And, no, it hardly matters that Barnum is said to have denied uttering the famous words. The phrase was coined in connection to Barnum’s role in the Cardiff Giant hoax, an amusing bit of history about a battle between hoaxers and hucksters who didn’t much care if their customers knew what what they were paying for or got what they were paying for — so long as the scam paid off, and the scammers got paid in the end.
I couldn’t help hearing some hauntingly Barnumeque echoes in Sen. Carl Levin’s grilling of Goldman Sachs CFO, David Viniar.
It’s the kind of scene that some Hollywood screenwriters wish they could write.
It was the Perry Mason moment in the unraveling of what was left of Goldman Sachs’ reputation. Only in this case, it involved a grizzled former prosecutor, Sen. Carl Levin, rather than a genial defense attorney. The case was broken and the truth about the depth of Goldman’s corruption revealed in his startling cross-examination of Goldman Chief Financial Officer David Viniar.
The Michigan Democrat, citing the language of the internal e-mails of Goldman traders concerning the deceptive products they were selling, asked: “And when you heard that your own employees in these e-mails are looking at these deals said `God what a shitty deal. God, what a piece of crap,’ when you hear your own employees and read about those e-mails, do you feel anything?”
Viniar’s answer told us all we need to know about the banal but profound immorality of Goldman’s business culture: “I think that’s very unfortunate to have on e-mail.”
A flabbergasted Levin cut in with “On e-mail? How about feeling that way?” and Viniar, apparently moved by jeers of ridicule from the audience, conceded “I think it is very unfortunate for anyone to have said that in any form.” Pressed further by Levin asking, “How about to believe that and sell them?” the CFO finally conceded, “I think that’s unfortunate as well.” To which Levin responded, “That’s what you should have started with.”
Goldman’s strategy to keep dodging until the clock ran out may have been largely successful, but at least Levin landed a punch. Viniar seemed surprised by the audience’s response to his “we’re very sorry we got caught” response to Levin’s questioning in the end. Perhaps that’s because he assumed they understood and lived by the same rule he and his colleagues followed: “There’s a sucker born every minute.”
Viniar is far from alone, of course. It’s a rule studiously followed by many more like him. They’re happy to sell something to people who don’t know what the huckster knows — that they’re buying into a “shitty deal” that isn’t nearly what they think it is — and won’t find out until their money or investment is gone and the damage is done.
John Devaney, a trader who made his fortune investing in the kind of adjustable rate mortgages that he said a consumer had to be an “idiot” to take on, is another example.
John Devaney, a bond trader who became a symbol of hedge fund excess and collapse hit “rock bottom” with the subprime crash — which, for him, meant losing about $100 million of his personal wealth, selling a mansion in Key Biscayne, Florida, and artwork by Renoire and Cezanne, as well as his private jet and his yacht. But in 2007 he was riding high, trading in subprime mortgages that he said he hated and “hoped would explode”, and mortgaged backed securities of which he said a consumer would have to be an “idiot” to buy.
The housing boom was good to John Devaney. Really good. He owns a Rolls-Royce, a Gulfstream Jet, a 12,000-square-foot mansion in Key Biscayne and a 143-foot yacht, as well as a few Renoirs and a valuable 1823 reproduction of the Declaration of Independence.
Devaney’s not a developer, and he’s certainly not a flipper. The 36-year-old CEO of United Capital Markets is a bond trader. And one of his specialties is buying and selling bonds that are backed by the mortgage payments of ordinary homeowners.
Option ARMs? Devaney loves ‘em. “The consumer has to be an idiot to take on those loans,” he says. “But it has been one of our best-performing investments.”
Devaney’s not out to get people into bad loans – or into good ones. He just makes bets on how many people will repay and when. Still, the $5.7 trillion mortgage-backed-securities market had a key role in today’s housing mess.
Are they a disaster for many people? Sure, but they are (or were) one of his firm’s “best-performing investments.” So what’s he got to worry about? After all, he’s supposed to make money for his shareholders, and that’s all he has to be concerned about. If he’s trading in something that spelled ruin for those who bought it without knowing any better, well, that’s their problem, not his. Right?
It’s pretty self explanatory. But it essentially boils down to this: There’s no wrong way to make a buck.
It is one of the great curiosities of conservatism that its adherents enthusiastically destroy regulations which — besides a conscience — act as a bulwark against greed and corruption, thereby making greed and corruption inevitable. Because when (a) there’s no wrong way to make a buck, and (b) no accountability or consequences for malfeasance, there’s no disincentive either. (Other than being able to sleep at night, which isn’t a problem if you don’t have a conscience in the first place.)
The only thing “wrong” is getting caught. Those values, the ones at the heart of the Goldman Sach’s deal and others like it, were laid bare by Levin’s questioning of Viniar, who had to be coaxed from “it’s unfortunate that we got caught” to “it’s unfortunate that we knew we were selling a ‘shitty deal’ to our customers, and sold it anyway.”
In other words, it was a scam and they knew it. But in their world, there’s nothing wrong with that.
Evidence of that can be found in This bit of video from CNBC, noted by Matt Taibbi.
Look at about the 5-minute mark of this video — Janet Tavakoli debating Rick Santelli about predatory lending. You basically have a whole panel of CNBC goons pooh-poohing the idea that predatory lending took place, setting up the inevitable revisionist history that the 2008 crash was caused by individual homeowners borrowing beyond their means.
My favorite part of this comes roughly at the six-minute mark. Tavakoli has just deftly explained how a lot of the predatory practices worked — people with limited financial literacy were presented with long and complicated mortgage deals, and told they would have a fixed payment in perpetuity or a guaranteed re-finance, or were nailed by fraudulent appraisals. Then she mentioned the big one, the fact that investment banks then took all these mortgages and with eyes wide open securitized them and sold them off as worthy investments to suckers on the other end of the chain.
While she’s saying all this stuff, Santelli, who is one of the fathers of the Tea Party movement, is shaking his head furiously, video-scoffing at everything she’s saying. When he finally does get a chance to speak, this is what he says:
Here’s my problem with this. It takes two to tango. You can’t cheat an honest man.
You can’t cheat an honest man? What the fuck does that mean?
What it means is that there seem to be two rules on Wall Street; two tenets fervently believed by the free market fundamentalists, whom Tavakoli says “released the brakes”: “There’s a sucker born every minute.” and “Never give a sucker an even break.” (Appropriately enough, Santelli’s statement is also the title of another another W.C. Fields movie.)
It means that — in the Barnum & Bailey world where Viniar, Devaney, and Santelli reside, from which CNBC broadcasts, and that free market fundamentalists defend — there’s no shame in being a scammer, but only in being scammed.
And, not to say that conservatives themselves necessarily condone any of the above or are less appalled by it than the rest of us, but conservatism actually cannot help but leave us a “candy store” for sociopaths and-near sociopaths.
It seems that conservatives, with their devotion to deregulation, believe that’s the way it should be. Since the subprime tsunami made its first waves, they’ve saved most of their derision for homeowners who were deceived into or didn’t understand all the details of the mortgages they were taking on, while sparing surprisingly little for the Wall Streeters who made tons of money off financial instruments they didn’t fully understand. The difference is that the latter got bailed out and the former is still waiting.
The moral of all the above would seem to be: better to scam than to be scammed. It’s a Barnum and Bailey world, truly. Or at least a P.T. Barnum world in which “there’s a sucker born every minute” and the golden rule is “Never give a sucker an even break.” Better a scammer than a sucker. Except that we’re all suckers for the trappings of success.
You can hear it in the responses of the CNBC crew, when Tavakoli spoke of borrowers who were were sold mortgages that even the mortgage brokers knew they couldn’t afford, and homeowners who were deceived about the terms of their mortgage, their interest rates, in some cases were presented with new documents and information at closing that they had little time to fully digest, and perhaps trusted people to have their best interests at heart who didn’t, and didn’t care so long as they profited.
“Whose fault is that?” pipes up one, who appeared to be the moderator of the discussion, which can be loosely translated as, “The suckers got what they deserved.” They should have known better. They should have expected to be scammed. Or rather, they should have known the rules of the game: (1) “There’s a sucker born every minute. (2) Never give a sucker an even break.” But they didn’t, and they got taken. Boo, hoo.
They are the “losers” Santelli screamed about in his now famous rant, in which he also gestured toward the brokers working the phones behind him and declared “This is America.” And in that America, they are the winners. People like Gheorghe Bledea, who lost his home in a Goldman deal, are the losers.
The home mortgage of Gheorghe Bledea was among those that wound up in the Abacus portfolio.
In May of 2006, a broker had approached Mr. Bledea, a Romanian immigrant, to pitch him a deal on a loan to refinance the existing mortgage on his Folsom, Calif., home.
Mr. Bledea, who is suing his lender in Superior Court of California in Sacramento on allegations that he was defrauded, wanted a 30-year fixed-rate loan, according to his complaint. His broker told him the only one available was an adjustable-rate mortgage carrying an 8% interest rate, according his court filing.
Mr. Bledea, who says he has limited English-speaking skills, was told that he’d be able to exit the risky loan in six months and refinance into yet another one carrying a lower 1% rate. Mr. Bledea agreed to take out the $531,000 loan on July 21, 2006.
The new loan never materialized. Within months, Mr. Bledea and his family were struggling under the weight of a $5,800 monthly note, says his son, Joe Bledea.
“Well, then it’s a legal issue,” Santelli shouts, suggesting that it was a matter for the courts to sort out, not Congress. Of course, the other side of the coin is that by the time such cases make it to court, the damage is already done, and the profits have already been made. The courts can only punish those scammers who (a) get caught and (b) whose victims/marks have the resources to file a lawsuit and pay attorney’s fees.
And even then, it’s unlikely that all losses/profits will be recovered. Bernie Madoff, after all, went to prison but billions of his ponzi scheme profits are unaccounted for and probably beyond reach, as he may have intended given his efforts to hide assets before his arrest. And Madoff is only one example, perhaps symbolic of the worst of the financial world in which he thrived for so long, but he’s one who didn’t get away with it out of many who did.
As Robert Scheer pointed out, Bernie Madoff is being conveniently treated as a lone “rotten apple,” when in fact he is not only symbolic of the system that let him get away with it, but a prime player, with a seat at the table in making the rules of the game he played.
How convenient for the judge and the media to paint Bernard Madoff as Mr. Evil, a uniquely venal blight on an otherwise responsible financial industry in which money is handled honestly and with transparency.
Madoff, sentenced Monday to 150 years in prison for bilking investors of billions, should be exhibit A in why the dark world of totally unregulated private money managers and hedge funds should be opened to the light of systematic government supervision. Instead, he is being treated as an aberrant menace, with the danger removed once the devil incarnate, as his victims describe him, is locked up and the key thrown away.
For goodness’ sake this was not some sort of weird outsider who flipped out, but rather a key developer of the modern system of electronic trading and a founder and chairman of Nasdaq. Madoff often was called upon to help write the rules on financial regulation, and therefore became quite expert at subverting them.
Painting Madoff as “Public Enemy #1,” and applauding his sentence as a kind of final justice, masks the reality that Madoff is but one player in what was essentially a ponzi economy, of which the majority of us are victims. Unlike Madoff’s victims — who at least had the pleasure of seeing him taken away in handcuffs, and at least have a shot of recovering some fraction of the $65 billion he stole from them — we aren’t likely to see much of the $2.5 trillion we’ve essentially lost (so far), the perpetrators have gotten away with it.
Madoff, it turned out, was no Public Enemy No. 1 to rival John Dillinger, the Great Depression thug at the center of Hollywood’s timely release this holiday weekend, “Public Enemies.” In the context of our own Great Recession, Madoff’s old-fashioned Ponzi scheme was merely a one-off next to the esoteric (and often legal) heists by banks and bankers. They gamed the entire system, then took the money and ran before the bubble burst, sticking the rest of us with that fear, panic and loss.
The estimated $65 billion involved in Madoff’s flimflam is dwarfed by the more than $2.5 trillion paid so far by American taxpayers to bail out those masters of Wall Street’s universe. A.I.G. alone has already left us on the hook for $180 billion. It’s hard for those who didn’t have money with Madoff to get worked up about him when so many of the era’s real culprits have slipped away scot-free. Already some of those same players are up to similarly greedy shenanigans again now that the coast seems to be clear.
Washington had no choice but to ride to their rescue last fall to prevent even greater systemic catastrophe. But that rescue is tainted. As the economist Joseph Stiglitz wrote in this month’s Vanity Fair, “In the developing world, people look at Washington and see a system of government that allowed Wall Street to write self-serving rules which put at risk the entire global economy — and then, when the day of reckoning came, turned to Wall Street to manage the recovery. They see continued re-distributions of wealth to the top of the pyramid, transparently at the expense of ordinary citizens.”
If it isn’t clear yet, in their world, “ordinary citizens” is another way of saying “sucker.” And it’s nobody’s job to look out for suckers. Nor is it profitable, if nobody else is doing it.
Goldman may be in the hot seat, much as Madoff was, but as the firm pointed out in its own defense, Goldman only did what most major investment firms were doing.
According to the SEC, Goldman Sachs knew about the hedge fund’s bets, knew it played a significant role in choosing the assets in the portfolio, and yet did not tell investors about it. (Goldman Sachs has called the SEC’s accusations “completely unfounded in law and fact.” And in another more detailed statement , it said it “did not structure a portfolio that was designed to lose money.”)
As we reported at ProPublica last week, many other major investment banks were doing a similar thing .
Investment banks including JPMorgan Chase , Merrill Lynch  (now part of Bank of America), Citigroup, Deutsche Bank and UBS also created CDOs that a hedge fund named Magnetar was both helping create and betting would fail . (Update 4/17: Magnetar denies  it was making such bets.) Those investment banks marketed and sold the CDOs to investors without disclosing Magnetar’s role or the hedge fund’s interests.
Here is a list of the banks that were involved  in Magnetar deals, along with links to many of the prospectuses on the deals, which skip over Magnetar’s role. In all, investment banks created at least 30 CDOs with Magnetar, worth roughly $40 billion overall. Goldman’s 25 Abacus CDOs—one of which is the basis of the SEC’s lawsuit—amounted to $10.9 billion .
More specifically, Goldman was only doing what other major investment firms were doing and getting away with.
And they were getting away with it because the years during the build-up to the 2008 crash — September 16, 2008, to be exact, towards the last months of the George W. Bush administration — it was nobody’s job to look after “suckers,” or to come between them and scammers in pursuit of profit at almost any cost.
We know it wasn’t the government’s job. We know the SEC had so much more pressing business at hand during these years, that it couldn’t be bothered to detect Madoff’s scheme. We know warnings of the coming crash were ignored at the Fed, along with warnings from the FBI. We know that Congress abdicated its responsibility as the crisis grew into the crash in the fall of 2008.
Yet, in the end, it comes down to this: Goldman Sachs, ACA Capital, IKB Deutsche Industriebank and even the rating agencies never had any duty to protect us from their greed. There was one entity that did — our government.
But it was the purported regulators, including the Office of the Comptroller of the Currency and the Office of Thrift Supervision, that used their power not to protect, but rather to prevent predatory lending laws. The Federal Reserve, which could have cracked down on lending practices at any time, did next to nothing, thereby putting us at risk as both consumers and taxpayers. All of these regulators, along with the S.E.C., failed to look at the bad loans that were moving through the nation’s banking system, even though there were plentiful warnings about them.
More important, it was Congress that sat by idly as consumer advocates warned that people were getting loans they’d never be able to pay back. It was Congress that refused to regulate derivatives, despite ample evidence dating back to 1994 of the dangers they posed. It was Congress that repealed the Glass-Steagall Act, which separated investment and commercial banking, yet failed to update the fraying regulatory system.
It was Congress that spread the politically convenient gospel of home ownership, despite data and testimony showing that much of what was going on had little to do with putting people in homes. And it’s Congress that has been either unwilling or unable to put in place rules that have a shot at making things better. The financial crisis began almost three years ago and it’s still not clear if we’ll have meaningful new legislation. In fact, Senate Republicans on Monday voted to block floor debate on the latest attempt at a reform bill.
And the government failed to protect us from financial practices that brought about the crisis, because according to the brand of conservatism that held sway it wasn’t the government’s job to protect citizens from Wall Streets ponzi schemes, shell games, and “shitty deals.”
Madoff’s sins preceded the meltdown by years, diverting attention from how Wall Street itself had become a far more sophisticated crime scene, not of lone con men but of institutions that had successfully lobbied to loosen laws and regulations and build an industry on a bedrock of fraud, and deception.
This decriminalized environment was promoted through the expenditure of hundreds of millions of dollars for lobbying legislators and campaign contributions. There was extensive collusion between the financial services industry and politicians of both parties.
Cutbacks in government monitoring of financial practices became the norm with fines and “settlements” in (with some exceptions) replacing vigilant oversight and the prosecution of wrongdoers at the federal and state level. Fraudsters were primarily punished with fines businesses paid as a cost of doing business.
These practices, aided and abetted by cutbacks in the budgets of agencies that monitored and enforced laws, meant that an open season on homeowners and investors had been declared. In 2004, the FBI warned of an epidemic of mortgage fraud but also acknowledged their own white-collar crime squads had been downsized when fighting “the war on terror” became the priority.
As conservatives dominated politics, laws were softened and courts soon looked the other way as a historically unprecedented transfer of wealth got underway.
It’s the same conservatism adherents of which can be heard today declaring that the “only” purposes of government is defense, and the protection of property (wealth) and personal safety. Regulating the financial sector in order to prevent another crash doesn’t make the list.
And that’s a problem, because as Steve Perlstein pointed out, contrary to what the president said last week, people on Wall Street didn’t “forget” that “behind every dollar traded or leveraged, there is a family looking to buy a house, pay for an education, open a business or save for retirement.” They simply didn’t care.
I honestly don’t know whether Goldman violated Section 10(b) of the Securities Exchange Act of 1934. What I do know is that the facts outlined in the government case are a powerful and convincing reminder of Wall Street’s complete and utter amorality. There, concepts like truth, justice, fairness, trustworthiness, duty of care, right and wrong are now totally without meaning. There is only buy or sell, long or short, win or lose. …
In a trading culture, because buyer and seller are both customers, the Wall Street firm owes its loyalty to neither. It’s free to be loyal only to itself. And things get even more complex when firms like Goldman use their own capital to take positions without disclosing it to anyone.
They didn’t have to care. It wasn’t their business, it wasn’t their concern, and it didn’t increase profits to care. Plus, there’s no real penalty for not caring, and there may not be, if they successfully prevent or weaken financial reform legislation.
When the hearings are over, the microphones unplugged, and the recommendations of various commissions finished and filed, it’s anybody’s guess how much will change or even begin to change. The charges against Goldman Sachs are difficult to prove, from what I’ve read, and the SEC’s case against Goldman will be a hard one to win. So it’s likely that no one from Sachs will face any consequences beyond having to sit through a Senate subcommittee hearing. They’ll go back to their Barnum & Bailey world, and we’ll continue paying the cost of the ticket for admittance into the tent and knowledge of the wonders therein.
Given that likelihood, it still remains to be seen whether Congress and the White House can get financial reform passed that prevents the scams like the one Goldman Sachs executive defended before the subcommittee, and protects the rest of us.
Put another way, it remains to be seen whether we’ll continue to be played for suckers.