C&T- abbreviation I made up for the cap and trade bill.
If it emerges, it evidently may have requirements for
energy efficiency in any house to be sold. Republican
bloggers are highly upset over that as they are with
any change.  But so far, we don't have any final bill to
talk of.  But it will be over 1000 pages in length.

--- On Sat, 7/4/09, Abernethy, Virginia Deane
<virginia.abernethy@...> wrote:


From: Abernethy, Virginia Deane <virginia.abernethy@...>
Subject: RE: [energyresources] Re: C&T bill, eagerly awaiting the final bill
To: energyresources@yahoogroups.com
Date: Saturday, July 4, 2009, 4:13 PM








~~~~~~~~~EnergyReso urces Moderator Comment ~~~~~~~~
Re: C&T = cap and trade.

But what does it mean?

~~~~~~ EnergyResources Moderator Tom Robertson ~~~~~~

Eric, I'll look forward to your summaries.
V.

____________ _________ _________ __

From: energyresources@ yahoogroups. com on behalf of Eric Pfeiffer
Sent: Sat 7/4/2009 8:39 AM
To: energyresources@ yahoogroups. com
Subject: [energyresources] Re: C&T bill, eagerly awaiting the final bill

Thank you Virginia for recognizing the C&T legislation
as a banking bill, not an enviromental bill. When a final
bill emerges I will post it with highlights. But the gist is
already clear...through an extensive system of tradeable
credits, the big utilities will not actually decrease
CO2 emissions. Rather they will buy credits from
tree farms, thus on paper reducing emissions . The
big winners will be the middle men, the investment
banks receiving fees as the credits move across their
desks, unregulated fees at this point.
...The big loser will be the middle class and poor who
will pay more per capita as higher costs for all
goods and services.
...The so called rebate to lower income people will
be largely unfunded as the bill appears now. Will have
to await the final bill, but I will dig into and post on this site.
It should be quite entertaining.

--- On Fri, 7/3/09, Abernethy, Virginia Deane <virginia.abernethy@ Vanderbilt.
Edu <mailto:virginia. abernethy% 40Vanderbilt. Edu> > wrote:

From: Abernethy, Virginia Deane <virginia.abernethy@ Vanderbilt. Edu
<mailto:virginia. abernethy% 40Vanderbilt. Edu> >
Subject: [energyresources] Great American Bubble Machine, Goldman-Sachs
To: "Abernethy, Virginia Deane" <virginia.abernethy@ Vanderbilt. Edu
<mailto:virginia. abernethy% 40Vanderbilt. Edu> >
Date: Friday, July 3, 2009, 2:39 PM

Hi,
Did you lose your shirt on the internet bubble? Housing? Commodities? the
Bailout?
About to lose your shirt on the "cap and trade" bubble?

Ask Goldman-Sachs for your money back.
V.
............ ......... ......... ......... ......... ........

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The Great American Bubble Machine

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Fri, 06/26/2009 - 10:53pm - lambert

Here's the Matt Taibbi's article on how Goldman-Sachs helped bring about and
profit from our current financial crisis, "The Big FAIL" <http://www.corrente
<http://www.corrente /> wire.com/ great_meltdown> , found at Something Awful
<http://forums. <http://forums. /> somethingawful. com/showthread. php?threadid=
3159732&pagenumb er=1> (via LOLfed <http://lolfed. <http://lolfed. /> com/2009/
06/25/thursday- roundup-2/> ). Despite the weapons-grade snark in the first
paragraph, which I underlined, it's a Big Picture post, very analytical, and has
a hypothesis of what is to come that we can test for. So I recommend you read
the whole thing <http://forums. <http://forums. /> somethingawful.
com/showthread. php?threadid= 3159732&pagenumb er=1> , even though it is quite
long.

THE GREAT AMERICAN BUBBLE MACHINE

From tech stocks to high gas prices, Goldman Sachs has engineered every major
market manipulation since the Great Depression - and they're about to do it
again

By MATT TAIBBI

The first thing you need to know about Goldman Sachs is that it's everywhere.
The world's most powerful investment bank is a great vampire squid wrapped
around the face of humanity, relentlessly jamming its blood funnel into anything
that smells like money. In fact, the history of the recent financial crisis,
which doubles as a history of the rapid decline and fall of the suddenly
swindled-dry American empire, reads like a Who's Who of Goldman Sachs graduates.

By now, most of us know the major players. As George Bush's last Treasury
secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a
suspiciously self-serving plan to funnel trillions of Your Dollars to a handful
of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury
secretary, spent 26 years at Goldman before becoming chairman of Citigroup -
which in turn got a $300 billion taxpayer bailout from Paulson. There's John
Thain, the rear end in a top hat chief of Merrill Lynch who bought an $87,000
area rug for his office as his company was imploding; a former Goldman banker,
Thain enjoyed a multibillion- dollar handout from Paulson, who used billions in
taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert
Steel, the former Goldmanite head of Wachovia, scored himself and his fellow
executives $225 million in golden parachute payments as his bank was
self-destructing. There's Joshua
Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the
current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and
Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out
insurance giant AIG, which forked over $13 billion to Goldman after Liddy came
on board. The heads of the Canadian and Italian national banks are Goldman
alums, as is the head of the World Bank, the head of the New York Stock
Exchange, the last two heads of the Federal Reserve Bank of New York - which,
incidentally, is now in charge of overseeing Goldman - not to mention ...

But then, any attempt to construct a narrative around all the former Goldmanites
in influential positions quickly becomes an absurd and pointless exercise, like
trying to make a list of everything. What you need to know is the big picture:
If America is circling the drain, Goldman Sachs has found a way to be that drain
- an extremely unfortunate loophole in the system of Western democratic
capitalism, which never foresaw that in a society governed passively by free
markets and free elections, organized greed always defeats disorganized
democracy.

The bank's unprecedented reach and power have enabled it to turn all of America
into a giant pump-and-dump scam, manipulating whole economic sectors for years
at a time, moving the dice game as this or that market collapses, and all the
time gorging itself on the unseen costs that are breaking families everywhere -
high gas prices, rising consumer-credit rates, half-eaten pension funds, mass
layoffs, future taxes to pay off bailouts. All that money that you're losing,
it's going somewhere, and in both a literal and a figurative sense, Goldman
Sachs is where it's going: The bank is a huge, highly sophisticated engine for
converting the useful, deployed wealth of society into the least useful, most
wasteful and insoluble substance on Earth - pure profit for rich individuals.

They achieve this using the same playbook over and over again. The formula is
relatively simple: Goldman positions itself in the middle of a speculative
bubble, selling investments they know are crap. Then they hoover up vast sums
from the middle and lower floors of society with the aid of a crippled and
corrupt state that allows it to rewrite the rules in exchange for the relative
pennies the bank throws at political patronage. Finally, when it all goes bust,
leaving millions of ordinary citizens broke and starving, they begin the entire
process over again, riding in to rescue us all by lending us back our own money
at interest, selling themselves as men above greed, just a bunch of really smart
guys keeping the wheels greased. They've been pulling this same stunt over and
over since the 1920s - and now they're preparing to do it again, creating what
may be the biggest and most audacious bubble yet. ...

IF AMERICA IS NOW CIRCLING THE DRAIN, GOLDMAN SACHS HAS FOUND A WAY TO BE THAT
DRAIN.

BUBBLE #1 - THE GREAT DEPRESSION
Goldman wasn't always a too-big-to-fail Wall Street behemoth, the ruthless face
of kill-or-be-killed capitalism on steroids - just almost always. The bank was
actually founded in 1869 by a German immigrant named Marcus Goldman, who built
it up with his son-in-law Samuel Sachs. They were pioneers in the use of
commercial paper, which is just a fancy way of saying they made money lending
out short-term IOUs to small-time vendors in downtown Manhattan.

You can probably guess the basic plotline of Goldman's first 100 years in
business: plucky, immigrant-led investment bank beats the odds, pulls itself up
by its bootstraps, makes shitloads of money. In that ancient history there's
really only one episode that bears scrutiny now, in light of more recent events:
Goldman's disastrous foray into the speculative mania of pre-crash Wall Street
in the late 1920s.

This great Hindenburg of financial history has a few features that might sound
familiar. Back then, the main financial tool used to bilk investors was called
an "investment trust." Similar to modern mutual funds, the trusts took the cash
of investors large and small and (theoretically, at least) invested it in a
smorgasbord of Wall Street securities, though the securities and amounts were
often kept hidden from the public. So a regular guy could invest $10 or $100 in
a trust and feel like he was a big player. Much as in the 1990s, when new
vehicles like day trading and e-trading attracted reams of new suckers from the
sticks who wanted to feel like big shots, investment trusts roped a new
generation of regular-guy investors into the speculation game.

Beginning a pattern that would repeat itself over and over again, Goldman got
into the investment-trust game late, then jumped in with both feet and went
hog-wild. The first effort was the Goldman Sachs Trading Corporation; the bank
issued a million shares at $100 apiece, bought all those shares with its own
money and then sold 90 percent of them to the hungry public at $104. The trading
corporation then relentlessly bought shares in itself, bidding the price up
further and further. Eventually it dumped part of its holdings and sponsored a
new trust, the Shenandoah Corporation, issuing millions more in shares in that
fund - which in turn sponsored yet another trust called the Blue Ridge
Corporation. In this way, each investment trust served as a front for an endless
investment pyramid: Goldman hiding behind Goldman hiding behind Goldman. Of the
7,250,000 initial shares of Blue Ridge, 6,250,000 were actually owned by
Shenandoah - which, of course, was in
large part owned by Goldman Trading.

The end result (ask yourself if this sounds familiar) was a daisy chain of
borrowed money, one exquisitely vulnerable to a decline in performance anywhere
along the line ....

BUBBLE #2 - TECH STOCKS
Fast-Forward about 65 years. Goldman not only survived the crash that wiped out
so many of the investors it duped, it went on to become the chief underwriter to
the country's wealthiest and most powerful corporations. Thanks to Sidney
Weinberg, who rose from the rank of janitor's assistant to head the firm,
Goldman became the pioneer of the initial public offering, one of the principal
and most lucrative means by which companies raise money. During the 1970s and
1980s, Goldman may not have been the planet-eating Death Star of political
influence it is today, but it was a top-drawer firm that had a reputation for
attracting the very smartest talent on the Street.

It also, oddly enough, had a reputation for relatively solid ethics and a
patient approach to investment that shunned the fast buck; its executives were
trained to adopt the firm's mantra, "long-term greedy." One former Goldman
banker who left the firm in the early Nineties recalls seeing his superiors give
up a very profitable deal on the grounds that it was a long-term loser. "We gave
back money to 'grownup' corporate clients who had made bad deals with us," he
says. "Everything we did was legal and fair - but 'long-term greedy' said we
didn't want to make such a profit at the clients' collective expense that we
spoiled the marketplace. " ...

But then, something happened. It's hard to say what it was exactly; it might
have been the fact that Goldman's co-chairman in the early Nineties, Robert
Rubin, followed Bill Clinton to the White House, where he directed the National
Economic Council and eventually became Treasury secretary. ...

Rubin was the prototypical Goldman banker. He was probably born in a $4,000
suit, he had a face that seemed permanently frozen just short of an apology for
being so much smarter than you, and he exuded a Spock-like, emotion-neutral
exterior; the only human feeling you could imagine him experiencing was a
nightmare about being forced to fly coach. It became almost a national cliche
that whatever Rubin thought was best for the economy - a phenomenon that reached
its apex in 1999, when Rubin appeared on the cover of Time with his Treasury
deputy, Larry Summers, and Fed chief Alan Greenspan under the headline THE
COMMITTEE TO SAVE THE WORLD. And "what Rubin thought," mostly, was that the
American economy, and in particular the financial markets, were over-regulated
and needed to be set free. ...

The basic scam in the Internet Age is pretty easy even for the financially
illiterate to grasp. Companies that weren't much more than pot-fueled ideas
scrawled on napkins by up-too-late bong-smokers were taken public via IPOs,
hyped in the media and sold to the public for megamillions. It was as if banks
like Goldman were wrapping ribbons around watermelons, tossing them out 50-story
windows and opening the phones for bids. In this game you were a winner only if
you took your money out before the melon hit the pavement.

It sounds obvious now, but what the average investor didn't know at the time was
that the banks had changed the rules of the game, making the deals look better
than they actually were. They did this by setting up what was, in reality, a
two-tiered investment system - one for the insiders who knew the real numbers,
and another for the lay investor who was invited to chase soaring prices the
banks themselves knew were irrational. While Goldman's later pattern would be to
capitalize on changes in the regulatory environment, its key innovation in the
Internet years was to abandon its own industry's standards of quality control.

"Since the Depression, there were strict underwriting guidelines that Wall
Street adhered to when taking a company public," says one prominent hedge-fund
manager. "The company had to be in business for a minimum of five years, and it
had to show profitability for three consecutive years. But Wall Street took
these guidelines and threw them in the trash." Goldman completed the snow job by
pumping up the sham stocks: "Their analysts were out there saying Bullshit.com
is worth $100 a share."

The problem was, nobody told investors that the rules had changed. "Everyone on
the inside knew," the manager says. "Bob Rubin sure as hell knew what the
underwriting standards were. They'd been intact since the 1930s." ...

Goldman has denied that it changed its underwriting standards during the
Internet years, but its own statistics belie the claim. Just as it did with the
investment trust in the 1920s, Goldman started slow and finished crazy in the
Internet years. After it took a little-known company with weak financials called
Yahoo! public in 1996, once the tech boom had already begun, Goldman quickly
became the IPO king of the Internet era. Of the 24 companies it took public in
1997, a third were losing money at the time of the IPO. In 1999, at the height
of the boom, it took 47 companies public, including stillborns like Webvan and
eToys, investment offerings that were in many ways the modern equivalents of
Blue Ridge and Shenandoah. The following year, it underwrote 18 companies in the
first four months, 14 of which were money losers at the time. As a leading
underwriter of Internet stocks during the boom, Goldman provided profits far
more volatile than those of its
competitors: In 1999, the average Goldman IPO leapt 281 percent above its
offering price, compared to the Wall Street average of 181 percent.

How did Goldman achieve such extraordinary results? One answer is that they used
a practice called "laddering," which is just a fancy way of saying they
manipulated the share price of new offerings. Here's how it works: Say you're
Goldman Sachs, and Bullshit.com comes to you and asks you to take their company
public. You agree on the usual terms: You'll price the stock, determine how many
shares should be released and take the Bullshit.com CEO on a "road show" to
schmooze investors, all in exchange for a substantial fee (typically six to
seven percent of the amount raised). You then promise your best clients the
right to buy big chunks of the IPO at the low offering price - let's say
Bullshit.com' s starting share price is $15 - in exchange for a promise that
they will buy more shares later on the open market. That seemingly simple demand
gives you inside knowledge of the IPO's future, knowledge that wasn't disclosed
to the day-trader schmucks who only
had the prospectus to go by: You know that certain of your clients who bought X
amount of shares at $15 are also going to buy Y more shares at $20 or $25,
virtually guaranteeing that the price is going to go to $25 and beyond. In this
way, Goldman could artificially jack up the new company's price, which of course
was to the bank's benefit - a six percent fee of a $500 million IPO is serious
money.

Goldman was repeatedly sued by shareholders for engaging in laddering in a
variety of Internet IPOs, including Webvan and NetZero. The deceptive practices
also caught the attention of Nichol as Maier, the syndicate manager of Cramer &
Co., the hedge fund run at the time by the now-famous chattering television rear
end in a top hat Jim Cramer, himself a Goldman alum. ...

"Goldman, from what I witnessed, they were the worst perpetrator, " Maier said.
"They totally fueled the bubble. And it's specifically that kind of behavior
that has caused the market crash. They built these stocks upon an illegal
foundation - manipulated up - and ultimately, it really was the small person who
ended up buying in." In 2005, Goldman agreed to pay $40 million for its
laddering violations - a puny penalty relative to the enormous profits it made.
(Goldman, which has denied wrongdoing in all of the cases it has settled,
refused to respond to questions for this story.)

Another practice Goldman engaged in during the Internet boom was "spinning,"
better known as bribery. Here the investment bank would offer the executives of
the newly public company shares at extra-low prices, in exchange for future
underwriting business. Banks that engaged in spinning would then undervalue the
initial offering price - ensuring that those "hot" opening price shares it had
handed out to insiders would be more likely to rise quickly, supplying bigger
first-day rewards for the chosen few. So instead of Bullshit.com opening at $20,
the bank would approach the Bullshit.com CEO and offer him a million shares of
his own company at $18 in exchange for future business - effectively robbing all
of Bullshit's new shareholders by diverting cash that should have gone to the
company's bottom line into the private bank account of the company's CEO. ...

Such practices conspired to turn the Internet bubble into one of the greatest
financial disasters in world history: Some $5 trillion of wealth was wiped out
on the NASDAQ alone. But the real problem wasn't the money that was lost by
shareholders, it was the money gained by investment bankers, who received hefty
bonuses for tampering with the market. Instead of teaching Wall Street a lesson
that bubbles always deflate, the Internet years demonstrated to bankers that in
the age of freely flowing capital and publicly owned financial companies,
bubbles are incredibly easy to inflate, and individual bonuses are actually
bigger when the mania and the irrationality are greater.

GOLDMAN SCAMMED HOUSING INVESTORS BY BETTING AGAINST ITS OWN CRAPPY MORTGAGES.

Nowhere was this truer than at Goldman. Between 1999 and 2002, the firm paid out
$28.5 billion in compensation and benefits - an average of roughly $350,000 a
year per employee. Those numbers are important because the key legacy of the
Internet boom is that the economy is now driven in large part by the pursuit of
the enormous salaries and bonuses that such bubbles make possible. Goldman's
mantra of "long-term greedy" vanished into thin air as the game became about
getting your check before the melon hit the pavement.

The market was no longer a rationally managed place to grow real, profitable
businesses: It was a huge ocean of Someone Else's Money where bankers hauled in
vast sums through whatever means necessary and tried to convert that money into
bonuses and payouts as quickly as possible. If you laddered and spun 50 Internet
IPOs that went bust within a year, so what? By the time the Securities and
Exchange Commission got around to fining your firm $110 million, the yacht you
bought with your IPO bonuses was already six years old. Besides, you were
probably out of Goldman by then, running the U.S. Treasury or maybe the state of
New Jersey. (One of the truly comic moments in the history of America's recent
financial collapse came when Gov. Jon Corzine of New Jersey, who ran Goldman
from 1994 to 1999 and left with $320 million in IPO-fattened stock, insisted in
2002 that "I've never even heard the term 'laddering' before.")

For a bank that paid out $7 billion a year in salaries, $110 million fines
issued half a decade late were something far less than a deterrent - they were a
joke. Once the Internet bubble burst, Goldman had no incentive to reassess its
new, profit-driven strategy; it just searched around for another bubble to
inflate. As it turns out, it had one ready, thanks in large part to Rubin.

BUBBLE #3 - THE HOUSING CRAZE
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-commoditie
s 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-commoditie s 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-depressio
n 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.

The bubbles don't come 'til the end of the program... Turn off the bubbles...
Turn off the bubble machine!http://www.corrente <http://www.corrente />
wire.com/ great_american_ bubble_machine_ 0

<http://www.corrente <http://www.corrente /> wire.com/ great_american_
bubble_machine_ 0>

NOTE Read it all here <http://forums. <http://forums. /> somethingawful.
com/showthread. php?threadid= 3159732&pagenumb er=1> .

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