertheless developed considerable knowledge on how the "financial system" doesn't work. And no one is claiming he is the last word on the subject. If wonkery is more your taste, Taibbi is not really saying anything much different from what Simon Johnson and Nouriel Roubini and many others have been saying for some time. And the financial wizards who got us into the crisis depended in no small measure on a kind of unstated appeal to their "authority" about financial markets (i.e. "hedge funds are so complicated, the common folk cannot possibly grasp them"), so please forgive us lowly plebs if we are no longer dazzled by the obscurantist jargon and Hierophantic pronouncements of the financial class.
posted by Papaver somniferum at 12:10 PM on May 12, 2011 [3 favorites]


Are you part of that class? Or is your local area existing because of a parasite class of bankers/investment and such makes ya nervous?

Let's not ask fellow Mefites if they're "parasites". We probably shouldn't refer to other people as parasites, at all, in fact.
posted by spaltavian at 12:12 PM on May 12, 2011 [1 favorite]


His conviction demonstrates that progress is in fact being made in bringing financial fraudsters to justice, but Taibbi doesn't want to talk about that.

Taibbi's target seems not to be individual bankers or banks that are committing wrongdoing, but banking itself.
posted by empath at 12:12 PM on May 12, 2011 [1 favorite]


One other thing: it has become really predictable how those who disagree with Taibbi's conclusions always attempt to turn the subject into a referendum about Taibbi's supposed lack of financial sophistication or "authority."
posted by Papaver somniferum at 12:20 PM on May 12, 2011 [2 favorites]


I don't think there is anything weird about that. Taibbi makes the same exact mistake over and over again. He's a mediocre journalist who uses outrage to get himself into the public eye. There are other muckracking financial journalists who have done a much much better job. I'd point you in the direction of the stuff the LRB has published on the financial crisis, or the Bethany McLean-Joe Nocera book. All are outraged, but those people get the facts right. Taibbi doesn't.
posted by JPD at 12:29 PM on May 12, 2011 [1 favorite]


Bethany McLean-Joe Nocera

They do awesome work. Taibbi just makes up ridiculous metaphors that get people angry without making them think.
posted by Ironmouth at 12:37 PM on May 12, 2011


One other thing: it has become really predictable how those who disagree with Taibbi's conclusions always attempt to turn the subject into a referendum about Taibbi's supposed lack of financial sophistication or "authority."

Generally I like my reporters to be able tell the truth, yes.
posted by Ironmouth at 12:38 PM on May 12, 2011


Matt Taibbi is in the business of milking people's anger for money.
Taibbi just makes up ridiculous metaphors that get people angry.
Generally I like my reporters to be able tell the truth, yes.


You guys are just killing the messenger here, and the fact that Taibbi does not obey the usual niceties of financial reporting does not make his work any less serious. If he's such a know-nothing liar, why hasn't Goldman Sachs threatened him with libel? This obsession with Taibbi reeks of status quo-maintaining obfuscation. Is he a bit of a rabble-rouser who sometimes indulges into over-animated prose? Sure, but in general his analysis is sound, his targets deserve it, and his anger is justified.
posted by Papaver somniferum at 12:46 PM on May 12, 2011 [3 favorites]


no that's the problem his analysis isn't sound, but people like you who don't know that, but feel outraged, want to believe that it is because he's as angry as you are.

Now stepping back for a second, are anger and rational analysis often correlated? no.

And saying "If he was wrong they should sue for libel" is just woefully ignorant of US libel laws, not to mention the weakest of arguments.
posted by JPD at 12:54 PM on May 12, 2011


I think a bit of populist outrage in this case is a good thing, because serious understanding of the financial system which allows (encourages?) destructive practices is beyond the grasp of most citizens. Because the necessary changes, when and if they come, are going to be a negotiation, there needs to be a large group of citizens who care that something is deeply wrong and understand on a basic level that change is necessary. It's not like Matt Taibbi or Joe Teaparty are going to be rewriting the banking laws-- it's still going to be the same people who helped cause the problem, but some angry citizens might at least motivate them to expunge the worst of their excesses.
posted by cell divide at 12:57 PM on May 12, 2011


people like you who don't know that

This is ad hominem and circular, so also the weakest of arguments. The fact is Taibbi's style gets under some people's skin; his is not a measured tone. But it's not just or even mostly only anger and froth; he does his homework, and often lays out a compelling case. It's just that his conclusions don't jibe with the Wall Street Journal.
posted by Papaver somniferum at 12:59 PM on May 12, 2011


If he's such a know-nothing liar, why hasn't Goldman Sachs threatened him with libel?

Because nobody really cares what Rolling Stone says about music, let along banking?
posted by empath at 1:01 PM on May 12, 2011 [2 favorites]


Actually, empath, Goldman Sachs discussed suing Taibbi over one of his articles, but opted against it. And the fact that he "writes for Rolling Stone har har" is just a weak call, since: a) RS actually has a long tradition of subversive journalism, and b) it's confusing the messenger with the message. For better or worse Taibbi has established himself as a person to contend with on the subject of Wall Street malfeasance; no one should consult just him, of course, but I can't help but feel the attacks on his bona fides are a bit of a distraction.
posted by Papaver somniferum at 1:08 PM on May 12, 2011 [1 favorite]


That's not an ad hominem. An ad hominem would be saying Taibbi's an idiot (which I don't actually think), rather than saying Taibbi's wrong and here's why. Something several of us have laid out in several threads. The fact remains he's very weak on some key points of law. Outrage won't get you past that.

(And business insider using an unnamed source hardly counts as real evidence of anything - other then maybe someone in Goldman's IR department saying "Hey maybe we should sue him" and Lucas Van Praag telling him he's an idiot for propsing such a bad idea.)
posted by JPD at 1:14 PM on May 12, 2011


>> "This just in, Matt Taibbi has a new article out talking about a senate subcommittee report that reveals a long-standing pattern of burning down orphanages by grinning maniacs with jerrycans of napalm!"

> "Aw, hell, who cares, it's just Matt Taibbi raking up the muck again with pitiful tales of homeless orphans, questionable forensics reports and he hardly pays any attention at all to the pinky-swear testimony of a bunch of stand-up guys who are now building condos on those lots -- Jesus, can't you see it's just a guy with an axe to grind trying to sell a bunch of hippy magazines?"

So, uh, about that arson....?
posted by seanmpuckett at 1:19 PM on May 12, 2011 [5 favorites]


The guy that founded business insider was actually barred by the SEC from the securities industry for fraud. I wouldn't trust anything they said about anything.
posted by empath at 1:19 PM on May 12, 2011 [1 favorite]


Please repeat after me: A love of money is the root of all evil. Money in and of itself is not evil, neither is having it, or even having large amounts of it. It's the pursuit of money over the health and welfare of humanity that is evil. That is all.
posted by blue_beetle at 1:19 PM on May 12, 2011 [1 favorite]


This just in, Matt Taibbi has a new article out talking about a senate subcommittee report that reveals a long-standing pattern of burning down orphanages by grinning maniacs with jerrycans of napalm!

Why not say what crime the report actually accuses them of instead of making one up?
posted by empath at 1:20 PM on May 12, 2011


he's very weak on some key points of law.

So what? He's not writing for the Harvard Law Review, and if he were we would not be discussing him anyway, which is part of the problem. Fortunately or unfortunately he's one of the few figures who's been able to become recognizable on these subjects, but he's not the only one: he can go on Bill Maher, chat with Elizabeth Warren or Eliot Spitzer or Michael Lewis or Cornel West or whomever, and remind people to keep their eyes on what's going on. He's far from perfect, but he's not a blowhard either.
posted by Papaver somniferum at 1:22 PM on May 12, 2011 [1 favorite]


So what?

He's making a fucking argument about what the definition of fraud is that's "so what"
posted by JPD at 1:29 PM on May 12, 2011 [1 favorite]


What's the difference between a fucking argument and an argument I wonder?

Goldman reveals more subpoenas
May 11, 2011|New York Times
Goldman Sachs’s mortgage problems are far from over.

The Wall Street investment bank paid $550 million last year to settle a civil fraud suit brought by the Securities and Exchange Commission, which accused Goldman Sachs of creating a mortgage product that was intended to fail.

Yesterday, the firm disclosed in a regulatory filing that it had received more subpoenas related to that mortgage product, Abacus 2007-AC1, and other collateralized debt obligations.

Goldman has previously revealed that the Financial Industry Regulatory Authority and the Financial Services Authority in Britain are looking into Abacus. The firm said yesterday that it had received subpoenas from other unnamed regulators.

Goldman also disclosed yesterday that the Commodity Futures Trading Commission was investigating the firm’s role as clearing broker for an unnamed SEC-registered broker-dealer. The firm said it had been “orally advised’’ that regulators intended to “recommend that the CFTC bring aiding and abetting, civil fraud and supervision-related charges’’ against the Goldman unit related to its provision of clearing services.

posted by Papaver somniferum at 1:34 PM on May 12, 2011 [1 favorite]


Goldman reveals more subpoenas

Weird, that doesn't have Matt Taibbi in the byline at all.
posted by ryoshu at 2:25 PM on May 12, 2011 [1 favorite]


empath: Taibbi's target seems not to be individual bankers or banks that are committing wrongdoing, but banking itself.

Yes, in order to discredit those who report the crimes and excesses of those who abuse the financial system, let's say they are against banking!

Yes, in order to discredit those who report the crimes excesses of those who abuse the political system, let's say they are against democracy!

Yes, in order to discredit those who report the crimes excesses of those who abuse the Constitution system, let's say they are supporting terrorism!

Seriously empath - that is so overdone. This guy, for all his faults and foibles, is trying to fight for you against the very people who laugh at the idea of you in particular having any portion of the wealth and prosperity that they enjoy daily. If it appears that Taibbi is against banking possibly it is only because the entire industry is overrun with corruption and criminality.
posted by Poet_Lariat at 5:09 PM on May 12, 2011 [2 favorites]


If it appears that Taibbi is against banking possibly it is only because the entire industry is overrun with corruption and criminality.

That is certainly the impression one would get from reading his articles.

This guy, for all his faults and foibles, is trying to fight for you against the very people who laugh at the idea of you in particular having any portion of the wealth and prosperity that they enjoy daily.

Economics is not a 0 sum game.
posted by empath at 6:01 PM on May 12, 2011 [1 favorite]



Economics is not a 0 sum game.


Not the way Goldman likes to play the game.
posted by KaizenSoze at 6:36 PM on May 12, 2011 [1 favorite]


He's making a fucking argument about what the definition of fraud is that's "so what"

Okay. And again I bring it back to:

" In 1995, according to an independent study, banking regulators filed 1,837 referrals. During the height of the financial crisis, between 2007 and 2010, they averaged just 72 a year."

So, he isn't arguing about what is fraud. Because, clearly fraud has taken place. He's arguing that we've stopped prosecuting fraud in the financial marketplace. For short term benefit. And that's not working out.

Are you arguing that the reduction of oversight in criminal activity in the financial market is a net good? I'd really need to see some hard figures for that, because at this point it seems like history is against you.
posted by lumpenprole at 10:33 PM on May 12, 2011


There is underwriting and market-making. The responsabilities of an underwriter are different from those of a market-maker. The problem with the law is that there is no clear definition of "This is underwriting, this is market-making, " especially when you are dealing with "qualified investors". "Qualified Investors" is actually a legal term, that excludes them from nearly all of the consumer protection laws designed around the securities industry.

Lots of posts like this one - on this thread. It's informative re: the law, but begs the question about how the law is made, who the law benefits, and who the law hurts.

We have been screwed over by these people; they buy law; they create legal scenarios that make it nearly impossible for law to be transparently understandable, and without loopholes. These people have been ripping the American public a new a**hole for the last 25-30 years!

At this point, I have no respect for laws that have been bought and paid for. Yes, I have to obey those laws, but I don't respect them. And, this sentiment is yet another harm that these slimy SOBs have brought down on America.

I want to see straight talk, and straight action. I want to see legislators and other policy makers *react* to this legal charade and stop hiding behind it because "it's the law", or "it's too complex". Why does *anyone* buy that argument? Because we're a "nation of laws". GIve me a freakin' break! I will not be blown off - nor should anyone else - by civil code that was bought and paid for by the same greedy scumbags that have brought ruin to this nation.

There's no advocacy for anarchy here, but we must insist that the doublespeak around this issue stop, now. We are running out of time, while these SOBs bury their ill-gotten gains behind international banking fortresses and money laundered opportunities that will keep them and their rich no matter what happens to America.

We need to teach every single one of them a hard lesson, with no mercy shown. The harm that these people have caused (I would venture) probably exceeds all the financial harm done by all the petty and large thieves ever jailed in America. This is another time to say "I'm mad as hell and I'm not going to take it anymore, and mean it!.

For those that want to pussyfoot around the duplicitous nature of "law" in this issue, please understand that the heat generated by those who are hopping mad about this issue in decidedly not about self-righteousness; rather, it's entirely about righteous anger! There's a difference. (see Martin Luther King; see Ghandi; see Jesus Christ).
posted by Vibrissae at 10:52 PM on May 12, 2011 [3 favorites]


I wasn't sure about your argument, but the bold face convinced me.
posted by empath at 10:58 PM on May 12, 2011 [1 favorite]


lupus_yonderboy: "Sorry, we can't take the time to individually coddle these monsters and find out about their political beliefs and taste in food."

Should I Godwin the quote above, or just the mentioning it good enough?
posted by falameufilho at 4:09 AM on May 13, 2011


figures of authority

Quo Jure are "bankers" such?
posted by rough ashlar at 10:18 AM on May 13, 2011


Matt Taibbi and Megan McArdle Square Off Over Potential Criminal Charges Against Goldman Sachs
posted by homunculus at 8:41 AM on May 15, 2011


Testimony, Goldman-Style; A Tour Through the Levin Report
posted by homunculus at 8:48 AM on May 15, 2011


We probably shouldn't refer to other people as parasites, at all, in fact.

How about Morally Bankrupt?
Perhaps perverted?
Rapist?
Or are those labels are not "true" because, at the moment due to a lack of conviction in the developing case of Dominique Strauss-Kahn - arrested for a sex crime in New York?
posted by rough ashlar at 11:14 AM on May 15, 2011


I dunno.. When I hear people railing against 'bankers' in general, and Goldman Sachs in particular, I tend to subconsciously pre-pend 'jew' to it, and calling them 'parasites' tends to amplify that to me.

So yeah, I think avoiding anti-semitic rhetoric when talking about this might be good.
posted by empath at 11:28 AM on May 15, 2011 [2 favorites]


rough ashlar: "Or are those labels are not "true" because, at the moment due to a lack of conviction in the developing case of Dominique Strauss-Kahn - arrested for a sex crime in New York?"

Strauss-Kahn being a rapist gives us the right to call bankers rapists? Please defend the logic of that for me.
posted by falameufilho at 11:45 AM on May 16, 2011


I apologize for not following this up earlier.

Any system that allows you to sell a box of rocks as a piano and not call it a lie is terminally broken.

Not at all. Real-world examples: you go to the movies - you spent money to buy a ticket to King Kong or whatever, which turns out to be an elaborate fiction constructed from props and camera tricks. A lie? Not really. You turn on the radio and hear an attractive sounding person profess love and desire for you. This turns out not to be an actual invitation to have a relationship of any kind, but a lyrical device designed to result in the purchase of a recording or concert ticket for the singer in question.

If I stand there with a box of rocks, something is self-evidently not a piano, and say 'consider purchasing this fine piano,' you are expected (by courts) to maintain a basic level of judgment and pay attention to what your eyes see. If every observation you make suggests to you that what I am advertising as a piano is in fact a box of rocks, then you can' seriously claim I'm lying to you. Maybe I'm engaged in some performance art, or parodying of other sales persons, or making an oblique joke about the worthlessness of my merchandise. But you do not get to buy it off me and then say you feel ripped off.

> a) it is not fraud if the lie I am telling you is so obviously untrue that nobody could possibly be taken in by it,

! This is an... interesting legal idea. I'm not a lawyer, but I think you're completely wrong here.


I'm not. As above, you're expected to exercise a reasonable amount of judgment. For fraud to occur, you must have had a reasonable belief in the truth of what I was saying. If I had a box of rocks and insisted that there were diamonds inside the rocks, that's potentially fraudulent. If I give you a long lecture about how diamonds are always found inside rocks such as these, and extract a fancy price for you reflecting the value of a large weight in diamonds less the price of a hammer to crack the rocks open, then I've definitely committed fraud, even if you were a bit gullible to swallow my tale.

But if I'm saying 'I know it looks like a box of rocks, but it's really a piano, you could totally play music with it' then you can't complain afterwards. It's simply not reasonable to claim you were taken in by such an assertion. On a practical, everyday level this also applies to general statements like 'the best deal ever!'; that's called 'puffery' because it's a vague optimistic statement of quality that just expresses a merchant's general confidence in what s/he is selling. Otherwise people would get sued for saying things like 'the steak is very tasty' or 'this is a fine piece of scrap iron.' The concept is explained in greater depth in this article; it's from a law review but it's not that long if you just skip the footnotes. On page 111 (the original page numbers, which start at page 101) it goes into further detail about puffery in the context of securities law if you're really interested.

Now as regards trained professionals, they are absolutely expected to be aware of the difference between 'this security is an awesome investment' (mere puffery, upon which you would be an idiot to rely) and more specific statements like 'We are the underwriters for the issue of this security and warrant that...' (statements which have real legal and contractual significance, on upon which it is reasonable to rely).

Let's re-examine the box of rocks analogy. You remember how I said it might well be fraudulent to insist they contained diamonds? OK, suppose someone offers me a box of rocks at a fancy price on that basis...but I am a trained geologist - indeed, an expert in my field. 'I question the diamond-bearing claim for these rocks,' I say, 'because they resemble the ordinary rocks in this area where diamonds have never been found, and in fact I am pretty sure you just picked them up off the ground and put them in that box you have.' 'Oh no sir,' says the salesman, 'These rocks seem exceptional to me. It's the deal of the century.' Now if all my training and years of geological experience tell me that these rocks are just, well, rocks, then his claims are no more than puffery. If I hand him my life savings and am disappointed to discover that my original instincts were correct, I can't call the guy a fraudster for tricking me with his air of confidence. He would have had to make some greater effort, for example by disguising the rocks or misleading me with some plausible story about how they came from some other place, or showing me a fake hollow rock full of diamonds.

This may seem very silly, but it matters. I do actually have some responsibility for the judgments I make. If I am a trained professional dealing with another trained professional in a competitive marketplace, I have quite a lot of responsibility for the quality of my decisions. If I make a bad decision and feel like I've been ripped off, it is not necessarily fraud. Saying a thing does not make it so. Saying that a box of rocks is a piano is not a claim on which you can reasonably rely. Saying that a few lumps of sandstone are a trove of diamonds is not something on which a geologist can reasonably rely. Saying that a bank committed securities fraud is not a statement on which a court can reasonably rely - it's an assertion whose truth will have to be established at trial. You should not rely on it either, because you do not have a working knowledge of what constitutes a fraud in law.

I know this is another post stressing how complicated it all is, but what I'm trying to get across is an idea of the high standards that must be met, which has a lot to do with why the process takes so long. I can't address your questions in more specific terms for now or for some time to come.
posted by anigbrowl at 8:34 PM on May 16, 2011 [1 favorite]


Anigbrowl, I'd like to buy your rocks.
posted by furiousxgeorge at 8:38 PM on May 16, 2011


this is another post stressing how complicated it all is

Actually your post is a baffling exercise in ontological jujitsu, avoiding as it does all specifics to ruminate instead on the nature of definitions in language at large, but it has absolutely nothing to do with finance, Goldman Sachs, or fraud.

you do not have a working knowledge of what constitutes a fraud in law

I am assuming you are aware that GS is being investigated for fraud as I write this, and that there are several ongoing high-level investigations (by the SEC, CFTC, and NY AG) into them as well as the other major banks (more here)?
posted by Papaver somniferum at 11:03 AM on May 17, 2011


Confidential Federal Audits Accuse Five Biggest Mortgage Firms Of Defrauding Taxpayers

Will the Justice Department Prosecute Bank of America, JPMorgan, Wells Fargo For Mortgage Fraud?
posted by homunculus at 9:17 AM on May 18, 2011


the thing to understand about Taibbi is that he (at the eXile) watched the oligarchs loot Soviet Russia with the connivance of western financial interests.

same interests, new country.


Wall Street's Russian-style Corruption
posted by homunculus at 9:08 AM on May 24, 2011


Revolving Door Watch: Former Sen. Judd Gregg to Goldman Sachs
posted by homunculus at 9:03 AM on May 28, 2011


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