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Matt Taibbi has done a stellar job of researching and really digging down into the causes of the Wall Street meltdown. When Megan McArdle faces off with him over whether Goldman Sachs deserves to face criminal charges for their participation, she's outclassed and outspent.

By the way, the "Timberwolf" deal referred to in the video is the same one Carl Levin referred to as a sh*tty deal in the Senate committee hearings as he repeatedly quoted emails turned over to the government during discovery.

Since May, when Taibbi and McArdle went head on at each other over this, the lawsuit filed by Basis Yield Alpha Fund was dismissed and refiled. Basis Yield is seeking $1 billion in damages, alleging that Goldman knew they were selling toxic securities at the time.

In case you haven't heard, Jefferson County, Alabama (JeffCo) commissioners have voted to declare the largest municipal bankruptcy in history. This did not happen overnight -- in fact, it required decades of poor leadership.

Rolling Stone writer Matt Taibbi, who has followed the story closely, points to Wall Street's "continual screwing" of JeffCo and the way their Washington representative, Spencer Bachus, has held up new Dodd-Frank regulations that would prevent further screwing. (Click here for a detailed history of the bond issues that sank JeffCo.)

A court ruling nixed the county's occupational tax in 2009, right as the county's bond fees were inflating. JeffCo was forced to refund tax receipts in hand. By 2010, State Senator Scott Beason (who wants to "empty the clip" on illegal immigration) single-handedly killed an attempt to reinstate the tax, saying he did not think "new taxes" were needed. JeffCo leaders simply wanted their old taxes back, but it didn't matter: JeffCo is a victim of conservative, "smaller gummint" austerity politics run amok.

Alabama's first Republican legislative majority in 136 years was determined to cut every department and not raise one red cent of revenue. In a state that taxes millionaires at half the rate of its poorest residents, this was a scheme to make Grover Norquist squeal with delight: JeffCo couldn't bury the dead or feed juveniles in lockup. Bond fees were four times the size of JeffCo's education budget shortfall. County reserves were being depleted as JeffCo held out for state leadership -- and got none. Governor Robert Bentley was a particularly inept crisis-manager:

Virtually the moment the deal was struck with Wall Street, Gov. Robert Bentley assured media from other parts of the state that the rest of Alabama would never have to pay for another Jefferson County default. If Jefferson County could not pay, the money to meet the county’s obligations would come from the county’s taxpayers, Bentley told the Montgomery Advertiser. In essence, if the county can’t pay, the county would have to pay, and the moral obligation of the state would mean as much as the bond insurance the county once bought to cover its debts in the event of its last default — absolutely empty.

It was the kind of uninformed political bumbling the governor has been prone to since being elected to office. It’s tempting to label the new governor as Guy Hunt M.D., but Gov. Hunt showed more political aptitude than Bentley, at least judging by how the governor has handled this crisis. For several months during the summer, the county commission was close to filing Chapter 9, but at the governor’s insistance, the county continued negotiating with Wall Street. The implicit message to the county was that the governor’s office would take care of the next steps in Montgomery, or at least offer substantial assistance. That the governor could not extrapolate what would happen once a Wall Street bargain reached Goat Hill should give Alabamians cause to worry about the state’s future.

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I can think of few things that have been more toxic to our democracy than the realization that no laws apply to Wall Street, and they will never, ever, ever have to face actual consequences for their crimes. Matt Taibbi on how the SEC covered up potential criminal acts on Wall St.:

Imagine a world in which a man who is repeatedly investigated for a string of serious crimes, but never prosecuted, has his slate wiped clean every time the cops fail to make a case. No more Lifetime channel specials where the murderer is unveiled after police stumble upon past intrigues in some old file – "Hey, chief, didja know this guy had two wives die falling down the stairs?" No more burglary sprees cracked when some sharp cop sees the same name pop up in one too many witness statements. This is a different world, one far friendlier to lawbreakers, where even the suspicion of wrongdoing gets wiped from the record.

That, it now appears, is exactly how the Securities and Exchange Commission has been treating the Wall Street criminals who cratered the global economy a few years back. For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation's worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – "18,000 ... including Madoff," as one high-ranking SEC official put it during a panicked meeting about the destruction – have apparently disappeared forever into the wormhole of history.

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Like Matt Taibbi, David Swanson also thinks the debt ceiling debate is a fraud.

Matt Taibbi describes the debt ceiling charade in his own inimitable way:

But what is becoming equally obvious, to both sides, is that the Obama White House is using this same artificial calamity to pitch its own increasingly rightward tilt to voters in advance of the 2012 elections.

It has been extremely interesting in the last weeks to see observers on both sides of the aisle make this point. Just yesterday, the inimitable New York Times conservative Ross Douthat listed Obama's not-so-secret rightward push as a the first in a list of reasons why the Republicans should dig in even more, instead of making a sensible deal: Barack Obama wants a right-leaning deficit deal. For months, liberals have expressed frustration with the president's deficit strategy. The White House made no effort to tie a debt ceiling vote to the extension of the Bush tax cuts last December. It pre-emptively conceded that any increase in the ceiling should be accompanied by spending cuts. And every time Republicans dug in their heels, the administration gave ground.

The not-so-secret secret is that the White House has given ground on purpose. Just as Republicans want to use the debt ceiling to make the president live with bigger spending cuts than he would otherwise support, Obama's political team wants to use the leverage provided by those cra-a-a-zy Tea Partiers to make Democrats live with bigger spending cuts than they normally would support.

Douthat makes this observation, then argues that the Republicans should recognize Obama's hidden motive and hold out for an even better deal. It will then be a race to see which party can abandon employment in favor of deficit reduction faster. He writes:

Why? Because the more conservative-seeming the final deal, the better for the president's re-election effort. In that environment, Republicans have every incentive to push and keep pushing. Since any deal they cut will be used as an election-year prop in 2012, they need to make sure the president actually earns his budget-cutting bona fides.

This is interesting because just last week, the liberal opposite of Douthat at the Times, Paul Krugman, came to the same conclusion:

It's getting harder and harder to trust Mr. Obama's motives in the budget fight, given the way his economic rhetoric has veered to the right. In fact, if all you did was listen to his speeches, you might conclude that he basically shares the G.O.P.'s diagnosis of what ails our economy and what should be done to fix it. And maybe that's not a false impression; maybe it's the simple truth.

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(h/t Digby for reminding me about the above video)

Michele Bachmann received many positive reviews of her performance during the CNN GOP debate a few weeks ago by many famous TV pundits:

Gloria Borger, CNN chief political analyst

"I think she sort of stepped out of Sarah Palin's shadow tonight. She was clearly one of the best-prepped candidates here. She let people know the depth of her experience on the intelligence committee, for example.

David Gergen, CNN senior political analyst:

"But Michele Bachmann, I thought, was the biggest surprise, because she was -- I don't think the country knew her well. She was pithy. She spoke in a much more cleaner sentences. She sprinkled interesting facts into it. And she introduced her biography. The 23 foster children, she said that twice."

Bloggers like myself and many others have followed her for years because of the insane and utterly ridiculous statements she's made on the House floor and TV. Let's just say her statements have always made me chuckle, but I'm laughing harder at the talking heads' review of her performance.

I doubt you'll hear much about her history of religious fanaticism from the punditocracy unfortunately because why would cable pundits do some journalistic research, right? Enter Matt Taibbi, who serves up a must read article in Rolling Stone called: Michele Bachmann's Holy War. He doesn't think anyone should make the mistake of laughing at her:

Young Michele found Jesus at age 16, not long before she went away to Winona State University and met a doltish, like-minded believer named Marcus Bachmann. After finishing college, the two committed young Christians moved to Oklahoma, where Michele entered one of the most ridiculous learning institutions in the Western Hemisphere, a sort of highway rest area with legal accreditation called the O.W. Coburn School of Law; Michele was a member of its inaugural class in 1979.

Originally a division of Oral Roberts University, this august academy, dedicated to the teaching of "the law from a biblical worldview," has gone through no fewer than three names — including the Christian Broadcasting Network School of Law. Those familiar with the darker chapters in George W. Bush's presidency might recognize the school's current name, the Regent University School of Law. Yes, this was the tiny educational outhouse that, despite being the 136th-ranked law school in the country, where 60 percent of graduates flunked the bar, produced a flood of entrants into the Bush Justice Department.

Regent was unabashed in its desire that its graduates enter government and become "change agents" who would help bring the law more in line with "eternal principles of justice," i.e., biblical morality. To that end, Bachmann was mentored by a crackpot Christian extremist professor named John Eidsmoe, a frequent contributor to John Birch Society publications who once opined that he could imagine Jesus carrying an M16 and who spent considerable space in one of his books musing about the feasibility of criminalizing blasphemy.

This background is significant considering Bachmann's leadership role in the Tea Party, a movement ostensibly founded on ideas of limited government. Bachmann says she believes in a limited state, but she was educated in an extremist Christian tradition that rejects the entire notion of a separate, secular legal authority and views earthly law as an instrument for interpreting biblical values. As a legislator, she not only worked to impose a ban on gay marriage, she also endorsed a report that proposed banning anyone who "espoused or supported Shariah law" from immigrating to the U.S. (Bachmann seems so unduly obsessed with Shariah law that, after listening to her frequent pronouncements on the subject, one begins to wonder if her crazed antipathy isn't born of professional jealousy.) This discrepancy may account for why some Tea Party leaders don't buy Bachmann as a champion of small government. "Michele Bachmann is — what's the old-school term? — a poser," says Chris Littleton, an Ohio Tea Party leader troubled by her support of the Patriot Act and other big-government interventions. "Look at her record and see how 'Tea Party' she really is."...read on

It's a long article, but worth your time to see how she's been able to make crazy statement after crazy statement and keep moving her political career forward. Even Bill O'Reilly has not taken her seriously either like many of the other GOP grand poobahs, but did say on The Factor that she could be a good VP candidate. Taibbi makes the case early on in his piece that she shouldn't be dismissed out of hand because she's managed to keep getting elected. She uses teh crazy very well.

You will want to laugh, but don't, because the secret of Bachmann's success is that every time you laugh at her, she gets stronger.

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Sounds like Spitzer's on a campaign to push hard for the prosecution of Goldman Sachs. This, from last week:

Eliot Spitzer challenges investment banker Goldman Sachs: "Sue me. I don't care. You lied to the public, you should be prosecuted" during an interview with Sen. Carl Levin, chairman of the Senate subcommittee charged with investigating the causes of the financial crisis.

Here's a transcript of what Spitzer said:

SPITZER: Senator, I'm going to take a leap. I'm going to say it out loud. Very directly.

Goldman Sachs, you lied to the public. You lied to your clients. You've got a problem. You come on the show. Sue me. I don't care. You lied to the public, you should be prosecuted.

I'm going to say it right now. And I hope they are.

Listen to Spitzer challenge Holder in his appearance on Anderson Cooper, then go read this William Greider article on "How Wall Street Crooks Get Out of Jail Free".

Then read this Politico piece on how conservative members of Congress are more upset that Holder is refusing to devote DoJ resources to prosecuting something much more important: online pornography.

It's long, go read the whole infuriating thing. Matt Taibbi in Rolling Stone talks about how the Fed bailout was manipulated to benefit connected people who were already rich:

But if you want to get a true sense of what the "shadow budget" is all about, all you have to do is look closely at the taxpayer money handed over to a single company that goes by a seemingly innocuous name: Waterfall TALF Opportunity. At first glance, Waterfall's haul doesn't seem all that huge — just nine loans totaling some $220 million, made through a Fed bailout program. That doesn't seem like a whole lot, considering that Goldman Sachs alone received roughly $800 billion in loans from the Fed. But upon closer inspection, Waterfall TALF Opportunity boasts a couple of interesting names among its chief investors: Christy Mack and Susan Karches.

Christy is the wife of John Mack, the chairman of Morgan Stanley. Susan is the widow of Peter Karches, a close friend of the Macks who served as president of Morgan Stanley's investment-banking division. Neither woman appears to have any serious history in business, apart from a few philanthropic experiences. Yet the Federal Reserve handed them both low-interest loans of nearly a quarter of a billion dollars through a complicated bailout program that virtually guaranteed them millions in risk-free income.

The technical name of the program that Mack and Karches took advantage of is TALF, short for Term Asset-Backed Securities Loan Facility. But the federal aid they received actually falls under a broader category of bailout initiatives, designed and perfected by Federal Reserve chief Ben Bernanke and Treasury Secretary Timothy Geithner, called "giving already stinking rich people gobs of money for no fucking reason at all." If you want to learn how the shadow budget works, follow along. This is what welfare for the rich looks like.

[...] In the case of Waterfall TALF Opportunity, here's what we know: The company was founded in June 2009 with $14.87 million of investment capital, money that likely came from Christy Mack and Susan Karches. The two Wall Street wives then used the $220 million they got from the Fed to buy up a bunch of securities, including a large pool of commercial mortgages managed by Credit Suisse, a company John Mack once headed. Those securities were valued at $253.6 million, though the Fed refuses to explain how it arrived at that estimate. And here's the kicker: Of the $220 million the two wives got from the Fed, roughly $150 million had not been paid back as of last fall — meaning that you and I are still on the hook for most of whatever the Wall Street spouses bought on their government-funded shopping spree.

The public has no way of knowing how much Christy Mack and Susan Karches earned on these transactions, because the Fed has repeatedly declined to provide any information about how it priced the individual securities bought as part of programs like TALF. In the Waterfall deal, for instance, we know the Fed pledged some $14 million against a block of securities called "Credit Suisse Commercial Mortgage Trust Series 2007-C2" — but that data is meaningless without knowing how many units were bought. It's like saying the Fed gave Waterfall $14 million to buy cars. Did Waterfall pay $5,000 per car, or $500,000? We have no idea. "There's no way of validating or invalidating the Fed's process in TALF without this pricing information," says Gary Aguirre, a former SEC official who was fired years ago after he tried to interview John Mack in an insider-trading case.

In early April, in an attempt to learn exactly how much Mack and Karches made on the TALF deals, Sen. Chuck Grassley of Iowa wrote a letter to Waterfall asking 21 detailed questions about the transactions. In addition, Sen. Sanders has personally asked Fed chief Bernanke to provide more complete information on the TALF loans given not only to Christy Mack but to gazillionaires like former Miami Dolphins owner H. Wayne Huizenga and hedge-fund shark John Paulson. But Bernanke bluntly refused to provide the information — and the Fed has similarly stonewalled other oversight agencies, including the General Accounting Office and TARP's special inspector general.

Christy Mack and Susan Karches did not respond to requests for comments for this story. But even without more information about the loans they got from the Fed, we know that TALF wasn't the only risk-free money being handed over to Wall Street. During the financial crisis, the Fed routinely made billions of dollars in "emergency" loans to big banks at near-zero interest. Many of the banks then turned around and used the money to buy Treasury bonds at higher interest rates — essentially loaning the money back to the government at an inflated rate. "People talk about how these were loans that were paid back," says a congressional aide who has studied the transactions. "But when the state is lending money at zero percent and the banks are turning around and lending that money back to the state at three percent, how is that different from just handing rich people money?"

I want to thank all C&L readers for their support of our book, Over the Cliff: How Obama's Election Drove the American Right Insane. David and I are very proud of it and that it proved, with all the tea party craziness during the election, to be a timely book. But after all the reading and research I had to do in writing the book, I needed to take a break from reading political books.

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Credit: Amazon

Gritopia

But getting back into it, I just started Matt Taibbi's new book which is his explanation of how financial meltdown occurred and his chapter on Alan "Mr. Andrea Mitchell" Greenspan's Randian worship of John Galt and all things Ayn is worth the price of admission.

Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America

A great holiday read.

We get a lot of books sent to us and I asked Nicole what books she was reading. She's currently reading "Rebooting The American Dream" by Thom Hartmann. Truthout is making chapters available online once a week and we'll try to get Thom here for a book chat soon.

She's also reading The Immortal Life of Henrietta Lacks and the Girl With A Dragon Tattoo trilogy, which I heard was great.

Now that I'm getting back into the swing of things again, I want to hear from my readers. What books did you think were the best books of 2010? Not just political books, either. I'm a big fan of potboiler detective stories for the escape too.

So what books were the must-reads for you this year?

This is a hoot. Every election year since 2004, Rolling Stone has David Gergen and Peter Hart dissecting the election results, and this year they add Matt Taibbi to the mix. Taibbi (shown in a recent video) says what he thinks about the teabaggers and Gergen is horrified:

Gergen: If it were not for the extra boost of enthusiasm the Tea Party provided, I imagine the Republicans would have won only 40 to 50 seats, instead of the 60-plus they gained. But the Tea Party also makes it harder in the future for Republicans to maintain a coherent party. Matt is right that they will have a large voice in the nomination process in 2012. But one cannot discount that someone could arise, as Reagan did in the past, who can bridge the differences within the party and keep people united.

Taibbi: To me, the main thing about the Tea Party is that they're just crazy. If somebody is able to bridge the gap with those voters, it seems to me they will have to be a little bit crazy too. That's part of the Tea Party's litmus test: "How far will you go?"

Gergen: I flatly reject the idea that Tea Partiers are crazy. They had some eccentric candidates, there's no question about that. But I think they represent a broad swath of the American electorate that elites dismiss to their peril.

Hart: I agree with David. When two out of five people who voted last night say they consider themselves supporters of the Tea Party, we make a huge mistake to suggest that they are some sort of small fringe group and do not represent anybody else.

Taibbi: I'm not saying that they're small or a fringe group.

Gergen: You just think they're all crazy.

Taibbi: I do.

Gergen: So you're arguing, Matt, that 40 percent of those who voted last night are crazy?

Taibbi: I interview these people. They're not basing their positions on the facts — they're completely uninterested in the facts. They're voting completely on what they see and hear on Fox News and afternoon talk radio, and that's enough for them.

Gergen: The great unwashed are uneducated, so therefore their views are really beneath serious conversation?

Taibbi: I'm not saying they're beneath serious conversation. I'm saying that these people vote without acting on the evidence.

Gergen: I find it stunning that the conversation has taken this turn. I disagree with the Tea Party on a number of issues, but it misreads who they are to dismiss them as some kind of uneducated know-nothings who have somehow seized power in the American electorate. It is elitist to its core. We would all be better off if we spent more time listening to each other rather than simply writing them off.

Hart: I agree. The point here is that the Obama administration would be at their own peril to somehow misread this as a fringe, unacceptable group of people. This is a huge portion of the electorate, and they represent a core within the Republican Party.

Hahahaha! Village chieftain David freaking Gergen calling anyone elitist just tickles my funny bone!

Oddly enough, I do think both Taibbi and Gergen each make a point. A lot of the people who self-identify as teabaggers are people who smell something rotten in Washingon, they just haven't located the real source of the smell. But since they're the kind of people who think in bumperstickers, they swallow whatever the Beckster tells them, because what the hell, they're too tired to actually think it through to the more logical conclusions: Namely, that big business runs this country.

Somewhere, Matt Taibbi is laughing his butt off as the Vampire Squid goes down. Now when do we see the criminal charges - not just against Goldman Sachs, but the rest of the gang involved in crashing our economy for their own gain?

The Securities and Exchange Commission filed charges Friday against Goldman Sachs, one of the most successful but vilified banks on Wall Street, for misleading and defrauding investors in selling a financial product based on subprime mortgages.

In filing the civil suit against Goldman Sachs, the agency is targeting one of the banks that largely escaped the wreckage of the financial crisis and, with the help of various forms of government aid, emerged stronger.

The SEC's suit strikes at a practice that was one of the main causes of the financial crisis: the creation of poisonous investments derived from home loans made to borrowers who couldn't afford the houses they were buying.

The suit also drags into a legal maelstrom Paulson & Co., the firm of legendary hedge fund manager John Paulson, who made billions of dollars by betting against the housing market in the years before it went bust. He and his firm have not been accused of wrongdoing.

Goldman Sachs had no immediate comment. Paulson & Co. also had no immediate comment.

In this case, the SEC alleges that Goldman Sachs created and marketed a financial product known as a collateralized debt obligation, often referred to as a CDO, whose value was linked to that of home loans. The SEC says the bank failed to tell investors important information about the investment -- in particular that Paulson & Co. played a central role in helping Goldman assemble the CDO while the hedge fund at the same time placed bets that the CDO would lose value.

McClatchy has more.

And from the American Prospect:

One note of caution: These are hard cases to prove. Even if Goldman Sachs officials knew how crappy these financial instruments were, they also got solid ratings from the bond-ratings agencies, giving Goldman a real out. If the SEC brought this case, they must have a high level of confidence, but now they need to execute what will undoubtedly be one of the most high-profile financial fraud cases since Enron.

Incidentally, the fact that hedge-funder John Paulson played a role in picking these securities helps confirm the argument that I made in my review of Michael Lewis' book The Big Short: Even the investors with the foresight to see the bubble and bet against it were acting as pernicious speculators who helped drive the bubble up and exacerbate its consequences, not as hero intellectuals tweaking the nasty big banks. These were symbiotic relationships that hurt regular Americans and the economy, make no mistake about it.

This news will only give more momentum to the Democratic financial-reform plan and, hopefully, more impetus toward strengthening the bill in any number of key areas where it could be improved.