The Bubble Barons investigation launched last week by AlterNet and has gotten off to a fast start, with over 250 citizen journalists signed up to track down information on the 67 bubble barons we've identified. In less than a week, the research group has made over 500 edits to the LittleSis database, building out data on everything from the family ties of Dennis Washington to the investments and donations of Stephen Schwarzman. More than 30 analysts have participated in research trainings. You can follow the group's progress at the Bubble Baron research page, which shows recent edits to bubble barons' profiles, basic information and updates for the group, and notes from Bubble Baron analysts. For those of you who haven't signed up, it's still not too late to get involved: click here to sign up for the Bubble Barons investigation. What does it take for someone to be deemed a bubble baron? I used three main criteria when creating the list, drawing on Forbes' lists of the 400 wealthiest Americans:
  1. Billions (plural). The bubble barons are all worth $2 billion or more (they are multi-billionaires), according to Forbes' estimates. These estimates can't be counted on as 100% accurate, but they are the best source for US wealth rankings. It's pretty simple: like the robber barons before them, the bubble barons are wealthier than everyone else.
  2. Big bubble gains. The bubble barons all saw substantial increases in wealth from the height of the last bubble (the dot com bubble) in 2000 to 2009, according to Forbes data. If an individual made billions during the housing bubble and lost it all by the end, they didn't make the list. Similarly, tech billionaires whose gains were flat since the dot-com peak did not make the list.
  3. FIRE. The bubble barons are all active in the Finance, Insurance, and Real Estate industry - an approximation for the bundle of industries that benefited most from the Wall Street-fueled housing boom.
Some bubble barons don't fit these criteria perfectly. The MacMillan family, for instance, are more closely identified with the agricultural sector, but their business model boils down to financial engineering, so I decided to include them. The same goes for some of the energy traders on the list. The Ziff family made their fortune in publishing, but have since poured their billions into a hedge fund, Och-Ziff. Meanwhile, obscenely wealth people like Bill Gates, Warren Buffett, and the Walton family didn't make the list because their wealth hasn't increased dramatically in the past ten years, according to Forbes estimates. This isn't a list of rich people who created the housing bubble, or 25 people to blame for the financial crisis. That list would include corporate executives and managers (eg: Lloyd Blankfein) and policy elites (eg: Alan Greenspan) who essentially help the bubble barons aggregate wealth, doing their dirty work in the business and policy arenas. These individuals will hopefully be the targets of a future investigation, and our bubble baron research will also inevitably turn up information on them. When it comes down it, there are more than 67 bubble barons, but we wanted to focus our efforts on a manageable, well-defined list to start. So if you think of anyone on the list that fits these criteria, but that we missed, please say so, but be prepared to adopt the bubble baron you nominate! You can either use the comments or get in touch on LittleSis. Again, if you'd like to get involved, it's not too late to sign up for the investigation!
Goldman Sachs appears to be testing the limits of its special talent for avoiding all accountability following revelations of its role in exacerbating the Greek debt crisis. The bank has come under heavy criticism from European political officials over its role in helping Greece hide its debts, and on Wednesday, Greek labor unions staged a historic strike that shut down the country's national infrastructure in response to economic policies urged by bankster elites. The European turmoil has forced US officials to take notice, and scrutiny of the bank is now coming from the unlikeliest of quarters, with Ben Bernanke telling Congress on Thursday that the Federal Reserve is looking into Goldman and questions surrounding the bank's swap transactions with Greece. Bernanke was vague about what, exactly, the Fed is investigating, and it is possible that the inquiry will go nowhere. But the fact that the Fed chair would make remarks that amplify concerns about Goldman's role in Europe is a sign that the political winds have shifted significantly since Matt Taibbi's "vampire squid" metaphor first captured the public imagination last summer. The populist outcry against bankster fraud and collusion finally shows signs of steering the authorities towards a more oppositional, watchdog role. The truly scandalous story with respect to Goldman Sachs and Greece -- that the bank may have been speculating heavily in the Greek debt markets at the same time it was trying to help the country hide its debt -- is also starting to gain traction. During his testimony, Bernanke raised concerns about speculative activity in the Greek debt markets and said that the SEC was investigating, and Phil Angelides, chair of the Financial Crisis Inquiry Commission, said that he was particularly concerned about Goldman's role in betting against securities that it had helped create. On Thursday the New York Times published a story with the headline "Banks Bet Greece Defaults on Debt They Helped Hide." The article reported that a company backed by Goldman and other banks set up a new index in September of this year that investors could use to bet on the likelihood that Western European countries like Greece would default on their debt. This is history repeating itself: the very same company that created this index set up a similar index in early 2006 that allowed investors to bet on the likelihood of defaults in the subprime bond market. That index was a collaboration between Markit and CDS IndexCo, a consortium of 16 banks, including Goldman Sachs, which has since been acquired by MarkIt. The acting chairman of CDS IndexCo was Goldman Sachs managing director Bradford S Levy, suggesting that Goldman has significant power within Markit now. Guess which investors cleaned up on that index in 2006 and 2007? Goldman Sachs and partner-in-crime John Paulson, the hedge fund manager who made billions betting against the subprime sector. The sovereign index and its subprime predecessor would be less troubling if there was some transparency around Markit, the pricing mechanisms it uses, its owners (including Goldman Sachs), and so forth, given the critical informational role it plays in markets which threaten global financial stability quite frequently. The Department of Justice opened an investigation of the company for possible anti-trust violations last summer. If Goldman is, in fact, using swaps to bet heavily on the likelihood of a Greek default at the same time that it is helping the country hide its debts, the parallels to its corrupt, cynical, and incredibly greedy housing bubble investment strategy extend beyond the Markit index. The game plan is fairly simple: stuff some entity full of hidden liabilities by devising securities that mask true levels of exposure, collect enormous fees for doing it, then find ways to make enormously profitable bets against the financial carcass created in the process. Goldman Sachs and John Paulson did this with AIG, devising complex securities known as "synthetic CDOs" which were composed entirely of bets on a set of mortgage pools. Paulson (not to be confused with former Treasury Secretary Hank Paulson) picked the mortgage pools, selecting the ones that were most likely to experience high levels of foreclosure. Goldman then created the securities and sold them to investors like AIG. The bets were essentially designed to fail, with Paulson (and Goldman) on the winning end. The hidden exposure was massive enough to take down AIG, threaten the world financial system, and necessitate a government bailout. These bailout funds were then passed through to Goldman Sachs. Carolyn Maloney has noted these parallels and is now calling for a Congressional hearing on Goldman's involvement in the Greek crisis. Greece is far less likely to implode than AIG, and the liabilities that Goldman tucked into its national accounts are less severe. But now that the country is dealing with the prospect of financial ruin, Paulson and Goldman appear to share the same vulture flight pattern, once again. Paulson & Co is reported to have been speculating heavily in Greek debt markets with a team of 20-30 traders focused on the country. Goldman is also rumored to have been one of these speculators. According to the Wall Street Journal, Paulson has since exited his large bearish bet on Greek debt. But in a sign that Paulson's Greek adventures haven't ended, Goldman recently took representatives of his hedge fund on a "field trip" to Greece:
On Jan. 28 and 29, analysts from Goldman Sachs Group Inc. took a group of investors on a field trip to meet with banks in Greece. The group included representatives from about a dozen different money managers, say attendees, including Chicago hedge-fund giant Citadel Investment Group, the New York hedge fund Eton Park Capital Management, and Paulson, which sent two employees, say people who were there. Eton Park declined to comment. During meetings with the Greek deputy finance minister and executives from the National Bank of Greece, among other banks, some investors raised tough questions about the state of the country's economy, according to these people.
Greece appears to have been negotiating for its economic future with Goldman Sachs and its network of hedge fund colluders, many of whom have taken large speculative positions on Greek debt. This amounts to an unofficial diplomatic mission, a negotiation between a sovereign country and the sociopathic financiers who hold sway over its economic fortunes. Is Europe really ok with that? The Wall Street Journal article goes on to report on a Manhattan dinner party where a group of hedge fund managers discussed their bearish bets on the Euro. The article suggests that the funds are partnering on their trades, and includes a somewhat confusing sentence: "There is nothing improper about hedge funds jumping on the same trade unless it is deemed by regulators to be collusion." So it isn't collusion unless regulators have "deemed" it as such? And Madoff wasn't actually running a Ponzi scheme before the SEC noticed? The growing turmoil in Europe and Bernanke's comments may signal that we've reached a tipping point -- that these financial firms will no longer be able to avoid all substantial inquiries into their business practices, and that they'll no longer hold sway over economic policies here and abroad. Not that Bernanke himself will follow through. But the need for a significant, public investigation of these individuals and their firms has become so pressing that even the most compromised US officials are paying it lip service. Whether it happens here or in Europe, Goldman's day in court is drawing near.
Following my writing on the rumors swirling around Goldman Sachs, John Paulson, and their role in speculative attacks on Greece, the New York Times has written about the rumors, and today reports that Greece's National Intelligence Service has named several other investors who are shorting Greek debt: Brevan Howard, Fidelity International, and Moore Capital, in addition to Paulson & Co. The Greek daily EYP is also reporting that the agency named PIMCO, as well. That the names of potential speculators are only identified after the Greek National Intelligence Service begins investigating them points to just how corrupt this system is; the complete lack of transparency in this "free market" forces us to rely on a *government spy agency* for information about who is making these trades. Brevan Howard, Paulson, and Moore were accused by Spain's intelligence agency last week. How bizarre. Brevan Howard has since released a letter to investors saying it is not shorting Greek debt, and Fidelity has commented that it only shorts debt for hedging purposes, according to Reuters. Moore Capital, PIMCO, and Paulson have not commented. The alleged speculators share some fascinating connections, including strong ties to Goldman Sachs and the New York Fed. Moore Capital, the hedge fund of Louis Moore Bacon, has hired at least three executives straight from Goldman Sachs in the past three months: David Jasper, a macro trader, Garth Appelt, who worked for Jasper, and Amna Karim, former head of Nordic sales for Goldman Sachs Asset Management. Additionally, former Enron and Goldman Sachs executive Aaron Armstrong joined Moore from Deutsche Bank early this year. Furthermore, two Brevan Howard executives have moved to Moore Capital in recent months. Jean Phillippe Blochet, a co-founder of Brevan and the "B" in its name, joined Moore Capital last year. Trader Luke Sandrian made the same move late last year. The firms also have strong ties to the New York Fed. Three of the nine industry representatives on the New York Fed's Investor Advisory Committee are affiliated with the speculators named by the Greek government: Louis Bacon of Moore Capital, Alan Howard of Brevan Howard, and Mohamed El-Erian of PIMCO. The New York Fed was also a client of PIMCO until recently. Meanwhile, Greece has named a new debt management head, Petros Christodolou, former head of asset management at the National Bank of Greece, who has worked at Credit Suisse, Goldman Sachs, and JP Morgan. His tenure at Goldman was only two years long, but he was head of the derivatives desk at JP Morgan during the nineties -- when the bank was a pioneering player in the derivatives markets.
The rumors of a possible partnership by John Paulson and Goldman Sachs in the speculative attacks on Greece, which I first reported on last week, are now heating up in Europe to the point where one French journalist has multiple sources corroborating them. No one can point to hard evidence, just yet, because these are opaque, unregulated markets. But the news is quickly rising above the status of rumor. The French financial newspaper Les Echos picked up on my post on John Paulson and Greece yesterday. Here is my (rough) translation:
There aren't just suspicions that Goldman Sachs is speculating against the Greek debt through the market for credit default swaps (CDS). After having made $3.7 billion dollars by betting on the subprime market, the hedge fund manager John Paulson has been cited as a partner of Goldman Sachs in the Greek market. According to the activist Kevin Connor, co-director of the think tank the Public Accountability Initiative, based on article in the British and Greek press, Paulson's funds have taken large/important positions in the Greek debt market through a team of 20-30 traders.
My original post pieced together information from several Greek and British articles which were reporting on Paulson and Greece; these were largely still rumors, though an article in the Greek newspaper To Vima seemed to report the news with more certainty. But there is now even more evidence that this is, in fact the case, as pieces like the Les Echos article appear to have given a French financial journalist cover to out Goldman and Paulson as the large American bank and hedge fund that are waging the attacks on Greece (h/t Naked Capitalism). A source had told the journalist, Jean Quatremer, that Paulson and Goldman were behind the attacks, but told him not to name names. Now that the rumors are more specific, actually pointing to Paulson and Goldman, he reports that he has multiple corroborating sources. Here is the translation, from commenter Francois T at Naked Capitalism:
On February 6, on this blog, I wrote that Greece was victim of speculative attacks on the part of a large Bank of American business and hedge funds betting on a default in payment of Athens. Until then, we certainly knew that there was speculation, but no one had yet managed to put a name to those who sought to destabilize Greece and the euro area. At that time, my informant had discouraged me to mention names, which was quite frustrating, for you and me. However, since then, market rumors have become more precise and their names, openly cited in the media, even if it is with good reason, very carefully. The Greek Government itself accuses them openly. I can therefore confirm that, according to concurrent sources, Goldman Sachs and speculative Fund managed by John Paulson would be the two main actors of these attacks against Greece and the euro. I have already detailed you in my post from February 6 the speculation mechanism. More shocking, in this case, is without doubt the role played by Goldman Sachs, whom, at the same time it was advising the Greek Government, secretly took contrary positions against Greece and the euro. This murky behavior is illustrated by the recent case recalled by February 8 Spiegel and the New York Times February 14(1): in 2002, the Bank of American case helped Greece, against remuneration of 300 million dollars in “creative accounting” operation designed to cover up some of its debt (I will come back to this topic in a future column).
There's more -- read the whole translation here or the original here. If this is true, it is, indeed, shocking that Goldman Sachs is both advising Greece and taking massive short positions against the country, but as I've noted before, it is no more shocking than what happened with AIG and the subprime game, which also brought the bank together with John Paulson in a fateful, lucrative, and immensely destructive partnership.

Greek prime minister George Papandreou.

Quatremer also makes the allegation that the speculators may have orchestrated a series of leaks, published in the Financial Times, that suggested Greece had hired Goldman for a private placement of debt -- a fairly desperate measure -- and China refused to buy. This agitated markets and left the speculators in a much stronger position:
Remember also that on 25 January, Greece had managed to sell 5 years notes for an amount of 8 billion euros whereas they were only aiming for 3 billion: demand, however, reached EUR 25 billion! Goldman Sachs was part of the consortium that placed the Greek paper. So far, nothing unusual here. It is then that a curious fact occurs. After this spectacular success, everyone thinks that the markets are reassured, since they implicitly express that they believed a Greek default is not in the cards. And indeed, there is a lull. However, as soon as Wednesday, another storm hit the markets. An article in the Financial Times, the only paper read by market, operators has indeed just assert that China refused to buy EUR 25 billion of Greek debt, a ‘private placement’ by… Goldman Sachs. What is it? When a Government is concerned that it won’t be able to sell its debt directly to investors, it asks a bank (or consortium of banks) to do so on its behalf. It is a sign of panic. And the fact that Beijing would have declined the offer would be downright alarming. In short, two reasons to flee from Greece markets. The Chinese denied the news, but markets still required Athens a higher risk premium. Those who orchestrated the leaks gained on all fronts: their loan suddenly became more profitable, as well as their CDS, these “insurance” instruments supposed to guard against a default of the borrower (see my post on February 6)
This sort of media manipulation may seem somewhat conspiratorial, but it is perfectly believable in the world of finance (also believable, I suppose, that someone is spreading false rumors about Goldman and Paulson). Information drives market conditions, and by releasing information strategically, "credible" sources (such as powerful investors) can move markets in their preferred direction. During the subprime days, Goldman played journalists like a fiddle, suggesting that the subprime sector would recover and making moves to buy lenders at the same time that they were privately making extremely bearish bets on the mortgage sector. These (apparently highly deceptive) professions of faith in the mortgage industry may have helped lower the cost of any protection they bought, essentially helping them find suckers to take the other ends of their bets. I'll have more on this soon.
There were, essentially, two superstars of the subprime meltdown -- investors that not only won big on bets that the subprime market would crash, but got a lot of media attention for it: John Paulson and Goldman Sachs. Of course, plenty of other investors bet that the market would crash, but none of the trades were as big, and, for whatever reason, they didn't get as much media attention as Paulson and Goldman. But while it is frequently noted in the press that Paulson and Goldman profited from the subprime crash, the revelation that they worked together to place these bets has gotten basically zero attention. See this McClatchy series, for instance, which mentions both Goldman and Paulson, but not the fact that Goldman helped Paulson place his bets. The partnership between Goldman and Paulson was first reported in Gregory Zuckerman's book on Paulson, as I noted yesterday, but the author basically ignores (or fails to recognize) the implications of this news, and it's gone nowhere. When the book first came out, however, David Fiderer explored the implications of the Goldman-Paulson partnership in an excellent post on The Moral Compass Missing from the Greatest Trade Ever. Paulson, Fiderer writes, "was dissatisfied. The marketplace had not satiated his appetite for placing bets against subprime mortgage securities. So he cooked up a scheme to issue billions more in new securities designed by him to fail."
Paulson asked his investment banks [Goldman, Deutsche, Bear Stearns] to create new issues of repackaged subprime mortgage securities, known as collateralized debt obligations, or CDOs, so that they could be sold to some suckers at close to par. That way, Paulson’s hedge fund could approach some other sucker who would sell an insurance policy, or credit default swap, on the newly minted CDOs. Bear, Deutsche and Goldman knew perfectly well what Paulson’s motivation was. He made no secret of his belief that the CDOs’ subordinate claims on the mortgage collateral were close to worthless. By the time others have figured out the fatal flaws in these securities, which had been ignored by the rating agencies, Paulson could collect up to $5 billion.
Incredibly, as Fiderer notes, Paulson actually handpicked mortgage bonds for inclusion in the CDOs -- that is, he picked the mortgage pools that he was going to bet against. From Zuckerman's book:
Paulson’s team would pick a hundred or so mortgage bonds for the CDOs, the bankers would keep some of the selections and replace others, and then the bankers would take the CDOs to the ratings companies to be rated…To try and protect themselves, the Paulson team made sure that at least one of the CDOs was a “triggerless” deal, or a CDO crafted to be more protective of [the] equity slices by making other pieces of the CDO [which Paulson had bet against] more likely to take early hits. Paulson’s goal was to make the equity piece at bit safer, but this step made the other parts of the triggerless CDO even more dangerous for anyone who had the gumption to buy them.
Bear Stearns was actually too ethical (!!) to put these deals together for Paulson, with one trader saying "it didn’t pass the ethics standards; it was a reputation issue, and it didn’t pass our moral compass. We didn’t think we could sell deals that someone was shorting on the other side.”

Alan Greenspan and John Paulson.

Beyond the moral issue, how is this not illegal? Certainly, these were largely unregulated markets, but is there no standard for disclosure? Were investors on the other sides of these trades informed that Paulson & Co. had actually played an integral role in designing these CDOs, and was betting against them? Denninger raises a similar question:
You can say that the buyers of the CDOs should have done their due diligence. Ok, I'll grant you that. You can also say that the ratings agencies had no business granting "AAA" ratings on underlying securities with such shaky repayment prospects, and I'll agree with that too. But this leaves open the question of whether it is fair, just, or even legal to create a synthetic security that at it's core comes into existence because someone believes that the reference is going to detonate, and then sell off pieces of that security to investors without prominently disclosing the source of the funding of the cash flow, that they proffered the criteria for inclusion in the reference and that the INTENT of their funding was to profit from an EXPECTED detonation of the reference securities.
If there was no disclosure of Paulson's role in crafting (and funding) these securities, I simply cannot fathom how the deals met necessary standards of disclosure. Ultimately, this is not about whether shorting the housing market was moral or not; it is about whether Paulson and Goldman's partnership was outright fraudulent. In any case, this needs to be investigated. While I understand that our government has been captured, the fact that we still can't point to a single sustained, high-profile investigation of members of this Wall Street crowd (barring the weird Ponzis) is absolutely shameful. Hopefully, Europe will do better. There is another interesting angle to this story. Paolo Pellegrini, the Paulson trader who was intimately involved in crafting these deals, used to work at the hedge fund Mariner Investment Group, which was busy constructing these kinds of CDOs in 2006. The Times described a Mariner unit as "one of the most aggressive CDO creators" in the market. It's unclear if Pellegrini was on good terms with the firm when he left, in 2004, though Mariner founder Bill Michaelcheck spoke highly of him in a recent Bloomberg profile. This raises another question: which other speculators crafted Paulson-style deals in the CDO markets? Which banks did they partner with? How did they find buyers? No one knows what is going on in Greece; my posts about another fruitful Paulson-Goldman partnership are largely speculative. But as I've written, if Paulson and Goldman's past relationship is any guide to their current behavior, whatever they are doing is probably worthy of an investigation. In this country, of course, we should probably start by getting to the bottom of what happened in the subprime CDO market.
Goldman Sachs's Greek adventure got an in-depth look from the New York Times yesterday. The article extends on last week's Spiegel piece, which reported that the bank helped Greece hide the true extent of its debt through the use of specialized derivative products. We first reported on the parallels between AIG and Greece in a post last week, following the lead of Zero Hedge. Entry into the paper of record means the story now has legs this side of the pond, and MIT economist Simon Johnson is arguing that Goldman Sachs is set to be blacklisted in Europe. One question looming over this story: did Goldman position itself to profit from the Greek fiasco? Did it use its special knowledge of Greek's hidden debt to build profitable bets on its future downfall and rescue? If the bank's past behavior is any guide, the answer is yes. Ignoring the impending catastrophe (obvious from their vantage point), and failing to properly "hedge" (extract massive profits), would have been "irresponsible" (insufficiently greedy/corrupt) on the part of senior management. Considering this, hedge fund king John Paulson's role in Greece deserves far more scrutiny. I wrote about this last week, pointing out that they shared the same vulture flight pattern in Greece, but at the time did not realize that Paulson and Goldman actually partnered in executing massive and profitable bets against the subprime market. Are they doing the same with Greece? News of Paulson's fund taking large positions against Greek debt has barely risen above rumor in the English-language press, despite this article in a Greek daily, which says that Paulson is "orchestrating the pressure on Greek government bonds and the Euro," and reports that Paulson has a team of 20-30 traders focused on Greece.
Protests in Greece

In Greece, protesters rally against the government's austerity measures. The banner reads "We are struggling to live."

A research firm is now calling Paulson the George Soros of derivatives markets, where the bulk of speculation against European debt and the Euro is happening; the Telegraph says that so far "no hedge fund has put its head above the parapet in this destructive trade," but the rumor is that Paulson is behind it. If Paulson is the hedge fund king behind the parapet, as rumored in English and reported in Greek, then it would seem fairly likely that Paulson and Goldman partnered -- colluded? -- to build profitable short positions against Greek debt. That Goldman was shepherding hedge fund client Paulson around Athens in recent weeks would seem to suggest that the bank and hedge fund are working together in Greece. Paulson and Goldman have partnered before -- on the subprime short trades that won them enormous profits in the midst of the housing. Those trades have gotten a lot of attention, but the fact that Paulson and Goldman worked together to make it all happen has received much less ink. The story of Paulson's investments is detailed in Gregory Zuckerman's book, The Greatest Trade Ever. Goldman plays a prominent role, setting up the CDOs that Paulson would wager against, and then selling them to investors. The star Goldman trader who placed the bank's winning bets against the subprime market, Josh Birnbaum, was reportedly in frequent contact with Paulson, at one point encouraging him to back off his bets (perhaps to make more room for Goldman). Since Paulson was in the room with Goldman (and several other banks) when these CDOs were first conceived, it would seem that the fund had an unfair edge over the investors that would lose their shirt buying the securities. Zuckerman notes that Deutsche Bank suffered losses because it couldn't find takers; that famous taker, AIG, may have been Goldman's convenient solution. These parallels raise obvious questions: was Paulson also in the room with Goldman before it tried to sell Greece on a new way to hide its debt this past November? As a hedge fund client of Goldman's, did Paulson have special information about Greece's true debt situation? Are Goldman and Paulson partnering, once again, to profit from the downfall of an entire country/continent?
When they were introduced, he made a witticism, hoping to be liked. She laughed extremely hard, hoping to be liked. Then each drove home alone, staring straight ahead, with the very same twist to their faces. The man who'd introduced them didn't much like either of them, though he acted as if he did, anxious as he was to preserve good relations at all times. One never knew, after all, now did one now did one now did one. --"A Radically Condensed History of Postindustrial Life," from Brief Interviews with Hideous Men by David Foster Wallace
During his now-infamous Oval Office interview with Bloomberg Businessweek Obama named FedEx CEO Frederick Smith as one of his favorite business executives. Smith is an unlikely choice to say the least. He raised more than $100,000 for the McCain campaign and was co-chair of his finance committee. He is also "fiendishly anti-union," in the words of Doug Henwood; he has been engaged in a long-running battle with the labor movement over allowing the company's workers (who are classified as independent contractors) to unionize. Unions were key allies of Obama during his presidential campaign. I couldn't help but think of the above story, by the late David Foster Wallace, when I heard this news. The president is exceedingly anxious to be liked by the rich and powerful and to "preserve good relations" within his class, at almost any cost. As a result, it is next to impossible to discern what Obama stands for. This is the presidency of "One never knew, now did one now did one now did one" -- in which orienting substance is lost in an unending quest for future cordiality. Naturally, the Bloomberg article ends with an Obama witticism, directed at Mr. Smith.
Via Bloomberg, we learned yesterday that President Obama buys in to the Wall Street delusion that bankers actually deserve really high salaries. Speaking about JP Morgan's Jamie Dimon and Goldman's Lloyd Blankfein, he said this:
The president, speaking in an interview, said in response to a question that while $17 million is “an extraordinary amount of money” for Main Street, “there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.” “I know both those guys; they are very savvy businessmen,” Obama said in the interview yesterday in the Oval Office with Bloomberg BusinessWeek, which will appear on newsstands Friday. “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.”
Krugman's reaction, in a blog post titled "Clueless," pretty much sums it up: "Oh. My. God." The quotes paint a picture of a president who is hopelessly out of touch with the economic reality and with the public's perceptions of Wall Street. He also seems to be experiencing some amnesia regarding the massive, taxpayer-funded bailouts that have sustained the institutions run by these businessmen. The White House has already started attempting to walk back the comments in a remarkable blog post that purports to clear up what the president "actually" said during the interview. While offering up lengthy presidential quotes about the bonuses, say-on-pay, and so forth that put some of his words in context, the post leaves out what I see as the most important quote in the Bloomberg piece, where he says (about Blankfein and Dimon): "I know both those guys; they are very savvy businessmen." It makes sense that the White House failed to address that quote, because it's virtually impossible to walk back what is conveyed by that sentence: that the President is cozy with Blankfein and Dimon, that he respects their intelligence and business acumen, and, in the context of the rest of the interview, that he thinks they actually earn their money.
Blankfein and Dimon.

Dimon and Blankfein.

When Wall Street bankers defend various high-profile members of their cabal, they usually lead with the argument that I know so-and-so, and he is really smart. In other words, some bankers make money because they're in the right place at the right time, and it's true they don't really deserve it, but others (my friends) make lots of money because they are just so intelligent. This appears to be Obama's take on Wall Street -- that some bankers don't deserve to make so much money, and therefore shareholders should have more say-on-pay. But Dimon and Blankfein: I know those guys, and they are smart. Of course, any earthling who has been following the financial crisis would respond to these arguments by saying something along the lines of: yes, so smart they they almost blew up the world economy, necessitated a multi-trillion dollar government rescue, and then made even more money. Perhaps that is "savvy," but it is also wholly corrupt and criminal. That Obama does not see this suggests that we cannot count him among the earthlings, and that he actually has a hard time understanding this perspective on things. It's not hard to see where this comes from. The core of Obama's fundraising team was composed of hedge fund managers and bankers. His White House is run by a former banker, Rahm Emanuel. The New York Times refers to Jamie Dimon as his "favorite banker." Robert Rubin, arguably the most influential Wall Street policy elite, seeded many of the appointments in his administration. Goldman Sachs was his top corporate contributor. According to our analysis, more visitors to top Obama White House officials have ties to Goldman Sachs, JP Morgan, and Morgan Stanley than any other business. Obama obviously likes Wall Street, and Wall Street likes him. Considering these basic facts about Obama's network, Tuesday's poorly-sourced New York Times piece on how the industry is sending cash to Republicans in a "message to Democrats" looks all the more ridiculous (though perhaps a sign of what would happen if Obama, against all odds, did turn on his network and donor base). Obama is fully captured by Wall Street, and he shares Wall Street's collective delusion that what they do is actually worth extraordinary levels of compensation. At least some bankers seem to understand this delusion for what it is. Here is Liar's Poker author Michael Lewis, via Matt Taibbi, on the yearly bonus ritual:
To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital—to decide who should get it and who should not. Believe me when I tell you that I hadn’t the first clue.
It's not just a CEO issue -- the compensation problem runs up and down the ladder. Blankfein and Dimon are at the top, but their compensation is no more absurd than the six figure salaries of recent Ivy grads, who have zero experience in business, but who are employed for their knowledge of business. Read the whole Taibbi post for another humorous take.
With the mounting crisis in Greece, another massive stash of toxic debt has revealed itself in a way that can't be ignored. Fears of a "contagious default" in the Eurozone hammered markets yesterday, with one Greek banker calling it a "wholesale selling off of the country." Today, markets are rebounding on hopes for an EU bailout, and around we go again. Though parallels to Dubai are obvious, Zero Hedge has noted the similarities between Greece and AIG due to the intimate involvement of Goldman Sachs in both crises. Rumor has it that Goldman was a "bulk buyer" of Greek protection, ZH writes, and that thus "it is precisely Goldman, just like in the AIG case, that can now dictate what the collateral margin that Greek counterparties, and by extension the very nation of Greece, have to post on billions of dollars of Greek insurance." This is the kind of enormous leverage that helped Goldman take AIG to the cleaners at taxpayers' expense. Zero Hedge's allegations are backed up by rumors, for the most part. But there is no denying that Goldman is mixed up in Greece, between this piece from Spiegel and this recent Financial Times article on Goldman's prominent role in the Greece "rescue." If the allegations are true, Goldman is once again negotiating for a giant pass-through of taxpayer money from a world superpower. There are also signs that the bank is (once again) joined by a network of hedge fund colluders in its efforts. The FT article on Goldman in Greece led with the curious news that the bank was "shepherding" a client around Athens:
A team from Goldman Sachs was in Athens on Thursday shepherding representatives of Paulson, the US hedge fund, around meetings with local bankers, economists and analysts. The client visit, the second to Athens this month arranged by the US investment bank, highlights a deepening involvement with Greece's socialist government as it desperately tries to shore up the public finances and avoid default - and comes after the Financial Times reported this week that the bank was mooting a controversial debt deal with China.
Paulson's presence in Greece should raise eyebrows. The hedge fund, like Goldman, won big by betting against the subprime meltdown. Speculators are currently attacking Greek financial markets, to the point where Stiglitz is telling the Greek government to call their bluff. Is Paulson one of them?

Hedge fund king John Paulson: partnering with Goldman in Greece?

Indeed, an article in the Greek daily To Vima (original here) several weeks ago suggests that Paulson & Co is in Greece for more than a "client visit." The article, titled "The Speculator who 'plays' with Greece," reports that John Paulson is "orchestrating the pressure on Greek government bonds and the Euro." This has not been reported in the English-language press (from what I can tell), though it would seem to be very newsworthy if true. The article also reports, via Google Translate, that Paulson "allegedly decided to deal systematically with Greece (via the hedge fund Paulson & Company which he founded and runs) betting on degradation of the reliability of our country and the climate of concern for our financial terms." The hedge fund has a team of 20-30 traders focused on this Greek strategy. That John Paulson and Goldman appear to share the same vulture flight pattern, once again, in Greece, is incredibly suspicious. Are they colluding in a repeat of their winning subprime trade? Is the European Union their next taxpayer-funded counterparty? Is Greece the next AIG? Time will tell.
The Washington Post is reporting that AIG is set to pay $100 million in employee bonuses today:
American International Group plans Wednesday to pay another round of employee bonuses, worth about $100 million, said several people familiar with the matter, a year after similar payments at the bailed-out insurance giant infuriated many Americans and inflamed Washington.
The US government owns 80% of AIG. Lots of figures and percentages appear in the Washington Post article, but that one doesn't. And while pay czar Ken Feinberg's name appears throughout the piece -- he seems to have played some role in approving these bonuses -- the names of the three trustees charged with overseeing the government's 80% stake are nowhere to be found. Search for their names on Google News, and you find no recent articles mentioning the trustees in the context of this decision. Did they not play a role in this decision? The trustees -- Jill Considine, Douglas Foshee, and Chester Felberg -- were handpicked by Geithner's New York Fed to oversee AIG in late 2008. So blame Geithner, but more important, blame their network of bankers and wise men, led by Robert Rubin, that dominates nearly every elite financial policy post in Washington (but not all of them, as CDouglas reminds us). One can only imagine the twisted logic that leads people like Timothy Geithner to think it's ok to pay employees of a government subsidiary $100 million in bonuses. I wouldn't put it past them to argue that elite government officials are actually vastly underpayed in their government posts, given their special value to our economy, and that the AIG payments are actually a more efficient and equitable form of compensation for government employees. Publicly, Feinberg, Geithner, and company talk about special legal agreements and such that prohibit them from cutting these payments, about the country having an interest in AIG being profitable, about how these employees need to be paid well, or they'll flee to better-paying jobs. These jobs exist, in fact, (unlike most other sorts of jobs) thanks to the financial bubble planning skills of folks like Geithner and Summers, which have propped up a whole range of Ponzi banks and hedge funds. Ironically, many of these funds limited redemptions at the time of the AIG outrage last year (DE Shaw, for instance, where Summers earned made $6 million). Round and round we go. I would *love* to see how these excuses poll with the general public. Who really buys them? Did anyone actually believe Feinberg when he told Good Morning America that the government is using "whatever leverage we have to get as much of that money back." What a laughable claim. The government should not be talking about the "leverage" it has over a company that is 80% owned by the US government. AIG *is* the government, and vice versa.