Matt Taibbi's GRIFTOPIA...

[Cain]

...is probably the best book on the underlying causes and implications of the financial crisis by someone who isn't actually an economist.

Some extracts, for your pleasure

Here's the big difference between America and the third world: in America, our leaders put on a hell of a show for us voters, while in the third world, the bulk of the population gets squat. In the third world, most people know where they stand and don't have any illusions about it.

Maybe they get a parade every now and then, get to wave at shock troops carrying order colors in an eyes-right salute. Or maybe, if they're lucky, the leader will spring for a piece of mainstream entertainment—he'll host a heavyweight title fight at the local Palace of Beheading. Something that puts the country on the map, cheers the national mood, distracts folks from their status as barefoot scrapers of the bottom of the international capitalist barrel. But mostly your third-world schmuck gets the shaft. He gets to live in dusty, unpaved dumps, eat expired food, scratch and claw his way to an old enough age to reproduce, and then die unnecessarily of industrial accidents, malnutrition, or some long-forgotten disease of antiquity. Meanwhile, drawing upon the collective whole-life economic output of this worthy fellow and 47 million of his fellow citizens, the leader and about eighteen of his luckiest friends get to live in villas in Ibiza or the south of France, with enough money for a couple of impressive-looking ocean cruisers and a dozen sports cars.

We get more than that in America. We get a beautifully choreographed eighteen-month entertainment put on once every four years, a beast called the presidential election that engrosses the population to the point of obsession. This ongoing drama allows everyone to subsume their hopes and dreams for the future into one all-out, all-or-nothing battle for the White House, a big alabaster symbol of power we see on television a lot. Who wins and who loses this contest is a matter of utmost importance to a hell of a lot of people in this country.

But why it's so important to them is one of the great unexplored mysteries of our time. It's a mystery rooted in  the central, horrifying truth about our national politics. Which is this: none of it really matters to us. The presidential election is a drama that we Americans have learned to wholly consume as entertainment, divorced completely from any expectations about concrete changes in our own lives. For the vast majority of people who follow national elections in this country, the payoff they're looking for when they campaign for this or that political figure is that warm and fuzzy feeling you get when the home team wins the big game. Or, more important, when a hated rival loses. Their stake in the electoral game isn't a citizen's interest, but a rooting interest. Voters who throw their emotional weight into elections they know deep down inside won't produce real change in their lives are also indulging in a kind of fantasy. That's why voters still dream of politicians whose primary goal is to effectively govern and maintain a thriving first world society with great international ambitions. What voters don't realize, or don't want to realize, is that that dream was abandoned long ago by this country's leaders, who know the more prosaic reality and are looking beyond the fantasy, into the future, at an America plummeted into third world status.

These leaders are like the drug lords who ruled America's ghettos in the crack age, men (and some women) interested in just two things: staying in power, and hoovering up enough of what's left of the cash on their blocks to drive around in an Escalade or a 633i for however long  they have left. Our leaders know we're turning into a giant ghetto and they are taking every last hubcap they can get their hands on before the rest of us wake up and realize what's happened. The engine for looting the old ghetto neighborhoods was the drug trade, which served two purposes with brutal efficiency.

Narco-business was the mechanism for concentrating all the money on the block into that Escalade-hungry dealer's hands, while narco-chemistry was the mechanism for keeping the people on his block too weak and hopeless to do anything about it. The more dope you push into the neighborhood, the more weak, strung-out, and dominated the people who live there will be. In the new American ghetto, the nightmare engine is bubble economics, a kind of high-tech casino scam that kills neighborhoods just like dope does, only the product is credit, not crack or heroin. It concentrates the money of the population in just a few hands with brutal efficiency, just like narco-business,
and just as in narco-business the  product itself, debt, steadily demoralizes the customer to the point where he's unable to prevent himself from being continually dominated.

In the ghetto, nobody gets real dreams. What they get are short-term rip-off versions of real dreams. You don't get real wealth, with a home, credit, a yard, money for your kids' college—you get a fake symbol of wealth, a gold chain, a Fendi bag, a tricked-out car you bought with cash. Nobody gets to be really rich for long, but you do get to be pretend rich, for a few days, weeks, maybe even a few months. It makes you feel better to wear that gold, but when real criminals drive by on the overpass, they laugh. It's the same in our new ghetto. We don't get real political movements and real change; what we get, instead, are crass show-business manipulations whose followers' aspirations are every bit as laughable and desperate as the wealth dreams of the street hustler with his gold rope. What we get, in other words, are moderates who don't question the corporate consensus dressed up as revolutionary leaders, like Barack Obama, and wonderfully captive opposition diversions like the Tea Party—the latter a fake movement for real peasants that was born that night in St. Paul, when Sarah Palin addressed her We.

Rick Santelli's February 20 rant came in response to an announcement by the administration of new president Barack Obama that it would be green-lighting the "Homeowner Affordability and Stability Plan," a $75 billion plan to help families facing foreclosure to stay in their homes. Now, $75 billion was a tenth of the size of the TARP, the bank bailout program put forward  by Bush Treasury secretary Hank Paulson that directly injected capital onto the balance sheets of failing Wall Street companies. And $75 billion was more like a hundredth, or perhaps one two-hundredth, the size of the overall bailout of Wall Street, which  included not just the TARP but a variety of Fed bailout programs, including the rescues of AIG and Bear Stearns and massive no-interest loans given to banks via the discount window and other avenues.

The Tea Partiers deny it today, but they were mostly quiet during all of those other bailout efforts. Certainly no movement formed to oppose them. The same largely right-wing forces that would stir up the Tea Party movement were quiet when the Fed gave billions to JPMorgan to buy Bear Stearns. Despite their natural loathing for all things French/European, they were even quiet when foreign companies like the French bank Société Générale were given billions of their dollars through the AIG bailout. Their heroine Sarah Palin enthusiastically supported the TARP and, electorally, didn't suffer for it in the slightest.

No, it wasn't until a bailout program a tiny fraction of the size of the total bailout was put forward by a new president—a black Democratic president—that the Tea Party really exploded. The galvanizing  issue here was not so much the giving away of taxpayer money, which had been given away by the trillions just months earlier, but the fact that the wrong people were receiving it.

After all, the target of the Obama program was not Sarah Palin's We, not the people who "do some of the hardest work," but, disproportionately, poor minorities. Santelli used language similar to Palin's when he launched into his televised rant on the floor of the Chicago Board of Trade.

"Why don't you put up a website to have people vote on the Internet as a referendum to see if we really want to subsidize the losers' mortgages!" he barked, addressing Barack Obama. "Or would we like to at least buy cars and buy houses in foreclosure and give them to people that might have a chance to actually prosper down the road, and reward people that could carry the water instead of drink the water?"

That was the money shot. After that iconic line, a random trader from the CBOT sitting next to Santelli piped in. "That's a novel idea!" he said, sarcastically. It's important to understand the context here. The Chicago Board of Trade is where commodities like futures in soybeans, corn, and other agricultural products are traded. The tie-clad white folks Santelli was addressing had played a major role in
bidding up the commodities bubble of the summer of 2008, when prices of commodities - food, oil, natural gas - soared everywhere, despite minimal changes in supply or demand. Just a year before Santelli's rant, in fact, riots had broken out in countries all over the world, including India, Haiti, and Mexico, thanks to the soaring costs of foods like bread and rice—and the big banks themselves even admitted at the time that the cause for this was a speculative bubble. "The markets seem to me to have a  bubble-like quality," Jim O'Neill, chief economist for Goldman Sachs, had said during the food bubble. And Goldman would know, since its commodities index is the most heavily traded in
the world and it is the bank that stands to gain the most from a commodities bubble.

Santelli was addressing a group of gamblers whose decision to bid up a speculative bubble had played a role in a man-made financial disaster causing people around the world to literally starve.

And  these were the people picked to play the role of fed-up "America" in the TV canvas behind Santelli during his "spontaneous" rant. When CNBC anchor Joe Kernen quipped that Santelli's audience of commodities traders was like "putty in your hands," Santelli balked. "They're not like putty in our hands," he shouted. "This is America!"

Turning around, he added: "How many of you people want to pay for your neighbor's mortgage that has an extra bathroom and can't pay their bills? Raise your hand." At this rhetorical question, "America" booed loudly. They were tired of "carrying water" for all those lazy black people!  "President Obama," Santelli raved on. "Are you listening?"

There are really two Americas, one for the grifter class, and one for everybody else. In everybody-else land, the world of small businesses and wage-earning employees, the government is something to be avoided, an overwhelming, all-powerful entity whose attentions usually presage some kind of financial setback, if not complete ruin. In the grifter world, however, government is a slavish lapdog that the financial companies that will be the major players in this book use as a tool for making money.

The grifter class depends on these two positions getting confused in the minds of everybody else. They want the average American to believe that what government is to him, it is also to JPMorgan Chase and Goldman Sachs. To sustain this confusion, predatory banks launch expensive lobbying campaigns against even the mildest laws reining in their behavior and rely on carefully cultivated allies in that effort, like the Rick Santellis on networks like CNBC. In the narrative pushed by the Santellis, bankers are decent businessmen-citizens just trying to make an honest buck who are being chiseled by an overweening state, just like the small-town hardware-store owner forced to pay a fine for a crack in the sidewalk outside his shop.

The shorthand version of how the  bubble economy works goes something like this:

Imagine the whole economy has turned into a casino. Investors are betting on 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.

Maybe those oil futures you bought were never close to being worth $149 a barrel in reality, but the fees you paid to Goldman Sachs or Morgan Stanley to buy those futures get turned into real beach houses, real Maseratis, real Park Avenue town houses. Bettors chase imaginary riches, while the house turns those dreams into real mansions.

Now imagine that every time the bubble bursts and the gamblers all go belly-up, the house is allowed to borrow giant piles of money from the state for next to nothing. The casino then in turn lends out all that money at the door to its recently busted customers, who flock back to the tables to lose their shirts all over again. The cycle quickly repeats itself, only this time the gambler is in even worse shape than before; now he's not only lost his own money, he's lost his money and he owes the house for what he's borrowed.

That's a simplistic view of what happened to the American economy under Alan Greenspan. The financial services industry inflated one speculative bubble after another, and each time the bubble burst, Greenspan and the Fed swept in to save the day by printing vast sums of money and dumping it back on Wall Street, in effect encouraging people to "drink themselves sober," as Greenspan biographer William Fleckenstein put it.  That's why Alan Greenspan is the key to  understanding this generation's financial disaster. He repeatedly used the financial might of the state to jet-fuel the insanely regressive pyramid scheme of the bubble economy, which like actual casinos proved
to be a highly efficient method for converting the scattered savings of legions of individual schmuck-citizens into the
concentrated holdings of a few private individuals.

The results of all these policies would be catastrophic, of course, as the collapse of the real estate market in 2007-8 would wipe out roughly 40 percent of the world's wealth, while Greenspan's frantic printing of trillions of new dollars after the collapse of the tech boom would critically devalue the dollar. In fact, from 2001 to 2006, the dollar would lose 24 percent of its value versus the foreign currencies in the dollar index and 28 percent of its value versus the Canadian dollar. Even tin-pot third world currencies like the ruble and the peso gained against the dollar during this time. And yet Greenspan insisted at the end of this period that the devaluation of the dollar was not really a problem—so long as you didn't travel abroad!

So long as the dollar weakness does not create inflation... then I think it's a market phenomenon, which aside from those who
travel the world, has no real fundamental consequences.

No real fundamental consequences? For Greenspan to say such a thing proved he was either utterly insane or completely dishonest, since even the world's most stoned college student understands that a weak dollar radically affects real wealth across the board: we buy foreign oil in dollars, and since energy costs affect the price of just about everything, being able to buy less and less oil with a dollar as time goes on makes the whole country that much poorer. It's hard to overstate how utterly mad it is for a Fed chairman in the age of the global economy to claim that a weak currency only affects tourists. It's a little bit like saying a forest fire only really sucks if you're a woodpecker.

In any case, by the time Greenspan left the Fed in 2006, Americans had lost trillions upon trillions of dollars in two gigantic bubble scams, and we had gone from being a nation with incredible stored wealth in personal savings to being a country that collectively is now way over its head in hock, with no way out in sight. As of this writing, America's international debt is somewhere in the region of $115 trillion, with our debt now well over 50 percent of GDP. This is debt on a level never before seen in a modern industrialized country.

It sounds facile to pin this all on one guy, but Greenspan was the crucial enabler of the bad ideas and greed of others. He blew up one bubble and then, when the first one burst, he printed money to inflate the next one. That was the difference between the tech and the housing disasters. In the tech bubble, America lost its own savings. In the housing bubble, we borrowed the shirts we ended up losing, leaving us in a hole twice as deep.

It's important to note that throughout this entire time, while Greenspan was printing trillions of dollars and manipulating the economy to an elaborate degree, he was almost completely unaccountable to voters. Except for the right of an elected president to nominate the Fed chief, voters have no real say over what the Fed does. Citizens do not even get to see transcripts of FOMC meetings in real time; we're only now finding out what Greenspan was saying during the nineties. And despite repeated attempts to pry open the Fed's books, Congress as of this writing has been unsuccessful in doing so and still has no idea how much money the Fed has lent out at the discount window and to whom.

Congress's authority over the Fed is so slight that when Los Angeles congressman Brad Sherman passed an amendment capping the amount of emergency assistance to banks the Fed could loan out at a still-monstrous $4 trillion, it was considered a big victory. "We were lucky to get that," Sherman says. Really the only time the public could even get an audience with Greenspan was through his compulsory appearances before Congress, which Greenspan plainly loathed and for which he set strict time limits. Texas congressman Ron Paul explains that Greenspan was so tight with his time that members of Congress would have to  wait in line for months just to get this or that question before His Highness in committee hearings.

"He might come at ten a.m. and say his limit was one or two [congressmen]," Paul says now. "So if you were at the bottom of the list, you wouldn't get a chance to ask the question." As a result, Paul says, members who didn't get questions in would have to wait months until their next shot. "If you didn't get to ask your question, you'd be high on the list the next time," he says. "That was the best you could hope for."

All of which makes Greenspan's exit from power that much harder to swallow. He was unrepentant almost to the bitter end. Even as late as November 2007, with the international financial community already beginning to erupt in panic thanks to the latest bubble explosion, Greenspan shrugged. "I have no particular regrets," he told audiences in Norway. "The housing bubble is not a reflection of what we did." [/size]

And that's just from the first two chapters.

[The Johnny]

I have to go right now, but yes, at least you USA spags still live under a non-crushing ideal of life; in the third world we cant help and see a pig and quickly make a checklist for what-you-could-possibly-get-extorted-for; we cant help but just think of how we gonna use the next paycheck; most of us dont bother to vote anymore; 25% of us fight our way to get an education and hope for some kind of class mobility.

[Jenne]

I saw him on I think Jon Stewart's Daily Show a couple of weeks ago talking about this book.  I think if Matt Taibbi could PERSONALLY firebomb the offices of Goldman-Sachs and get away with it, he would.  Sad thing is, most of this is still way over the general public's heads.  He ends up preaching to the choir with most of this stuff.  But I'm still glad he's getting the word out there.

[Adios]

Excellent Cain. Added to must read list.

[LMNO]

Yeah, this has gone onto my list, as well.

[Jenne]

...I just hope he has a great security system and a large, friendly man with some weapon on him that follows him around and watches his backside for him.

...and a great attorney.

[Iason Ouabache]

I already have a copy and read the first chapter. Great read so far. His style is excellent and the fire in his writing makes you want to find a pitchfork and torch and sack Wall Street.

[Cramulus]

jesus christ that was a great read. I'm all sweaty again. Thanks for posting Cain. If you cats find any other great sections, be sure to x-post!

[Bebek Sincap Ratatosk]

... that was awesome

[The Johnny]

CAIN, something this got me thinking is that possibly one of the main differences between First and Third World is the distribution of capital, not the richness of the country itself.

In Mexico we have the richest man of the world, or at least he was some years ago, which is Carlos Slim; which adds up to the total capital of the country, but obviously it isnt distributed and thus doesnt better the situation of Mexico.