From The Thom Hartman Show Oct. 30, 2009. Thom and Matt Taibbi discuss Matt's latest article at Rolling Stone--Wall Street's Naked Swindle

A scheme to flood the market with counterfeit stocks helped kill Bear Stearns and Lehman Brothers — and the feds have yet to bust the culprits.

On Tuesday, March 11th, 2008, somebody — nobody knows who — made one of the craziest bets Wall Street has ever seen. The mystery figure spent $1.7 million on a series of options, gambling that shares in the venerable investment bank Bear Stearns would lose more than half their value in nine days or less. It was madness — "like buying 1.7 million lottery tickets," according to one financial analyst.

But what's even crazier is that the bet paid.

At the close of business that afternoon, Bear Stearns was trading at $62.97. At that point, whoever made the gamble owned the right to sell huge bundles of Bear stock, at $30 and $25, on or before March 20th. In order for the bet to pay, Bear would have to fall harder and faster than any Wall Street brokerage in history.

The very next day, March 12th, Bear went into free fall. By the end of the week, the firm had lost virtually all of its cash and was clinging to promises of state aid; by the weekend, it was being knocked to its knees by the Fed and the Treasury, and forced at the barrel of a shotgun to sell itself to JPMorgan Chase (which had been given $29 billion in public money to marry its hunchbacked new bride) at the humiliating price of … $2 a share. Whoever bought those options on March 11th woke up on the morning of March 17th having made 159 times his money, or roughly $270 million. This trader was either the luckiest guy in the world, the smartest son of a bi**h ever or…

Or what? That this was a brazen case of insider manipulation was so obvious that even Sen. Chris Dodd, chairman of the pillow-soft-touch Senate Banking Committee, couldn't help but remark on it a few weeks later, when questioning Christopher Cox, the then-chief of the Securities and Exchange Commission. "I would hope that you're looking at this," Dodd said. "This kind of spike must have triggered some sort of bells and whistles at the SEC. This goes beyond rumors."

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Matt Taibbi says we should run Elizabeth Warren for president in 2012, and the more I read about how the since-appointed members of the Obama administration handled the financial crisis, the more I like the idea:

Oct. 27 (Bloomberg) -- In the months leading up to the September 2008 collapse of giant insurer American International Group Inc., Elias Habayeb and his colleagues worked nights and weekends negotiating with banks that had bought $62 billion of credit-default swaps from AIG, according to a person who has worked with Habayeb.

Habayeb, 37, was chief financial officer for the AIG division that oversaw AIG Financial Products, the unit that had sold the swaps to the banks. One of his goals was to persuade the banks to accept discounts of as much as 40 cents on the dollar, according to people familiar with the matter.

[...] Beginning late in the week of Nov. 3, the New York Fed, led by President Timothy Geithner, took over negotiations with the banks from AIG, together with the Treasury Department and Chairman Ben S. Bernanke’s Federal Reserve. Geithner’s team circulated a draft term sheet outlining how the New York Fed wanted to deal with the swaps -- insurance-like contracts that backed soured collateralized-debt obligations.

CDOs are bundles of debt including subprime mortgages and corporate loans sold to investors by banks.

Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar. The content of its deliberations has never been made public.

The New York Fed’s decision to pay the banks in full cost AIG -- and thus American taxpayers -- at least $13 billion. That’s 40 percent of the $32.5 billion AIG paid to retire the swaps. Under the agreement, the government and its taxpayers became owners of the dubious CDOs, whose face value was $62 billion and for which AIG paid the market price of $29.6 billion. The CDOs were shunted into a Fed-run entity called Maiden Lane III.

[...] A spokeswoman for Geithner, now secretary of the Treasury Department, declined to comment. Jack Gutt, a spokesman for the New York Fed, also had no comment.

One reason par was paid was because some counterparties insisted on being paid in full and the New York Fed did not want to negotiate separate deals, says a person close to the transaction. “Some of those banks needed 100 cents on the dollar or they risked failure,” Vickrey says.

In other words, Geithner used taxpayer money from one big disaster to paper over the fact that all the other parties were bankrupt, too - and probably still are, no matter what you read in the papers. Wait until the commercial market crashes. Wheee!

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From CNN's Your Money, it looks like the S.E.C. is as feckless as ever with reigning in these crooks. Matt Taibbi has much more over at his blog True/Slant.

ROMANS: All right. This is the ticker where each week we take you beyond the headlines. Shawn Tully is editor at large at Fortune and Matt Taibbi is a contributing editor with Rolling Stone. Let's be blunt, Matt is not a beloved figure on Wall Street these days which stems from articles like the one out in this week's Rolling Stone entitled "Wall Street's Naked Swindle." You can pick it up for all the details.

But let's examine a few of the overall themes. You say Wall Street is designed to rip off the middle class and you make the case that our economy is currently so screwed up, actually that's not the word you use, imagine a word by mistake on "SNL" and that is the word you meant. Screwed up that the rich are running out of things to steal. What's worse is that Matt argues that no one, not the S.E.C., the Federal Reserve, or the Treasury Department is making any real effort to punish the culprits.

For starters, who specifically are the culprits and why aren't they being punished?

MATT TAIBBI, CONTRIBUTING EDITOR, ROLLING STONE: Well in the story that I looked specifically at two cases, Bear Stearns and Lehman Brothers and what happened in those companies and what I found is that there was a kind of bear raid that had been happening to smaller firms in years previous to the Bear and Lehman episodes where there was sort of a pattern of credit default swaps.

People who were buying, naked short selling of these stocks, rumors being spread in the media. This was always happening in the smaller companies and hedge funds and predatory, you know, sellers were doing this to small companies.

In this instance, they did it to Bear Stearns and Lehman Brothers. There was a massive amount of undelivered shares and obvious evidence of naked short selling and manipulation in these instances. It was clear that they had run out of smaller companies to do this to.

ROMANS: So who did it?

TAIBBI: Well that's the problem. We don't know. This data is available to the S.E.C., it is a relatively simple matter to find out who was doing all this naked short selling but they haven't released the data and a year and a half later, they haven't made any progress in an investigation at all.

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Turns out Matt Taibbi is already acquainted with Rep. Alan Grayson. Here's his backstory ((and remember, reward good behavior):

Alan Grayson, Bernie Sanders, Ron Paul and others keep hammering away at this whole Fed-secrecy issue, and every now and then we get some pretty interesting exchanges. Zero Hedge relates this one between Grayson and Fed counsel Scott Alvarez. It’s becoming abundantly clear that at some point we’re going to start to hear details about monstrous front-running operations involving the major banks on Wall Street.

I recommend that everyone watch this clip just for the sheer entertainment value. I have personal experience with… well, let’s call it the unique personality of Alan Grayson. In his capacity as an attorney he once basically threatened to have me dismembered and have my body parts dumped in a tin canister and fired into the center of a burning supernova. And that’s actually underselling the real language he used.

We were having a disagreement about the use of information given to me by a certain source in a story about military contracting, and in the middle of what had been a normal contentious argument between two sane adults, dude suddenly assumed this crazy monster-voice and just went medieval on me. He was roaring into the telephone about how he was going to crush me, how I was going to wish I had never messed with him, how I didn’t know who the hell I was dealing with, and so on. One phrase I remember in particular was, “I am going to strip the bark off of you!” It came totally out of the blue and it was like being on the telephone with a metamorphosing werewolf — the whole performance genuinely freaked me out. I may even have peed a little, I can’t remember.

When I heard Alan Grayson was running for Congress, I remember thinking to myself, That Alan Grayson? The lunatic? It can’t be, I thought. I kept imagining trails of half-eaten sheep leading to his campaign appearances. But it turned out to be true. And when I checked, his platform turned out to be quite sane and even kind of interesting. Then he got elected and I suddenly started seeing his name attached to all of these calls for transparency, various crusades for FinReg reforms, etc.

And now every time I see Alan Grayson, he’s tearing some freaked-out bureaucrat a new a**hole in the middle of some empty conference room in the Capitol somewhere. I see the looks on the faces of these poor souls and I know exactly what they’re going through. Which is just hilarious, frankly. Especially since these people all tend to deserve it, like this nebbishy little creep Alvarez quite obviously does.

Now for most of last year Grayson’s public appearances didn’t rate any higher than a five or maybe a six on the craziness scale, but he’s a definite seven in this clip, trending toward eight. Watch Alvarez look around nervously, like he’s not sure whether to say something about how out of control Grayson is. He’s looking around like he expects someone to come out with a butterfly net and capture Grayson, so he can get back to lunch. But no help comes. Very entertaining stuff.

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Rachel Maddow talks to Matt Taibbi about what is going to happen to the Democratic Party if the White House settles for a bill with no public option. Taibbi feels that this is the moment the progressive wing of the party draws a line in the sand. They note that Bernie Sanders in the Senate and Anthony Weiner in the House have both said that if there's no public option, there will be no bill at all.

Taibbi thinks a deal was cut from the beginning between the White House and the insurance and pharmaceutical industries and that they never intended to have a public option. As both Taibbi and Maddow note it doesn't matter what the Democrats do, they're not going to get any Republican support for the health care bill, so wooing Republicans doesn't make any sense.

Taibbi has an article coming out at Rolling Stone Friday titled Sick and Wrong: How Washington is Screwing up Health Care Reform and Why It May Take a Revolt to Fix It. Sounds about right.

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I saw Bill Maher offer Matt Taibbi some pushback last night about his Rolling Stone piece on Goldman Sachs. Maher wasn't willing to believe that Goldman has been uniquely positioned to profit from the breakdown of the financial system and the various bubbles created. Maher offered the predictable "why just Goldman" response, and Taibbi decided to talk about the many Goldman officials in high positions in the government. He could have just pointed to this story that leaped from Zero Hedge to the New York Times yesterday.

It is the hot new thing on Wall Street, a way for a handful of traders to master the stock market, peek at investors’ orders and, critics say, even subtly manipulate share prices.

It is called high-frequency trading — and it is suddenly one of the most talked-about and mysterious forces in the markets [...]

Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer.

And when a former Goldman Sachs programmer was accused this month of stealing secret computer codes — software that a federal prosecutor said could “manipulate markets in unfair ways” — it only added to the mystery. Goldman acknowledges that it profits from high-frequency trading, but disputes that it has an unfair advantage.

Yet high-frequency specialists clearly have an edge over typical traders, let alone ordinary investors. The Securities and Exchange Commission says it is examining certain aspects of the strategy.

“This is where all the money is getting made,” said William H. Donaldson, former chairman and chief executive of the New York Stock Exchange and today an adviser to a big hedge fund. “If an individual investor doesn’t have the means to keep up, they’re at a huge disadvantage.”

They literally place their super-fast computers physically close to the machines that govern NYSE trades, to get the jump on competitors and make enough pennies off of the brief ups and downs of stocks to rake in mounds of cash. And in some cases, investors can buy access to buy and sell order information on certain exchanges that can be used to make these quick orders. When Chuck Schumer is calling for an investigation of Wall Street, you know something has gone horribly wrong.

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Sam Seder talks to Matt Taibbi about his article The Great American Bubble Machine. Part 1 of 4. You can watch the rest of the videos here.

Wall St. Cheat Sheet: Interview with Rolling Stone journo, Matt Taibbi

Redline Doc:  The joy of a job

Dusty Trice: The party of Lincoln versus morally bankrupt parasites

Corrente: Lambert has done us a great service

Radamisto: Slow learners, quick forgetters

HOLY CRAP: Flyover flap inspires a man of God...Nice news...Diet Jesus fridge magnets...Huckabee's 'Swift Boat' plan...On message...Mr Deity...Impressive Values...God "was like, no"...H.L. Mencken covers the 'Monkey Trial'...Religion in the states...The Bible and marriage...Radical Religion...

Remember that Rolling Stone piece about Goldman Sachs I mentioned the other day? Here's another post from Matt Taibbi that should raise serious concerns about the stranglehold the company has on the economic markets:

"In a move set to infuriate and send many Zero Hedge readers over the top, the NYSE has taken action to make sure that nobody will henceforth be able to keep track of the complete dominance that Goldman Sachs exerts over the New York Zero Hedge Stock Exchange. This basically ends our weekly Program Trading updates disclosed every Thursday indicating that Goldman has singlehandedly captured all of NYSE's program trading."

-- Zero Hedge

I'm sorry I didn't post this earlier, but I urge readers to go over to Zero Hedge and check out this post about the NYSE's recent decision to change its procedures... to protect Goldman Sachs from bloggers like Zero Hedge!

This is complicated stuff (for people with no financial background, like me, it's nightmarish) and I have a longer thing about this coming out later. But the essence of this story is that Tyler Durden over at Zero Hedge has, for months, been complaining that Goldman has been manipulating the NYSE, in particular manipulating program trading in somewhat the same way (although perhaps not to the same extent) that they manipulated the commodities markets. In order to make his case -- and his theory has gained a lot of acceptance, to the point where Goldman had to respond to the allegations publicly -- he has been analyzing data the NYSE releases on program trading every week.

So what happened this week? The NYSE announced that it will no longer be releasing its weekly program trading data. This is quiet obviously a move designed to make it even more impossible to track what's going on in the NYSE and shield, in particular, Goldman Sachs. Let's hope there's a public uproar about this; Zero Hedge posted contact info for NYSE officials, and has urged readers to petition the exchange to restore the old rules in the name of transparency.

They plan to do this by July 10th, so it's important to call now. Let them know what you think of them making it impossible for anyone but insiders to know what's going on. From Zero Hedge:

This is a travesty, as well as a complete obliteration and a mockery of the move for transparency that the Administration, Regulators and Exchanges have been posturing they support.

We advise all readers to contact the provided staff on the memorandum and voice your incredulity with this brazen move to completely obfuscate Goldman's behind-the-scenes take over the world's biggest stock exchange.

Robert Airo, Senior Vice President, NYSE Euronext at (212) 656-5663 or
Aleksandra Radakovic, Vice President, NYSE Regulation at (212) 656-4144

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Matt Taibbi visits the set of the Ed Schultz show to discuss his article at Rolling Stone, The Great American Bubble Machine - Matt Taibbi on how Goldman Sachs has engineered every major market manipulation since the Great Depression . From the magazine:

In Rolling Stone Issue 1082-83, Matt Taibbi takes on "the Wall Street Bubble Mafia" — investment bank Goldman Sachs. The piece has generated controversy, with Goldman Sachs firing back that Taibbi's piece is "an hysterical compilation of conspiracy theories" and a spokesman adding, "We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance in being a force for good." Taibbie shot back: "Goldman has its alumni pushing its views from the pulpit of the U.S. Treasury, the NYSE, the World Bank, and numerous other important posts; it also has former players fronting major TV shows.

I wish I'd been paying closer attention to this, because now I have a whole lot of questions that weren't there before I read Matt Taibbi's latest story for Rolling Stone: "How Goldman Sachs took over Washington by engineering every major market manipulation since the Great Depression."

But first, the "good" news:

WASHINGTON -- Landmark legislation to curb U.S. greenhouse gas emissions was approved by the House of Representatives in a close vote late Friday, securing a hard-fought victory for a cornerstone of President Barack Obama's agenda.

After months of negotiations, the Democratic-controlled House has narrowly passed sweeping legislation calling for the nation's first-ever limits on pollution linked to global warming. Stephen Power explains the bill's implications.

The 1,200 page bill—formally known as the "American Clean Energy and Security Act"—will reach into almost every corner of the U.S. economy. By putting a price on emissions of common gases, such as carbon dioxide, the bill would affect the way electricity is generated, how homes and offices are designed, how foreign trade is conducted and how much Americans pay to drive or to heat their homes.

Talking about how very deeply Goldman Sachs is embedded in the investors that will profit from cap-and-trade, Taibbi says:

Well, you might say, who cares? If cap-and-trade succeeds, won't we all be saved from the catastrophe of global warming? Maybe - but cap-and-trade, as envisioned by Goldman, is really just a carbon tax so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and-trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax-collection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it's even collected.

"If it's going to be a tax, I would prefer that Washington set the tax and collect it," says Michael Masters, the hedge-fund director who spoke out against oil-futures speculation. "But we're saying that Wall Street can set the tax, and Wall Street can collect the tax. That's the last thing in the world I want. It's just asinine."

Cap-and-trade is going to happen. [Ed. note - this was published yesterday.] Or, if it doesn't, something like it will. The moral is the same for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees - while the actual victims in this mess, ordinary taxpayers, are the ones paying for it.

It's not always easy to accept the reality of what we now routinely allow these people to get away with; there's a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can't really register the fact that you're no longer a citizen of a thriving first-world democracy, that you're no longer above getting robbed in broad daylight, because like an amputee, you still sort of feel things that are no longer there.

But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework until the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It's a gangster state, running on gangster economics, and even prices can't be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can't stop it, but we should at least know where it's all going.

RS hasn't put it online but really, I strongly recommend buying the issue to support this kind of journalism.

You can read some comments on the piece here, here and here.

Oh, and you can read a related Taibbi piece here.

Part 1

Part 2

From Ring of Fire and GoLeftTV, Robert Kennedy Jr. and Matt Taibbi on the bank bailout mess and the bipartisan blame for deregulation that led to the financial meltdown:

The stimulus packages and bailouts that the government has been a little too willing to hand over to our financial industries have not only given these giants more cash in their pockets, but they've also given these companies unprecedented power over our federal government. No other industry has been able to show up in Washington and get a blank check with no oversight, which really shows just who is in charge in our nation's capitol. Robert F. Kennedy, Jr. of Air America's Ring of Fire talks about this shift in power with Rolling Stone political correspondent Matt Taibbi.

May 08, 2009 HBO Bill Maher

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Matt Taibbi takes the Republicans apart for becoming the party that has removed itself from the legislative process. When MSNBC's Carlos Watson tries to tell him that since they're in the minority all they can bring to the table is guerrilla warfare, Taibbi responds.

Taibbi: What you are saying when you say that is that the GOP is serving as the rodeo clowns or the class clowns of this horrific financial era.

One of the problems they have is that they've really taken themselves out of the picture as a serious force in the Congress. The Minority Leader, John Boehner, has told the party that the GOP has to get used to being not legislators, and they have to focus on being instead communicators, which means they really haven't proposed any serious alternatives to the Obama budget which makes them really non-players in the whole congressional picture.

Watson: Hang on for a second, because they could legitimately say the way the House of Representatives works, those who are in the minority, particularly those who have 80 fewer votes than the Democrats, they realistically don't have a role to play. The best thing they can do is offer guerrilla tactics, if you will, and they can say in the Senate they are doing as much as they can.

Taibbi: The business of legislating is a long, hard slog, and you have to form these bills in committee and all these guys work together constantly. And when they say at the outset that they're not going to propose alternatives, that takes them out of markup process, it takes them out of the committee process. It really makes them non-players throughout the nuts and bolts of the bureaucratic legislative process, and that's what they've done.

Taibbii has a great post at his blog today on the irrelevance of conservatives, reflected in their little Tea Tantrums: "Teabagging Michelle Malkin". It was the reason he was asked on the segment. In it, he teabags the teabaggers with an incredible rant:

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Rachel Maddow and Matt Taibbi on the Obama administration's lastest nominee for the number two spot at Treasury, Neal Wolin.

MADDOW: Irony alert, jobs at President Obama‘s Treasury Department have been hard to fill. In the worst job market in at least 27 years, some jobs, like the job of cooling the economic meltdown, apparently have not been seen as worth taking.

Nine days ago, the president told “60 Minutes” that essentially, he couldn‘t give top treasury jobs away. People kept backing out because of expected scrutiny or embarrassment or low pay or all of the above.

But tonight, good news-bad news developments here. First the good. In the last week or so, the president has announced six new picks for top treasury jobs. Now choices for 10 of the top 23 treasury jobs have been announced, nominated or confirmed, which I think means they‘re running ahead of the Republican National Committee on that.

The bad news? One of the newly announced job candidates, the guy tapped to be the deputy secretary of the treasury, the second in command to Tim Geithner - he has a worrisome line on his very distinguished resume.

While serving as general counsel in the Clinton Treasury Department, Neal Wolin reportedly played a role in the drafting of the Gramm-Leach-Bliley Act of 1989. Gramm-Leach-Bliley overturned Depression-Era regulations and wisdom and made it OK for commercial banks and investment banks and insurance companies to all be the same thing, to merge with one another.

After decades of that being against the rules, Gramm-Leech-Bliley let giganto-mega companies form in the financial sector, companies that were essentially too complex to police well and also too big to fail.

Gramm plus Leech plus Bliley in 1999 equals trillion-dollar bailout 10 years later. Reporter Greg Sargent at “The Plum Line” reports that Stuart Eisenstadt, a deputy treasury secretary under Bill Clinton, confirmed that as treasury‘s general counsel at the time, Neal Wolin, quote, provided the technical and legal drafting for the Gramm-Leach-Bliley Act.

And now, with the seminal act of today‘s global crisis on his resume, Neal Wolin is on track to be the deputy secretary of the treasury. A Treasury Department spokesman did not refute the report about Mr. Wolin today but told us that “Plum Line” took the quote about him from Stuart Eisenstadt out of context.

The treasury secretary today told us, quote, “Mr. Wolin supervised a few of the lawyers who worked on it but he didn‘t do any of the legal writing or drafting of the legislation.”

So Mr. Wolin supervised the writing of this deregulation that effectively mugged the country but he didn‘t personally write it. He supervised the writing. He didn‘t write it. That‘s going to be the only defense here?

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