Vampire Squid in Griftopia
Investment banking giant Goldman Sachs was once Wall Street’s gold standard for sound financial foresight. In the wake of the 2008 financial crisis the company emerged as an even more powerful force in the American economy, but not without being exposed as a greedy manipulator of the federal government by Matt Taibbi, author of the book Griftopia, and other journalists. This map looks at Goldman’s enormous wealth and its influence over the life of every American.
In the final chapter of Griftopia: Bubble Machines, Vampire Squids and the Long Con That Is Breaking America, a muckraking chronicle of the American financial sector’s recent and ongoing pillage of the American economy, Rolling Stone reporter Matt Taibbi recalls the abuse heaped upon him from all corners of the financial media following publication of his original magazine article about investment bank Goldman Sachs. As a financial-world outsider, he learned, “you’re not allowed to just kick the rich in the balls.”
Taibbi’s tone in Griftopia is irreverent, profane, angry. He calls Goldman Sachs “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” Counting up the men who have gone on from Goldman to high positions in government, he laments, “Any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything.” For Taibbi, the public’s ignorance of or indifference to the many favors the government did for Goldman as the firm contributed to and profited from the 2008 financial crisis enabled the transformation of America into “a thieves’ paradise—a Griftopia.”
In the 1990s the term “Rubinomics” was synonymous with economic growth, prosperity and the fostering of innovation. Robert Rubin was a former trader and cochairman of Goldman Sachs, and thus a Wall Street insider, when he took the helm of the American economy as President Bill Clinton’s treasury secretary. Unlike his predecessors in the Reagan and George H.W. Bush administrations, who favored lowering taxes, Rubin focused on free trade and deficit reduction to stimulate the economy. He also supported deregulation to create incentive for investment and expansion (as do proponents of Reaganomics). Rubin made a powerful case to deregulate derivatives—assets, including mortgage-backed securities, whose value derives from another asset. This deregulation led directly to the mortgage crisis of 2008.
Many economic thinkers now question the fundamental ideas and policies of Rubinomics. And Clinton, in a 2010 interview about his advisors’ resistance to regulating derivatives, said, “I think I was wrong to take [their advice].” The consequences, he admitted, were much bigger than any of them had foreseen: “So much money was involved that if they went bad, they could affect 100 percent of the investments, and indeed 100 percent of the citizens in countries, not investors.”
The grueling march of a political campaign may feel like a walk in the park after the snake pit of high-stakes scheming and power plays at Goldman. The investment bank has begun to seem like a grooming school for politicians, and its influence on American politics in the past two decades has not been limited to fiscal policy at the White House.
Jon Corzine is one battle-tested Goldman employee who went on to electoral politics after he was forced out of the bank five years after becoming its CEO. With no political experience, he won the election for U.S. senator from New Jersey. It was easy. All he had to do was spend $60 million of his own money. In 2005 he dipped into his accounts again, and $40 million later he was governor.
As CEO of Goldman Sachs in the mid- to late 1990s, Corzine led the bank’s transformation from a private firm to a public company, and he received a gigantic payout for his efforts. A former trader, he was forced out of leadership in a power struggle with members of the bank’s executive committee who had backgrounds as investment bankers, among them future treasury secretary Henry Paulson.
In On the Brink: Inside the Race to Stop the Collapse of the Global Financial System, Henry Paulson recalls the decision—made with his co-CEO Jon Corzine—to make Goldman Sachs a public company in 1999: “I worried about what it would mean to the culture and ethos of the firm to be a public company.”
Griftopia author Matt Taibbi argues that Goldman’s status as a publicly held company with a unique relationship to the government allowed the bank to stir up the conditions for the financial crisis and remain shielded from its harsh consequences. And because the partners were no longer playing the odds with their own money, they had no incentive to protect the bank’s assets from risk. Taibbi describes the 2008 meeting between Paulson, then U.S. treasury secretary, and Wall Street executives to determine how to prevent the collapse of the gargantuan insurance company AIG: “When the CEO of Goldman Sachs [Lloyd Blankfein] stood up…and demanded his money, he did so knowing that it was more profitable to put AIG to the torch than it was to try to work things out.… Blankfein and Goldman literally did a mob job on AIG, burning it to the ground.”
TARP (the Troubled Asset Relief Program) is the colossal bailout conceived by President George W. Bush’s treasury secretary Henry Paulson in September 2008. The trouble with many of the assets held by banks was that they were bundles of bad mortgages—given to homeowners who had been convinced to borrow far beyond their means and now were defaulting. The TARP bill, wildly unpopular on both sides of the political aisle, authorized the White House to purchase $700 billion worth of these assets from banks and other companies on the verge of collapse.
In his memoir, On the Brink, Paulson describes the balancing act required to secure the votes needed to pass TARP. “We faced a real dilemma,” he recalls. “To get Congress to act we needed to make dire predictions about what would happen to the economy if they didn’t give us the authorities we wanted. But doing so could backfire. Frightened consumers might stop spending and start saving, which was the last thing we needed right then.” In the end, the former investment banker was the perfect pitchman for TARP, as he convinced Congress to consider the risks, ignore them and then hand over an unprecedented amount of cash.
According to Matt Taibbi in Griftopia, the 2008 financial crisis and the subsequent government bailout known as TARP allowed corrupt political influence to override the supposed fairness of the capitalist system. What emerged was “a system in which mergers and bankruptcies were brokered not by the market, but by government officials like Paulson...and prices of assets were determined not by what investors were willing to pay, but by the level of political influence of the company’s leaders.” This put politically connected firms like Goldman Sachs in a prime position to profit from the nation’s misery.
Taibbi contends the real tragedy is that huge sums of money went to giant investment banks, companies that mostly pay shareholders and employees, rather than to businesses that contribute more directly to the economy. When TARP rescued the banks, he explains, and “no good jobs were created and nothing except a few now-empty houses (good for nothing except depressing future home prices) got built, the final result is that we all ended up picking up the tab, subsidizing all this crime and dishonesty and pessimism as a matter of national policy.”
There is no central villain in Griftopia. Author Matt Taibbi invokes a long list of financial evildoers across both parties. But amid all the schemers and bullies one name keeps popping up: Robert Rubin.
As cochairman of Goldman Sachs, president Clinton’s treasury secretary and then top executive of the massively bailed-out Citigroup, Rubin set the conditions for—and reaped the rewards of—the transformed American economy that plummeted into the 2008 crisis and accompanying recession. The consequences of Rubin’s relaxing the rules for Wall Street during the Clinton administration meant the structure of some financial derivatives could become so complex that it was nearly impossible to find out how prices were determined—and the financial industry was able to abandon quality control. Taibbi cites Rubin’s “complete and total inattention to and failure to regulate Wall Street during Goldman’s first mad dash for obscene short-term profits, in the Internet years.”
In the wake of the 2008 crisis, Rubin, sitting on a vast fortune amassed during the period of low regulation, seemed to rethink some of his formerly fundamental ideas. In a 2010 interview Rubin asserted that President Obama was “right to issue his executive order for regulatory reform.”
In spring 2009, just half a year after Goldman Sachs CEO Lloyd Blankfein helped pressure the U.S. government to bail out the American financial industry, the company announced it was repaying $10 billion in TARP funds. After the bailout, Goldman’s stock price shot up despite the bank’s recent association with all those troubled-asset mortgages. Goldman was in a better financial position than it had been in its entire 140-year history.
It came to light in spring 2011 that Goldman Sachs not only derived market confidence from the TARP loan—it made more than a billion dollars in profit, too. The information was disclosed in financial statements released by investment titan Warren Buffett, who had loaned $5 billion to Goldman during the financial crisis. Dean Baker wrote in Business Insider, “The Treasury boasted of getting a $1.1 billion profit on its loans to Goldman, but as Mr. Buffett showed, this was far below the market rate of interest on loans to Goldman at the time. The difference between the return received by Buffett and the return received by the Treasury was in effect a gift from taxpayers to the top executives at Goldman and their shareholders.”
Winner of the Oscar for best documentary in 2011, Charles Ferguson’s Inside Job takes an in-depth look at the 2008 financial crisis and the major players who damaged the economy and reaped great profit from the resulting turmoil. Narrator Matt Damon walks viewers through the process by which Goldman Sachs straddled both ends of the crisis simultaneously. In 2006, he explains, Goldman “didn’t just sell toxic CDOs,” the financial products called collateralized debt obligations that bundled together small slices of sure-to-fail mortgages, “it started actively betting against them at the same time it was telling customers they were high-quality investments.”
Ferguson’s film draws an increasingly alarming portrait of an economy controlled by men who make their decisions for short-term results and personal gain. At times he confronts them directly, his voice heard from behind the camera. In one interview Ferguson asks Scott Talbott, chief lobbyist for Financial Services Roundtable, to assess the performance of Wall Street’s boards of directors in determining executive compensation during the previous decade. “I would give about a B,” Talbott answers. Ferguson is incredulous: “A B?... Not an F.” Talbott appears nervous as he sticks to his guns.
Charles Ferguson’s movie Inside Job, which looks at the financial crisis that began with the collapse of Iceland’s economy and ends with Wall Street executives paying themselves huge bonuses after bringing down the U.S. economy, has contributed to a growing movement advocating accountability and reform. Ferguson, Griftopia author Matt Taibbi and others, like MSNBC’s Dylan Ratigan, remain incredulous about the outcome of the crisis. In an online interview with DemocracyNow, Taibbi says, “We have two and half million people in jail in this country, more than a million who are in jail for nonviolent crimes, and yet we couldn’t find a single person on Wall Street to do even a day in jail for losing 40 percent of the world’s wealth in a criminal fraud scheme?”
Ferguson had a similar reaction, as he told Peter Lattman of Dealbook: “I think it’s one of the most scandalous things about this entire affair, and it’s very much in contrast to the two previous periods we’ve had serious financial crisis.… There was at least some punishment for the worst excesses. I find it utterly implausible that all of this occurred without anybody committing a single criminal act.”