you got sached

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered."

-Thomas Jefferson

Goldman Sachs recently posted the biggest quarterly profits in its 140-year history. This might seem surprising given its competition has fallen:

“Goldman is essentially the last investment house standing,” said Matt McCormick, a banking analyst at Bahl and Gaynor Investment Counsel. “So they have the ability not only to attract and retain great employees, but they have the ability to attract and retain great clients."

This, and the economic crisis in general, is a characteristic of capitalism itself, one that Marx and Engels theorized over 160 years ago. Recessions are expected and typically are a consolidation of capital. The situation with Goldman Sachs is a bit different though. If you look at the complete picture, you'll see Goldman did not get lucky. Former Goldman employees are at the center of this, filling high government positions. This was a conjob engineered by Goldman Sachs, on the backs of the American people.

By now, most of us know the major players. As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup — which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the asshole chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multibilliondollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in goldenparachute payments as his bank was selfdestructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailedout insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York — which, incidentally, is now in charge of overseeing Goldman — not to mention …

Matt Taibbi explains how Goldman Sachs has done this before in The Great American Bubble Machine.

They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They've been pulling this same stunt over and over since the 1920s — and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.

The article explains how Goldman Sachs has been behind a number of bubbles since the Great Depression, including the early 2000 tech stock bubble, the housing crisis, and the oil crisis.

That summer, as the presidential campaign heated up, the accepted explanation for why gasoline had hit $4.11 a gallon was that there was a problem with the world oil supply. In a classic example of how Republicans and Democrats respond to crises by engaging in fierce exchanges of moronic irrelevancies, John McCain insisted that ending the moratorium on offshore drilling would be "very helpful in the short term," while Barack Obama in typical liberal-arts yuppie style argued that federal investment in hybrid cars was the way out.

But it was all a lie. While the global supply of oil will eventually dry up, the shortterm flow has actually been increasing. In the six months before prices spiked, according to the U.S. Energy Information Administration, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped from 86.82 million barrels a day to 86.07 million. Not only was the shortterm supply of oil rising, the demand for it was falling — which, in classic economic terms, should have brought prices at the pump down.

Page 6 of the article gets into recent history describing how Goldman managed to steal money from taxpayers directly with federal bailout money.

After the oil bubble collapsed last fall, there was no new bubble to keep things humming — this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.


By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs — and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.


Goldman's primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflictofinterest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bankholding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer.

The next bubble is just beginning, in the form of carbon credits, which are really a joke as far as helping the environment goes.

The new carboncredit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.

Ultimately this shows what a fairy tale the concept of a 'free market' is.
The collective message of all this — the AIG bailout, the swift approval for its bankholding conversion, the TARP funds — is that when it comes to Goldman Sachs, there isn't a free market at all.


And here's the real punch line. After playing an intimate role in four historic bubble catastrophes, after helping $5 trillion in wealth disappear from the NASDAQ, after pawning off thousands of toxic mortgages on pensioners and cities, after helping to drive the price of gas up to $4 a gallon and to push 100 million people around the world into hunger, after securing tens of billions of taxpayer dollars through a series of bailouts overseen by its former CEO, what did Goldman Sachs give back to the people of the United States in 2008?

Fourteen million dollars.

That is what the firm paid in taxes in 2008, an effective tax rate of exactly one, read it, one percent. The bank paid out $10 billion in compensation and benefits that same year and made a profit of more than $2 billion — yet it paid the Treasury less than a third of what it forked over to CEO Lloyd Blankfein, who made $42.9 million last year.

How is this possible? According to Goldman's annual report, the low taxes are due in large part to changes in the bank's "geographic earnings mix." In other words, the bank moved its money around so that most of its earnings took place in foreign countries with low tax rates. Thanks to our completely fucked corporate tax system, companies like Goldman can ship their revenues offshore and defer taxes on those revenues indefinitely, even while they claim deductions upfront on that same untaxed income. This is why any corporation with an at least occasionally sober accountant can usually find a way to zero out its taxes. A GAO report, in fact, found that between 1998 and 2005, roughly twothirds of all corporations operating in the U.S. paid no taxes at all.

What's interesting looking at Goldman Sachs and the recent economic crisis in general is how they fit into Marx's criticisms of capitalism. A recession is just part of the boom and bust cycle that is an integral part of capitalism. From The Meaning of Marxism:

As capitalism reaching the height of its boom phase, prices and wages start to go up in response to the increasing demand for labor and goods. Hungry for profits, capitalists borrow huge sums of money from banks and other lenders in order to get in on the profit bonanza, thereby taking on huge debts that they expect to pay off from windfall profits. Debt, in other words, helps prolong the boom by offering cheap money to investors; but it sets them up for bigger falls once the crisis hits, because it creates an intricate financial chain, that, if broken, threatens a financial crisis. (page 64)

Capitalism also naturally leads to monopolization as bigger companies buy up or drive smaller ones out of business. Not necessarily leading to smaller businesses disappearing, but becoming less significant. This happened in the late 1890s as companies monopolized to the point that they had to be broken up. The same can be seen today with conglomerates growing larger and having rising market shares. Recessions speed up this process as we can see today.

Each economic crisis accelerates the centralization and concentration of capital, the big fish eating the small fish (or the profitable fish eating the bankrupt fish).(page 65)

But this time around there was a twist Marx himself would have never seen coming. With its influence in government Goldman Sachs was able to eliminate its competition partially through policies beneficial to itself. Another question should be asked. Would this situation not had happened if there were no Goldman Sachs? I'd argue it still would. Goldman is smarter and better-connected than its competition, but is just a product of the system of greed that led to this crisis.

The true face of capitalism has shown itself through this latest crisis. If citizens really had a say in our 'democracy' would Goldman Sachs be able to get away with what they've done? Of course not. As should be clear by now, it doesn't matter if a republican or democrat is in the White House, now it is clear both these parties are simply parties of the super wealthy.

Democracy Now!: As Goldman Sachs Posts Record Profits, Matt Taibbi Probes Role of Investment Giant in US Financial Meltdown
Rolling Stone: The Great American Bubble Machine
Rolling Stone: Inside The Great American Bubble Machine
New York Times: With Big Profit, Goldman Sees Big Payday Ahead
MSNBC: Strong bank results mask wider weakness
The Meaning Of Marxism by Paul D'Amato


Max said...

Thanks for that information Jakub!

eurodiego said...

thanks max.

i also had a good discussion about this with, Andrew, an old high school friend of mine over facebook, so i'll repost it here. Robert, who I met in Dublin, joined our discussion, too.

Andrew: you can call it a capitalist system, sure. i prefer crony capitalism, or outright corporatist fascism (i.e., one of the premier features of national socialism), but don't call it a free market. you're correct when you say there is no free market... it's something that needs freeing.

also, the marx quotation is strikingly similar to austrian school economists' explanations on central banks causing bubbles. a central bank is perhaps the largest reason there is no such thing as a freed market.

you should really check deepcapture.com. even if it turns out to be complete bullshit someday, it's one of the most fascinating and insane stories of systemic malfeasance and conspiracy i've ever read.

Me: isn't all capitalism crony capitalism, or leads there? i agree its not a free market (why I used quotes), but I don't think a free market can survive under capitalism. what would regulate that the market really stays free? corporations don't take environmental impacts, for example, into consideration. and what about the exploitation of labor? how can you get a group of people at the top really making decisions in the best interest of the people, because I don't see the representative democracy we have now doing it. who would eliminate central banks? and if they were eliminated by the people, wouldn't there be a constant struggle between the people and those on top who want to recreate them?

i think we're on the same page with corporate fascism being the main problem in the world today. i just see it as inevitable under capitalism.

as for 'national socialism,' by my definition there is no such thing. marxist socialism is based on worker control of production and distribution, so the people control industry. any nation that has to compete on the world market is really state capitalist, which includes the ussr, cuba, and china. those are all top down power structures, too.

i'll check out that site

Andrew1) customers constantly regulate markets by choosing who will receive their money; the most effective democratic process ever invented.
2) corporations don't take environmental impacts seriously, but neither do individuals because property rights aren't taken seriously. the resources that are exploited are owned by the "people" (via the gov't). asre such, the ownership is dispersed, as well as the responsibility. consider how many people litter in your front yard versus the beach or a parking lot.
3) this should be an easy answer for you: unions! in theory, i have no beef with unions... IN THEORY. when they protect underperforming and/or incompetent workers, they make enemies in and with the marketplace. another ally workers have in a truly freed market is competition. if they don't like where they're working, chances are there is a competitor or they can set up shop and become competitors themselves.

4) you don't need to eliminate central banks, you only need to eliminate legal tender laws. by lifting restrictions off of what people can accept and give as payment, you introduce competition. winners and losers emerge and, ideally, the central bank and its constantly inflating/devaluing currency would be a loser. at the very least, such competition would keep its managers and policymakers honest. the inherent problem isn't with banks (despite what my grandfather says constantly), but that there is a gov't-granted monopoly in the currency market. the result is systemic meltdown if something bad happens with the dollar or its managers and creators (of which, the latter also has a monopoly).

as such, corporate fascism IS inevitable if you also accept that, under capitalism, regulation and legal tender laws are necessary and desirable. to say that this doesn't happen under socialism though is to ignore, uh, the economic crises hitting europe equally as hard, if not harder.

eurodiego said...

Robert: Hi guys, that's an interesting debate going on here :) I've just finally watched Fahrenheit 9/11 so that fit's well in my mood. I think the question of which direction to take, like left or right, is not the most important one. What I feel is a problem, is the lack of good quality journalism in mainstream media and people's ignorance on top of that. Freedom of speech - forgotten :D I really appreciate Jakub's input. It's so refreshing.

Me: europe is as much socialist as the ussr or cuba. less so actually. but my point is, neither are socialist. by my definition, which pretty much follows marxist theory. europe may have more social programs than the US, but they are still very much capitalist.

the problem is that customers aren't well informed. i don't think deregulated tender laws would change this. truth is the one person, one vote idea is pure bullshit. take your average joe vs a media mogul. the latter obviously has more of a voice, and that's the problem we face in this country. this influences customer decisions. this is why you get people buying everytime a new iphone comes out. advertising makes an art out of deception. as robert said, mainstream media is a huge problem, and advertising in general. people don't make the decisions, they're tricked into making decisions by those who have something to gain.

private property doesn't deter people from stealing, or vandalizing businesses in industrial areas. private property has nothing to do with it, people just don't walk on your property, so when they throw their soda can, it lands on the sidewalk where they're walking, not your yard. You see trash in parking lots, which are private property.

unemployment is a necessity in keeping workers under control. especially in bad economic times. the idea that if you don't like where you're working, you can go somewhere else doesn't fly with me. workers are made to compete among themselves. if a worker doesn't do what the employer want, he'll find someone else to fill that position. the worker has little barganing right. if people had social services to support themselves then they could take greater risks to find work somewhere else, but when you're dependent on your job to have a roof over your head and food on your table, they don't have the option to take that risk. and to assume they could just set up shop themselves, that's just unrealistic. we're talking about your average working class employee here who doesn't have much capital lying around.

i just don't see how deregulating tender laws as you mention in the last point would change the issues in the first three. there is competition on the international currency market. how does that fit in?

i'm enjoying this debate

eurodiego said...

Robert: Sure we are more socialist than US over here in Europe. And the eastern half is still traumatized by the communist experience. I'm not saying socialism or capitalism are bad or good. Both have positives and negatives, solutions and risks. You can't have pure unregulated competition coz the shark's hunger seems to be infinite. On the other hand regulating everything and making everyone reach the same level of happiness makes me want go to sleep.

What we need is a good balance. The balanced position might be different for US and Europe I guess, you can't take one's rules and apply them to the other. If the politicians did the job right, they'd find the spot easily imho :)

What puts things out of balance is corruption and personal failures - deliberate thefts from public. So I think the way to get things done right goes through a better control of public over the leaders (be it the senators, judges, bankers, or CEOs) and this must be the purpose of journalism.

I'm usually worried when I see intellectuals speak for the working class. It's either too sentimental or too dominating pose, but always a view from the top. I say educate them, give them proper information, motivate them and then let the people decide. Maybe you can't expect much from one particular person, but the crowd in general would find the answer in the end.

Well yeah "direct democracy". I'd love to see it in practice one day, but how could you give this instrument to people who do not even know how to use the currently available tools of democracy? Who just do not care? Or worse, who are so easily manipulated by anyone who has some power? For this I think it's vital for the bad guys at power to keep us people in an agony of ignorance. So I don't expect the leaders to come forward and say "hey guys! wanna see how we do our business?" :D

So the intellectuals should focus on transparency, better education and information services I think.