Matt Taibbi with a good explanation of why we should be upset about JPMorgan Chase and their $2 billion in gambling losses (remember, Jamie Dimon's saying at least $2 billion):

If you’re wondering why you should care if some idiot trader (who apparently has been making $100 million a year at Chase, a company that has been the recipient of at least $390 billion in emergency Fed loans) loses $2 billion for Jamie Dimon, here’s why: because J.P. Morgan Chase is a federally-insured depository institution that has been and will continue to be the recipient of massive amounts of public assistance. If the bank fails, someone will reach into your pocket to pay for the cleanup. So when they gamble like drunken sailors, it’s everyone’s problem.

Activity like this is exactly what the Volcker rule, which effectively banned risky proprietary trading by federally insured institutions, was designed to prevent. It will be argued that this trade was a technically a hedge, and therefore exempt from the Volcker rule. Not only does that explanation sound fishy to me (as Salmon notes, for Iksil’s trade to be a hedge, this would mean Chase had an equally giant and insane short bet on against corporate debt, which seems unlikely), but it's sort of immaterial anyway: whether or not this bet technically violated the Volcker rule, it definitely violated the spirit of the law. Hedge or no hedge, we don’t want big, federally-insured, too-big-to-fail banks making giant nuclear-powered derivatives bets.

This incident is certain to reignite the debate about Dodd-Frank and may undermine the broad effort to roll back the bill, which we wrote about in the latest issue of the magazine. Staffers on the Hill started mobilizing the instant the Chase news hit the airwaves yesterday, and you can bet we'll hear more debate in the next few months about not only the Volcker Rule but the Lincoln Rule, which was designed to wall off risky swaps from the federally-insured side of these banks.

I’ve heard from all sides today, with some thinking the Chase trade was Dodd-Frank compliant, and others saying it probably violated both the Volcker and the Lincoln rules.

Either way, the incident underscored the basic problem. If J.P. Morgan Chase wants to act like a crazed cowboy hedge fund and make wild exacta bets on the derivatives market, they should be welcome to do so. But they shouldn’t get to do it with cheap cash from the Fed’s discount window, and they shouldn’t get to do it with money from the federally-insured bank accounts of teachers, firemen and other such real people. It’s a simple concept: you either get to be a bank, or you get to be a casino. But you can’t be both. If we don’t have rules to enforce that concept, we ought to get some.

In the meantime, JPMorgan shares tanked with the news:

JPMorgan Chase & Co lost $15 billion in market value and a notch in its credit ratings on Friday while a chorus of regulators and politicians reacted to its surprise $2 billion trading loss by demanding stiffer oversight for the banking industry.

The loss by one of Wall Street's most respected banks embarrassed chief executive Jamie Dimon, a leader lauded for steering his bank through the fallout from the 2008 financial crisis without reporting a loss.

"We know we were sloppy. We know we were stupid. We know there was bad judgment," Dimon said in an interview with NBC television to be broadcast on "Meet the Press" on Sunday.

More here.

Taibbi is interviewed by Max Keiser. His segment starts at 12:30.

While the general public still doesn't understand credit default swaps, the MF Global ripoff is just plain old-fashioned criminal theft. When you use Peter's money to pay Paul, it's not complicated. Matt Taibbi points out that no one seems to want to do anything about it, and it's making him furious:

Almost every story written about MF Global by any financial news outlet will contain the word "chaos," and describe the bookkeeping challenges of the firm’s last days as just too overwhelming for mere human beings to handle. The sources are almost always unnamed, but they all say the same thing – it was just too much math, too much! The Times’s Dealbook page offered one of the most humorous examples:

A flurry of transactions engulfed the firm in the week before it filed for bankruptcy, as $105 billion of cash shuttled in and out. Amid the chaos, the employees became overwhelmed.

''It's like being at the bottom of Niagara Falls,'' recalled one employee in a meeting with federal authorities, according to one of the people involved in the case.

It’s incredible that people are offering as a defense the idea that a financial company could be so overwhelmed by transactions that it could just lose track of $1.6 billion. If you’re so terrible at managing money that you can honestly lose a billion dollars – especially after swearing up and down to the whole world that you were the right choice to manage the cherished millions and billions of scads of farmers, ranchers, and other investors – you should go to jail just for that, just on general principle.

But most pundits aren’t saying that. Instead, it seems like like every financial reporter both in this city and in Washington is talking to the same five or six defense lawyers, buying their weak arguments, and offering the same lame excuses for the missing money, which should tell you a lot about how the Wall Street press corps managed to miss the warning signs for 2008 and other disasters.

Somebody from MF Global has to be arrested soon. The message otherwise to middle America is so galling that it boggles the mind.

It would be one thing if this was a country with a general, across-the-board tendency toward leniency for property crime. But we send tens of thousands of people to do real jail time in this country for non-violent offenses like theft. We routinely separate mothers from their children for relatively petty crimes like welfare fraud. For almost anyone who isn’t Jon Corzine, it’s no joke to get caught stealing in America.

But these people stole over a billion dollars, right out in the open, and nobody is doing anything about it. Instead, we get a lot of chin-scratching legislative hearings, and an almost academic-style public discussion about whether or not a crime even took place. If there aren’t arrests in this case soon, ordinary people will correctly deduce that it simply isn’t a crime to steal in America, if the thefts are executed with a computer by white people in suits.

Just as it was incredible when Florida authorities dragged their feet in the Zimmerman case, it’s incredible that people in Washington don’t see the implications of this continual non-decision on MF Global. Apparently they hope no one notices. The sad thing is, they might be right.

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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?