By Ben Cohen: The departure of Greg Smith, the executive director and head of Goldman Sachs’s United States equity derivatives business in Europe, the Middle East and Africa, has made huge ripples in the financial industry. While there have been other Wall St bankers quitting the industry out of disgust, none have been as high profile as Smith, and none have published the reasons for their departure in the New York Times. Smith tore into his former employer, accusing the company of ripping off its customers and promoting  dangerous culture of greed.

He wrote:

What are three quick ways to become a leader?a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.

Goldman Sachs has been vilified by the media and pounded relentlessly by journalists like Matt Taibbi and Paul Krugman. The Occupy Wall Street movement has also focused much of its attention on the bank, making it about the most despised institution in America. The stock price hasn’t budged much since Smith’s departure, leading insiders to believe the uncomfortable affair was an annoying but inconsequential glitch. But just as Wall St only thinks short term, it may not have thought too deeply about the longer lasting effects. Taibbi, the journalist responsible for labeling Goldman a ‘Vampire Squid‘ believes Smith’s departure signifies the beginning of something more powerful than the popular movements going on around the country:

Real change was always going to have to come from within Wall Street itself, and the surest way for that to happen is for the managers of pension funds and union retirement funds and other institutional investors to see that the Goldmans of the world aren’t just arrogant sleazebags, they’re also not terribly good at managing your money…..

The only way to break this cycle, since our government doesn’t seem to want to end its habit of financially supporting fraud-committing, repeat-offending, client-fleecing banks, is for these big “muppet” clients to start taking their business elsewhere. Right now, many clients stay because they think that even if Goldman takes a bite out of them here and there, the bank still has the smartest guys in the room. But as Forbes writes this morning, this incident may turn Goldman into such a pariah that the best young bankers won’t want to work there anymore.

The impetus for change comes from culture – and predicting when massive shifts in culture happens is difficult to do. Nobody foresaw the explosion of the Occupy Wall St movement, just as no one saw the Arab Spring coming. The seismic change in the Middle East started when a young street vendor, Mohamed Bouazizi, set himself on fire in Tunisia in protest of continuous harassment by the police and the confiscation of his wares. While war, political tension, and economic uncertainty across the region provided the fuel for the movement, one single event ignited protests that changed the political dynamics of a region.

The resignation of Greg Smith may or may not be the beginning of something big, but more and more of these events are happening and one of them could provide the tipping point for an irreversible change in culture. Smith’s  resignation was an important act of defiance, and a signal to other employees that they too can stand up for what is right. Another big name executive leaves, unable to live with the havoc Goldman or any other insidious banking institution is wreaking upon the economy, the shift in culture may become too big to stop. The conditions for serious change are there; the economy is still extremely fragile with high unemployment, massive job insecurity and spiraling inequality. Who knows when or where the ignition will happen, but as Goldman continues to disregard their clients and the well being of the economy, it is becoming clear that they are living on borrowed time.

Change does not necessarily come from within institutions – it is unlikely that Goldman Sachs will suddenly go back to its more ethical roots. But when no one believes in the institution, it may simply fall apart.

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A Goldman Sachs director in London has resigned after publishing a devastating open letter accusing senior staff of being “morally bankrupt” and bent on extracting maximum fees from clients by offloading unsuitable investment products.

Greg Smith, who has left his post as executive director of the firm’s equity derivatives business in Europe, claimed that chief executive Lloyd Blankfein and president Gary Cohn have “lost hold of the firm’s culture on their watch”. He added that “this decline in the firm’s moral fibre represents the single most serious threat to its long-run survival”..

Smith’s charges, which were swiftly denied by the bank, were published in Wednesday’s New York Times and raised questions about the firm’s relationship with existing clients, whom Smith claimed were referred to as “muppets”. Read more at the Guardian…

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Matt Taibbi on America's backwards socialism:

Ordinary people have to borrow their money at market rates. Lloyd Blankfein and Jamie Dimon get billions of dollars for free, from the Federal Reserve. They borrow at zero and lend the same money back to the government at two or three percent, a valuable public service otherwise known as "standing in the middle and taking a gigantic cut when the government decides to lend money to itself."

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That's the meme buzzing around the internet today. Alessio Rastani may turn out to be a member of the notorious 'Yes Men' – a group of anti capitalists committed to, as they say, 'Impersonating big-time criminals in order to publicly humiliate them.'

The BBC disagrees:

"We've carried out detailed investigations and can't find any evidence to suggest that the interview with Alessio Rastani was a hoax. He is an independent market trader and one of a range of voices we've had on air to talk about the recession."

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In an astonishing moment of honesty, a Wall St trader told the BBC during an interview about the EuroZone rescue pakcage that he actually 'dreams about another recession'. Stating that it was not his job to care about the economy, Alessio Rastani warned of another giant recession and declared that governments around the world were powerless to do anything about it. "Governments don't rule the world," he said. "Goldman Sachs rules the world. Goldman Sachs does not care about this big rescue package." Watch below:

I often argue with my pro market friends that I could respect their views if they were honest about their motivations. Believing that deregulated markets and raw capitalism is good for everyone is simply a religion – it is not supported by any facts, and can be disproved in a matter of seconds. I'd have a lot more time for libertarians if they were honest like Rastani. Capitalism benefits those with capital and those who understand its power and take advantage of its cyclical nature (traders/speculators etc). It is a system rigged to distribute resources unevenly. Crashes are great for the rich and great for traders – they can ride out the storm, buy up cheap assets and consolidate power. Unfortunately, crashes are awful for the majority of the population, indicating that capitalism in its current form is a terrible system to live under.

Rastani urged viewers to prepare to benefit from the crash – honest advice from a corrupt person who knows how evil up the international monetary system is. Rastani has given up the fight. We can't.

This system has got to stop.

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Matt Taibbi takes conservative NYTimes columnist Ross Douthat to task for his recent transformation from war hawk to pacifist:

The recent conversions to the cause of foreign-policy prudence by people like Douthat would be obnoxious even if they were believable. It’s easy to respect the position of someone like Ron Paul – he’s been against the war from the start, and for the same reasons throughout.

But people like Douthat didn’t start becoming pacifists until a) the occupation of Iraq went south, helping derail the Bush presidency, and b) Barack Obama became president and started taking ownership of new adventures in places like Libya. Before then, he was just another jingoistic twit doing the “Gooble, gooble, one of us!”chant on the march to war.

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Video heavy day today, but this is definitely worth watching. While I try to remain objective about opposing arguments regarding the financial meltdown, it is difficult to do so when the evidence weighs heavily on one side. Libertarian Atlantic blogger Megan McArdle has taken issue with Matt Taibbi's extremely well researched piece on the gigantic fraud scheme Goldman Sach's orchestrated against it's own customers, believing that the systems in place were simply 'too complicated' to blame on any one person or company.

McArdle's view, in my opinion, it utterly ridiculous and McArdle's attempt to blame customers for being lied to by Goldman Sach's is absolutely disgraceful. Taibbi's piece is based on real research and an overwhelming amount of hard evidence, and he calls McArdle out big time on her support for Goldman Sachs. Taibbi has no background in business or economics, but he makes McArdle look positively ignorant when it comes to a topic she supposedly specializes in:

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Let’s connect the dots here. Someone who worked at the center of financial crisis, is given space in the premiere conservative/Republican newspaper, they attack the head of the one financial agency within the government designed to protect consumers from the Goldman Sachs of the world. Conservatives are brilliant and diabolical.

A Wall Street Journal editorial writer who has been closely involved with the paper’s recent attacks on Elizabeth Warren is a former Goldman Sachs banker. The same editorial writer, Mary Kissel, is readying another piece critical of Warren and the new consumer agency, according to a source familiar with the coming article.

Like most major newspapers, the Journal does not disclose the authors of its editorials. Kissel recently appeared on the John Batchelor radio show as a representative of the Journal’s editorial board to discuss Warren, and repeated the main arguments used in the editorials.

The editorials paint both Warren and the new Consumer Financial Protection Bureau as an immensely powerful, unaccountable organization. The nascent agency is assuming the consumer protection duties currently exercised by regulators at the Federal Reserve and the Office of the Comptroller of the Currency.

The author, Mary Kissel, worked for Goldman between 1999 and 2002 as a fixed income research and capital markets specialist.

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(photo by quaziefoto)

by Ben Cohen

The financial crisis and the Government's response has basically highlighted the fact that the U.S doesn't work as a functioning democratic country. 

A functioning democracy would have held those responsible for gambling the nation's resources away, and instituted reform that made it impossible for those criminals to hijack the system again.

Instead, the Bush-Obama Administration doled out tax payers money to the devastated banks to the tune of $12 trillion, refused to hold them accountable, then made sure those responsible stayed in power and engineered a restructuring that explicitly kept them in control.

The word 'theft' doesn't do justice to the grand scale larceny that occurred on Wall St and Capitol Hill.

It has now become clear that the banking and insurance community was essentially operating a giant casino, gambling with money they didn't have on products that didn't really exist. The banks leveraged vast swathes of cash while the insurance industry gambled on whether it would pay off. When the debts were called in, and the chips fell to the table, no one had the money to make good. Then, the entire system collapsed.

When the public finally began to understand what had happened, their tax dollars had already been spent. The Bush Administration moved quickly to bail out AIG and capitalize the banks, offering blank checks without stipulation. Then the public voted in Obama believing he would institute a break from the status quo. And sadly, he hasn't. As Paul Krugman writes on the state of the Obama economic team:

The larger story is the absence of a progressive-economist wing. A lot
of people supported Obama over Clinton in the primaries because they
thought Clinton would bring back the Rubin team; and what Obama has
done is … bring back the Rubin team.

The insidious influence of Wall St types, particularly Goldman Sachs alumni has infected government for far too long. Treasury Secretary Timothy Geithner is a protege of Robert Rubin (a 26 year veteran of Goldman), and has deep connections to Wall St. Geithner has followed the Bush Administration's policy of giving Wall St whatever it wants at great expense to the tax payer, and there has been virtually no opposition to his blatant pandering.

Goldman Sachs has been allowed to use the U.S government as a tool to enrich itself, mostly because it is government. And as we've learned, their influence hasn't waned after the massive bailout, it has actually increased.

Is it too late to get rid of their insidious influence?

Unfortunately, it probably is, unless there is some sort of grand scale, public opposition. And that means organization, protest, and a serious challenge to entrenched power.

The dangers of giving the banking industry whatever it wants are numerous. Firstly, they single handedly brought the entire Western economic system to its knees, and there's no guarantee they won't do it again. Secondly, we simply cannot afford it. The United States government is now over $11 trillion in debt, and much of that is owned by China. No one is calling in the debt now, but there's no telling what the Asian giant will do in the future. If they decide to hike interest rates, call in a portion of the debt or pull their money out, the U.S economy could literally collapse. Why? Because instead of using that debt to restructure our economy to become more productive, we've spent it on ensuring bankers get their bonuses.

The time to speak up about it is now, so call your local congressman and let them know that you won't let them take any more of your money untill you know where it's going.  

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By Ben Cohen

A fantastic rant from a round table discussion on France 24 from financial analyst Max Kaiser, a man clearly very, very angry with Goldman Sachs. Certainly not something you'd see on MSNBC/CNN (via Matt Taibbi):

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