Goldman"s role in the sweeping disaster that was the housing bubble is not hard to trace. Here again, the basic trick was a decline in underwriting standards, although in this case the standards weren"t in IPOs but in mortgages. ...

None of that would have been possible without investment bankers like Goldman, who created vehicles to package those lovely mortgages and sell them en masse to unsuspecting insurance companies and pension funds. This created a mass market for toxic debt that would never have existed before; in the old days, no bank would have wanted to keep some addict ex-con"s mortgage on its books, knowing how likely it was to fail. You can"t write these mortgages, in other words, unless you can sell them to someone who doesn"t know what they are.

Goldman used two methods to hide the mess they were selling. First, they bundled hundreds of different mortgages into instruments called Collateralized Debt Obligations. Then they sold investors on the idea that, because a bunch of those mortgages would turn out to be OK, there was no reason to worry so much about the lovely ones: The CDO, as a whole, was sound. Thus, junk-rated mortgages were turned into AAA-rated investments. Second, to hedge its own bets, Goldman got companies like AIG to provide insurance - known as credit-default swaps - on the CDOs. The swaps were essentially a racetrack bet between AIG and Goldman: Goldman is betting the ex-cons will default, AIG is betting they won"t.

There was only one problem with the deals: All of the wheeling and dealing represented exactly the kind of dangerous speculation that federal regulators are supposed to rein in. Derivatives like CDOs and credit swaps had already caused a series of serious financial calamities: Procter & Gamble and Gibson Greetings both lost fortunes, and Orange County, California, was forced to default in 1994. A report that year by the Government Accountability Office recommended that such financial instruments be tightly regulated - and in 1998, the head of the Commodity Futures Trading Commission, a woman named Brooksley Born, agreed. That May, she circulated a letter to business leaders and the Clinton administration suggesting that banks be required to provide greater disclosure in derivatives trades, and maintain reserves to cushion against losses. ...

Clinton"s reigning economic foursome - "especially Rubin," according to Greenberger - called Born in for a meeting and pleaded their case. She refused to back down, however, and continued to push for more regulation of the derivatives. Then, in June 1998, Rubin went public to denounce her move, eventually recommending that Congress strip the CFTC of its regulatory authority. In 2000, on its last day in session, Congress passed the now-notorious Commodity Futures Modernization Act, which had been inserted into an 1l,000-page spending bill at the last minute, with almost no debate on the floor of the Senate. Banks were now free to trade default swaps with impunity.

But the story didn"t end there. AIG, a major purveyor of default swaps, approached the New York State Insurance Department in 2000 and asked whether default swaps would be regulated as insurance. At the time, the office was run by one Neil Levin, a former Goldman vice president, who decided against regulating the swaps. Now freed to underwrite as many housing-based securities and buy as much credit-default protection as it wanted, Goldman went berserk with lending lust. By the peak of the housing boom in 2006, Goldman was underwriting $76.5 billion worth of mortgage-backed securities - a third of which were subprime - much of it to institutional investors like pensions and insurance companies. And in these massive issues of real estate were vast swamps of crap.

Take one $494 million issue that year, GSAMP Trust 2006-S3. Many of the mortgages belonged to second-mortgage borrowers, and the average equity they had in their homes was 0.71 percent. Moreover, 58 percent of the loans included little or no documentation - no names of the borrowers, no addresses of the homes, just zip codes. Yet both of the major ratings agencies, Moody"s and Standard & Poor"s, rated 93 percent of the issue as investment grade. Moody"s projected that less than 10 percent of the loans would default. In reality, 18 percent of the mortgages were in default within 18 months.

Not that Goldman was personally at any risk. The bank might be taking all these hideous, completely irresponsible mortgages from beneath-gangster-status firms like Countrywide and selling them off to municipalities and pensioners - old people, for God"s sake - pretending the whole time that it wasn"t grade-D horseshit. But even as it was doing so, it was taking short positions in the same market, in essence betting against the same crap it was selling. Even worse, Goldman bragged about it in public. "The mortgage sector continues to be challenged," David Viniar, the bank"s chief financial officer, boasted in 2007. "As a result, we took significant markdowns on our long inventory positions .... However, our risk bias in that market was to be short, and that net short position was profitable." In other words, the mortgages it was selling were for chumps. The real money was in betting against those same mortgages.

"That"s how audacious these assholes are," says one hedge-fund manager. "At least with other banks, you could say that they were just dumb - they believed what they were selling, and it blew them up. Goldman knew what it was doing." I ask the manager how it could be that selling something to customers that you"re actually betting against - particularly when you know more about the weaknesses of those products than the customer - doesn"t amount to securities fraud.

"It"s exactly securities fraud," he says. "It"s the heart of securities fraud."

Eventually, lots of aggrieved investors agreed. In a virtual repeat of the Internet IPO craze, Goldman was hit with a wave of lawsuits after the collapse of the housing bubble, many of which accused the bank of withholding pertinent information about the quality of the mortgages it issued. .... But once again, Goldman got off virtually scot-free, staving off prosecution by agreeing to pay a paltry $60 million - about what the bank"s CDO division made in a day and a half during the real estate boom.

The effects of the housing bubble are well known - it led more or less directly to the collapse of Bear Stearns, Lehman Brothers and AIG, whose toxic portfolio of credit swaps was in significant part composed of the insurance that banks like Goldman bought against their own housing portfolios. In fact, at least $13 billion of the taxpayer money given to AIG in the bailout ultimately went to Goldman, meaning that the bank made out on the housing bubble twice: It hosed the investors who bought their horseshit CDOs by betting against its own crappy product, then it turned around and hosed the taxpayer by making him payoff those same bets.

And once again, while the world was crashing down all around the bank, Goldman made sure it was doing just fine in the compensation department. In 2006, the firm"s payroll jumped to $16.5 billion - an average of $622,000 per employee. As a Goldman spokesman explained, "We work very hard here."

But the best was yet to come. While the collapse of the housing bubble sent most of the financial world fleeing for the exits, or to jail, Goldman boldly doubled down - and almost single-handedly created yet another bubble, one the world still barely knows the firm had anything to do with.

BUBBLE #4 - $4 A GALLON
By the beginning of 2008, the financial world was in turmoil. Wall Street had spent the past two and a half decades producing one scandal after another, which didn"t leave much to sell that wasn"t tainted. The terms junk bond, IPO, subprime mortgage and other once-hot financial fare were now firmly associated in the public"s mind with scams; the terms credit swaps and CDOs were about to join them. The credit markets were in crisis, and the mantra that had sustained the fantasy economy throughout the Bush years - the notion that housing prices never go down - was now a fully exploded myth, leaving the Street clamoring for a new bullshit paradigm to sling.

Where to go? With the public reluctant to put money in anything that felt like a paper investment, the Street quietly moved the casino to the physical-commodities market - stuff you could touch: corn, coffee, cocoa, wheat and, above all, energy commodities, especially oil. In conjunction with a decline in the dollar, the credit crunch and the housing crash caused a "flight to commodities." Oil futures in particular skyrocketed, as the price of a single barrel went from around $60 in the middle of 2007 to a high of $147 in the summer of 2008.

That summer, as the presidential campaign heated up, the accepted explanation for why gasoline had hit $4.11 a gallon was that there was a problem with the world oil supply. In a classic example of how Republicans and Democrats respond to crises by engaging in fierce exchanges of moronic irrelevancies, John McCain insisted that ending the moratorium on offshore drilling would be "very helpful in the short term," while Barack Obama in typical liberal-arts yuppie style argued that federal investment in hybrid cars was the way out.

GOLDMAN TURNED A SLEEPY OIL MARKET INTO A GIANT BETTING PARLOR - SPIKING PRICES AT THE PUMP.

But it was all a lie. While the global supply of oil will eventually dry up, the short-term flow has actually been increasing. In the six months before prices spiked, according to the U.S. Energy Information Administration, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped from 86.82 million barrels a day to 86.07 million. Not only was the short-term supply of oil rising, the demand for it was falling - which, in classic economic terms, should have brought prices at the pump down.

So what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help - there were other players in the physical-commodities market - but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures - agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.

As is so often the case, there had been a Depression-era law in place designed specifically to prevent this sort of thing. ... In 1936, Congress recognized that there should never be more speculators in the market than real producers and consumers. If that happened, prices would be affected by something other than supply and demand, and price manipulations would ensue. A new law empowered the Commodity Futures Trading Commission - the very same body that would later try and fail to regulate credit swaps - to place limits on speculative trades in commodities. As a result of the CFTC"s oversight, peace and harmony reigned in the commodities markets for more than 50 years.

All that changed in 1991 when, unbeknownst to almost everyone in the world, a Goldman-owned commodities-trading subsidiary called J. Aron wrote to the CFTC and made an unusual argument. Farmers with big stores of corn, Goldman argued, weren"t the only ones who needed to hedge their risk against future price drops - Wall Street dealers who made big bets on oil prices also needed to hedge their risk, because, well, they stood to lose a lot too.

This was complete and utter crap - the 1936 law, remember, was specifically designed to maintain distinctions between people who were buying and selling real tangible stuff and people who were trading in paper alone. But the CFTC, amazingly, bought Goldman"s argument. It issued the bank a free pass, called the "Bona Fide Hedging" exemption, allowing Goldman"s subsidiary to call itself a physical hedger and escape virtually all limits placed on speculators. In the years that followed, the commission would quietly issue 14 similar exemptions to other companies.

Now Goldman and other banks were free to drive more investors into the commodities markets, enabling speculators to place increasingly big bets. That 1991 letter from Goldman more or less directly led to the oil bubble in 2008, when the number of speculators in the market - driven there by fear of the falling dollar and the housing crash - finally overwhelmed the real physical suppliers and consumers. By 2008, at least three quarters of the activity on the commodity exchanges was speculative, according to a congressional staffer who studied the numbers - and that"s likely a conservative estimate. By the middle of last summer, despite rising supply and a drop in demand, we were paying $4 a gallon every time we pulled up to the pump.

What is even more amazing is that the letter to Goldman, along with most of the other trading exemptions, was handed out more or less in secret. "I was the head of the division of trading and markets, and Brooksley Born was the chair of the CFTC," says Greenberger, "and neither of us knew this letter was out there." In fact, the letters only came to light by accident. Last year, a staffer for the House Energy and Commerce Committee just happened to be at a briefing when officials from the CFTC made an offhand reference to the exemptions.

"1 had been invited to a briefing the commission was holding on energy," the staffer recounts. "And suddenly in the middle of it, they start saying, "Yeah, we"ve been issuing these letters for years now." I raised my hand and said, "Really? You issued a letter? Can I see it?" And they were like, "Duh, duh." So we went back and forth, and finally they said, "We have to clear it with Goldman Sachs." I"m like, "What do you mean, you have to clear it with Goldman Sachs?"" ... [I]n a classic example of how complete Goldman"s capture of government is, the CFTC waited until it got clearance from the bank before it turned the letter over.

Armed with the semi-secret government exemption, Goldman had become the chief designer of a giant commodities betting parlor. Its Goldman Sachs Commodities Index - which tracks the prices of 24 major commodities but is overwhelmingly weighted toward oil - became the place where pension funds and insurance companies and other institutional investors could make massive long-term bets on commodity prices. Which was all well and good, except for a couple of things. One was that index speculators are mostly "long only" bettors, who seldom if ever take short positions - meaning they only bet on prices to rise. While this kind of behavior is good for a stock market, it"s terrible for commodities, because it continually forces prices upward. "If index speculators took short positions as well as long ones, you"d see them pushing prices both up and down," says Michael Masters, a hedge-fund manager who has helped expose the role of investment banks in the manipulation of oil prices. "But they only push prices in one direction: up."

Complicating matters even further was the fact that Goldman itself was cheerleading with all its might for an increase in oil prices. In the beginning of 2008, Arjun Murti, a Goldman analyst, hailed as an "oracle of oil" by The New York Times, predicted a "super spike" in oil prices, forecasting a rise to $200 a barrel. At the time Goldman was heavily invested in oil through its commodities-trading subsidiary, J. Aron; it also owned a stake in a major oil refinery in Kansas, where it warehoused the crude it bought and sold. Even though the supply of oil was keeping pace with demand, Murti continually warned of disruptions to the world oil supply, going so far as to broadcast the fact that he owned two hybrid cars. High prices, the bank insisted, were somehow the fault of the piggish American consumer; in 2005, Goldman analysts insisted that we wouldn"t know when oil prices would fall until we knew "when American consumers will stop buying gas-guzzling sport utility vehicles and instead seek fuel-efficient alternatives."

But it wasn"t the consumption of real oil that was driving up prices - it was the trade in paper oil. By the summer of2008, in fact, commodities speculators had bought and stockpiled enough oil futures to fill 1.1 billion barrels of crude, which meant that speculators owned more future oil on paper than there was real, physical oil stored in all of the country"s commercial storage tanks and the Strategic Petroleum Reserve combined. It was a repeat of both the Internet craze and the housing bubble, when Wall Street jacked up present-day profits by selling suckers shares of a fictional fantasy future of endlessly rising prices.

In what was by now a painfully familiar pattern, the oil-commodities melon hit the pavement hard in the summer of 2008, causing a massive loss of wealth; crude prices plunged from $147 to $33. Once again the big losers were ordinary people. The pensioners whose funds invested in this crap got massacred: CalPERS, the California Public Employees" Retirement System, had $1.1 billion in commodities when the crash came. And the damage didn"t just come from oil. Soaring food prices driven by the commodities bubble led to catastrophes across the planet, forcing an estimated 100 million people into hunger and sparking food riots throughout the Third World. ...

BUBBLE #5 - RIGGING THE BAILOUT
After the oil bubble collapsed last fall, there was no new bubble to keep things humming - this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.

It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers - one of Goldman"s last real competitors - collapse without intervention. ("Goldman"s superhero status was left intact," says market analyst Eric Salzman, "and an investment-banking competitor, Lehman, goes away.") The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.

Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year-old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bankholding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding - most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs - and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.

Converting to a bank-holding company has other benefits as well: Goldman"s primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict-of-interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank-holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman - New York Fed president William Dudley - is yet another former Goldmanite.

The collective message of all this - the AIG bailout, the swift approval for its bank-holding conversion, the TARP funds - is that when it comes to Goldman Sachs, there isn"t a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. "In the past it was an implicit advantage," says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. "Now it"s more of an explicit advantage." ...

And here"s the real punch line. After playing an intimate role in four historic bubble catastrophes, after helping $5 trillion in wealth disappear from the NASDAQ, after pawning off thousands of toxic mortgages on pensioners and cities, after helping to drive the price of gas up to $4 a gallon and to push 100 million people around the world into hunger, after securing tens of billions of taxpayer dollars through a series of bailouts overseen by its former CEO, what did Goldman Sachs give back to the people of the United States in 2008?

Fourteen million dollars.

That is what the firm paid in taxes in 2008, an effective tax rate of exactly one, read it, one percent. The bank paid out $10 billion in compensation and benefits that same year and made a profit of more than $2 billion - yet it paid the Treasury less than a third of what it forked over to CEO Lloyd Blankfein, who made $42.9 million last year.

How is this possible? According to Goldman"s annual report, the low taxes are due in large part to changes in the bank"s "geographic earnings mix." In other words, the bank moved its money around so that most of its earnings took place in foreign countries with low tax rates. Thanks to our completely hosed corporate tax system, companies like Goldman can ship their revenues offshore and defer taxes on those revenues indefinitely, even while they claim deductions upfront on that same untaxed income. This is why any corporation with an at least occasionally sober accountant can usually find a way to zero out its taxes. A GAO report, in fact, found that between 1998 and 2005, roughly two-thirds of all corporations operating in the U.S. paid no taxes at all.

This should be a pitchfork-level outrage - but somehow, when Goldman released its post-bailout tax profile, hardly anyone said a word. One of the few to remark on the obscenity was Rep. Lloyd Doggett, a Democrat from Texas who serves on the House Ways and Means Committee. "With the right hand out begging for bailout money," he said, "the left is hiding it offshore."

BUBBLE #6 - GLOBAL WARMING
Fast-Forward to today. It"s early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs - its employees paid some $981,000 to his campaign - sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.

AS ENVISIONED BY GOLDMAN, THE FIGHT TO STOP GLOBAL WARMING WILL BECOME A "CARBON MARKET" WORTH $1 TRILLION A YEAR.

Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm"s co-head of finance) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits - a booming trillion-dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade.

The new carbon-credit market is a virtual repeat of the commodities-market casino that"s been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won"t even have to rig the game. It will be rigged in advance.

Here"s how it works: If the bill passes; there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy "allocations" or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billions worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.

The feature of this plan that has special appeal to speculators is that the "cap" on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand-new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison"s sake, the annual combined revenues of an electricity suppliers in the U.S. total $320 billion.

Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigm-shifting legislation, (2) make sure that they"re the profit-making slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for cap-and-trade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank"s environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Paulson"s report argued that "voluntary action alone cannot solve the climate-change problem." A few years later, the bank"s carbon chief, Ken Newcombe, insisted that cap-and-trade alone won"t be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that "Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies) and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time, "We"re not making those investments to lose money."

The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utah-based firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There"s also a $500 million Green Growth Fund set up by a Goldmanite to invest in green-tech ... the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energy-futures market?

"Oh, it"ll dwarf it," says a former staffer on the House energy committee. ....

"If it"s going to be a tax, I would prefer that Washington set the tax and collect it," says Michael Masters, the hedge fund director who spoke out against oil-futures speculation. "But we"re saying that Wall Street can set the tax, and Wall Street can collect the tax. That"s the last thing in the world I want. It"s just asinine."

Cap-and-trade is going to happen. Or, if it doesn"t, something like it will. The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees - while the actual victims in this mess, ordinary taxpayers, are the ones paying for it.

It"s not always easy to accept the reality of what we now routinely allow these people to get away with; there"s a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can"t really register the fact that you"re no longer a citizen of a thriving first-world democracy, that you"re no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there.

But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It"s a gangster state, running on gangster economics, and even prices can"t be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can"t stop it, but we should at least know where it"s all going.   http://www.correntewire.com/great_american_bubble_machine_0
И на руски- http://www.warandpeace.ru/ru/reports/view/37078/