In his latest salvo against Wall Street, Rolling Stone's Matt Taibbi argues that the recent resurgence of the banking sector is the result of nothing more than a series of Depression-Era con jobs.
In Taibbi's words, Wall Street has delivered "the best 18 months of grifting this country has ever seen."
Taibbi is certainly fond of colorful metaphors. Over the last year, he famously (or infamously) compared Goldman Sachs to a "vampire squid." And in "Obama's Big Sellout," he railed against the free-market beliefs and political influence of former Citigroup Chairman and Treasury Secretary Robert Rubin.
Pointing to seven decidedly old timey swindles in "Wall Street's Bailout Hustle," Taibbi is quick to blast the banks' antics during and after the bailout. The rescue of AIG, Taibbi argues, which sent $13 billion to Goldman Sachs, was essentially a "Swoop and Squat" con -- a scam that involves intentionally causing a car crash and bilking an insurance company.
Goldman Sachs intentionally drove AIG into insolvency so that it could collect on its massive derivatives contracts, Taibbi argues:
"It was a brilliant move. When a company like AIG is about to die, it isn't supposed to hand over big hunks of assets to a single creditor like Goldman; it's supposed to equitably distribute whatever assets it has left among all its creditors...Instead, Goldman and the other counterparties got their money out in advance -- putting a torch to what was left of AIG. Fans of the movie Goodfellas will recall Henry Hill and Tommy DeVito taking the same approach to the Bamboo Lounge nightclub they'd been gouging. Roll the Ray Liotta narration: "Finally, when there's nothing left, when you can't borrow another buck . . . you bust the joint out. You light a match."
Throughout the piece Taibbi is more concerned with the conceptual basis of Wall Street's windfall, rather than the subtitles and unintended consequences of programs like the Public-Private Investment Program (PPIP), or the Temporary Liquidity Guarantee Program.
Taibbi's critics have pointed to what they say is a tendency to oversimplify, to play fast and loose with the facts and his continued focus on Goldman Sachs. In a blistering piece for The Big Money Heidi Moore assessed Taibbi's Goldman Sachs piece as having a "lively, if incoherent, narrative."
But regardless of where you stand on Taibbi's merits, it's hard to poke holes in the fundamental basis for his argument in his latest piece. Throwing away the rhetorical flourishes -- fans of "The Sting" won't be disappointed with this piece -- Taibbi's larger points, that banks have been allowed to continue to make risky bets on questionable assets ("Con No. 5: The Big Mitt"), to borrow cheaply ("Con No. 2: The Dollar Store"), and to avoid adequately accounting for their assets ("Con No. 3: The Pig In The Poke") are central to the debate on financial reform.
Worse, the pre-crisis mentality on Wall Street is still pervasive, Taibbi warns. He spoke to one trader who tried to avoid buying what he believed to be worthless bonds, even as the market began swallowing them up. The trader finally relented and told Taibbi that he'd "get on the bandwagon, just so long as I know when to jump out of the car before it goes off the damn cliff!"
Here's Taibbi's take on the trader's behavior:
"This is the very definition of bubble economics -- betting on crowd behavior instead of on fundamentals. It's old investors betting on the arrival of new ones, with the value of the underlying thing itself being irrelevant. And this behavior is being driven, no surprise, by the biggest firms on Wall Street."