Rick Sanchez talked to CNN's Ali Velshi and Rolling Stone's Matt Taibbi about the Senate hearings in Carl Levin's subcommittee on the Goldman Sachs fraud case brought by the SEC. Matt made this great point on why the derivatives market needs to be regulated:
TAIBBI: No, I was just saying, with the derivatives, at the very least, I think we have to have a system where all of these things are traded and cleared on regulated, open exchanges.
Imagine what the stock market would look like if nobody knew what the price of any of the stocks were? And that's kind of exactly where we are with derivatives right now.
...This stuff is all traded in the dark and the big whales in the ocean, like Goldman Sachs, are the ones that make all the money because they have more information than everybody else.
And that's a situation that we really need to correct here. And that's what this bill hopefully is going to address.
I hope so too but I'm not holding my breath. The Republicans and their buddy Ben Nelson seemed determined to slow walk this just like they did the health care bill.
Taibbi has a new article at Rolling Stone -- The Feds vs. Goldman which Sanchez mentioned during the interview.
On the day the Securities and Exchange Commission filed suit against Goldman Sachs for securities fraud, shares in the company plunged 12.8 percent, closing at $160.70. The market, it seemed, was finally passing judgment on a decade of high-stakes Wall Street scammery that left America threatening Nigeria, Indonesia and Belarus on the list of the world's most corrupt economies.
A few days later, Goldman announced its first-quarter numbers. Profits were up 91 percent, to a staggering $3.4 billion.
Compensation and bonuses soared to $5.5 billion, up from $4.7 billion in the first quarter of 2009. Battered in the press, Goldman was raking up on the bottom line. So investors once again leapt into Goldman's arms, pushing the stock as high as $166.50, not far from where it was even before news of the SEC suit broke.
Goldman isn't dead – far from it. But this new SEC suit officially places it at the center of a raging national discussion about the hopelessly f**ked state of American business ethics. As a halting, first-step attempt at financial regulatory reform makes its way toward a vote in the Senate, the government has finally thrown open the door and let a few of the rottener skeletons tumble out. Read on...
Transcript of the CNN interview below the fold.
SANCHEZ: So, this investment that they were peddling, which they, themselves, called crappy, was, guess what, their top sales priority.
I want to know if that's what Ali Velshi heard. He's our chief business correspondent. He's been there following this throughout the course of the day. Also joining me from New York -- and you know he knows Goldman Sachs backward and forward because he's been writing about it -- is Matt Taibbi, contributing editor for "Rolling Stone" magazine.
His latest column, in fact, is titled the "Fed v. Coldman" -- or "Goldman" -- pardon me.
Matt, was this tongue-lashing that we watched from Republicans, from Democrats, one after another, was this -- explain this to the American people why, if you believe this was -- well-deserved?
MATT TAIBBI, NATIONAL AFFAIRS EDITOR, "ROLLING STONE": Oh, of course it was well-deserved.
These guys had an enormous share of responsibility for what happened in the in the financial crisis, and most of the public really doesn't know it.
And it's going to take Carl Levin doing this YouTube sensation performance that he did today I think to really attract the necessary attention to exactly what went on during the crisis.
SANCHEZ: All right, let's talk about nuts and bolts here.
Ali, I want to bring you into this conversation. A big part of this is all about synthetic instruments, and we kept hearing those words today, synthetic instruments, as if we're talking about something made of rubber or something.
Actually, we're talking about something made of nothing. It's like selling air. There was really nothing there, but they put it together in such a way to sell it. Here's Claire McCaskill.
(BEGIN VIDEO CLIP)
MCCASKILL: Let me just explain in very simple terms what synthetic CDOs are.
They are instruments that are created so that people can bet on them. It's the la la land of ledger entries. It's not investment in a business that has a good idea. It's not assisting local governments and building infrastructure. It's gambling, pure and simple, raw gambling.
(END VIDEO CLIP)
SANCHEZ: She's saying there was no there there, that it was just, like, a poker match.
Ali, how much trouble is this for them, for Goldman?
ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Well, first of all, it's a poker match that ended up affecting a lot of people. It ended up shutting down the credit system, which meant companies couldn't get money, which meant that they had to lay people off, so that's why we care about this poker match.
How much trouble are they in? That's a good question. Goldman didn't much care about what the rest of us thought about them in the first place. Now this becomes more of an issue because there might actually be legislation that's going to affect their ability to do this business in the future.
I don't think they have done themselves any favors today, but Goldman hadn't done themselves any favors before this either. The last time Lloyd Blankfein, who, by the way, is going to be up very shortly to testify, the last time he decided to go on a P.R. offensive, it ended up being a disaster.
If you recall, Rick, he said that he was doing God's work. He meant it tongue-in-cheek. But the bottom line is, this is a problem. This was always a problem, that, if the public turns against Wall Street the way it has now, where the public favors legislation and regulation 2-1, even though they don't want the government involved in anything else, they want the government to legislate Wall Street, these companies and their ability to make money on these exotic synthetic instruments, they are going to be curtailed.
And that's where it's going to hit Goldman and all its colleagues, Goldman's counterparts on Wall Street.
SANCHEZ: And that is a good thing, right? That is a good thing. We want to be a country that produces things. I want to be proud to be an American, because, damn it, we make things here that are of value that people around the world can use.
(CROSSTALK)
VELSHI: We don't want to crush innovation. There are some of these things that actually are innovative and they can...
(CROSSTALK)
SANCHEZ: But innovation of selling air?
VELSHI: Well, innovation on -- is being able to hedge my price for oil or the price that my crop is going to sell for, but that is something that has an underlying asset that you're betting on. The issue of synthetic...
(CROSSTALK)
SANCHEZ: As long, Ali -- look, as long it doesn't involve dishonesty.
VELSHI: I think you're right about that.
(CROSSTALK)
SANCHEZ: Right?
VELSHI: Yes.
(CROSSTALK)
SANCHEZ: I'm sorry. I don't mean to take -- I'm taking up all the air. Now you go.
(CROSSTALK)
VELSHI: No, that's right. You're absolutely right.
(CROSSTALK)
VELSHI: Go ahead, Matt.
TAIBBI: No, I was just saying, with the derivatives, at the very least, I think we have to have a system where all of these things are traded and cleared on regulated, open exchanges.
Imagine what the stock market would look like if nobody knew what the price of any of the stocks were? And that's kind of exactly where we are with derivatives right now.
(CROSSTALK)
VELSHI: Right.
TAIBBI: This stuff is all traded in the dark and the big whales in the ocean, like Goldman Sachs, are the ones that make all the money because they have more information than everybody else.
And that's a situation that we really need to correct here. And that's what this bill hopefully is going to address.
SANCHEZ: And, yes, derivatives is a big part of this.
VELSHI: Yes.
SANCHEZ: But it is at some point important for Americans to at least understand, fine, I respect you for your business model. Go out. Make billions of dollars if you have to, but don't do it by selling something which is a shell game, a charade that's taking advantage possibly of some of your investors. Is that not a fair argument to make, Ali?
VELSHI: Well, Rick, here's the thing. If it doesn't affect anybody else, if you and I make a bet on something that doesn't affect somebody else and isn't going to magnify an economic downturn or an upturn, for that matter, what do we care if they do it?
SANCHEZ: Right.
VELSHI: The issue is, did this trigger or at least contribute to an international credit freeze, which meant that your employer or mine or one of our viewers' employers couldn't raise money? And when a company can't raise money, they have to cut costs. When a company has to cut costs, they lay people off. And then those people don't -- can't pay for their mortgages.
That's where this becomes...
(CROSSTALK)
SANCHEZ: That's a hell of a good point, because in the end it was the end result that got us all -- take us out, Matt Taibbi. We have got 20 seconds to finish up.
TAIBBI: Yes, I just want to make the point that we do regulate things like gambling.
And, for instance, in the year 2000, the Commodities Futures Modernization Act, it specifically made derivatives exempt from state gaming laws, because it's virtually indistinguishable from gambling. If we don't want gambling going on anyplace except for Atlantic City and Vegas, we certainly don't want it going on, on Wall Street, right?
(CROSSTALK)
SANCHEZ: You know, it's the most obvious point that has been made so far. If we regulate gambling, then we should certainly regulate the people on Wall Street, if they're going to be gambling with their money, my money, our money, whatever. Guys, great conversation, as usual. I enjoyed it. We will come back to you both, Ali Velshi and Matt Taibbi.
