Home » criticism, current events, Politics & History

Squid Pro Quo

By (February 1, 2011) 3 Comments

Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America

By Matt Taibbi
Spiegel & Grau, 2010
Matt Taibbi wrote the two most important words of his career, and the ones that likely iced his book deal for Griftopia, in the opening of his lengthy 2009 Rolling Stone article about Goldman Sachs’ role in the global economy: “vampire squid.” This was not a compliment, although it’s possible that some abnormally competitive Goldman Sachs traders interpreted it that way. But for average readers who didn’t understand the first thing about Wall Street but knew it was somehow responsible for losing all of their savings a few months earlier, Taibbi’s merciless, cartoonish hyperbole just seemed true: “The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything which smells like money.”
This writing was powerful enough to merit a sarcastic reply from Goldman’s CEO himself, Lloyd Blankfein, which Taibbi dutifully includes as praise on Griftopia’s back cover. That article, “The Great American Bubble Machine,” is included in Griftopia as a standalone chapter, although Taibbi can’t help but toss in a few additional “updates” responding to his critics — mostly established business journalists, and mostly all pieces of shit, in Matt Taibbi’s view.
But Griftopia is much more than a rehash of old glories with a few score-settling edits added to the mix. It’s something much darker and — to the dismay of optimists everywhere — crisply reported. His point is that Goldman’s vampire-squid technique of funneling blood from humanity is a scalable way of doing very profitable business across the financial services sector, which the rest of the economy is now plugged into and dependent upon. It isn’t just one bad apple of a firm. The entire elite economy — unaccountable middlemen with access to capital — is parasitic, “hoovering” up whatever wealth the American lower and middle classes still possess for elaborate, government-guaranteed “bets” between each other. Every top financial firm worth its salt longs to be a Goldman Sachs, because the insane things they do are either legal, or illegal but unenforced. This, to Matt Taibbi, has turned America into a “grifter’s paradise,” primed to be “stripped” of its wealth panel by panel, bubble after bubble.
Taibbi, who covers politics and national affairs for Rolling Stone, writes with the same profane, over-the-top style as his gonzo predecessor at that magazine, Hunter S. Thompson. And he gets the same criticism from elite corners that Thompson got, too: that he’s too wild, too quick to douse complex issues with invective, and too much of a Rolling Stone writer to write reliably about important matters of economics and governance. And he does occasionally run into these problems in Griftopia; his flashy style and deep-seated distrust of the powerful can lead him to thin, speculative conclusions. But the disdain that motivates him is unquestionably a net positive in Griftopia. It takes a sick mind to spend years mastering the intentionally convoluted and amoral intricacies of global structured finance, and Taibbi is fortunate to have one.
Matt Taibbi has plenty of metaphors at his disposal, and this one of “how the bubble economy works” could stand as his thesis for how the powerhouse American economy, following decades in which policymakers deregulated and privatized the core industries on which the country’s economic activity relies, was swarmed by blood-sucking grifters with MBAs:

Imagine the whole economy has turned into a casino. Investors are betting oil futures, subprime mortgages, and Internet stocks, hoping for a quick score. In this scenario the major brokerages and investment banks play the role of the house. Just like real casinos, they always win in the end–regardless of which investments succeed or fail. they always take their cut in the form of fees and interest. Also just like real casinos, they only make more money as the number of gamblers increases: the more you play, the more they make. And even if the speculative bubbles themselves have all the inherent value of a royal flush, the money the house takes out is real.

And the most annoying part is that leaders of these elite sectors — high finance, insurance, commodities — do have a valid excuse for their behavior: They’re just following legal incentives.
Any Griftopia reader with a vague knowledge of modern world affairs should be happy to read Taibbi’s phenomenal disemboweling of former Federal Reserve chairman Alan Greenspan. The chapter he dedicates to Greenspan is titled, “The Biggest Asshole in the Universe.” And Taibbi is a skilled enough polemicist to take this laugh line and prove that it’s factually true, at least until a worthy alien contender comes along.
Taibbi’s flourish about imagining the whole economy as a casino comes in Greenspan’s chapter. It’s appropriate, since Greenspan was given charge of vast swaths of economic policy during its conversion to a casino. Even in my senior year of high school’s introductory, half-semester course in economics, one of the few books we read was Maestro, Bob Woodward’s glowing account of the many supposedly perfect changes Alan Greenspan either made or directly advocated for, and got, during his tenure at the Fed. It never occurred to me as an 17-year-old, much less to America’s leading adult figures at the time, that entrusting one human with the entirety of American economic policy could cause some problems. Humans are flawed! And Taibbi would find Greenspan more flawed than most:

Greenspan’s rise is … a tale of a gerbilish mirror-gazer who flattered and bullshitted his way up the Matterhorn of American power and then, once he got to the top, feverishly jacked himself off to the attentions of Wall Street for twenty consecutive years–in the process laying the intellectual foundation for a generation of orgiastic greed and overconsumption and turning the Federal Reserve into a a permanent bailout mechanism for the super-rich.

It’s unclear if Wall Street was ever in the room while Alan Greenspan jacked off to its attentions for twenty consecutive years, but otherwise, Taibbi’s characterization works. Because the man with the most power to determine American economic policy was an ideologue: A one-time member of anti-government extremist Ayn Rand’s inner circle who used his powers as Fed chairman, and his persuasive lobbying abilities on Capitol Hill, to shift economic power dramatically in favor of Wall Street. Few seemed to notice, or care, about these changes when he was the “Maestro” and the bubble economy hadn’t exploded spectacularly. Taibbi is justified to call him “The Biggest Asshole in the Universe” as long as Greenspan keeps being invited to explain the economy on Meet the Press panels, weekly.

Goldman Sachs executives testify before the Senate

And the major issue Greenspan got wrong, or failed to use his limitless powers to address, was the housing bubble that emerged under his watch. Taibbi gives one of the more comprehensive single-chapter summaries that I’ve read of how the housing bubble worked and gave way to the financial collapse. How did so many grifters, operating on so many levels of grift, wrap their blood-funnels around the housing market? Basically, top financiers borrowed at historically low short-term interest rates to finance mortgages with historically low long-term interest rates, creating that thing which doesn’t actually exist: a risk-free profit! And when it’s risk-free, there’s plenty of speculative room remaining for professional fee-seekers and assorted other low-lifes to make a quick buck:

…Almost everyone who touched that mountain turned out to be a crook of some kind. The mortgage brokers systematically falsified information on loan applications in order to secure bigger loans and hawked explosive option-ARM mortgages to people who either didn’t understand them or, worse, did understand them and simply never intended to pay. The loan originators  cranked out massive volumes of loans with plainly doctored applications, not giving a shit about whether or not the borrowers could pay, in a desperate search for short-term rebates and fees. The securitizers used harebrained math to turn crap mortgages into AAA-rated investments; the ratings agencies signed off on that harebrained math and handed out those AAA ratings in order to keep the fees coming in and the bonuses for their executives high. But even the ratings agencies were blindsided by scammers who advertised and sold, openly, help in rigging FICO scores to make broke and busted borrows look like good credit risks. The corrupt ratings agencies were undone by ratings corrupters!

This sounds a bit dazzling if you haven’t read the links Taibbi stablishes between each stage in the… well, racket. But once you have, you could finish this summarizing paragraph for him after only a few words. Each station in the assembly line of Griftopia the incredible incentive banks had to put their money in “AAA-rated” mortgage-backed securities, which were somehow considered safe enough to count as reserve requirement capital — like U.S. Treasuries, the actual safest investments in the world. In reality, many of these “AAA-rated” securities were backed by pools of comical predatory loans brokered by common hustlers who’d disappear in the middle of the night. And the Wall Street banks that are left standing today? They knew this all along, and were playing the game just to make a fortune betting against their own “special investment vehicles.”
Griftopia makes these complex corporate structures and schemes seem so easy to grasp, though, that sometimes you have to question the author’s own understanding. Most people — in fact, all but about 50 executives in the world, by design — will never understand how the stock market bubble, the housing bubble, the credit bubble, the commodities bubble of  2008 (to which he devotes another engaging chapter) actually happened and what specific policies, if any, can be put in place to fix the central problem. So why should we trust anyone like Matt Taibbi who writes like he’s got it all figured out, when that’s not even possible?
I had doubts like these — that at times he was cherry-picking evidence to fit the narrative he’d decided on — while reading the chapter he devotes to criticizing the new health care law. The industry in question here, for one thing, has the opposite regulatory history of those in other chapters: the individual health insurance market had never been regulated before, and the Democrats’ plan, regardless of your opinion of the outcome, was to finally bring a modicum of oversight to this wasteland of death and evil; the financial services sector was tightly regulated for many years, until the Greenspan era. Taibbi does make the good (although not necessarily constructive) point that it’s sad that this watered-down health care bill was the best regulatory system Democrats were capable of establishing when they had both houses of Congress and the presidency. But shouldn’t “Points for trying!” mitigate a little bit of the sting, one might ask? Taibbi doesn’t buy that premise, and circles the entire health care reform movement back to one overarching, cynical deal with the Devil:

Really Obamacare was designed as a straight money trade. The administration meant to deal away those billions in subsidies and the premiums from millions of involuntary customers in exchange for the relevant industries’ campaign contributions for a few election cycles going forward.

While Machiavellian and perhaps inexcusable deals were made with special interests throughout the process, they really weren’t just to keep Democratic campaign coffers loaded “for a few election cycles going forward.” (Especially since that didn’t happen, and insurers want the bill repealed.) They were made to ensure the bill’s passage, even if the final product wasn’t going to pass every smell test. It was a debatable and controversial strategy. Taibbi’s snappy distillation doesn’t give it time to breathe.
And yet his explanation struck me as an amateurish simplification only because it was my full-time job to follow and write about the horrific health care negotiations every minute of every day for a year, as they were happening. What if the other arguments Taibbi makes about, say, the financial services sector, detailed as they are, are also cherry-picking evidence in service of the narrative? I’ve tried to learn as much as I can, but I wasn’t a careful observer of the housing bubble when it was inflating. And neither was Matt Taibbi.
So you shouldn’t take Taibbi’s accounts, no matter how neatly he wraps them together, as The Truth on any given topic. But in areas like structured finance, where only 50 people have any idea how to create and dismantle the bomb, there’s no reason to dismiss complex, persuasive muckraking out of hand just because he’s a Rolling Stone reporter who uses curse words and masturbation metaphors. It could be a useful launching pad for more discussion and more investigative research. Taibbi can be arrogant, but in Griftopia’s epilogue, he, too, acknowledges the limits of his account and calls for reinforcements:

A few years later, a country whose citizens pruport to be mad as hell about growing government influence has still said little to nothing about that bizarre sequence of events in which the entire economy was rebuilt via this series of back-alley state-brokered mergers, which left financial power in America in the hands of just a few mostly unaccountable actors on Wall Street. We still know very little about what really went on during this period, who was calling whom, what banks promised what. We need to see phone records, e-mails, correspondence, the minutes of meetings; we need to know what the likes of Paulson and Geithner and Bernanke were doing during those key stretches of 2008.

Obviously, none of this is likely at all to happen. But perhaps more transparency and honesty are things that the Masters of the Universe, the vampire squids, and government officials should consider, if they don’t have much to hide. Otherwise, we’ll be reading books like Griftopia, which make all of them look like assholes of the highest degree.

Jim Newell is a staff writer covering politics for Gawker.com, and was previously an editor for the political blog Wonkette. He lives in Washington, D.C.