Tuesday, 9 November 2010

“Griftopia”, by Matt Taibbi (Spiegel & Grau)

Taibbi-GriftopiaWall Street, the land of Crooks, and those who enable them: The dramatic story behind the most audacious power grab in American history.

The financial crisis that exploded in 2008 isn’t past but prologue. The stunning rise, fall, and rescue of Wall Street in the bubble-and-bailout era was the coming-out party for the network of looters who sit at the nexus of American political and economic power. The “grifter class”—made up of the largest players in the financial industry and the politicians who do their bidding—has been growing in power for a generation, transferring wealth upward through increasingly complex financial mechanisms and political manoeuvres. The crisis was only one terrifying manifestation of how they’ve hijacked America’s political and economic life.

Rolling Stone’s Matt Taibbi here unravels the whole fiendish story, digging beyond the headlines to get into the deeper roots and wider implications of the rise of the grifters. He traces the movement’s origins to the cult of Ayn Rand and her most influential—and possibly weirdest—acolyte, Alan Greenspan, and offers fresh reporting on the backroom deals that decided the winners and losers in the government bailouts. He uncovers the hidden commodities bubble that transferred billions of dollars to Wall Street while creating food shortages around the world, and he shows how finance dominates politics, from the story of investment bankers auctioning off America’s infrastructure to an inside account of the high-stakes battle for health-care reform—a battle the true reformers lost. Finally, he tells the story of Goldman Sachs, the “vampire squid wrapped around the face of humanity.”

In Griftopia, Taibbi combines deep sources, trailblazing reporting, and provocative analysis to create a lucid, emotional, and scathingly funny account of the ongoing political and financial crisis in America, and those characters who helped send America (and the world) to the brink of financial ruin – not to mention, continue to do everything to save and benefit themselves at the expense of the American taxpayer. The book is premised on the following, depressing reality that Taibbi has come to observe:

“[America is] no good anymore at building bridges and highways or coming up with brilliant innovations in energy or medicine. We’re shit now at finishing massive public works projects or launching brilliant fairy-tale public policy ventures like the moon landing. What are we good at? Robbing what’s left. When it comes to that, we Americans have no peer.

Griftopia does not paint a happy or hopeful picture of the current state of American politics and economics. He is not confident that the status quo will – or can – be changed in the near future, if at all. But, in a book surprisingly accessible despite the considerable amount of economic jargon, he lays bare the faults, flaws and flagrant illegality and dishonesty of the power players in the Wall Street-Washington nexus. [As always, Taibbi is eminently quotable, so please forgive the large number of pull-quotes I’ve included.]

It is quite the indictment that in order to get the clearest explanation of the crisis, one has to look to Taibbi – he’s not an economist, an academic, or politician. He’s a highly gifted journalist who sees things as they are, and has an uncannily strong bullshit detector. It’s early in the review for me to say this – but this is an essential book for anyone wanting to understand the state we’re in today.

Election Politics

To begin with, Taibbi takes a look at the 2008 presidential election, and the Tea Party/populist movement that quickly arose thanks to the rise of Sarah Palin. Taibbi is unsparing in his contempt for the electoral process in America, and particularly of the changes that arose during the 2008 cycle, which was

“a campaign marked by bouts of rage and incoherent tribalism on both sides of the aisle. After eighteen long months covering this dreary business, the whole campaign appears in my mind’s eye as one long, protracted scratch-fight over Internet-fuelled nonsense.”

In retrospect the campaign, Taibbi writes, was “a lot of noise about things that… had nothing to do with anything at all.” Indeed, when later discussing President Obama, he offers this shot: “Barack Obama was at his oratorical best when he was talking about nothing at all”.

The author’s appraisal of the Tea Party and its celebrity leaders is well-balanced. One might assume that Taibbi would let his scathing wit free, but despite his incomprehension of the movement’s popularity, he does concede that for many who follow it, their disappointment with Washington is understandable. He is relatively easy on those who support the movement (without holding back from highlighting the many inconsistencies and hypocrisy of the movement), but he does not hold back when discussing those politicians and ‘celebrities’ who have come to lead the movement. For example, about the Tea Partiers, he writes,

“They’re not all crazy. They’re not even always wrong. What they are, and they don’t realize it, is an anachronism. They’re fighting a 1960s battle in a world run by twenty-first-century crooks. They’ve been encouraged to launch costly new offensives in already-lost cultural wars, and against a big-government hegemony of a kind that in reality hasn’t existed — or perhaps better to say, hasn’t really mattered — for decades. In the meantime an advanced new symbiosis of government and private bubble-economy interests goes undetected as it grows to exponential size and robs them blind.

On Sarah Palin and Michele Bachmann, Taibbi doesn’t hold back at all. Palin, he writes, is basically out for herself, and she used her election appearances not to win an election, but to give birth to a new celebrity. Bachmann, on the other hand, is just an imbecile, and Taibbi calmly rolls out a record of “every day publicly flubbing political SAT questions” and dreaming up wild and impractical, irresponsible policy proposals. It is, for an outsider, utterly astonishing that she is employed, let alone continuously elected to government.

Whenever he mentions the 2008 Presidential Election, Taibbi is usually taking a swipe at one or other of the candidates. He doesn’t give preference to either, equally pointing out Obama’s progressive populism and McCain’s conservative pandering (personally, I found McCain’s swing to the right insulting and highly disappointing). The author also demonstrates, over and over, how politics and political talking-points got in the way of proper policy recommendations, as well as proper understanding of the root cause of problems (particularly the oil price hike of the summer of 2008 – see later).

Wall Street, Land of the Grifters

Moving on to the state of America today, Taibbi draws a comparison with ghetto predators. In today’s America, however, rather than drugs killing neighbourhoods, it’s “the nightmare engine [of] bubble economics, a kind of high-tech casino scam”, and instead of crack or heroin, the product is cheap credit.

“It concentrates the money of the population in just a few hands with brutal efficiency, just like narco-business, and… the product itself, debt, steadily demoralizes the customer to the point where he’s unable to prevent himself from being continually dominated.”

The really scary fact about America, however, is the skill with which people can be duped into voting or fighting for other people’s interests that are so far removed from their own. I do not mean this in a liberal way – fighting for the needs of the poor and needy. Rather, the skill with which those at Fox and CNBC are able to convince such a considerable swathe of the American population that it is in their interest to fight for policies that support and benefit those who are screwing them over.

“If you want to understand why America is such a paradise for high-class thieves, just look at the way a manufactured movement like the Tea Party corrals and neutralizes public anger that otherwise should be sending pitchforks in the direction of downtown Manhattan.

Instead, a large portion of the American electorate have been convinced that they should support policies that ignore that what the bankers were doing was “gambling, pure and simple”, and support the governments reaction that rewarded their reckless fecklessness with the “most gargantuan bailout in history”. The Wall Street activity was “irresponsibility on a scale far beyond anything any individual homeowner could even conceive of”, and not only that, but it was invisible: “When the economy tanked, the public knew it should be upset about something, that somebody had been irresponsible. But who?

America is a country in which almost everyone has been “hoodwinked” into thinking he’s on course to become rich himself, and therefore Americans often believe they are invested in rigging the system to protect the rich. This is something also covered well in an episode of The West Wing, when Bartlett points out that the people vote for tax cuts for the rich because they think they are protecting their future, rich selves. The pro-rich system is so well-entrenched, Taibbi argues, that the economic elites have become, effectively, the most protected minority in America:

“What’s accelerated over the last few decades, however, is just how thoroughly the members of the grifter class have mastered their art. They’ve placed themselves at a nexus of political and economic connections that make them nearly impossible to police.”

Even if were possible to police the grifters, there aren’t even laws in place to deal with the kinds of things that went on at Goldman Sachs and other investment banks in the run-up to the financial crisis. What has taken place over the last generation, Taibbi argues, is “a highly complicated merger of crime and policy, of stealing and government.” Far from taking care of the rest of us, America’s financial leaders and their political servants “have seemingly reached the cynical conclusion that our society is not worth saving and have taken on a new mission that involves not creating wealth for all, but simply absconding with whatever wealth remains in our hollowed-out economy. They don’t feed us, we feed them.

America is fast becoming a “vast ghetto” in which all Americans, conservatives and progressives, are “bled dry by a relatively tiny oligarchy of extremely clever financial criminals and their castrato henchmen in government, whose main job is to be good actors on TV and put on a good show.” These high-class criminals stays in business simply because, when America is not completely distracted and exhausted by work and entertainments, it prefers not to ponder the dilemmas that its faced with, especially why, “when we do the right thing by saving money, we keep being punished by interest rates that hover near zero, while banks that have been the opposite of prudent get rewarded with free billions.”

In Griftopia, Taibbi aims to get to the bottom of these issues. And he does it very well.

No Fan of Greenspan

In one particularly damning chapter, Taibbi dissects the career of former Fed Chairman, Alan Greenspan, who he describes as “that one-in-a-billion asshole who made America the dissembling mess that it is today”. The chapter doesn’t hold back at all, and details all of Greenspan’s flubs, failings, mistakes, and thirst for the limelight, that it would be very hard for even Greenspan’s mother to read this and come away with her impression of Alan unscathed and intact.

“a system that preaches sink-or-swim laissez-faire capitalism to most but acts as a highly interventionist, bureaucratic welfare state for a select few. Greenspan pompously preached ruthless free-market orthodoxy every chance he got while simultaneously using all the powers of the state to protect his wealthy patrons from those same market forces…”

Not only that, but instead of letting nature take its course (the destructive side of capitalism), Greenspan “came to the rescue every time some juiced-up band of Wall Street greedheads drove their portfolios into a tree.

On Greenspan’s unerring ability to misrepresent the economic climate, not to mention uncanny ability at failing to predict its future course, and Taibbi writes, “Greenspan’s errors were often historic, idiotic blunders, evidence of a fundamental misunderstanding of problems that led to huge disasters.” The author goes on, pointing out that,

“if you dig under almost every one of the major financial crashes of our time, you can find some kind of Greenspan quote cheerfully telling people not to worry about where the new trends in the economy were leading.”

The chapter also allows for a quick run-down of “demented” history of the school of economic thought (rational objectivism) that arose around Ayn Rand – who Greenspan considered a mentor. According to Taibbi, “this lunatic religion that should have choked to death in its sleep decades ago” would, thanks in large part to Greenspan, go on to provide “virtually the entire intellectual context for the financial disasters of the early twenty-first century.

Taibbi goes on to describe how the housing bubble came about, and the labyrinthine cons and gambling strategies that were taking place throughout Wall Street. It’s a very detailed description, and while at times the jargon was flying thick and fast off the page, I managed to more-or-less easily follow Taibbi’s explanations and descriptions of what was taking place. This is certainly one of Taibbi’s gifts – conveying complexity through clear, concise language, tinged with his own dark, scathing humour.

Commodities Casino

Taibbi takes a look at the broad effects that hikes in commodities’ prices can have. Using a wide range of examples (from students to building contractors), the author shows how something as simple as hikes in gas prices can turn plans that looked perfectly feasible and sensible become prohibitively expensive – from cancelled internships to sky-rocketing costs for energy and delivery, steep fluctuations in energy can be devastating on the national scale. (While I would say this is certainly a bad thing, some of the solution has to be more efficient energy consumption – be it through car engines or more efficient machinery. This would also benefit the environment, and ultimately make cars and so forth cheaper to run…) What is most surprising, however, is who Taibbi blames for the considerable energy price hikes of summer 2008. “Most people assumed it had to do with some combination of shortages and/or increased demand from the Chinese industrial machine”, and the media did nothing to dissuade this perception. Amazingly, Taibbi reports, Senator John McCain “spent all summer telling us reporters that the reason for the spike in gas prices was that socialists like Barack Obama were refusing to permit immediate drilling for oil off the coast of Florida.” At the same time, Obama goes on about the evil that is SUVs and the US addiction to foreign oil. It soon became clear to Taibbi and the other reporters covering the election that, put simply, nobody had a clue what was causing the prices hikes.

The truth was actually very different to the explanations trotted out by both the Democrats and Republicans. “What really happened was that Wall Street had opened a new table in its casino”: commodity index investing. Basically, oil price-bets became the hot commodity of Wall Street, and traders bet the cost through the roof. Without anyone realising it had happened.

Taibbi delves into the history of commodities trading (offering as well a very clear, useful explanation of how the commodities market works), all the way back to 1936, when the “gamblers disguised as Wall Street brokers” destroyed the US economy, and FDR passed the Commodity Exchange Act, designed to prevent speculators from screwing around with prices of day-to-day products. Over the course of two decades, the rate of speculation on commodities ballooned to about 80% of market activity, and many of the exceptions (which created favourable circumstances for a handful of traders) handed down to companies like J.Aron were kept secret. The main reason for secrecy seems to have been that the activity pursued by Goldman and other major corporations was unavailable to the common trader/speculator. Individuals were simply unable to take part in this trading.

This section of the book isn’t the most interesting, but it does highlight Taibbi’s ability to make complex systems and financial transactions clear and accessible to the lay-reader.

Obamacare & the Insurance Industry

Taibbi is unsparing in his contempt for the health care bill passed by the Obama administration this year, which he describes as “a coldly cynical political deal” consisting of:

“massive giveaways to Big Pharma in the form of monster subsidies, and an equally lucrative handout to big insurance in the form of an individual mandate guaranteeing a few already-wealthy companies 25-30 million new customers who would be forced to buy their products at artificially inflated, federally protected prices.”

In this instance, too, I think Taibbi is spot on. I have always been skeptical in the order in which Obama’s administration has decided to take on the health care/insurance issue. The number one reason families and individuals seemed to not have healthcare was not a lack of coverage – anyone could buy it, of course, save those with existing conditions – rather, the biggest concern was the cost of health insurance. Sure, Obamacare prevents companies from prejudice against existing conditions (which is superb), but it did nothing to confront the cost issue.

The author goes on to explain how the fears of both sides of the political spectrum, be they Tea Partiers or raging lefties, were not entirely unfounded: it is a form of redistribution (just not the one they’re ‘afraid’ of), and the “crypto-fascist” fusing of government and private enterprise is also in there for good measure. Taibbi characterises the government’s plan (after taking a swipe at Rahm Emanuel, Obama’s now-former Chief of Staff) as:

“buy[ing] the insurance and pharmaceutical industries’ acquiescence to the gentlest of regulatory regimes by giving them back the one thing they had to trade: the power to tax the public.”

Obamacare was basically, a “straight money trade” – millions of new “involuntary customers” for the insurance companies, in exchange for future campaign contributions.

After discussing Obamacare, Taibbi moves on to an indictment of the American healthcare system as a whole (“a Kafkaesque parody of corporate inefficiency” and cruelty). It’s not necessarily a new argument, and you may well know a lot of the argement he includes, but here again Taibbi manages, through his journalistic style and gift, to put the human face to the problems – from patients and exasperated doctors and administrators fighting against an insurance system that has no interest in their side of the insurance obligation (thanks in part to the expensive mountain of paperwork that is always required), and is protected by – predominantly Democratic – supporters on Capitol Hill. He includes perhaps one of the most damning litanies of incomprehensible failing by comparing the US to other OECD countries (too long to quote here).

Discussion of the insurance companies also allows Taibbi to give us a capsule history of anti-trust laws and those who have worked so hard to undermine government regulation and fair treatment of the American people. Not only that, it’s another opportunity to take Obama and the Democrats to task for being spineless when it came to governing and reform – “they didn’t even attempt to broadly outlaw unfair anticompetitive practices”, Taibbi reports. In this chapter, the author makes a very good case that

“The whole style of Obama’s health care ‘initiative’ was to try to smooth the bill’s passage by neutralizing the opposition of the relevant industries by giving way on key issues.”

In other words, by caving to lobbyist and special interest pressure and giving them pretty much everything they could possibly want or ask for, “surrendering completely as an opening strategy”. Way to go. What Taibbi describes can be summed up effectively in an SAT-style statement: the health insurance industry is to the Obama administration as the energy industry is to the Bush/Cheney administration. While Taibbi reserves most of his healthcare shots for the Democrats, he finishes with an indictment of the “absurdly hypocritical objections from stammering jerks” on the Republican side of the political aisle that helped ruin the whole thing further, not to mention the obstructionist, petulant, and ultimately childish tactics they used throughout the process.

This is a particularly excellent chapter in the book, marked by Taibbi’s scathing wit, passionate and angry disbelief, and detailed reporting.

Goldman “Vampire Squid” Sachs

Since 2008, a favourite whipping post for Taibbi has been Goldman Sachs, the über-bank of Wall Street and, in Taibbi’s words, the “vampire squid wrapped around the face of humanity”. I thought it was worthwhile to specifically separate commentary on this section of the book. To refer back to the above section about commodities, Taibbi traces the beginning of the commodities debacle of 2008 to Goldman’s 1981 purchase of commodities trader J.Aron – followed by strong lobbying of the government to “lighten the hell up” about the trade. Goldman even created its own Commodities Index, through which it profited from commodities speculation.

Taibbi details the role Goldman played in the demise of AIG. While AIG was, indeed, run by utter incompetents, its demise appears to have been a coordinated effort to kill a rival institution. Certainly, Goldman was ruthless in its pursuit of what AIG ‘owed’ it from securities loans (despite the fact that the securities Goldman was holding were actually still quite valuable).

“Basically what was happening was that Blankfein and the other Goldman partners wanted the money AIG… owed them so badly that they were willing to blow up the other end of AIG, if needed, to make that happen. Even though they weren’t really in danger of losing any money by holding on to [their] securities, they were returning them anyway, just to force AIG into a crisis.

When a meeting between federal officials and leading bankers met at the Fed to decide on how to deal with the AIG crisis, Taibbi continues, there was only one real option that could save the system from going into freefall. Either the state pours massive amounts of taxpayer money into the debt hole, or the unexpected Goldman Sachs-led run on AIG’s securities-lending business would spill out into the real world (more institutions would jump on the bandwagon after Goldman started receiving chunks of money from AIG).

“In essence, the partners of Goldman Sachs held the thousands of AIG policyholders hostage, all in order to recover a few billion bucks they’d bet on… plainly crooked sweetheart CDS deals.

Overall, Taibbi paints a picture of an institution uncannily good at what it does. From its prophetic predictions of commodities changes, to aggressive trading in CDOs and other toxic financial entities, its reach seems endless, and its influence concrete. Everyone wants to work there – seemingly only because it wins. All the time. This is partly the result of their superb marketting strategy, through which they convince investors to take positions they themselves hold, thereby taking the risk out of their own bets, as they guarantee the outcome they want.

The most depressing argument Taibbi makes in Griftopia has to do with the overall cost of the various bail-outs that the Bush and Obama administration have unrolled for the banking industry. It’s a long quote, but Taibbi’s explanation is perfect:

“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. We paid for this instead of a generation of health insurance, or an alternative energy grid, or a brand-new system of roads and highways. With the $13-plus trillion we are estimated to ultimately spend on the bailouts, we could not only have bought and paid off every single subprime mortgage in the country (that would only have cost $1.4 trillion), we could have paid off every remaining mortgage of any kind in this country—and still have had enough money left over to buy a new house for every American who does not already have one.

The final chapter before the epilogue, “The Great American Bubble Machine” is an extended version of one of Taibbi’s articles on the financial crisis for Rolling Stone. It’s very good, and charts the “vampire tentacles” of Goldman Sachs. I think it works as a good taster of the book. [Click on the title, above, to go through to Rolling Stone and have a read of this and other articles by the author for the magazine.] In Griftopia, the author provides a new, long introduction to the piece, followed by the article itself. To summarise, Goldman Sachs is reviled on Wall Street by its other denizens, and almost all examples offered by Taibbi’s sources for sordid scams and crooked behaviour included Goldman employees in the mix. Taibbi also discusses the media-reaction to his article when it first appeared, flying in the face of the media’s golden impression of the investment bank. The story of Goldman Sachs, Taibbi concludes, “is the story of the great lie at the center of our political and economic life.” Goldman Sach is not a company of geniuses, but rather a company of criminals. Far from being the “best fruit of a democratic, capitalist society”, it is actually

“the apotheosis of the Grifter Era, a parasitic enterprise that has attached itself to the American government and taxpayer and shamelessly engorged itself on us all.”

Griftopia is, in my opinion, essential reading for anyone wanting to understand the labyrinthine inner workings of and connections between politics and finance in America. Taibbi, in his superb, scathing style, offers the clearest analysis and explanations of the methods used to get us to this point, unsparingly critical characterisations of those politicians and bankers who flaunt the law and treat taxpayer money as their own casino budget.

“We live in an economy that is immensely complex and we are completely at the mercy of the small group of people who understand it — who incidentally often happen to be the same people who built these wildly complex economic systems. We have to trust these people to do the right thing, but we can’t, because, well, they’re scum. Which is kind of a big problem, when you think about it.”

Economists and academics might not like Taibbi’s style, but anyone interested in the subject, certainly those without expert knowledge, should welcome Taibbi’s account of the crisis and appraisal of those who brought it into being.

I could have made this review so much longer, but then there might be no reason to buy the book for yourself. Taibbi discusses the impact of Sovereign Wealth Funds, the outsourcing of American infrastructure (including all the parking metres in Chicago…), the endless circle of profits/profiteering that exists for investment banks, and other elements of the “frictionless machine for stripping wealth out of the heart of the country”.

For those who think Griftopia sounds too much like a lefty attack on business, it’s important to point out that the author is unfailingly bipartisan in his shots at politicians, poking fun at and also decimating the positions of a number of prominent and also under-the-radar Republican and Democratic operators. Taibbi is particularly disappointed by Obama, who he clearly had very high hopes for, and accuses the President of simply, flat-out lying about his campaign healthcare promises.

In Griftopia, Taibbi has written an engaging, intelligent and accessible book on one of the most important issues (economics and finance) facing America, and the world, today. His anger at the state of economic/financial affairs in the US is palpable throughout, but he never allows it to interfere with the facts (of which he offers tons), and his arguments are well-reasoned and cut right to the heart of the matter: the American economy is run and abused by brazen, government-backed crooks. Pure and simple.

Superb, Griftopia is very highly recommended to all.

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