Is Goldman Sachs Losing It?

Back in March, I wrote:

From the Wall Street/DC Axis of Evil, the Treasury Department— oh hell, let’s just call it what it is: a wholly owned subsidiary of Goldman Sachs– will announce tomorrow its plan to further reward the very people who brought down the country’s financial system and by extension, the world’s.

Matt Taiibi has a more complete list in his latest article in Rolling Stone, The Great American Bubble Machine, which he introduces in classic Taibbi style:

The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

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. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

In a nutshell, no company did more to create and exploit the deregulation and tax cutting regime started by Reagan, boosted by Clinton and given the coup de grace by Bush II than Goldman. Hundreds of billions of dollars of new capital suddenly flooded into the market place, all dressed up with nowhere to go. Traditional investment vehicles like real estate and manufacturing could only absorb so much—you can only build so many shopping centers and office buildings and homes in a given period of time.

So Goldman (and some others like AIG) created and sold a plethora of new, exotic investment products like CDOs, credit default swaps and other derivatives whose notional value rapidly soared into the hundreds of trillions of dollars (a lot of it now being insured by the American taxpayer).

Older vehicles like mortgage backed securities were also finite, due in large part to kind of traditional, conservative underwriting standards that were operative when I was selling real estate in the ‘80s and early ‘90s. Not enough qualified buyers out there to soak up all that new investment cash? No problem—just expand the subprime segment by approving NINJA loans- No Income No Jobs or Assets–to anyone who could mist a mirror.

Of course, Goldman was smart enough to know that the gravy train would derail soon enough and began shorting the very instruments they’d sold to their own customers.

All this has been known now for some time, but just how Goldman always seems to be one step ahead of the game came to light this week when one of their former computer programmers, Sergey Aleynikov, walked off with some proprietary code used to execute “high frequency”, high volume program trading, resulting in hundreds of millions of dollars in potentially manipulated profits.

Bloomeberg’s Jonathan Weil in an article titled Goldman Sachs Loses Grip on Its Doomsday Machine tells of an emergency call that Goldman frantically made to the Department of Justice last week, pleading they arrest Sergey, which they did within 48 hours of getting the call. When it came time for the bail hearing, Goldman insisted that the judge keep the guy locked up and throw away the key. Arguing their case, the assistant AG pleaded to the judge that:

[T]here is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways.

Which set Weil and the Bloomberg anchor in the video clip above into mock hysterics:

Run for your lives if it gets into the wrong hands!”, exclaims Weil.

Someone who doesn’t have Goldman’s altruistic values!, the host agrees.

I’ve said it before and I’ll say it again: Larry Summers and the Goldman Gang will be President Obama’s downfall if he doesn’t wise up.