Monday, December 14th, 2009

The (Partial) Vindication of Matt Taibbi

MATTWhen Rolling Stone reporter Matt Taibbi fingered Goldman Sachs as the main culprit behind the housing bubble-and most of the other commodities bubbles of the past seventy-odd years-financial journalists closed ranks to denounce every element of the case he sought to make. The story was "just plain wrong," thundered Slate's Heidi Moore. Taibbi was "the Sarah Palin of journalism," sniffed Megan McArdle, without showing any serious flaws in the piece's analysis or reasoning. CNBC contributor and Daily Beast columnist Charles Gasparino sputtered that the whole spectacle of the foul-mouthed, pugnacious Taibbi presuming to explain the Goldman-spurred '08 meltdown was "making me ill." This wasn't merely "wrong"-the financial press has spent the better part of the last decade being wrong, after all-it was, rather, that thing that no aspiring inside chronicler of Wall Street can ever afford to be: "pretty naïve."

There were, to be sure, problems with Taibbi's piece, among them some fast-and-loose interpretations of how collateralized debt obligations and credit default swaps actually work. But the collective brio of the financial press's attempted beatdown of Taibbi was so out of proportion to his alleged offenses, it was hard not to see a lot of status anxiety-and more than a little Stockholm Syndrome-at play. Moore summed up this sensibility in the classic, self-regarding voice of a concern troll, simultaneously citing her own expert authority and the tender outlook of the ever-impressionable public: "As someone who's written about Wall Street for a decade, it annoys me to see the public that wasn't fully educated about the financial crisis before it happened get snookered again by misleading reporting afterward."

Never mind, of course, that the people who have "written about Wall Street for a decade" might be more properly viewed as the instigators, rather than the sworn foes, of widespread public miseducation in financial matters, given the everybody-into-the-pool ethos of most writers covering the investment community.

Just consider what, for many of Taibbi's detractors, was the clinching demonstration of the man's fecklessness: Goldman couldn't be a prime mover in the meltdown, since so many banks were planting their snouts in the mortgage trough, and emerging with lavish (if gossamer) rewards. Moore again sums the consensus up nicely, denying that Goldman-famously Washington's best-connected investment house-was the real target of the government's massive bailout of AIG because it was exposed to the tune of $12.9 billion in notes that AIG owed on Goldman-backed credit-default swaps. "When AIG collapsed-in fact because AIG collapsed-it owed money to several banks, and when the government took over AIG, it owed money to the banks, too." Translation: Nothing to see here people; move along.

So it probably made Gasparino, Moore et al. ill in an entirely different way to see the headline in a Wall Street Journal analysis piece last Friday: "Goldman Fueled AIG Gambles."

For one thing, Journal reporters Serena Ng and Carrick Mollenkamp found that Goldman's exposure to botched AIG trades was much greater than initially reported; the bailout rescued "a total of $22 billion in assets" belonging to Goldman, about one-and-three-quarters the $12.9 reported at the time of the AIG rescue.

So much, then, for Moore's point that Goldman wasn't appreciably more exposed than other banks trading with AIG, since "Merrill Lynch received $12 billion, as did France's Société Générale and Germany's Deutsche Bank" after the $80 billion insurers' bailout.

[Note: The above statement of Moore's actually refers to the government bailout money received by Goldman Sachs, not their total exposure to AIG, as we originally indicated.]

Goldman's overall portfolio with AIG ran to $33 billion-inconveniently enough, "roughly twice as much as Société Générale and Merrill Lynch the banks with the biggest exposure to AIG after Goldman." And funnily enough, Ng and Mollenkamp, go on to explain, the AIG-Goldman nexus functioned pretty much as Taibbi said it did-as a patty-cake Ponzi scheme of concealed risk.

When a bank like Merrill created a collateralized debt obligation-ie., one of the super-mystical "tranches" of bum home loans packaged so as to allegedly disperse risk in the mortgage market-the banks roped into these deals "wanted protection in case the housing market tanked," the reporters note. "Many turned to Goldman, which effectively insured the securities against losses. Then, to cover its own potential losses, Goldman bought protection from AIG, in the form of credit default swaps."

What's more, Ng and Mollenkamp explain, "Goldman charged more for the protection, so it was able to pocket the difference, making millions while moving the default risk to AIG, according to people familiar with the trades."

In other words, Goldman was charging a fee for a nonproduct that offered pretty much the opposite of what it professed to be-protection from bad mortgage deals-and shifted the real exposure down river to AIG. No wonder when AIG officials-no mean hands at pitching their own brand of phony risk protection, of course-questioned the way Goldman was pricing these, um, exotic instruments in an early 2008 audit meeting, Goldman was "was unwilling or unable to provide any sources for their determination of market prices," as a memo of the gathering drily noted.

All the scheme needed was Marvin Hamlisch performing some Scott Joplin theme music.

And when Goldman wasn't performing its beguiling water ballet with AIG, it was also leaving an enormous footprint as an originator of CDO's, Ng and Mollenkamp write-a business that sent yet more business AIG's way in the form of Goldman-backed insurance of these third-party bank transactions. This was another role that, as our Journal correspondents note, "few competitors appreciated at the time."

So much then, for McArdle waving away Taibbi's characterization of Goldman's wayward handling of CDO's with the overcivilized retort that, my goodness, "the idea was pure portfolio theory, broadly agreed by everyone involved"-unless, of course, "everyone" in this usage is meant to be read as "everyone at Goldman."

Now, none of this is meant to serve as a full-scale vindication of Taibbi-who, I should disclose, I recently edited in the forthcoming return issue of The Baffler. (Really!) Nor is to revisit the whole question of Goldman's role as government-backed risk profiteer in any real detail (if you're in the mood for that reading experience, though, hie over to Bethany McLean's excellent breakdown in this month's Vanity Fair).

It is merely to ask, if your initial view of an outside-the-caste chronicler of Wall Street's financial abuses is simply to vent reflexive indignation verging on nausea, well, then isn't it about high fucking time you started healing yourself?

[Correction appended.]

Previously: Moneyster. Moneybook. MoneySpace?

Chris Lehmann has some sophisticated financial instruments he'd like to interest you in.

33 Comments / Post A Comment

raf_oh (#1,296)

Taibbi is right in spirit – that the well-connected will eat everyone else's lunch and bail themselves out if needed.

Still, it's our collective mentality of trying to get something for nothing (like houses for no down payments, returns without risk, book deals for gimmicky blogs/eye-winkers) that is the most troubling, especially when other people are the getters.

Though I am living the dream – collecting unemployment.

Antonia Capet (#2,372)

"There were, to be sure, problems with Taibbi’s piece, among them some fast-and-loose interpretations of how collateralized debt obligations and credit default swaps actually work."

Oh, but otherwise, how was the play, Mrs. Lincoln?

Antonia Capet (#2,372)

Also, please to explain: Lehmann is saying Taibbi (the outsider) turned out to be right about Goldman because the WSJ (the insiders) did a big, factual analysis of Goldman's trading, thus (insiders) don't know how to do their jobs? Does this make sense?

So Taibbi had a (good) theory but no proof. Who had the proof? The mainstream reporters. Which doesn't exactly support the point that the "outsider" knows what he's doing, because if he did he would have had the information in the WSJ article.

Where's the pic of Taibbi's abs, I'd like to know?

jolie (#16)


iplaudius (#1,066)

This is like that time when I left a comment about Olivier Theyskens’s work for Rochas being ethereal and romantic and melancholy if impractical, but I messed up and said something about the Summer 2007 collection, which doesn't exist, and tulle, which he didn't use in the piece I was describing, and then Mary HK Choi totally called me out on it and said something far more apposite on the matter, and I felt really stupid and fat and ugly, but I was still right, because Theyskens is a God walking among us.

Fredrick (#268)


Antonia Capet (#2,372)

+ eleventy squillion Internet points. Exactly.

Chris Lehmann (#222)

It's not that Taibbi had no proof–it's that a good deal of the information EVERYONE was using at the time was off, e.g., the scale of Goldman's exposure at AIG turns out to be almost twice what was commonly reported this summer. That doesn't arise from a mainstream/outsider distinction, but rather from the sort of careful, labor- intensive study that a mainstream news outfit is best situated to do. What was telling, in my view about the WSJ piece, is that it confirmed the structural thrust of Taibbi's analysis–that these were pools of risk management more or less concocted out of thin air. You don't have to be an insider or outsider to develop that case–you just have to be skeptical about the exuberant packaging of horseshit, which alas too few of Taibbi's pursuers have proven to be.

Antonia Capet (#2,372)

Hey, the insider-outsider thing was yours:

"It is merely to ask, if your initial view of an outside-the-caste chronicler of Wall Street’s financial abuses is simply to vent reflexive indignation verging on nausea, well, then isn’t it about high fucking time you started healing yourself?"

Antonia Capet (#2,372)

But anyway, Taibbi still wasn't right. He didn't do any analysis – he just took dictation from some conspiracy-theory guys. The "structural thrust" of his analysis wasn't even his, because the Goldman-AIG conspiracy theories were about seven months old by the time the Rolling Stone article came out.

There were, though, actual reporters who know how to do reporting, who did get the story right. So if you're giving credit to Taibbi for his vague kinda tinfoil-hat bullshit, you're really taking it away from real professionals like Ng and Mollenkamp and Gretchen Morgenson who got the real goods, and do know how credit-default swaps work, and know their shit.

Chris Lehmann (#222)

I don't think noting that the huge anti-Taibbi pileon was motivated largely by turf-protecting finance writers equates to an outsiders-are-better-at-this claim; if it came off as such, apologies for sloppy phrasing. As you noted above, I made a point of saying that Taibbi's piece had plenty of flaws–but the point is that Moore, McArdle et al had no better firsthand sense of Goldman's role in this than he did; and they went to absurd lengths, in my view, to insist otherwise. I hope it's at least obvious that I was indeed impressed by Ng and Mollenkaamp's heavy lifting in spelling out a very complex set of relationships. As to whether noting that Taibbi is, on balance, right about the way the scam worked denigrates that work, I see that as their call. It causes no undue stress in my poor readerly brain to hold the position that both things can be true.

Antonia Capet (#2,372)

Again, the allegations of turf-protecting came from you:

"financial journalists closed ranks to denounce every element of the case he sought to make."

Anyway, the critics weren't wrong. They just pointed out his factual mistakes, which he made, and makes all the time. Taibbi didn't do any work in his piece, which is only more blatant because these other journalists did.

And what does "the sort of careful, labor- intensive study that a mainstream news outfit is best situated to do" mean? That's BS. Taibbi had like 10,000 words in Rolling Stone to make his case, and he was wrong about facts in every part of it. The WSJ writers had like 1,000 words and got them all correct.

Taibbi had an inkling of a clue of a hint of a suspicion about something sorta kinda maybe involving Goldman and AIG, but he couldn't prove it, didn't even know what the terms he was writing about meant, got his argument wrong, screwed up the facts and now he wants to take the credit that he was "right." None of the information in the WSJ story is from newly released documents – they just did the actual work and know how to analyze it. Taibbi didn't. He just blew chunks in the form of conspiracy theories, and hoped that some would dry in an article-like pattern. iplaudius's comment captures how ridiculous that is.

Sorry, I like your stuff but this post doesn't cut it. But you're an editor who defended his writer, so that's something.

sailor (#396)

Staying out of the unsubstantiated knowledge claims about the world of high finance throughout this post, I'd point out that Matt Taibbi is one of the most overrated "reporters" out there, which is saying something when it comes to Rolling Stone.

Jim Demintia (#1,815)

Your argument is very convincing.

sailor (#396)

Yeah. About as convincing as Taibbi's.

Chris Lehmann (#222)

sorry, that was intended for Amanda Capet's comment. Stupid Monday brain-fingers disconnect!

Dr. Spaceman (#1,211)

McArdle's area of expertise is what? Empty libertarianism?

Jim Demintia (#1,815)

Technically, her area of expertise is horseshit.

CleverUserName (#1,910)

Your argument is very convincing.

flossy (#1,402)

Thank you! Matt Taibbi's broad style of mau-mauing as reportage is annoying, yes, but anyone who pisses of Megan McArdle is doing something right.

deepomega (#1,720)

McArdle's area of expertise is shitting on team red/team blue partisanship. Don't always agree with her, but she approaches politics from principles instead of from the goal of getting Democrats or Republicans in power.

CleverUserName (#1,910)

Exactly. It's so tiring to read this Democrats/Republicans are always right writing (On health care especially – Is it really that difficult to admit that the plan has pros and cons – and to weigh in on them thoughtfully?). I don't think McArdle is always right, but at least she's not married to an agenda and tries to look at both sides of every issue.

LondonLee (#922)

The reason Taibbi gets a lot of slack cut for his work despite its flaws is the sense that at least someone is taking an axe to the smug and arrogant assumptions of Wall Streeters and their enablers in the media who treat the rest of us as peasants who couldn't possible understand the workings of THE MARKET or why they need a 20 million dollar bonus.

Mindpowered (#948)

It's not so much "need" it's like righteously deserve as a god given right because we're doing gods work here. and if you understood that you'd shut up and let us have our coke fueled orgies.

Back before any of this nonsense, Taibbi put out a pretty wonderful satirical newspaper in Buffalo called The Beast. Becuase of some of the gems in this publication, I can never be overly critical of his goofy, sometimes over-the-top pieces in Rolling Stone.

Mackle (#446)

Taibbi just fails when it comes to being cool. It's a rant like, "Okay, they're paying attention. Lets make it BIG."

Take the Goldmann piece. The sneaky sons of bitches at Goldmann are big, unapologetic, bastards. He nails the piece, but Taibbi doesn't stop there. No he's not satisfied until he's got Goldmann in a mean drunk cornering Mother Theresa in a dark alley with a tire iron.

But Goldmann isn't Moriarty, the illuminati and Lee Harvey Oswald rolled into one, and giving them the role leaves no room for the other scumbags who had supporting roles in the snake oil trade.

Where is Anthony Mozillo these days?

lawyergay (#220)

The last time I fingered Goldman Sachs, Lloyd Blankfein and I ended up buying a yellow lab together.

Scum (#1,847)

The post overlooks the fact that Matt Taibbi is a massive prick who doesn't know shit about shit, which was surely another large factor in the eagerness of people to point out that he is a massive prick who doesn't know shit about shit.

Scum (#1,847)

Look at that prick's prick face up top there. There isnt a statuette weighty or pointy enough to do the damage that his face deserves.

Horror Chick (#1,677)

In their defense, McArdle and Moore are very good financial journalists who do have a great deal of expertise and insight. Yes, they could have done a deeper analysis on the Goldman/AIG debacle, but they were going on the info that everyone else trusted, and that was available at the time – the internal AIG docs that the WSJ reporters used in this analysis were only uncovered by a govt audit last month, and while it's easy to say someone "should have" dug deeper months ago, the same can be said of just about every topic concerning the crisis. So while I agree there was probably a little "torch the outsider" hating going on, I don't think their initial critiques were entirely malicious.

Eekonomics (#2,588)

What was remarkable about the whole Taibbi uproar was the passionate response by Goldman defenders. Talk about a halo effect! Moore and McCardle were just two from the a front line that stretched from Clusterstock to CNBC to the editorial pages of the Wall Street Journal.

Funny thing, prior to the collapse, Goldman's policy was never to speak to the media. When Blankfein & Co. finally launched their outreach campaign, they came off as completely tone deaf– selfish, arrogant and plutocratic.

Once this thing blows over, look for a resignation from Lucas Van Praag.

peterme (#944)

Huh. No one has picked up n the single most important revelation in this whole article. The Baffler is coming back!
And only, what, 2-3 years too late?

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