Matt Taibbi versus Goldman Sachs

Here's Matt Taibbi's Rolling Stone feature article on Goldman Sachs, via Zero Hedge, "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". And here is Goldman Sachs's response, via Felix Salmon: "Goldman Sachs responds to Taibbi".

Incidentally, when I tried reading Matt Taibbi's article at Zero Hedge yesterday, the Scribd application wouldn't load, perhaps because it was overwhelmed with hits. So I headed to the Hackensack Barnes & Noble. I couldn't find Rolling Stone on the magazine rack, so I asked one of the Barnes & Noble clerks where it was. "Sold out," he said, "There was something important in it, I don't know what". I just started reading the article, so I don't have more to say about it, but you've got links to both sides of the story above. Feel free to add your thoughts in the comment thread.

Update:

A few thoughts, now that I've read Taibbi's article and Salmon's post on Goldman's response:

- There's some truth in Taibbi's article, but it's padded with a good measure of exaggeration. Goldman certainly participated in all the bubbles Taibbi mentions, and profited from them, but the dot-com bubble, the housing bubble, etc., would have happened without Goldman Sachs.

- Taibbi takes the hedge fund manager Masters at his word re: the commodities spike last year. Goldman is an enormous player in commodities, but one problem with blaming the commodity spike on paper speculation, or on firms such as Goldman getting pension funds to pour money into commodity index funds, is that the prices of commodities that aren't traded on futures markets or included in commodity indexes (for example, certain metals) spiked as well.

- Where the actions of Goldman employees and alumni deserve the most scrutiny is in relation to the bailouts of last year (and also the non-bailout of Lehman Brothers).

- Regarding this bit from Felix Salmon,

[Goldman Sachs public relations officer Lucas] Van Praag told me that in the wake of the events of the past year or two, Goldman’s partners have pretty much lost their appetite for going into public service. Maybe that’s for the best. They are generally smart and talented and knowledgeable people, and I daresay that many of them have done a lot of good after leaving the firm and joining government. At the same time, however, we’re supposed to have a government of the people, not a government of multimillionaire Goldman Sachs technocrats.

Two points: 1) I'd hate to think that any Goldman partners have soured on public service, but if they feel the need to do something altruistic, I'm sure no one will object if they decide to teach a high school math class or something after they retire with their managing director money. 2) Contra Salmon, I see no problem with multimillionaire technocrats in key positions in the Treasury department -- most knowledgeable finance types will have accumulated some wealth along the way, (even via side projects and consulting if they are academics). The problem is when so many of these multimillionaire technocrats come from the same firm. This is one case where there would be some inherent value in a little diversity.

A Difference Between the Dot-Com Bust and the Real Estate Bust

During the dot-com bust, the bag holders were, for the most part, individual retail investors -- average Americans, who bid up the price of Internet stock IPOs. Investment banks collected huge fees on those IPOs, regardless of how the companies they brought public performed. In the wake of the real estate bust and the related credit crunch, the biggest bag holders have been on Wall Street: Lehman and Bear Stearns -- two firms that survived the Great Depression intact -- gone, nearly all of their respective CEOs equity stakes wiped out; the country's largest broker/dealer, Merrill Lynch, forced into a sale to Bank of America; etc.

That's something I've thought about as I watched Congressman after Congressman rail against Wall Street in yesterday's hearings while lamenting the plight of his average American constituents.

More of Mark Cuban on Stocks

Another excerpt from Mark Cuban's compilation of posts, "Talking Stocks",

On presenting his company Broadcast.com to institutional investors during the roadshow he and his partner Todd Wagner went on before its IPO:

Prior to the road show, we put together an amazing presentation. We hired consultants to help us. We practiced and practiced. We argued about what we should and shouldn't say. We had Morgan Stanley and others ask us every possible question they could think of so we wouldn't look stupid when we sat in front of these savvy investors.

Savvy investors? I was shocked. Of the 63 companies and 400-plus participants we visited, I would be exaggerating if I said we got 10 good questions about our business and how it worked. The vast majority of people in the meetings had no clue who we were or what we did. They just knew that there were a lot of people talking about the company and they should be there.

The lack of knowledge at the meetings got to be such a joke between Todd and I that we used to purposely mess up to see if anyone noticed. Or we would have pet lines that we would make up to crack each other up. Did we ruin our chance for the IPO? Was our product so complicated that no one got it and as a result no one bought the stock? Hell no. They might not have had a clue, but that didn't stop them from buying the stock. We batted 1.000. Every single investor we talked to placed the maximum order allowable for the stock.

On July 18, 1998, Broadcast.com went public as BCST, priced at 18 dollars a share. It closed at $62.75, a gain of almost 250 percent, which at the time was the largest one day rise of a new offering in the history of the stock market. The same mutual fund managers who were completely clueless about our company placed multimillion orders for our stock.