New Taibbi Feud with Goldman

Matt Taibbi has a new article that will be out in a few days in Rolling Stone. The article reportedly will review the factors leading up to the failures of Bear Stearns and Lehman Brothers. A lot of the article is apparently occupied by a discussion of naked short selling and the role it played in these two failures.

Associated with that discussion, a new feud has erupted between Goldman Sachs (GS) and Taibbi. I say "new," but maybe the feud is "continuing". Matt has reported that he has received some inside information from congressional aides about Goldman lobbying activities on behalf of naked short selling. Cyrus Sanati of The New York Times, writing on the DealBook.com blog (here), quotes Goldman spokesmen as saying that Taibbi has misrepresented their presentation documents given to congressmen.

A quote from the Sanati article is a good summary of his take on the situation:

“The adoption of Rule 204T of Regulation SHO has been very effective to eliminate potential short-selling abuses,” Goldman said in a letter to the S.E.C. in June.

“The marginal benefit of additional short-sale restrictions over the measures already taken by the commission does not outweigh the potential loss of liquidity and costs to investors in the form of wider bid-offer spreads,” the letter said.

“We therefore encourage the commission to conclude that the adoption of new short-sale price restrictions is unnecessary and would be damaging to market efficiency and liquidity.”

Nevertheless, the summary page highlighted by Mr. Taibbi clearly shows that Goldman wants senators to believe that further bans on naked short-selling would be detrimental to the market — a view that many believe goes against conventional wisdom.

Taibbi maintains (in blog postings) that he believes that Goldman has deliberately attempted to confuse congressmen, conflating traditional short selling with naked short selling by selectively "cherry picking" data for their presentation. Matt points to the Goldman comparison of data from the market collapse in September and October, 2008 to data in a market that bottomed and started to rise (January through March, 2009). In both periods, naked short selling was rigorously prohibited, so using this data to address the issue of naked short selling seems, to Matt, to be inappropriate. His position sounds pretty logical to me. Here is an excerpt from Matt's post at True/Slant:

Goldman’s point seems to be that short-selling declined during a period when the market fell sharply, and short-selling went up when the market rallied. I guess on some planet, perhaps not on earth but some other spherical space-boulder, this is supposed to indicate that short-selling is good for the market overall.

(Which, incidentally, it might be. But we’re not talking about short-selling here. We’re talking about naked short-selling).

The thing is, you can’t deduce anything at all about naked short-selling by looking at a graph showing levels of normal short selling. This is like trying to draw conclusions about the frequency of date rape by looking at the number of weddings held. The two things have absolutely nothing to do with one another.

Matt has also posted a favorable piece on the DealBook.com article (here).

This entire story brings me back to a proposal I have made before. The lobbying process that Taibbi describes has "secret" communications from a special interest (Goldman) to congressmen. The only reason that this "secret" is out is because some congressional staffers felt that the presentation was misleading (Taibbi's representation).

My proposal is that private communication from lobbyists to congressmen should be illegal. All communication (even transcripts of all conversations) should be made public at least 30 days before any vote is taken that relates to the communication. These could be cataloged by subject, lobbyist, and congressman and posted on internet web sites. Public review and discussion could clean up a lot of skullduggery. Violation of this requirement should be a felony, for both lobbyist and congressman.

John R. Talbott has expressed the objective of implementing citizen review of lobbying efforts. When there are more details, I will be working to support his efforts.

Comments

[Steven Hansen:]

This whole concept of lobbying has gotten out of hand. If we put restraints on written communication, the lobbyists and congressmen will only engage in verbally.

i do not have an answer - and the current situation is full of abuse.

as long as congressmen are not honest, and driven by greed - our system of governing will decay. try saying "honest congressman" - i bet it brings a smile to your face.

Oct 02 05:38 AM

[Larry Doyle:]

John,

I agree with you. Why is Goldman fighting this? Check out the profitability that Citadel generated in it's high frequency trading activities reported in today's WSJ. If Citadel made $1 billion what do you think GS made?

What a joke. Thanks for highlighting this story.

Oct 02 09:39 AM

[D. McHattie:]

The issue is not just one of honesty.

Even if our elected officials are honest (and I'm not saying they are), if their information only comes from the source with the most money then you have bias.

I fully support limits on lobbyist communication with elected officials.

Oct 02 09:40 AM

[yellowhoard:]

Be careful what you wish for D.

Communication with congressmen is a double edged sword.

The wealthy will always find ways to influence politicians.

A gatekeeper on access would probably be used to silence the little guy.


On Oct 02 09:40 AM D. McHattie wrote:

> The issue is not just one of honesty.
>
> Even if our elected officials are honest (and I'm not saying they
> are), if their information only comes from the source with the most
> money then you have bias.
>
> I fully support limits on lobbyist communication with elected officials.

Oct 02 09:46 AM

[Whippet:]

Always has been, always will be. McCain-Feingold, for instance. Can you imagine the obscenity that even "term limits" would lead to? The revolving doors would simply spin faster.

Nice article, John. This was my favorite line: "Taibbi maintains (in blog postings) that he believes that Goldman has deliberately attempted to confuse congressmen, conflating traditional short selling with naked short selling by selectively "cherry picking" data for their presentation."

I'm trying to figure out if it's easier for Goldman to trick the mental midgets on Capitol Hill or for the Roadrunner to trick Wile E. Coyote. It's a tough one.


On Oct 02 09:46 AM yellowhoard wrote:

> Be careful what you wish for D.
>
> Communication with congressmen is a double edged sword.
>
> The wealthy will always find ways to influence politicians.
>
> A gatekeeper on access would probably be used to silence the little
> guy.

Oct 02 10:10 AM

[djackson:]

No offense, but I would be surprised if your idea passed constitutional muster.

Oct 02 10:45 AM

[Phil Trupp:]

From sources on Capitol Hill: "GS is running against the tide on naked shorting." The subject appears to be a perennial revolving door, with great swings for and against, and at the middle of it all is confusion. Naked shorting has done much to suck wealth and value out of the markets. Official endorsement of GS' request will lead to more abuse, more controversy, and a continued flow of under-the-table payoffs between Wall Street and its enablers in Washington.

Oct 02 10:59 AM

[BRUCE E. W.:]

UP TIC RULE REINSTATEMENT PETITION PLEASE READ PASTE, FORWARD to your Representative and make your opinion every bit as important as the one already delivered by Goldman & their special interest lobby.
Specifically demanding that the gov. Enforce Regs/ End Naked Shorting & Stock Manipulation; addressed To The President of the United States and the U.S. Congress; and opening all private communications between Lobbyists and Congressmen to all CONCERNED AMERICAN CITIZENS, both public and private, with an interests in our beloved Nations' economic health and well bieng.
see also: investors4justice.net
Investor's AGENDA: REINSTATE UP TIC RULE AND ENFORCE PROTECTIONS TO AMERICAN INVESTMENTS AND OTHERWISE HEALTHY CORPORATIONS UNDER DEVELOPMENT. REBUILD OUR INFRASTRUCTURE AND REINFORCE INVESTMENT CAPITAL OVER PROFITEERS. WE DEMAND COMPLIANCE AND REJECT DUPLICITY AND HYPOCRITICAL DISTORTIONS OF SCALE IN THE MARKET.

Petition derived From 'The Investors Alliance' and from everyday decent and concerned American Citizens to the President of The United States of America and the U.S. Congress; to all Democrats and political entities with a conscience who respect Fair Trade.
We , as citizens of these United States, as investors of hard earned independent resources in this economic market, and as individual traders ... as Free Trader advocates and Americans with a concern for the health of our future economy, our people, our peoductive corporations and our coordinated integrity in global markets;

We, everyday citizens and investors, Hereby request an accounting of all our investments, which we held as reliable, through institutions of banking, investment brokers and mutual funds...etc.,
that these institutions be held accountable for their risks of our investments entrusted to them in the form of our long term holding of stock, our 401K's, our pensions, our employment benefits, our children%u2019s college funds, that became assets, which were loaned to other financial investment funds, to be naked shorted, with habitual failures to deliver(FTD's)..


We request that the UpTic Rule, set place during the 1934 regulations to prevent pooling in it's Market regulations be reinstated having been abolished in a less than transparent fashion, redacted, not in the best interest of the American people nor the U.S. economy but as a result of special interest lobbying efforts bought and paid for by a small group of hedge funds whose big money influence on the regulators resulted in false reports having been made to the Congressional Oversight Committee in May of 2008.

The mistake of dismantling the regulations that were put in place after the stock market collapse of 1929 for the purpose of preventing a repeat, cost this current market of no less than 3 trillion dollars in non accountable FTD's since 2006..As there were no requests for audits in one single case of defrauding the system during this period newly de-regulated markets.


WE are hereby demanding not only audits of each and every Hedge Fund and Banking Institution From 2006 to 2009,.. to be made public knowledge
but We Demand that this audit be transparent in it's findings from the onset!!

Beyond this, we demand that this petition be considered by not only you, the Obama Administration /...But by all considered parties involved herewith as a baseline to a new era of accountability to the public trust and economy and large which constitutes the lifeblood of our nation.

Oct 02 02:24 PM

[bindlepete:]

Just check out the potential criminality lets have soem hard foensic analysis done on the 12.9 billion paper claims of GS against AIG with interviews under oath regarding any side letters.

Then let check the etheics of a 4 person group maiking the decision to bail out AIG with 2 of these having a direct and major fiscal interest in the subsequent salvation of GS. The other two were lap dogs as it is easy to figure out since they did not seek a recusal of the two interested parties.

Oct 02 03:54 PM

[TinyTim:]

John-
Great lead-in from the Taibbi headline to the proposal that private communication from lobbyists to congressmen should be illegal. This sounds like the legal process where attorneys and/or parties must both be present when conferring with the judge. A good concept.

"Goldman has deliberately attempted to confuse congressmen"
Nothing like a good laugh to close a down week.

Oct 02 11:46 PM