All The Kewl Kids In Switzerland Still Drinking Expensive Wine

Two posts from Felix Salmon, here and here. Salmon:

Davos is great at throwing a couple of archbishops onto a panel with Niall Ferguson entitled “Restoring Faith in Economics” (geddit?) — but what I see none of in the programme is an indication that much if not all of the crisis was caused by the arrogance of Davos Man and by his unshakeable belief that the combined efforts of the world’s richest and most powerful individuals would surely make the world a better, rather than a worse, place. Excitement about the opportunities afforded by the Great Moderation (as the credit bubble was known before it burst), financial innovation, the rise of the bankers — Davos was ahead of the curve on all of them. And as the annual symposium of smug sermonizing became increasingly established, it served as a crucial reinforcement mechanism.

It’s not like CEOs and billionaires (and billionaire CEOs) need any more flattery and ego-stroking than they get on a daily basis, but Davos gives them more than that: it allows them to flatter and ego-stroke each other, in public. They invariably leave even more puffed-up and sure of themselves than when they arrived, when in hindsight what the world really needed was for these men (it’s still very much a boys’ club) to be shaken out of their complacency and to ask themselves some tough questions about whether in fact they were leading us off a precipice.

Now that it’s clear that many of them were leading us off that cliff, there’s still no sign of contrition, although you can be sure that a few fingers will be pointed at various past attendees who aren’t here to defend themselves. Is anybody here seriously examining the idea that Davos was institutionally responsible, at least in part, for the economic and financial catastrophe which befell the world in 2008? I’ll be on the lookout for that over the next few days. But I suspect that the preening potentates will be far too busy giving themselves the job of rebuilding the world to stop and ask where they went wrong in building the last one, and whether they might actually owe the rest of us a large collective apology.

And more Salmon:

One of the more annoying aspects of the Davos echo-chamber is the way in which people are constantly asking each other what “the mood” is this year; the result is an inchoate consensus that since the crisis is over, markets are up, and countries are growing again, there must be grounds for optimism and the kind of yes-we-can thinking in which the World Economic Form has always specialized.

I’m moving the other way, however, siding with the pessimists like Nouriel Roubini and Martin Wolf. They’re both convinced that the problems of southern Europe are both grave and intractable, although they differ in their prediction of what the consequences will be: Nouriel sees a good chance of the eurozone breaking up, while Martin sees the PIGS (Portugal, Italy, Greece, Spain) staying in the euro and ending up stuck in a long-term slump, able to neither cut interest rates nor devalue their currencies in an attempt to regain competitiveness. The only other option is an across-the-board cut in nominal wages, on the order of 30% or so. That’s something which is pretty much inconceivable, although Ireland seems to be trying to move in that direction.

Of course the one entity which will benefit from this is the Squid: Goldman Sachs seems to be taking the lead in trying to orchestrate a desperate and expensive sale of Greek debt to China. Expect more such desperate moves as the southern European macroeconomy continues to deteriorate; anybody who watched the world’s investment bankers swarming all over Domingo Cavallo in the final weeks of Argentina’s currency board will remember just how vulturish they can be in such situations.

Andrew Sullivan:

The theories of self-regulating markets that guaranteed no collapse turned out to be profoundly flawed – as most intelligent conservatives (Posner, Bartlett, et al.) have now observed. And the oh-so-clever mechanisms the bankers invented to give themselves more and more and more turned out – surprise! – to be mathematically flawed. And those of us who’d saved for retirement, paid our mortgages punctiliously, paid our taxes without armies of accountants to squeeze every last drop from Uncle Sam, and worked to build real things … we became their victims. That’s when the temptation for vengeance comes in. But when we then rescue them and burden ourselves with more debt, and they turn around and do all they can to restore the insanity that brought us all so low, and enrich themselves some more, we enter a new period.

I have no doubt there are many good men and women working in the banking sector. But the system is so corroded with vice, with selfishness, and, most importantly, with contempt for the common good, it needs real reform. I like what Obama has proposed and what the chairman of the Bank of England is now endorsing. I think the bailouts were necessary, just as I think the stimulus was necessary. But passing the toughest financial regulation bill we can at this point seems to me to be an urgent priority. The diffuse anger out there is a function of this deep sense of injustice – and it’s correct.

We need to make banking not just boring but as profitable as any other sector in the economy: no more and no less. We need to remove the mystique that led us to this morass. And we need to do it to rescue capitalism itself from its own hubris and naive belief that economics can operate in a vacuum without virtue.

Kevin Drum on Salmon’s second post:

For what it’s worth (and you can guess how much that is), I think I agree about Europe but I’m not quite so pessimistic about the U.S. The American economy seems unlikely to come roaring back to life or anything this year, and a midyear dip seems at least plausible, but overall I suspect we’re just going to see a long, hard slog to recovery, not a second disaster.

The wild card, though, is whether a disaster somewhere else will ripple across the globe and eventually touch off a disaster here. That’s certainly possible, and it’s part of the risk I think Tim Geithner took when he chose to rescue the banking system the way he did. It’s left the entire system in fragile shape, which is OK if nothing terrible happens in the next couple of years and everyone has time to earn their way back to full strength. But if something terrible does happen, we’re still not in very good shape to handle it. So let’s hope for a lack of disasters, OK?

Yaël Bizouati at Dealbreaker:

Everybody’s pissed off at everybody at the World Economic Forum. It’s not the love fest it used to be. Not even humanity-lover Bono is showing up this year.

Here’s a roundup:

Barclays President Robert Diamond would like to point out that everyone at the bank is “immensely proud” that the bank didn’t take any direct money from any government anywhere in the world. A word of acknowledgment would be much appreciated, thank you.

“I think that what goes unnoticed is that the banks which stayed strong and were well managed through this are angry at the banks (that) had poor management (and) were allowed to have poor management and ineffective regulations,” Diamond said.

Take that, all of you TARP-ed failures.

Meanwhile, George Soros -siding with his pal Roubini- is mad at Obama’s proposals, saying he’s not going far enough and the largest financial institutions may be “too big to fail” even under his plans to rein them in.

“Some of the banks will spin off investment banks that will still be too big to fail,” Soros said.

On the other hand, Deutsche Bank CEO Josef Ackermann said the Obama plan is BS as it will hinder global economic growth.

“If you have fragmented, small players in the financial sector, meeting the requirements of global trade and production, you will have a dichotomy which is not going to work and would not be for the benefit of the real economy at the end,” Ackermann said.

Vincent Fernando at Clusterstock:

Nouriel Roubini at Davos has announced in none too uncertain terms how he feels about Greece right now — it’s a lost cause that Europeans will be forced to back-stop.

CNBC:

“Greece is bankrupt,” Roubini told CNBC.com at WEF. “Look, they have to ask China to help them out.”

If the situation becomes dire enough the European Union will be forced to help bail Greece out because it’s such a threat to the monetary union, he said.

Gideon Rachman at Financial Times:

Jesus drove the money-changers out of the temple. Now the World Economic Forum has driven the wine-tasters out of Davos. In previous years, one of the highlights of the forum was a small but spectacular tasting of fine wines. But last year Klaus Schwab, the forum’s mastermind, decided that guzzling first-growth clarets was an inappropriate way of celebrating the global economic meltdown – and the wine-tasting was cancelled. We all hoped that this was a temporary abberation, but apparently not. The new Puritanism is here to stay – Davos wine-tastings are off the menu until further notice.

But you cannot deter dedicated wine-tasters that easily. Last night a wine-tasting was organised by former Davos employees who have formed a new organisation called the Wine Forum. It took place in a conference room in an airport hotel in Zurich at 6pm – a time and a location that was specifically designed to intercept delegates en route to Davos.

Jancis Robinson of the FT was mistress-of-ceremonies and the wines were provided by Krug, and Chateaus Cheval Blanc and Yquem. One of the malign results of globalisation is that these wines, which were once affordable to the likes of me, are now global brands cherished by the super-rich and so mesmerisingly expensive. I’ve never understood why the anti-globalisation movement doesn’t make more of this issue. The 1959 Chateau Yquem that we tasted last night now sells for about £1600 a bottle – each gulp that I took would have made a small contribution to paying off my mortgage. The Cheval Blanc 1998 is about £400 a bottle.

[…]

Under the circumstances, I feel remarkably perky. This morning I went to a really good session on geo-politics, which did what Davos does so well – bring together participants from all over the world; in this case from Beijing, Moscow, London, Cairo, Harvard, Afghanistan and Pakistan. Now I am off to a lunch with George Soros. This evening, I am meant to be moderating a dinner debate called “From Piracy to Pandemics – From Past to Present Dangers”, which seems to have been organised by somebody with a taste for alliteration. It says that the dress code is “smart casual”, but I think it would be more fun if the participants could be persuaded to come in fancy dress. Somebody should come dressed as a pirate; somebody else could come as a pig with flu. Now that the wine-tasting is no more, we need to think of new ways of enlivening Davos.

NYT’s Dealbook in Davos:

The Washington Post notes that while the industry and government leaders who descend on the Alpine village for the event have historically been confident about sharing their outlook on the future, they are far from reliable. The Post rounds up some of the the worst predictions by Davos attendees.

Among them, The Post says:

In 2001, Enron’s chief executive, Kenneth Lay, declared that his company was a “21st century corporation.” Enron filed for bankruptcy that December, and Mr. Lay was indicted for fraud in 2004 and found guilty in 2006.

In 2004, Bill Gates told the world “Two years from now, spam will be solved.” Enough said.

In 2008, former Treasury Secretary John Snow said that the United States recession would be ‘’short and shallow,” while Fred Bergsten, director of the Peter G. Peterson Institute for International Economics, declared: “It is inconceivable — repeat, inconceivable — to get a world recession.” They should think about starting their own stand-up routine.

The Atlantic’s Davos page

UPDATE:More Felix Salmon

Matthew Yglesias

I’m Building A Shed, Where The Rain Gets In, And Stops My Mind From Wandering

Laura Blumenfeld at the WaPo:

It all began as it ended, abruptly. Kashkari was a 35-year-old business school graduate from a suburb of Akron, Ohio, who had gone to Washington in 2006 to learn how government worked. Then came the recession, and through a freakish set of circumstances, mixing pluck, cataclysm and luck, he was appointed by Treasury Secretary Hank Paulson as the federal bailout chief.

Suddenly, he was in charge of $700 billion.

Congress savaged him. Wall Street Journal editorials doubted him. His home-town buddies urged him to use the money to buy the Cleveland Browns and fire the coaches. His wife spoke to him so rarely, she described them as “dead to each other.” He lost sleep, gained weight and saw a close adviser, Don Hammond, suffer a heart attack at his Treasury desk. On May 1, after serving seven months under Presidents Bush and Obama, he resigned.

Within a week, Kashkari and his wife put their belongings into “indefinite storage.” They moved to a cabin near the Truckee River in Northern California. “Off the map,” he told his friends. He threw away his business cards, and made a list of the things he wanted to do:

1. build shed

2. chop wood

3. lose 20 pounds

4. help with Hank’s book

He called his four-step program “Washington detox.”

Now, six months later, he is almost done. He is nearly better, nearly free of Washington, D.C. Tonight, Kashkari is out walking his dogs on a mountain, listening for the coyotes that sometimes shadow him. The wind washes through the treetops. It sounds like rushing water. Kashkari pivots between two thick, rough trunks. His shaved head, his broad-brush eyebrows, his blackest-brown eyes — all turn sharply.

He opens his hands into the darkness:

“This makes $700 billion seem small.”

David Frum at National Post:

Here’s something I think about a lot. Suppose somebody had tossed a copy of Milton Friedman’s and Anna Schwartz’s Monetary History of the United States into a time machine addressed to Herbert Hoover in October 1929. Suppose Hoover had absorbed every lesson and executed the wisdom of hindsight perfectly. The United States would still have plunged into the nastiest recession of the century in 1930-31 – and Hoover would almost certainly have lost re-election. He’d be remembered now as a failure and loser, like George H.W. Bush, with only a few revisionist academics to defend him as maybe not quite so bad as all that.

And then the U.S. economy and the world would have recovered. The explosive growth of 1935 and 1936 would have arrived earlier, maybe even 1932 and 1933. No collapse of the world economy. No Hitler. No World War II. And nobody would ever have known what lay behind that unopened door.

Another century, another crisis. This time, federal authorities followed the playbooks left behind by Friedman and John Maynard Keynes. Did they do right? To a country struggling with 10% unemployment and then in time massive debts and deficits, it sure does not feel that way. And yet … civilization has not tumbled off the edge. The job situation has ceased to deterioriate. Recovery is perceptibly beginning.

Does that mean they did the right thing? Who knows? The economists will argue over it for decades to come without resolution.

It was crazy that one young banker was ever given the power and responsibility thrust upon Kashkari. No wonder he cracked. As for the rest of us: the door we did not open will not disclose its secret. But we can at least say that Kashkari earned his vacation.

Rod Dreher:

I hope Kashkari will write a book about his experience — not an economic book, but a book about life and how to live it. Such admirable courage, doing a radical thing like he’s done, to save himself. How many more of us lack the guts to take such a cure?

Jason Linkins at Huffington Post:

Now, see here! Kashkari needs to go into the woods. He needs to build this shed. Because people in Congress were mean to him, with their questions, and their hearings, and their two-facedness and their hostility. It wasn’t like Wall Street, at all. There, the world is filled with rainbow smiles, and the bears you must dodge don’t leave actual poop on the ground. Washington was just too much for a man who “fell in love” with the city during the Iran-contra hearings (?!?), and decided that it was a “glamorous” (?!?) place.

Again: he concluded that Washington, DC was glamorous, based upon the Iran-contra hearings. And now?

In the taxi, Kashkari rides past the Washington Monument and the White House. “I’m so happy not to live here,” he says. “Zero longing.” He doesn’t see anything out the window that he misses, except maybe Chipotle.Chipotle. MAYBE. O, District of Columbia! Will you ever be able to live with yourself, for what you did to this man?

Jessica Pressler at New York Magazine:

It’s a pretty terrifying story, not just because it drives home the fact that there are no real adults, that the people in charge of the big important stuff are only humans like the rest of us — as much as they would like us to believe differently — and like any of us, under pressure they are utterly susceptible to losing their minds. But what’s really scary is that so far, Kashkari is the only person who’s actually admitted it.

This was a few days ago. And now..

Bess Levin at Dealbreaker:

Earlier today we discussed Neel Kashkari’s weight problem (he’s determined to lose the 20 pounds he gained while working for the Treasury). We thought it seemed a bit extreme that he would, by his own admission, skip dinner many nights in order to reach his target, but now it’s all become clear. He’s on a deadline to look good in a bathing suit, having taken a gig with PIMCO in Newport Beach.

Joe Weisenthal at Clusterstock:

Paul Kedrosky gets it exactly right*:

Fingeeks — Question: Why did PIMCO hire Neel Kashkari? Answer: With his two-year probation over they decided to make a formal offer.

*After making the firm billions in recent years, he’s finally joining officially.

Felix Salmon, here and here. Salmon:

Pimco seems to be establishing itself as a key part of the revolving-door structure in contemporary finance: if you’re a senior government bureaucrat making decisions affecting the financial industry, there’s a good chance that if and when you leave there’ll be a job waiting for you in sunny southern California. It’s win-win for everybody: technocrats will tend to treat the financial industry with kid gloves when they’re in power, so as to maximize their chances of getting a good job upon their exit, while the likes of Pimco “make billions” as a result of doing so.

Who, in this clubby world, will stand up for the rest of us? Is there any way to prevent civil servants from parlaying their experience into seven-figure salaries in the private sector once they leave government? The short answers, of course, are no one, and no. If Pimco feels no compunction about hiring the likes of Greenspan and Kashkari today, it’s certainly not going to stop doing so tomorrow.

UPDATE: Will at The League

In A Hotel Room In Russia, Yakking With Your Buddies

Andrew Ross Sorkin in NYT, an excerpt from his new book. The Vanity Fair excerpt.

Felix Salmon:

Take it away, Andrew:

“When Paulson learned that Goldman’s board would be in Moscow at the same time as him, he had [Treasury chief of staff] Jim Wilkinson organize a meeting with them. Nothing formal, purely social — for old times’ sake.

For fuck’s sake! Wilkinson thought. He and Treasury had had enough trouble trying to fend off all the Goldman Sachs conspiracy theories constantly being bandied about in Washington and on Wall Street. A private meeting with its board? In Moscow?

For the nearly two years that Paulson had been Treasury secretary he had not met privately with the board of any company, except for briefly dropping by a cocktail party that Larry Fink’s BlackRock was holding for its directors at the Emirates Palace Hotel in Abu Dhabi in June.

Anxious about the prospect of such a meeting, Wilkinson called to get approval from Treasury’s general counsel. Bob Hoyt, who wasn’t enamored of the “optics” of such a meeting, said that as long as it remained a “social event,” it wouldn’t run afoul of the ethics guidelines.

Still, Wilkinson had told [Goldman chief of staff John] Rogers, “Let’s keep this quiet,” as the two coordinated the details. They agreed that Goldman’s directors would join him in his hotel suite following their dinner with Gorbachev. Paulson would not record the “social event” on his official calendar…

“Come on in,” a buoyant Paulson said as he greeted everyone, shaking hands and giving bear hugs to some.

For the next hour, Paulson regaled his old friends with stories about his time in Treasury and his prognostications about the economy. They questioned him about the possibility of another bank blowing up, like Lehman, and he talked about the need for the government to have the power to wind down troubled firms, offering a preview of his upcoming speech.”

How on earth did Paulson think this was OK? Goldman Sachs was a hugely powerful for-profit investment bank, and there he is, giving private chapter and verse on his opinions about the US and global economy, talking about internal Treasury matters, and previewing an upcoming (and surely market-moving) speech. All in secret, at a “social event” which somehow got kept off his official calendar. Oh, yes, and one other thing — the whole shebang took place in the Moscow Marriott Grand Hotel, in the context of Goldman directors joking about how all the Moscow hotels were surely bugged.

This is sleazy in the extreme, and will only serve to heighten suspicions that Paulson’s Treasury was rigging the game in favor of Goldman all along. (It’s also a bit peculiar, to say the least, that the only two times Paulson met with private-sector boards he was out of the country, and arguably outside US jurisdiction.)

Paulson didn’t have this meeting out of fear or necessity: in fact, he told the directors that although there might be tough times ahead, “I think we may come out of this by year’s end.” (Blankfein was skeptical.) There was nothing in the way of extenuating circumstances which could possibly justify the secret rendezvous. This is definitely a situation where Wilkinson should have pushed back and said no way — but it’s hard to say no to Hank Paulson. Whose reputation has now taken yet another serious lurch downwards.

John Carney at Clusterstock:

You might recall that trip to Russia. It was a disaster. Paulson had gone to encourage Russian investment in the US economy, which was rapidly sliding into a recession. He wound up just being mocked by Russian officials.

Bess Levin at Dealbreaker:

So Hank Paulson held secret meetings with Goldman in a hotel room in Russia and now we also find out, from Andrew Ross Sorkin’s new book, that matchmakers Paulson and Geither arranged a midnight meeting between Dick Fuld and Ken Lewis on Monday, July 21, 2008 to discuss the possibility of something going down between the two men’s firms. The rendez-vous took place after a dinner honoring the then Treasury Secretary, at which all of Wall Street’s CEO’s were assembled and one sort of gets the impression that maybe if Geithner had thought to talk Fuld/Lehman up to Lewis a little more (“he’s a grower, not a shower”), and told Fuld “for god’s sake, don’t look so desperate, play it cool,” the outcome might’ve been different. (It probably also would’ve required Richard to not be delusional about what he was trying to sell which, admittedly, TG couldn’t have helped.)

Naked Capitalism:

The Japanese tell their children, “You should hear one thing and understand ten.” Sorkin’s snippet reveals quite a lot.

It was obvious to even outsiders in the late stages of the unravelling of Lehman was that Fuld missed possible deals because he set his price targets too high. One of the cardinal rules of dealmaking is everything can be solved by price. He probably could have unloaded Neuberger Berman and limped along for a while. He could have sold a stake to the Koreans. Would these moves in August have rescued the firm? As an independent player, no, but a sale of all or part of the firm still would have been a better outcome, and realistic conversations might have led to a sale of more operations, and saved more jobs. Bear’s employees did get something for their stock holdings, and a minority kept their jobs. Now Bear did get a government backstop, but that was after the investment bank was clearly terminal.

But three things are striking about the Sorkin-provided details:

First, Fuld (and presumably the underlying business) was desperate as of early July. Sorkin has Fuld arranging for contacts to be made to possible buyers like Bank of America on a Saturday. Huh? He was clearly flailing about, yet not offering a price or deal terms commensurate with his obviously panicked state.

Second, Paulson and Geithner were aware of Fuld’s desperation. The Wall Street Journal reported earlier that Fuld was calling Paulson almost daily (and suggested Paulson was somewhat puzzled).

Free Exchange at The Economist

John Cook at The Gawker:

New York Times wunderkind Andrew Ross Sorkin was on CNBC twice today, promoting his new book, Too Big To Fail. Which is interesting, because CNBC tough-guy Charlie Gasparino is very, very angry at Sorkin over the book. Lawyers are involved.

For all his bluster, Gasparino can be a bit thin-skinned. His primary beef with Sorkin is over this passage from Too Big to Fail, in which Sorkin quotes Goldman Sachs CEO Lloyd Blankfein’s thoughts on Gasparino’s reporting:

“While the 53-year-old Goldman C.E.O. kept a television in his office, he was so disgusted with what he believed was CNBC’s Charlie Gasparino’s “rumor-mongering” that he had turned it off in protest. “That’s not my thing,” he told [Morgan Stanley CEO John] Mack. “I don’t do TV.””

Do not call Charlie Gasparino a rumor-monger, or quote someone else doing so. He doesn’t like it! Especially when it appears not to be true: According to Business Insider, a Goldman Sachs spokeswoman confirmed the anecdote about Blankfein turning off CNBC, but said “‘rumor-mongering’ is not a direct quote.”

Gasparino was so broken up about the alleged misquote that he had his lawyer send letters to Sorkin’s publisher Viking and to Vanity Fair, which reprinted the anecdote in an excerpt this month, demanding corrections. When we heard that Sorkin was going to be on Gasparino’s turf twice today, we gave him a call to see what he thought about that.

UPDATE: Megan McArdle

There’s A Lot To Say About Goldman Sachs And Everybody’s Saying It

The infamous Matt Taibbi piece in Rolling Stone.

Goldman Sachs returns volley (via NY Post):

The bank’s spokesman, Lucas Van Praag, was more pointed: “[Taibbi’s] story is an hysterical compilation of conspiracy theories,” he wrote in an e-mail. “Notable ones missing are Goldman Sachs as the third shooter [in John F. Kennedy’s assassination] and faking the first lunar landing.”

“We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance in being a force for good,” Van Praag added.

And via Felix Salmon:

Having read your piece about Matt Taibbi’s article in Rolling Stone, I wanted to set the record straight, particularly about “regulatory capture”.

Background: Under the Commodity Exchange Act, the CFTC (for agricultural futures) or exchanges (for energy/metals futures) established speculative position limits. As much as anything else, the limits are intended to prevent market imbalances that would result in failures of the ultimate settlement of the futures contracts.

The CFTC rules exempt “bona fide hedging” transactions from these spec limits. A bona fide hedging transaction was originally understood to be an actual producer/consumer who was selling or buying the underlying commodity and wanted to hedge risk of the price moving up or down. In 1991, J. Aron wanted to enter into one of its first commodity index swap transactions with a pension fund. In order to hedge our exposure on the swap, we wanted to buy futures on the commodities in the index. We applied to the CFTC for exemption from position limits on the theory that even if we weren’t buying the commodity, we had offsetting exposure (in our swap) that put us in a balanced/price neutral position. The CFTC agreed with our argument and granted exemption. By the way, each of the then Commissioners signed off, so it was hardly a secret…

The CFTC published a report in August 2008, indicating that there were few instances when entities would have exceeded spec limits, had they applied to OTC positions.

Yesterday, as you probably know, the Senate Permanent Sub-Committee on Investigations issued a report on wheat futures in which they concluded that divergence between prices for actual wheat v. wheat futures is being caused solely by index investment. The Committee’s recommendation is that hedge exemptions which support indices should be phased out.

Not quite so recently, the elimination of Glass Steagall doesn’t exactly provide a robust argument for regulatory capture. And Taibbi’s bubble case doesn’t stand up to serious scrutiny either. To give just two examples, even with the worst will in the world, the blame for creating the internet bubble cannot credibly be laid at our door, and we could hardly be described as having been a major player in the mortgage market, unlike so many of our current and former competitors.

Taibbi’s article is a compilation of just about every conspiracy theory ever dreamed up about Goldman Sachs, but what real substance is there to support the theories?

We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance of being a force for good.

Taibbi responds:

I’m aware that some people feel that it’s a journalist’s responsibility to “give both sides of the story” and be “even-handed” and “objective.” A person who believes that will naturally find serious flaws with any article like the one I wrote about Goldman. I personally don’t subscribe to that point of view. My feeling is that companies like Goldman Sachs have a virtual monopoly on mainstream-news public relations; for every one reporter  like me, or like far more knowledgeable critics like Tyler Durden, there are a thousand hacks out there willing to pimp Goldman’s viewpoint on things in the front pages and ledes of the major news organizations. And there are probably another thousand poor working stiffs who are nudged into pushing the Goldman party line by their editors and superiors (how many political reporters with no experience reporting on financial issues have swallowed whole the news cliche about Goldman being the “smart guys” on Wall Street? A lot, for sure).

Goldman has its alumni pushing its views from the pulpit of the U.S. Treasury, the NYSE, the World Bank, and numerous other important posts; it also has former players fronting major TV shows. They have the ear of the president if they want it. Given all of this, I personally think it’s absurd to talk about the need for “balance” in every single magazine and news article. I understand that some people feel differently, but that’s my take on things.

Andrew Ross Sorkin documents the fight. Joe Weisenthal at Clusterstock fisks the article.

Megan McArdle

Taibbi is a gifted narrative journalist, whose verbal talents I greatly admire.  But financial meltdowns don’t offer villains, for the simple reason that no one person or even one group is powerful enough to take down a whole system.  Confronted with this, Taibbi doesn’t back away from the narrative form, or apply it to smaller questions where it is more appropriate, as William Cohan did in House of Cards.  Instead, he grabs whoever’s nearest to hand and builds them up into a gigantic straw villian, which he proceeds to bash with a handful of recently acquired technical terms that he clearly doesn’t quite understand.  It’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.

Barry Ritholtz on McArdle’s assertion that there aren’t any villains:

Um, Megan, I am going to have to beg to differ with you. There were many, many identifiable villains who through their own action and inaction, helped create the crisis. There were people who remained slavishly  devoted to an outmoded and disproven ideology, which led them to decisions that were indefendable. Some people engaged in utter recklessness when it came to risk management, or such gross irresponsibility that they are not merely morally culpable, but legally also. Then there are those regulators who gave the corporate interests they supervised pretty much everything they asked for.  And of course, the people simply trying to grab a free lunch contributed mightily to the collapse.

I have 322 well researched pages that shows as much.

Goldman Sachs was but one of the 5 biggest investment banks that requested from the SEC, and received, an exemption from the net cap rules. This allowed their leverage to balloon from 12-to-1 to as much as 40-to-1.

As a nation, we need to stop pretending this is “too complicated” and start holding the responsible parties accountable . . .

McArdle responds:

There are plenty of villains around, but no group small enough to be assigned any meaningful measure of responsibility for the financial crisis.  Imagine that Goldman Sachs had, say, gone under in the 1998 financial crisis.  Imagine that Clinton or Bush had appointed someone else to the SEC from the universe of politically possible candidates.  Imagine that Suze Orman had started talking down homeownership in 2003 rather than touting it as a fabulous way to build your net worth.  What would be different now?  Nothing of any importance, as far as I can tell.

You can point to many people–thousands of bankers, tens of thousands of realtors and mortgage brokers, millions of homebuyers–who did things I really wish they hadn’t, blinded by greed and wishful thinking and arrogance.  But when the action of any one person, or firm, requires millions of counterparties taking their own stupid risks, I don’t see how you can really name them the villains of the piece.

This will not, of course, please anyone who wants me to tell them how and why we should get the bankers.  For them, the important thing is the conclusion; since we already know it, it is a trivial matter to assemble whatever evidence might help us get the bankers.    And since I am not providing them with convenient reasons to get the bankers, it therefore follows that I must be a paid hack protecting my corporate masters.

Meanwhile, Goldman blogging continues apace. Tyler Durden on Zero Hedge on Goldman 360

One second: by using Goldman 360 a client voluntarily allows Goldman to provide keystroke by keystroke data of everything the client does, even if that includes launching trades via REDI, to Goldman for the internal business purposes? The third thing everyone on Wall Street agrees on is that “internal business purposes” usually (and in Goldman’s case, almost exclusively) means proprietary trading.

Are Goldman 360 clients (in)voluntarily signing off a release to be front ran by Goldman on any portal-based trade? Could Goldman please clarify just what “internal business purposes” means in the context of this overarching disclaimer, and also whether Goldman has ever actually used 360 submitted information in the decision making process of its prop trading desk? Lucas Van Pragg: the floor is yours.

Update: several readers have presented some other Goldman Sachs and Spear, Leeds and Kellogg form documents that contain an even more crypitc warning in section 4(f) in Use Of Services:

You acknowledge that we may monitor your use of the Services for our own purposes (and not for your benefit). We may use the resulting information for internal business purposes or in accordance with the rules of any applicable regulatory or self-regulatory body and in compliance with applicable law and regulation.NOT FOR YOUR BENEFIT? I mean, come on, how more clearer does it need to get.

And today, Sydney Williams at Seeking Alpha:

Here we are once again, on the eve of another record earnings report by Goldman Sachs. Are we back to the old days, or on to something new and different?

We can safely agree that the banking crisis is officially over, as this writer and others have recently argued. Whatever we may draw from the Treasury Department and Federal Reserve’s methods, they’ve worked. Confidence is restored, at least enough to allow market-savvy traders to place the kind of aggressive bets that can reap windfalls for bank profits.

Seeking Alpha:

Meredith Whitney, the well-known banking analyst, upgraded her outlook on Goldman Sachs this morning, resulting in the market as a whole making some gains.

We have to give Ms. Whitney her due. After all, she was one of the first to call attention to the problems at Citigroup and other banks, the weakness in the housing industry, and how these might affect the economy as a whole.

However, we think the market’s reaction to Whitney’s comment highlights a serious problem in our nation. Investors today pay far too much attention to quarterly (if not daily) results, and not enough to the long-term picture.

Glenn Greenwald

UPDATE: Kevin Drum has two opinions of the Tiabbi piece. Here:

POSTSCRIPT: Someone also asked Ezra about Matt Taibbi’s takedown of Goldman Sachs in the latest issue of Rolling Stone.  I finally got around to reading it the other day, and my verdict is simple: it was terrible.  Taibbi wrote a terrific article about AIG a couple of months ago, but the Goldman piece was just phoned in, a long series of blustery assertions with essentially nothing to back up any of them.  If he wants to claim that Goldman was the wizard behind the curtain of everything from the dotcom boom to last year’s oil spike, he really needs to produce some evidence for it instead of just saying so.

POSTSCRIPT 2: I just learned that Rolling Stone didn’t actually post Taibbi’s article.  They only posted a set of excerpts, which is why the online version reads like a long series of blustery assertions with essentially nothing to back up any of them.  Unfortunately, unless you read the intro very carefully, it’s not clear that these are merely excerpts.  Instead, it just seems like a very badly written article.

So: I retract what I said for now.  I still suspect that Taibbi is considerably overstating things, trying to construct a dramatic narrative by blaming Goldman for things that are actually sins of the investment community as a whole, but I won’t know for sure until I read the entire piece.

And here:

Well, I’ve now the read the entire piece, and I apologize.  (To Taibbi, that is, not the morons at Rolling Stone, who should have either posted the whole thing or done nothing at all.)  It’s a very good takedown of the modern financial industry and well worth reading.  There are some bits here and there that I’m not sure Taibbi gets quite right, and I do think that he made a mistake in casting Goldman Sachs as the “engineer” of every bubble in the past century rather than merely an unusually big and enthusiastic member of a predatory gang that’s been ripping us off for a long time.  This gives the piece a conspiratorial air that allows Goldman to laugh it off instead of being forced to engage with it, and that’s too bad.  They — and everyone else on Wall Street — should be forced to engage with it.

Beyond that, there are undoubtedly some mistakes in the piece, as well as places where Taibbi goes unnecessarily over the top.  I’m still not sold on carbon permits being the next big bubble, for example.  But those are quibbles.  Overall it’s a striking portait of an industry — not just a single company — of almost unbounded greed and recklessness.  Worth reading.

UPDATE #2: On those profits, Michelle Malkin

Charlie Gasparino in the Daily Beast

UPDATE #3: Arianna Huffington

Pretty much Matt Taibbi’s entire blog, but here’s two posts, here and here.

Ezra Klein

Kevin Drum

Jon Stewart

UPDATE #4: Stephen Gandel at Time

UPDATE #5: More Charlie Gasparino in the Daily Beast

UPDATE #6: Dean Starkman at CJR on Taibbi

Ezra Klein on the Starkman piece

Kevin Drum on the Starkman piece

UPDATE #7: William D. Cohan in Time:

“A recent story in Rolling Stone, of all places, in which the author described Goldman as a “great vampire squid wrapped around the face of humanity,” has been particularly troubling to him. “Oddly enough, the Rolling Stone article tapped into something,” he says in an interview. “I saw it as gonzo, over-the-top writing that some people might find fun to read. I was shocked that others saw it as being supporting evidence that Goldman Sachs had burned down the Reichstag, shot the Archduke Ferdinand and fired on Fort Sumter.” Suddenly a firm that few Americans know or understand has become part of the zeitgeist, the symbol of irresponsible Wall Street excess, the recovery from which has pushed the nation’s treasury to the brink. (See 25 people to blame for the financial crisis.)

It’s an odd contradiction: an excelling company being reviled in a country that embraces the profit motive. And without question, Goldman Sachs under Blankfein has recalibrated, in very large numbers, its place as Wall Street’s most astute, most opaque and most influential firm. In the first and second quarters of 2009, the company earned $5.3 billion in net income, the most profitable six-month stretch in Goldman’s history. Goldman’s stock has more than tripled since its low last November, to more than $160 per share.

The U.S. unemployment rate has risen too, nearing 10%. In stark contrast, Goldman Sachs has set aside some $11.36 billion so far in 2009 in total compensation and benefits for its 29,400 employees. That’s about on pace with the record payout the firm made in 2007, at the height of the bubble. Thanks to Andrew Cuomo, the New York State attorney general, we know that in 2008, while Goldman earned $2.3 billion for the year, it paid out $4.82 billion in bonuses, giving 953 employees at least $1 million each and 78 executives $5 million or more (although Goldman’s top five officers, including Blankfein, declined a bonus).

Goldman’s riches have deflected the spotlight from what should be great story fodder: Blankfein’s personal journey from one of New York City’s poorest neighborhoods to its most élite investment bank — and his astounding rise within Goldman. Instead, he has to explain Goldman’s performance — and connections — in the face of the nation’s epic financial calamity.”

Lawerence Delevingne at Clusterstock:

Somewhere, Matt Taibbi is smiling. There’s something validating about being dismissed by the top dog himself.

Bess Levin at Dealbreaker

New York Magazine:

You’re right, William. It is a crime that the American people have wasted so much time asking questions in an attempt to figure out whether the people controlling all the money in our pension plans and bank accounts are trustworthy and will not completely fuck up the system again and then run into their barricaded second and third homes with their gold bars, leaving the rest of use mewling and starving in the streets. We’re sorry, how selfish of us. Do tell us about Lloyd’s “personal journey.”

Charlie Gasparino in Daily Beast:

Paranoia might not be too strong a word to describe the mind-set. People inside Goldman tell me that some senior executives say they believe the onslaught of negative stories detailing Goldman’s manifold ties to upper levels of government, charges that it somehow fraudulently profited from the subprime crisis, and now the press about the firm’s record earnings is so out of proportion to reality that the coverage contains an element of anti-Semitism—subtly playing off the racist myth of a conspiracy of Jewish bankers controlling the world for their own benefit. (Goldman was founded by a Jewish immigrant, and after years of being run by Gentiles Jon Corzine and Hank Paulson, is once again run by a Jew, Lloyd Blankfein.)

Blankfein, I am told, isn’t paranoid but really concerned about being placed in an untenable position for any CEO who needs to retain talent. If he doesn’t pay his people, many will simply jump ship to other firms—including private-equity firms—that will. If he does, he faces endless negative coverage about how Goldman is making its partners rich at the expense of taxpayers who bailed out the firm last year.

This quandary has resulted in some very serious discussions at Goldman to attempt to spin the bonus issue in the best possible (or least damaging) way. The Daily Beast has learned that Goldman is considering “a menu” of options: One possibility is to pay the vast majority of the bonus in stock. On Wall Street, executives receive a combination of stock and cash, with the cash portion comprising 65 percent of the total bonus. Goldman may just flip that around.

John Cook at Gawker:

Goldman Sachs is taking the whole “bloodsucking squidmonster” thing pretty seriously. CEO Lloyd Blankfein is losing sleep over how to pay out $11 billion in taxpayer financed bonuses without catching hell from anti-Semites like everybody. Heavy weighs the crown.

CNBC’s Charlie Gasparino reports in the Daily Beast that Blankfein is “obsessed” with the hits that Goldman’s image has taken after getting a $10 billion capital injection from taxpayers and $13 billion out of the AIG bailout. He’s “looks like shit” because he’s so worried about what’s going to happen in bonus season, when he has to distribute that $11 billion bonus reserve. He’s looking for a “brand manager” to rescue the firm’s image, and Goldman insiders say that anyone who’s royally pissed off that Goldman is simply harvesting taxpayer money as profits and handing it out to its obscenely wealthy (and occasionally pedophilic) employees in the form of bonuses really just hates Jews

Bess Levin at Dealbreaker:

Two things are troubling in Charlie Gasparino’s latest story on Goldman Sachs, which has apparently been freaking out over how it’s going to manage the 85 Broad haters come bonus season, when Lloyd Blankfein is expected to make it rain golden showers. The first is that you might get the mistaken impression Chaz is an anti-Semite. This could not be further from the truth. Charlie loves Jews. Some of his best friends are Macabis and since I’ve known him he always takes the time to inquire “how the dreidel spinnin’s goin’, Heeb girl” come December. So please, people e-mailing us, get off CG’s ass for the description of current Goldman management below.

UPDATE #8: Dave at The League on Taibbi