The Joy of Sachs. Goldman, that is.

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    Jul 20, 2009 10:35 AM GMT
    For those of you interested in what's happening on Wall Street, NYTimes' Paul Krugman does a great job of highlighting the fact that the Street appears to have learned nothing, or hopes the American public can't put two and two together.

    http://www.nytimes.com/2009/07/17/opinion/17krugman.html?_r=1

    The Joy of Sachs
    By PAUL KRUGMAN
    Published: July 16, 2009
    The American economy remains in dire straits, with one worker in six unemployed or underemployed. Yet Goldman Sachs just reported record quarterly profits — and it’s preparing to hand out huge bonuses, comparable to what it was paying before the crisis. What does this contrast tell us?
    First, it tells us that Goldman is very good at what it does. Unfortunately, what it does is bad for America.

    Second, it shows that Wall Street’s bad habits — above all, the system of compensation that helped cause the financial crisis — have not gone away.

    Third, it shows that by rescuing the financial system without reforming it, Washington has done nothing to protect us from a new crisis, and, in fact, has made another crisis more likely.

    Let’s start by talking about how Goldman makes money.

    Over the past generation — ever since the banking deregulation of the Reagan years — the U.S. economy has been “financialized.” The business of moving money around, of slicing, dicing and repackaging financial claims, has soared in importance compared with the actual production of useful stuff. The sector officially labeled “securities, commodity contracts and investments” has grown especially fast, from only 0.3 percent of G.D.P. in the late 1970s to 1.7 percent of G.D.P. in 2007.

    Such growth would be fine if financialization really delivered on its promises — if financial firms made money by directing capital to its most productive uses, by developing innovative ways to spread and reduce risk. But can anyone, at this point, make those claims with a straight face? Financial firms, we now know, directed vast quantities of capital into the construction of unsellable houses and empty shopping malls. They increased risk rather than reducing it, and concentrated risk rather than spreading it. In effect, the industry was selling dangerous patent medicine to gullible consumers.

    Goldman’s role in the financialization of America was similar to that of other players, except for one thing: Goldman didn’t believe its own hype. Other banks invested heavily in the same toxic waste they were selling to the public at large. Goldman, famously, made a lot of money selling securities backed by subprime mortgages — then made a lot more money by selling mortgage-backed securities short, just before their value crashed. All of this was perfectly legal, but the net effect was that Goldman made profits by playing the rest of us for suckers.

    And Wall Streeters have every incentive to keep playing that kind of game.

    The huge bonuses Goldman will soon hand out show that financial-industry highfliers are still operating under a system of heads they win, tails other people lose. If you’re a banker, and you generate big short-term profits, you get lavishly rewarded — and you don’t have to give the money back if and when those profits turn out to have been a mirage. You have every reason, then, to steer investors into taking risks they don’t understand.

    And the events of the past year have skewed those incentives even more, by putting taxpayers as well as investors on the hook if things go wrong.

    I won’t try to parse the competing claims about how much direct benefit Goldman received from recent financial bailouts, especially the government’s assumption of A.I.G.’s liabilities. What’s clear is that Wall Street in general, Goldman very much included, benefited hugely from the government’s provision of a financial backstop — an assurance that it will rescue major financial players whenever things go wrong.

    You can argue that such rescues are necessary if we’re to avoid a replay of the Great Depression. In fact, I agree. But the result is that the financial system’s liabilities are now backed by an implicit government guarantee.

    Now the last time there was a comparable expansion of the financial safety net, the creation of federal deposit insurance in the 1930s, it was accompanied by much tighter regulation, to ensure that banks didn’t abuse their privileges. This time, new regulations are still in the drawing-board stage — and the finance lobby is already fighting against even the most basic protections for consumers.

    If these lobbying efforts succeed, we’ll have set the stage for an even bigger financial disaster a few years down the road. The next crisis could look something like the savings-and-loan mess of the 1980s, in which deregulated banks gambled with, or in some cases stole, taxpayers’ money — except that it would involve the financial industry as a whole.

    The bot
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    Jul 20, 2009 1:42 PM GMT
    Damn were screwed.....there's only one way to get up on this...

    Does anyone have the phone number for Human resources at Goldman Sachs?

    FYI rolling stone did a brilliant write up on goldman, my brother an econ prof at UL sent me...it's about 12 pages long but for anyone interested

    http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine

    I sent him back saying, huh I never actually read rolling stone i thought it was all music and popular culture icon_neutral.gif
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    Jul 20, 2009 1:57 PM GMT
    MsclDrew saidDoes anyone have the phone number for Human resources at Goldman Sachs?


    I do, actually. icon_razz.gif
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    Jul 20, 2009 2:03 PM GMT
    And that's why I've always said Paul Krugman should have been part of the economic advisory team of the O administration.
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    Jul 20, 2009 2:19 PM GMT
    MsclDrew saidDamn were screwed.....there's only one way to get up on this...

    Does anyone have the phone number for Human resources at Goldman Sachs?

    FYI rolling stone did a brilliant write up on goldman, my brother an econ prof at UL sent me...it's about 12 pages long but for anyone interested

    http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine

    I sent him back saying, huh I never actually read rolling stone i thought it was all music and popular culture icon_neutral.gif


    The Rolling Stone piece is amazing.
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    Jul 20, 2009 2:35 PM GMT
    For many years I have been following Paul Krugman's writing.

    What I find is that about 50% of it I agree with and the rest can be questionable.

    It seems to me like it would take a very stupid person to argue against the Keynesian principles that Krugman and his peers have been promoting since well before the election. Likewise, he has been a singular voice in holding the President accountable for the overly-cozy relationship between this administration and Wall Street.

    However, the NY Times columns over the last 3 months smack of pandering. 3 weeks ago he was saying that a depression was unavoidable unless.... Actually, he barely mentioned the Eurozone in that entire period (one column that I recall).

    To the best of my recollection he has never talked about currency valuations as a factor in toppling this house of cards. (that was the trigger)

    Now, in this column and the couple that have preceded it, he has basically switched to a sentiment that goes along the lines of looks like we may weather this after all but since nothing was done about regulation we are fucked anyway.

    That is just wrong.

    The Euro remains massively overvalued and the Eurozone has tipped into negative economic growth. Britain looks as if an economic hydrogen bomb has exploded. CIT took a $3 billion dollar loan today. Some reports peg NY real estate as still 30% or more overvalued.

    This is a long way from over.

    Worse, this envy over economics style of selling newspapers neglects the fact that what has actually happened under the present administration is the greatest re-concentration of economic power since Rockefeller and Carnegie were raping and pillaging. This didn't happen before the Bush depression, it has happened after, 90% on President Obama's watch and directed (not merely abetted, directed by Timothy Geithner).

    Can you imagine the chairman of Microsoft telling a congressional committee that the U.S. Government pressured him into buying Oracle? That would never happen. Yet this is exactly what the chairman of BofA said in front of congress about Merill because it was, er, true!!

    Krugman says that banking should be an unglamorous profession and the incentives for skullduggery should have been taken away. Look, these guys at Goldman Sachs are obviously back to Petrus after having been forced to drink Opus One for awhile.

    That is not the point.

    As long as we are talking about who makes how much money then the United States Congress isn't much more than a hairdresser's convention and the New York Times is selling newspapers on class envy. Who is doing anything about structural reform????

    Paul Krugman, a great mind, is playing along.

    What I want to know are answers to the following questions:

    1.) What the fuck is happening with the Keynesian principles that are supposed to be stimulating our way out of this mess?

    2.) What are we actually spending stimulus money on now? (the French will spend 100% of their stimulus on actual INFRASTRUCTURE projects withing 2009!!)

    3.) What happens when the next major currency correction (the Euro) sets the whole damned thing off again?

    4.) Why are the Krugmanites declaring the crisis passed when it absolutely isn't?

    5.) When, if ever, will we see any kind of banking reform proposal from this President (never).

    Terry



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    Jul 20, 2009 2:49 PM GMT
    Terry, read the Rolling stone article. While I don't always agree with Krugman, he's certainly hit the nail on the head with this op-ed.
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    Jul 20, 2009 2:49 PM GMT
    UrsaMajor said

    1.) What the fuck is happening with the Keynesian principles that are supposed to be stimulating our way out of this mess?

    Terry



    A new model needs to be developed - Keynesian principles obviously don't work
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    Jul 20, 2009 5:07 PM GMT
    Krugman, while accurate on several points, must be taken with a grain of salt. He is no "independent" and "lone wolf/dissenting" economist.

    He is a mainstream economist, evident of his position with the New York Times, a paper heavily controlled by major financial interests and the "liberal" imperialist paper of the United States.

    Let's not forget, the openly supported the Iraq war in the run-up to it, and then became the paper of "liberal dissent" (whatever that means).

    When the US tried to have a coup in Venezuela, overthrowing Chavez, the NYTimes declared the new US installed puppet leader legitimate, and then, oh wait, Chavez came back by popular demand of the people who democratically elected him, and the Ny Times had to write a retraction. Oh, and with Obama's first coup as President, in Honduras, (Obama is a big boy now, already had his first coup!), the NYTimes whitewashed the issue and downplayed the political violence against the people who are demanding their elected leader come back and having the appointed US puppet removed.

    The NY Times is the liberal establishment paper. Hardly a voice of opposition to the American ruling class and elites. They are literally on its board of directors.

    Krugman, himself, is a member of the liberal establishment elite in the US; as he is a member of the Council on Foreign Relations, THE pre-eminent think tank and policy group in the US which was founded, owned and run by powerful financial interests, and he is also a member of the Group of Thirty, a group of elite economists and people in finance from around the world.

    His role is to provide "managed dissent" within the system, not to challenge the systemic issues, themselves.

    So, his analysis, while accurate on many points, misses the target.

    But that, also can describe Keynesian economics, of which the purpose was to "save capitalism", which it did in the post-war period. Well, save it for the capitalists.

    Keynesian economics holds that the government must intervene in the domestic economy to control inflation and create jobs, but allow for the creation and maintenance of a liberal international economic order.

    These policies have been tried, tested, and failed. Keynesian economics saves capitalism for the capitalists, and this is evident of Krugman's endorsement of the "bailouts" to "save Wall Street."

    The point is missed. Krugman endorses to bailouts, so people, especially those people who are critical of the economic policies being undertaken and of the sources of the financial crisis, will still support the bailouts, both Bush's and Obama's.

    The bailouts are going to do more harm than good.

    Gerald Celente, the President of Trends Research Institute, the major, most accurate and most widely respected trend forecaster in the world, has been saying interesting things lately.

    Celente accurately predicted the 1987 stock market crash, the fall of the Soviet Union, the 1990 recession, the dot.com bubble, the housing bubble bursting in 2008, and now has some terrifying and fascinating things to say about the next 3 years of what will be seen in trends.

    Among the many trends, by 2012:

    * we now have the "bailout bubble" which is consisting of $12.8 TRILLION dollars (for those that think the bailouts consist of 800 and 700 billion dollars, sorry, you are sadly mistaken: http://www.bloomberg.com/apps/news?pid=20601087&sid=armOzfkwtCA4
    * the bailout bubble will burst, being MUCH worse than the housing bubble
    * what will result is that the nation will go to war
    (in political economy and theory, not to mention using history as an example, it is no secret that times of economic crisis become times of international war. the prospects of world war are massively increasing)
    * the merging of government with the banks and industry is not socialism, but fascism, and that we will enter into an era of "fascism light"
    * by 2012 the world will be in the "Greatest Depression" in world history
    * the US will become an underdeveloped nation, with crime rampant, cities becoming like Mexico City and other third world capitals
    * there will be tax revolts, food riots, possible revolution

    To borrow one of Celente's phrases, "I am a political atheist, I don't bow to any politician." Sorry for those that think Obama is going to save the world, but... it aint gonna happen. As Celente predicts, we are headed for "Obamageddon", otherwise known as the "Greatest Depression".

    FYI: the New York Times attacked Celente for engaging in "pessimism porn", but he retorts that they are just selling "optimism opium." The NYT is just trying to be "hopeful" and tow the line that Obama will save the economy.

    Call a spade a spade. Obama is there to save the bankers from their own mess.. and foot you with the bill.











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    Jul 20, 2009 5:08 PM GMT
    And he is no nut job. His predictions have been accurate in the past, and many of these trends are confirmed by other major forecasters.

    For example, in 2008, the National Intelligence Council (NIC), the organization of all 16 US intelligence agencies, worked with major international think tanks, corporations and other forecasters to produce a report called "Global Trends 2025", in which they analyze future trends for the world until 2025.

    They support Celente's claims, analyzing a return to mercantilism and massive increases in the chance of major wars, that the whole international system will be reorganized, that the dollar will be replaced, that the American empire is in collapse, that democracy is in decline, and western industrialized nations will descend into the next phase of capitalism based upon the "China model" (i.e: totalitarian capitalism, or "fascism light" as Celente calls it).
    http://www.dni.gov/nic/NIC_2025_project.html

    In 2007, the British Defense Ministry released a report of future trends in which they predicted that the western middle classes will become revolutionary, due to the divide between the rich and poor.
    http://www.guardian.co.uk/science/2007/apr/09/frontpagenews.news
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    Jul 20, 2009 6:03 PM GMT
    jprichva said

    And that paranoiac business about the Council on Foreign Relations has simply got to go. I know it's one of the big three boogeymen for the conspiracy-minded (the Trilateral Commission and the Fed being the others), but that's just nonsense.
    .


    yeah, you're right. Why should anyone look into the influence that is wielded by powerful organizations?

    If you do that, or worse yet, talk about it, then you are just a "conspiracy theorist."

    Or wait, as you so elegantly stated, "paranoid."

    I'm sorry to tell you this, but in political economy academic journals, as well as text books and literature, the Council on Foreign Relations and the Trilateral Commission, and yes, even the Federal Reserve and Bilderberg group are discussed as institutions wielding significant influence in the world.

    Imagine the audacity!

    How dare anyone discuss the institutions through which elites exert influence and shape social factors! What nonsense!

    Never in history have elites controlled finance, politics, academia or the like! That's a conspiracy theory! What paranoia to imagine that the most powerful people in the world work in their own interest and what's more... create organizations to wield their power. Pure lunacy!

    I'm sorry, but telling me discussing the Council on Foreign Relations "has got to go" is ignorant at best, and naive to say the least.

    One question: Why?

    Why NOT talk about these institutions?

    Have you seen who the members are? Who the board is composed of? Read their OWN history? Studied them independently? Or, perhaps... even, read the reports they produce, follow the programs they undertake?

    If you did any of this stuff, it is undeniable that the Council on Foreign Relations is the pre-eminent think tank in the United States.

    Every single Secretary of State, CIA Director, Fed Director, Secretary of Defense, national Security Adviser, etc, is a member. But alas! Conspiracy! how dare anyone discuss or even "speculate" that there are groups where the powerful convene and undertake initiatives that serve their interests.

    I know you are steadfast in your positions, and may view mine as naive and flawed, but... sorry... i feel the same about yours. And really, this naivety has just "got to go!"
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    Jul 20, 2009 6:11 PM GMT
    southbeach1500 saidHmmmm. So Goldman is profitable and that's a bad thing?

    What was the point of the government putting in the money in the first place then? Was it to make sure Goldman didn't go under and was just a "little" profitable?

    How much is "too much" profit and who should decide?


    This has nothing to do with being profitable, but everything to do with accountability. Please read the Rolling Stone article. It does a great job of explaining just how Goldman helped to get us in the mess we're in, and how they're setting up the economy to do it yet again. And the paint's still drying from the last mess that Wall Street got us into.
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    Jul 20, 2009 6:16 PM GMT
    MEO can you put your posts in paragraphs: I can´t read them the way you make them: the flow of the logic is obscured by the presentation.
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    Jul 20, 2009 6:19 PM GMT
    Lostboy saidMEO can you put your posts in paragraphs: I can´t read them the way you make them: the flow of the logic is obscured by the presentation.


    Sorry Lost,

    Duly noted and will do in the future!
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    Jul 21, 2009 12:46 AM GMT
    I just noticed I used two colons in one sentence. I am sorry.
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    Jul 21, 2009 5:47 AM GMT
    jprichva said
    MeOhMy said Have you seen who the members are?

    Yes, actually. My cousin Robin has been a member of CFR since the 1980s. She's ever so sinister. She keeps baking this hamantaschen that sink like a stone in your stomach. I do believe she's planning world domination via bad bakery products.


    Yes, the membership is wide and varied and ranges to the thousands.
    Even Angelina Jolie is a member.

    Membership does not imply "participation in the conspiracy". The membership reaches to all sectors. But im sure your cousin also isnt on the board, nor does she head the major group projects such as the Independent Task Force on the Future of North America, which produced the document, Building a North American Community, which served as a blueprint for the Security and Prosperity Partnership of North America (SPP).
    http://www.cfr.org/publication/8102/

    Also doesnt sound like she would be writing many articles in Foreign Affairs, the dominant political science academic journal, which shapes foreign policy discussion.

    Read the official history of Foreign Affairs and the Council itself. They admit themselves that they wield a great amount of power. In their own "History" on their website they discuss how the Council created the War and Peace Studies Project at the outbreak of World War 2, which was working closely with the US state department to shape and determine US foreign policy in WWII, and that they planned for the entry of the US into the war, and were already determining how to restructure the world system, specifically the international monetary system, following the war. By any other name, this is known as collusion with private interests.

    They played a apart in laying the intellectual and methodological grounds for the UN, IMF/World Bank, Bretton Woods, GATT, NATO, Marshall Plan, etc... and then the people who recommended this went into the government positions to undertake these intitiatives. How about an article written in Foreign Affairs which came up with the concept of "containment" which determined US foreign policy towards the Soviet Union for nearly half a century.

    But no, you're right, they are pursuing world domination through baking.

    Go ahead and mock, but you're missing the point. Like any institution and structure, government, corporations, banks, think tanks, intelligence agencies, universities, media, etc... there are good people with good intentions everywhere. However, when you study the structure of said institutions, and the interests that control them, and in whose interests they serve, what purpose they serve, and how they serve it... there is consistency between the various bodies. The Council on Foreign Relations serves to centralize debate and discussion. It brings together the elites from academia, military, politics, finance, industry, media and intelligence and creates a cohesive understanding between them. It is a force for socializing the ruling class of the United States into a homogenous group.

    There is dissent within the group, but the dissent is on the means to achieve the objectives laid out, not on the objectives themselves. For example, in terms of foreign policy, dissenting opinions within the Council differ in terms of how to use American power, what type of empire to undertake, with neo-conservatives advocating hard frontal assaults against nations, and more realist-oriented non-ideological elements, such as the Brzezinski's and Kissinger's advocating a more multilateral use of power. Some advocate direct war against a nation, while others prefer "soft imperialism" or "imperialism light" such as promoting "humanitarian intervention". They differ in how to use American power and what type of imperialism to pursue, but they do not call into question the notion of imperialism itself, or even ask, "should america be an empire?, how did it become an empire? why is it an empire?" etc.

    No offense to your cousin, but something tells me she doesnt really wield influence within the council if her main business is baking. But the point is that the Council wields influence over debate and discussion, and sets projects into motion that become reality. To say that such an organization does not wield influence is... staggering, to say the least. Especially when their own official history admits as much.

    The only "conspiracy" going on is a "conspiracy of ideas," where these large interest groups and think tanks with a particular ideological and world view shape debate and discussion. The influential figures within these organizations have a different ideological perspective, one in which national borders do not matter, describing themselves as internationalists and serving an international agenda, not a national one.

    Do you think Marxist, or say, Libertarian theorists, academics, are permitted to join in the dicussion at the Council? What about neo-Gramscian theorists? Radical feminists? Social Constructivists? The critical camp of theory and academia is removed from the institutions that determine policy, because it is the mainstream theorists who are within these institutions.

    Look at political-economic theory in the past 40 years. People like Joseph Nye, Keohane, Richard Cooper... these people who changed debate and created new theories of political economy and became widely influential internationally in the realm of theory and are constantly studied in the academic world, are all Council members. Yet, the theorists who analyze the role of institutions like the Council, such as neo-Marxists, neo-Gramscians, and social constructivists, are never council members. Their theorizing doesnt become policy. Their discussion doesnt become mainstream discussion.

    Like the political economist Robert Cox said, "Theory is always for someone and for some purpose." The political-economic theory that has emanated from institutions such as the Council, and specifically the Council, such as neo-liberalism, statism/neo-mercantilism and interdependence, have all served the interests of the dominant individuals and organizations within the Council.
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    Jul 21, 2009 5:48 AM GMT


    One of the Council's longest serving Directors and Chairmen, who still sits as Honourary Chairman of the Council, David Rockefeller, wrote in his own autobiography, Memoirs, that:

    For more than a century, ideological extremists at either end of the political spectrum have seized upon well-publicized incidents to attack the Rockefeller family for the inordinate influence they claim we wield over American political and economic institutions. Some even believe we are part of a secret cabal working against the best interests of the United States, characterizing my family and me as 'internationalists' and of conspiring with others around the world to build a more integrated global political and economic structure - one world, if you will. If that's the charge, I stand guilty, and I am proud of it."

    - Memoirs, page 405

    When giving a speech at the Council in 2005, former Fed Chairman Alan Greenspan stated:

    "I’m pleased to see that it [the Council on Foreign Relations] still is an impressive and important institution in this country, as it’s been since the early days of David Rockefeller, and a number of his predecessors, which really, in many respects, formulated the foreign policy of this country.”
    http://www.cfr.org/publication/7908/remarks_at_the_council_on_foreign_relations_annual_corporate_conference.html

    On the event of David Rockefeller's 90th birthday, James Wolfensohn, who at the time, was President of the World Bank, gave a speech in which he said:

    "In fact, it’s fair to say that there has been no other single family influence greater than the Rockefeller’s in the whole issue of globalization and in the whole issue of addressing the questions which, in some ways, are still before us today. And for that David, we’re deeply grateful to you and for your own contribution in carrying these forward in the way that you did"
    http://www.cfr.org/publication/8133/council_on_foreign_relations_special_symposium_in_honor_of_david_rockefellers_90th_birthday.html

    David Rockefeller just happened to be the founder of the Trilateral Commission with Zbigniew Brzezinski in 1973, and is a founding member of the Bilderberg Group. But I'm sure discussing these international think tanks and the influence they have means that i am a tinfoil hat wearing conspiracy theorist.

    Honestly, who is really the crazy one?

    The one who thinks that maybe it might be useful to study the major organizations of the world that shape discussion, debate and policy, and to look at and study the individuals who lead them, what they believe, what they aspire to do, and what they have done? .... OR, the one who just assumes that questioning power makes you a nut job conspiracy theorist? Hmm... let's ponder that question, shall we?
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    Jul 21, 2009 5:58 AM GMT
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    Jul 21, 2009 6:35 PM GMT
    Lostboy saidI just noticed I used two colons in one sentence. I am sorry.


    haha, it's okay Lost, I'm sure I can find it in my heart to forgive you. icon_biggrin.gif