Mike Kueber's Blog

December 4, 2010

Sunday book review #3 – Griftopia by Matt Taibbi

I recently blogged about a decade-in-review article in Time magazine that suggested dysfunctional government in America had become “of the feckless, by the crooked, for the connected.”  (2000: A Nation Divided, by David Von Drehle.)  That description perfectly encapsulates Matt Taibbi’s view of America presented in Griftopia, subtitled Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America

Although Taibbi is clearly a liberal, he is not a partisan because he thinks both parties are tools controlled by the financial industry and other fat cats.  Although his thinking is not original, his description is:

  • “If American politics made any sense at all, we wouldn’t have two giant political parties roughly equal in size perpetually fighting over the same 5-10 percent swatch of undecided voters, blues versus reds.  Instead, the parties should be broken down into haves and have-nots – a couple of obnoxious bankers on the Upper East Side running for office against 280 million pissed-off credit card and mortgage customers….  The insurmountable hurdle for so-called populist movements is having the nerve to attack the rich instead of the poor.”

This political philosophy coincides with my previously expressed view that, if the Republican Party (or the Tea Party) wants to represent the working class, it should refuse to be led by or sponsored by American aristocrats.

Taibbi provides an interesting explanation for why Americans care so much about elections even though they realize that elections don’t fundamentally change anything:

  • “But why it’s so important to them is one of the great unexplored mysteries of our time.  [That’s a bit of an overstatement, I think.]  It’s a mystery rooted in the central, horrifying truth about our national politics.  Which is this: none of it really matters to us.  The presidential election is a drama that we Americans have learned to wholly consume as entertainment, divorced completely from any expectations about concrete changes in our own lives.  For the vast majority of people who follow national elections in this country, the payoff they’re looking for when they campaign for this or that political figure is that warm and fuzzy feeling you get when the home team wins the big game.  Or, more important, when a hated rival loses.  Their stake in the electoral game isn’t a citizen’s interest, but a rooting interest.”

That makes sense to me.

For those of you, like me, who don’t recall the beginning of the Tea Party, Taibbi reports that it was started on February 20, 2009 by CNBC’s Rick Santelli in response to Obama’s proposed $75 billion program to help those faced with foreclosure.  Santelli railed against the proposal for rewarding the irresponsible.  Instead it should “reward people that could carry the water instead of drink the water.”  Later he asked rhetorically, “How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills?”  And finally, he said, “We’re thinking of having a Chicago Tea Party in July.  All you capitalists that want to show up to Lake Michigan, I’m gonna start organizing.”  Taibbi thinks Santelli’s “rant” was significant because it provided “those already pissed-off viewers with a place to focus their anger away from the financial services industry, and away from the genuinely bipartisan effort to subsidize Wall Street.” 

Taibbi goes on to say that this was a matter of racial politics – “Santelli’s rant fostered the illusion that the crisis was caused by poor people, which in this country usually conjures a vision of minorities, no matter how many poor white people there are, borrowing too much house.  It was classic race politics – the plantation owner keeping the seemingly inevitable pitchfork out of his abdomen by pitting the poor whites against poor blacks.  And it worked big-time.”  I agree with Taibbi that this political tactic divided people in this country, but I don’t think it was a racial divide.  Rather, it was a classical political divide between the self-reliant/responsible and the dependent/irresponsible.  

The body of the book begins with a chapter titled, “The Biggest Asshole in the World.”  I was surprised to learn that this person was Alan Greenspan.  I was even more surprised to learn that Greenspan’s greatest flaw was that he was a disciple of Ayn Rand:

  • attending meetings at Rand’s apartment with a circle of like-minded intellectual jerk-offs….”
  • One of the defining characteristics of Rand’s clique was its absolutist ideas about good and evil, expressed in wildly off-putting, uncompromisingly bombastic rhetoric that almost certainly bled downward to the group ranks from its Russian émigré leader, who might have been one of the most humor-deprived people ever to walk the earth.”
  • Rand’s book, Atlas Shrugged, for instance, remains a towering monument to humanity’s capacity for unrestrained self-pity – it’s a bizarre and incredibly long-winded piece of aristocratic paranoia in which a group of Randian supermen decide to break off from the rest of society and form a pure free-market utopia, and naturally the parasitic lower classes immediately drown in their own laziness and ineptitude.”  [Having recently read Atlas Shrugged, I understand Taibbi’s description, but disagree with it.  Atlas Shrugged is about the parasites vs. the productive, not the aristocrats vs. the lower classes.]

Although I found the extensive discussion of Ayn Rand, her philosophy of objectivism, and Atlas Shrugged interesting, I’m not sure what they have to do with America as a Griftopia?  As Taibbi noted, Rand’s clique opposed the concept of a Federal Reserve, yet Greenspan became its chairmen.  As Greenspan’s career progressed, his actions were dictated, not by any definable economic philosophy such as Rand’s, but rather by his willingness to do whatever is necessary to facilitate massive Wall Street profits, which inevitably leads to a bubble bursting, at which time government moves in to bail out Wall Street.  In fact, late in her life Rand appeared to recognize that Greenspan was not faithful to her economic philosophy – “I think that Alan basically is a social climber.”

You might remember that Greenspan had one significant lapse from being a bubble facilitator when in December 1996 he warned about “irrational exuberance” in the stock market.  According to Taibbi, this warning caused such dismay with his Wall Street patrons, “Greenspan spent much of the next four years recoiling from his own warning, turning himself all the way around to become head cheerleader to the madness.”  In January of 2000 Greenspan seemed to have convinced himself that the dot.com bubble, which was about to burst, was not a bubble:

  • “When we look back at the 1990s, from the perspective of say 2010, the nature of forces currently in train will have presumably become clearer.  We may conceivably conclude from that vantage point that, at the turn of the millennium, the American economy was experiencing a once-in-a-century acceleration of innovation, which propelled forward productivity… at a pace not seen in generations, if ever.”

The preceding is not an isolated incident where Greenspan was utterly wrong.  Taibbi provides several other examples.  Taibbi also credits Greenspan with finagling the repeal of the Glass-Steagall Act, which had prohibited insurance companies, investment banks, and commercial banks from merging.  To effect the repeal, Congress passed the Gramm-Leach-Bliley Act, which played a large role in the 2007-2008 financial meltdown

Taibbi concluded his discussion of Greenspan by ineffectively trying to associate his conduct with Ayn Rand’s philosophy:

  • “He raised a generation of Wall Street bankers who under his tutelage molded themselves in the image of Randian supermen, pursuing a mantra of personal profit with pure religious zeal….  Greenspan staked the scam, printing trillions upon trillions of dollars to goad Americans into playing a series of games they were doomed from the start to lose to the dealer….  He probably did this just because he wanted his face on magazine covers and be popular at certain Upper East Side cocktail parties.  His private hang-ups in this way shaped the entire scam of modern American politics: a pure free market for the suckers, golden parachutes for the Atlases.”

The preceding may be an accurate portrayal of Greenspan, but it is a totally inaccurate reference to Rand’s supermen and Atlases, and thus it damages Taibbi’s credibility. 

The next chapter in Griftopia, titled “Hot Potato,” describes the subprime mortgage mess (i.e., any mortgage with a FICO of less than 660) and the subsequent financial meltdown.  Taibbi shows how virtually everyone involved, from the mortgage brokers to Wall Street CEOs, knew that the mortgages and associated financial instruments were doomed to go bad, but there were huge profits to be made so long as the “hot potatoes” were passed to someone else before they went bad.  The only people who didn’t know how toxic the mortgages were – the rating agencies and the companies like AIG that issued the credit-default swaps. 

AIG comes off particularly stupid.  Not only did their Financial Products division sell billions of dollars of credit-default swaps (essentially mortgage insurance without the legal requirement to maintain any capital reserves), but their Asset Management division bought billions of dollars of toxic residential-mortgage-backed securities.  This resulted in AIG holding more than their fair share of hot potatoes when the bubble burst.  Eventually, the federal government bailed out AIG, which was then able to honor its credit-default swaps to Goldman Sachs and others.  The federal government also provided direct relief to the Wall Street banks holding hot potatoes through the Troubled Asset Relief Program.  And finally, the Fed provided billions of cheap dollars through the Temporary Liquidity Guarantee Program.  The moral of the story – inflate the bubble, make huge short-term profits, and look to the federal government for relief if anything bad happens.

 The next chapter, titled “Blowout – the commodity bubble” concerns a bubble that has not been adequately covered by the media.  According to Taibbi, the commodity bubble of 2008 (especially oil prices) was caused by Wall Street beginning in 2005 to aggressively sell commodity-index futures.  Historically, this practice had been severely limited by the Commodity Futures Trading Commission (CFTC) because futures trading was supposed to be conducted primarily by physical hedgers (those who actually produced or consumed the commodity), while speculative hedgers were allowed to participate only to the extent necessary to produce liquidity, usually limited to 20% of commodity-market activity.  Unfortunately, the CTFC provided speculation exemptions to Goldman Sachs and others, and their speculation eventually generated over 80% of the commodity-market activity.  The inevitable bubble included oil selling for $149 a barrel and gas for $4 a gallon.  Although the bursting of this bubble did not require a government bailout, the bubble itself did great damage:

  • “Bubbles like the one we saw in 2008 are only one-half of the oil-price scam.  Because taking your money through the indirect taxation of high energy and food prices … is only half the job.  What these clowns did with all that cash they siphoned from you … is the other end of the story.”

The “other end of the story” is a chapter titled, “The Outsourced Highway.”  This is a story that I had not previously heard of.  Yes, I have a friend who opposes toll roads for San Antonio, and he mentioned that the roads would be managed by a foreign-owned company.  I thought his reference of foreign ownership was xenophobia on his part, but I didn’t realize that the sale of American infrastructure (parking meters, toll roads, airports, parking garages) was being conducted on a large scale by Wall Street on behalf of cash-strapped governmental entities to oil-rich foreign entities.  In this chapter, Taibbi describes the city of Chicago selling a 75-year lease of its parking meters to a domestic entity for more than $1 billion, but after the sale the ultimate owners turned out to be heavily from Abu Dhabi.  The main problem with these sales is that the city is giving up long-term revenue to address short-term budget problems.  Back home in North Dakota, that’s called “eating your seed corn.”  What makes the problem particularly irritating for Taibbi is that Wall Street’s commodity bubble caused the oil-rich countries to reap obscene amounts of money, and they are now using that money to buy America’s infrastructure for long-term assured profits.    

The next chapter, titled “The Trillion-Dollar Band-Aid,” concerns ObamaCare.  According to Taibbi, ObamaCare was the result of a political party (the Democrats) that felt compelled to pass anything that could be called healthcare reform.  To accomplish this, Obama sold out not only to various swing-vote Senators at $100 million a pop (Nelson, Landrieu, Inouye, Dodd, and Lieberman), but more importantly he sold out to the healthcare industry, with sweetheart deals and continued anti-trust protection:

  • It was almost a perfect example of politics in the Bubble Era, where the time horizon for anyone with real power is always close to zero, long-term thinking is an alien concept, and even the most massive and ambitious undertakings are motivated entirely by short-term rewards.”

The villain in The Trillion-Dollar Band-Aid was not Wall Street.  Rather it was crooked politicians controlled by moneyed interests.  But Wall Street returned with a vengeance in the final chapter, titled “The Great American Bubble Machine,” a/k/a Goldman Sachs.  According to Taibbi, Goldman Sachs at one time had a relatively good reputation for solid ethics and long-term thinking – so-called “long-term greedy.”  That changed, however, in the late 1990s when it saw the obscene profits that could be reaped by inflating the dot.com bubble.  Goldman was at the forefront of underwriting IPOs on unprofitable companies by misleading and even defrauding investors.  Taibbi characterized this new bank as follows:

  • “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.”

To put salt on any wound caused by Goldman Sachs, Taibbi reported that in 2008, the bank paid $10 billion in compensation and made a profit of over $2 billion, but paid less than $14 million in taxes (less than 1%) because it moved its money around the world in such a way that most of its earnings took place in foreign countries with low tax rates.  Texas Congressman Lloyd Doggett noted, “With the right hand begging for bailout money, the left is hiding it offshore.”

As you may have noticed in the previous quotes, Taibbi likes to use earthy, colorful descriptions of people and companies.  As a hater of politically-correct anything, I find the following language entertaining:

  • The Tea Party puts forward “some of the most egregiously stupid morons on our great green earth.  By rallying behind dingbats like Palin and Michelle Bachmann….  Bachmann is the perfect symbol of the Dumb and Dumber approach to high finance.”
  • A loose definition of the Tea Party might be fifteen million pissed-off white people chasing after Mexicans on Medicaid by the small handful of banks and investment companies who advertise on Fox and CNBC.”
  • The Westchester housing settlement – “a classic example of dizzy left-wing meddling mixed with socially meaningless legal grifting that enriches opportunistic lawyers with an eye for low-hanging fruit.”
  • The right-wing teabagger crowd….  Meanwhile the castrated left wing….”
  • “Lloyd Blankfein proved to be jaw-droppingly obnoxious douchebags who made you want to drive a fist through your TV set.”

So, is American government “of the people, by the people, for the people”?  Taibbi concludes Griftopia with the following not so sanguine conclusion:

We have voters who don’t pay attention, a news media that either ignores key subjects or willfully misunderstands them, and a regulatory environment that bends easily to lobbying and campaign financing efforts.  And we’ve got a superpower’s worth of accumulated wealth that is still there for the taking.  You put all that together, and what you get is a thieves’ paradise – a Griftopia.

Although Taibbi seems excessively cynical, I am reluctant to reject his notions about Wall Street greed.  There could be something there, so I need to do some more reading.  I am not reluctant, however, to accept Taibbi’s opinion regarding corrupted politicians.  They need to be replaced by politicians with integrity.  I hope Taibbi has underestimated American voters.



  1. As an Objectivist I doubt I could stomach Taibbi’s book.

    I’m afraid an obnoxious style mixed with profound ignorance is not the winning combination he thinks it is, unless he’s preaching to those who already despise his polemical victims. Those who point to money as the root of all evil seem to miss the biggest root of all: that it is the government control of money that leads to corruption.

    You are exactly right that Rand would have regarded Greenspan as a sell-out, as Objectivists do. This fact somehow keeps escaping Taibbi, Huff Post, and nearly every other progressive outlet. A free market in banking? Does Taibbi realize that we aren’t on the gold standard any more, and that the Fed controls the credit supply, not markets? We haven’t had a free market in banking (or at least anything close) since 1913 when the Fed was created.

    Greed is never the problem; it is merely one of many possible motives. I can sit in my house and be greedy all I want, but it results in nothing.

    Our financial troubles were enabled by an excess of Fed credit, and in a wider sense, by policymakers’ refusal to accept the stingy verdicts of free markets and instead impose their own lax housing credit policy through the Fed, Fannie Mae and Freddie Mac, among other vehicles.

    Furthermore, it’s an absurd fantasy for pundits to suppose that politicians can try to exert control over commerce and never have it be corrupted. If you don’t like the corruption, relinquish control and respect private property. Instead of damning the corrupting policy, they damn people as evil and greedy. Nonsense.

    Comment by mtnrunner2 — April 22, 2011 @ 6:10 am | Reply

  2. […] Taibbi and other experts have also suggested reinstating the Glas-Steagall Act to reform the banks so they aren’t too-big-to-fail. […]

    Pingback by List of Demands Part II « Occupy Wall Street — October 17, 2011 @ 6:58 pm | Reply

  3. As one of the “280 million pissed-off mortgage customers”, I am stunned to read and hear of the “mortgage deal”, President Obama recently signed. I am all for any bank that received bailout money(my money as a taxpaper for over 30 years) to be held accountable for their role that they played out in front of my eyes. I am also stunned that I voted for some of the men and women in Washington,who no doubt,did nothing but put this money into greedy peoples’ hands. I am even more stunned that there was not anything in the thousands of pages of bailout legistration to bailout the struggling mortgage holder THEN. It is of no coincidence or wonder from the taxpayer that a fully government backed, government owed, Fannie Mae/Freedie Mac mortgage holder of millions of mortgages be “allowed” to escape. Just five of the top banks are even in the recent laws passed to provide relief to the wronged average Joe or Jane in this world. Its just to much of a coincidence or a miracle that the biggest and perhaps the greediest government entity excaped without at least a slap on their wrist for the part their CEO’s played in this giant mess!

    Comment by Gail — February 10, 2012 @ 4:20 pm | Reply

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