Matt Taibbi Is Just Plain Wrong
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Matt Taibbi Is Just Plain Wrong
Goldman Sachs may be bad, but it’s far from the worst.
Posted Thursday, August 6, 2009 - 1:05pm
Can one firm create a bubble? Can one firm create four bubbles?
Maybe, but it's damn hard to prove. That's why it's so unimpressive that a fervent 10,000-word rant by Matt Taibbi in Rolling Stone's July 9 issue—devoted purely to "Goldman's big scam"—spent 12 pages on the subject of Goldman Sachs' (GS) "Great American Bubble Machine" but never delivered any plausible proof. The mammoth article disappointingly failed to provide the smoking gun that so many people on Wall Street—who have envied and admired and hated Goldman for much of this decade—would have been delighted to see.
Context and good facts were in short supply in favor of a lively, if incoherent, narrative. As a fellow financial journalist put it: "If you read the article without knowing anything about finance, by the end you would still not know anything about finance—but you would hate Goldman Sachs."
True. Goldman's reputation is its own business—I've never owned any of its stock and don't have any friends who work there—but as someone who's written about Wall Street for a decade, it annoys me to see the public that wasn't fully educated about the financial crisis before it happened get snookered again by misleading reporting afterward. Megan McArdle of the Atlantic apparently feels the same way, having dubbed Taibbi "the Sarah Palin of journalism" and pointing out intelligently that "[i]t's not that everything he says is wrong, but the bits that are true aren't interesting, and the bits that are interesting aren't true. The whole thing dissolves into the kind of conspiracy theory he so ably lampooned in The Great Derangement. The result is something that's not even wrong. It's just incoherent." In his rebuttal, Charlie Gasparino of CNBC said the article made him "ill" in his "Stop Blaming Goldman Sachs" rebuttal to Taibbi. (Allegedly, Gasparino and Taibbi will settle their differences with the modern-day version of pistols at dawn, which is a dual appearance on Imus.)
Here's why I'm on record as siding with the skeptics: Taibbi set himself an impossible task in trying to prove that one firm is that evil and that smart. The thing about bubbles is that they take a village—everyone has to become disinhibited, and greedy, on a mass scale to buy into a really bad idea. The whole history of Wall Street is guys with homes in Greenwich, Conn., complaining about guys with ranches in Telluride, Colo., billionaires bashing millionaires, and in the end, the whole Street is in on it together because they all get paid the same way. The idea that one person or firm could be behind any of it is at most a distant delusion. It is not a conspiracy launched in one place and foisted on others—it is people responding to the incentives we give them. (And, by the way, there are some good people in there, too, although that often gets forgotten.) All Wall Street firms and their hedge-fund friends played a part in fueling the tech bubble, got involved in unsavory amounts of trading in mortgage-backed securities, and toyed with credit-default swaps, because that's how they could make money at the time. Wall Street almost always moves in lockstep. That's why the bailouts that helped Goldman actually helped other firms even more: They're too interconnected to fail.
Not too many people, however, have addressed the bulk of the actual factual and contextual inconsistencies in Taibbi's Rolling Stone article. The facts won't change the debate—as Barry Ritholtz points out, the Goldman article is more about having someone to blame for the credit crisis, one target, fair or not, for all of society's frustrations—but it's still useful to get them out there. So here's a little factual perspective about Wall Street and its bubbles that I wish more readers had had with them as they were reading the Rolling Stone article.
Comments
Under-Delivered
For an article titled "Matt Taibbi is Just Plain Wrong" you didn't exactly make the strongest of cases. At best all that can be said after reading your article is that the "giant vampire squid" should not have JUST Goldman's label branded on it, but JPMorgan's, Citigroup's, Credit Suisse's, Deutsche Bank's, and others. That is the thesis of your article. Which begs the question: if you think Taibbi was exaggerating his case, what are you doing with yours given your title?
You Miss the Most Salient Point
Miss Moore -
Like fellow writer Matt Gimein, your indictment of Matt Taillbi is more a defense of Capitalism, than it is a criticism of Taillbi's theory.
Have you even read Adam Smith's little tome "Wealth of Nations" [short title]?
Whether Goldman Sachs is "primarily responsible" for the financial collapse is far less important than the lessons provided by the subsequent bailouts:
1) next time - and there will be a next time ("those that fail to understand history are doomed to repeat it) - we do risk a massive failure of the financial system because there will be such an uproar about not bailing-out the system "this time", and our political leaders will really be caught in the crossfire of that dilemma, risking a massive revolt (and Teabaggers are worried about Communism now???):
2) the paradoxic consequences of the bailouts is that we reinforced the trading institutions and hedge funds' risky behavior - the doctrine of "moral hazard";
3) Capitalism was an economic equivalent of Charles Darwin's theory of evolution: the strong survive and the weak perish, but only if "nature" is allowed to weed out the weak. If AIG was allowed to fail, Goldman Sachs, notwithstanding their own protestations to the contrary, likely is mortally wounded and does not survive. It is a fair assumption based on all of the facts as we know them today (including Andrew Sorkins "To Big to Fail"), that Paulson and Company were NOT going to let that happen. Question: If the key players were "sufficiently capitalized", why not let them prove it (that is how Capitalism works), survive, and then pick up the pieces.
4) Adam Smith's theory of Capitalism NEVER condoned any concentration of power into the hands of a few players within any industry. In fact, in spite of his significant distrust of government, he stated that this was the one situation that would require government intervention. As much as Smth abhorred government, he held an equal contempt for business people - specifically "the merchant class". These were the dominant business players of that era, and they controlled a vast network of commerce and trade in the old world. Smith never begrudged them their profits - he just noted that greed would drive them to conspire to fix prices and drive out competition in order to increase their profits to artificially high percentages, which completely contradicts the social contract which he declared was the ultimate purpose of Capitalism. In other words, monopolies and oligopolies were the inherent danger of unfettered Capitalism
5) The rise of corporations over the past 150+ years has resulted in a complete dilution of the original principles of Capitalism, and a correlating increase in monopolies and oligopolies. Teddy Roosevelt, FDR, and some of their predecessors utilized the power of government in order to stem the economic inequities that resulted from this concentration of economic power. Unforturnately, business has figured out that in order to perpetuate their dominance of the economy, they would have to manipulate the political system and make it a "partner in crime". To those ends they have succeeded beyond their wildest dreams.
If business writers like yourself are going to defend a system that violates the very principles it was designed to perpetuate, you cannot knock down strawmen like Matt Taibbi in its defense.
That dog just won't hunt.
Lance M. Haley
screwedus.com
Goldman Defense
What an interesting defense. My client didn't commit the 30 murders he is accused of, he merely committed 20. Why when it came to brutal stabbings, my client was merely the 5th most prolific of the past year. If you think punishing my client will stop murder, why there are many others who commit this crime also. You might have convinced my that Taibbi is guilty of hyperbole in order to make his article interesting, but after reading this article I came away more convinced of the basic rightness of Taibbi's account.
I guess it's all a matter of perspective...
Vincent Bugliosi Is Just Plain Wrong Charles Manson may be bad, but he’s far from the worst. -- MrJM
Your point?
Great piece...You give Mr Taibbi's bubble much credibility. His point
is that our profligate financial system has lead the way with dollar denominated influence that has gamed the system for rapacious greed on the way up and on the way down (naked cds and swaptions)based on insider knowledge.
We really do not care much for the skewed or timely data that shows which
kleptocratic financial entity was 1st or 31st...your dollar-splitting seems only to infer, let's move-on. Atonement and reform should remove them from the corridors of DC. Take the cream-gravy bowl away and break them up and claw-back from their oh so well-protected piles. Should'nt be much argument there, right? Unless you are protecting sand-bagged bunches.
Non-Finance
An all-in-all good article though I believe this website's readership is mostly non-finance as well so it was probably in vain.
Really one of the strangest parts of this whole issue is that practically the only people who understand the workings of the crises have a conflict of interest and are therefore disqualified.
quick note: on ~pg. 5 you list the leaders in CDOs as being MER and C, then in the next sentence you list them again in the first clause as being MER and GS then in the next clause say GS was far behind.
Actual reporting
Oh and fyi Heidi, here's an example of some real reporting, something you clearly don't want/know how to do. I can't wait to hear your defense, they are friends and just talked about golf????
http://www.nytimes.com/2009/08/09/business/09paulson.html?_r=1&ref=business
Goldman is guilty as charged
Heidi makes some valid points - Goldman may not be the most egregious offender in every category. But no firm has their pervasive influence to set policy at all levels of government. Goldman alumni have metastasized throughout our government to a frightening degree. Her article confirms most of Tabbi's thesis and should convince all Americans that Wall Street is completely corrupt and out of control. Gasparino and the other CNBC apologists and boosters like Kudlow, Bartiromo and Kneale are just pathetic. But the bottom line is that Goldman Sachs and Wall Street have won - the American taxpayer has lost. Remember the RICO statute used to break up the mafia? (It kinda worked on the Silician mafia - doesn't seem to be slowing down the Mexican, Russian and other mafias.) Racketeer Influenced and Corrupt Organization (RICO) - doesn't that perfectly describe GS and the other big Wall Street firms?
Moore is shameful
I think most publications would be seriously ashamed over Heidi Moore's last defense of Goldman, to say she lost any credibility she may have had would be understating it. But now you give her a second attempt, and its just as bad??? This piece also seriously needs some editing, what a painfully bad writer Ms Moore is.
Amazing
So Matt rips apart your first Goldman defense and this is your rebuttal? If I had a public column (paid or not) I'd at least read my target's other defense articles before I got up off the mat. Perhaps you are after the last word, knowing that Matt can't defend every rehashing of arguments he's already addressed (because he does cover other subjects), so that you can claim he bowed out of the fight when truly it's a Taibbi victory by TKO.