The Global Bubble Downfall and Goldman Sachs

Matt Taibbi’s article “The Great American Bubble Machine” begins with his introduction claiming that Goldman Sachs is everywhere. The article begins with the approach and scare as the investment firm, Goldman Sachs, was one of the recipients of the American Recovery and Reinvestment Plan of 2009. It caught my attention in the first paragraph.

Taibbi’s article begins with lots so pure speculations stating that the head of NYSE, former secretaries of state, one CEO from Merrill Lynch, the head of the Wachovia Bank, a couple of state officials appointed by “Dubya” (George W. Bush) during his presidency, and the heads of the Canadian and Italian banks, and the last two heads of the Federal Reserve Bank of New York. It is quite an impressive resume for any individual wanting to catapult to the top. Goldman Sachs lifespan is broken up into what the author refers to as bubbles, of time frames. The first bubble is the Great Depression, followed by Tech Stocks, the housing craze, the oil bubble, rigging of the US bailout, and coming soon to a bank near you, the global warming bubble.
The bank was founded in 1869 by a German immigrant’s Marcus Goldman and Samuel Sachs. They made a substantial profit by “lending out short-term IOUs to smalltime vendors in downtown Manhattan” (Taibbi). During the time frame of the 1920’s, it got into investments trusts.
In modern times, this would be called mutual funds. According to Taibbi’s article, Goldman Sachs exercised its information power because securities purchased and amounts were not released to the public.
The company’s first effort would issue a million shares at $ 100 dollars a share. They bought the shares back with their own money, and then proceeded to sell them to the public at $ 104. 900,000 shares immediately became 3.6 million dollars. Then they did it again, but this time they were bidding the price up continuously.
The company would spurn two other investment firms. Each of the two newer investment firms would be a front of the previous as roughly 90% of the shares were owned by its predecessor. This action reflects the Pyramid Shaped Structure of an organization. In this case, Goldman Sachs sits at the top owning Shenandoah Corporation, which owned Blue Ridge. It is likely that in this fashion, because there was no way to have an objective and fair way of judging any performance. Goldman Sachs controlled the information power.
Ultimately through this structure, Goldman Sachs was able to borrow money, with borrowed money, and borrowed money. It appears that if anyone had told Ken Lay and Jeffrey Skilling about this story, George Walker Bush wouldn’t have put his support behind Enron in its hay-day.
The Tech Stock Bubble 2 occurred during the 1970’s-1980. Surprisingly enough, Goldman Sachs had rebranded itself through time as an honest and trustworthy corporation who paid attention to all its stakeholders. The integrity of the company ran as far as them giving money to ‘grownup’ corporate clients who had made bad deals with us” (Taibbi). Through these actions, Goldman Sachs was able to build a community with silent victories, and respecting their “grownup” clients. Their actions gave the company reputable corporate social responsibility.
Per Taibbi, there was no specific time when this culture began to delude into what was about to transpire. It was right round the time a Goldman Sachs co-chair, Robert Rubin, followed Bill Clinton into the White House. That would sound like a conflict of interest. This is almost as bad as former VP Dick Cheney, being the CEO of Halliburton and that situation.
In this bubble, the banks fluffed the idea of IPOS. The banks made IPOS seem better than what they ever possible could be. Goldman abandoned its own standards of quality control. This allowed them capitalize on charges in the regulatory environment, while investors like “Joe the Investor” went chasing the dream of becoming rich. Wall Street had strict underwriting guidelines for trade. It had to be in business for a minimum of five years, and had to show profitability for three consecutive years.
Goldman then had their analysts out there telling investor’s that IPO’s were worth $ 100, when they the author alleges they knew the stock was not worth much at all. Everyone knew rules had changed, but everyone on the inside failed to inform the investors who lost millions.
Goldman Sachs used what was called “laddering”. They would sell price cheap to investors with a promise of buying more when they actually went public. That is a guarantee that stock would be bought @ X dollars. That would ensure profit down the road.
They also used spinning, which in layman’s terms amounts bribery. The company would offer extra low prices on share, for a promise of future underwriting business.
5 trillions dollars worth of wealth were lost in this fashion. What Goldman learned in this phase was that bubbles are easy to inflate, and don’t deflate as easy, or quick enough to not make a profit.
The housing craze is the 3rd bubble. Goldman sold house to anyone who had a first and last name. They lowered their standards of credit, verifiable income, and possess 10% down payment for the house. Since they were able to sell notes to everyone who wanted one, they packaged these mortgages into what became Collateralized Debt Obligations. They packaged good and bad deals into them. They used methods to hide what they were selling.
Since many of the mortgages would turn out ok, the bad ones attached wouldn’t affect these “obligations”. Then they secured themselves by getting insurance, in the event these failed. So they stole money to begin with, and when they were done they took our money too. If I wasn’t an upset taxpayer, I’d think it was a stroke of brilliance.
The 4th bubble is one not many people know Goldman Sachs had anything to do with, oil. Once again, in true Goldman Sachs fashion, it went after this commodity by having investors agree to purchase oil at a certain price on a fixed date.
It was argued that the four dollars a gallon had to do with demand, but demand had actually decreased during this time frame. In 2008, an average barrel of oil was traded 27 times before it was actually delivered and consumed.
Congress realized in 1936 that more speculators in the market would affect prices artificially. This is called the Commodity Futures Trading Commission. It worked for more than 50 years. This was designed to protect people who were actually buy and selling commodities, not paper trails. Somehow, Goldman got a free pass and was given a Bona Fide Hedging exemption which allowed them to bypass all these regulations. 21 other exemptions like this were passed in the months that followed.
Even at the end, when demand was low, the price of oil has doubled this year, and is looking to climb more. During those times, when I had to go into my overdraft to fill up, I realize now that it wasn’t a third world country that made me pay more, but our own people who can’t see further than the dollar.
The fifth bubble is the American Recovery and Reinvestment Act of 2009. The first significant thing that happened was that then-secretary Paulson let Lehman Brothers fall. The last competitor Goldman faced. The next day, Paulson gave AIG a bailout of 85 million dollars. It repaid Goldman 13 million dollars.
Goldman made money selling bad commodities and bad mortgages, and then takes our money to fatten their pockets. It is truly enlightening, how unorganized we are. How does Goldman pay back this bailout? Well, it paid back 10 million in taxes, because essentially it off-shores certain thing. To show the power of Goldman, before the stress tests were released, Goldman did what it had to do to not be affected by the results.
The new bubble for this day and age will be carbon credits. It is called cap and trade, disguised as an environmental plan, and is non-existent. It’s a repeat of the commodities market. If and when it gets approved, Goldman won’t have to do much, because the rise in price will be government mandated.
The projected volume will be 3 trillion dollars. This allows Goldman to collect taxpayer money before I ask for an extension to pay my taxes.
Goldman Sachs has orchestrated every catastrophe in this country because of short term greed. Whether by deliberate design or not, Goldman Sachs has positioned themselves in high Government places. Everything they have done is either illegal or ethically immoral. What does Goldman Sachs do if the there is conflict of interest; its representative gets a waiver or a pass to do whatever they want.
Why doesn’t anyone do anything? They are basically stealing people’s lives away, with their accounting tactics. I never understand why regulating and deregulating was so important. I do now, and I believe the government must do more to regulate, oh wait a second, Goldman Sachs will merely come up with amendments that are higher than the constitution. Will anyone ever have the political courage to stop these thieves? I think not; however, I will invest in cap and trade of carbon credits and sell quickly. I might get lucky.