Griftopia
Encyclopedia
Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America is a 2010 book by the political journalist Matt Taibbi
about the events that led to the financial crisis of 2008.
It argues that the crisis was not an accident of the free market
but the result of a complex and on-going politico-financial process taking place in the United States
whereby wealth and power is transferred to a super-rich "grifter class" that holds a grip on the political process. The book has been described as a "necessary ... corrective" of the assertion that bubbles are inevitable in the market system, and contests the notion that the greed of the American consumer was a primary cause of the problem.
Taibbi maintains that “all of us, conservatives and progressives, are being bled dry by a tiny oligarchy of extremely clever criminals and their castrato henchmen in government.”
The introductory chapter is focused on the Tea Party movement
whose members are aiming for simple solutions with less government intrusion. Taibbi maintains that the real world is too complex, and the Tea Party adherents are being manipulated (and financed) to do the bidding of Wall Street
. Dismantling of regulations and absence of control has been part of the problem of the recent fiasco. Taibbi sees the Tea Party as "top-down media con" initiated by CNBC
's Rick Santelli
when he denounced not the huge bailout of the banks but rather the relatively small bailout for people facing foreclosure
.
Alan Greenspan
, an Ayn Rand
acolyte, is described as the major enabler of the bubble economy and financial crisis. Taibbi catalogues his string of economic prognostications that were "awful at best". He holds him accountable for fueling economic bubbles during his watch at the Federal Reserve by pushing money and abandoning traditional evaluations when advocating that "ideas" (not financial results) had become the new paradigm of financial evaluation. Greenspan is criticized for advising the public to use adjustable-rate mortgages (ARMs) in preference to fixed–rate mortgages
shortly before his raising of interest rates. Taibbi accuses Greenspan of turning the Federal Reserve into a permanent bail-out system for the super-rich.
Taibbi dissects the housing bubble crisis as a complex scam involving players at many levels. Entry level assessments, income levels, and credit scores were falsified or neglected, allowing unqualified customers to acquire mortgages they could not carry. Taibbi maintains that ARMs and other "financial inventions" enlarged the pool of loans that could never be paid back, yet issuing agents and agencies were made rich by commissions. The real money, however, came in for the big banks that securitized
these loans, that is to say, repackaged them as investment vehicles (and in the process took the loan originators off the hook). Collateralized debt obligation
s (CDOs) then cut these bundled loans into "tranch
es", where the statistically more likely to be paid-back tranch would be given a AAA rating
(rating agencies depend on the banks for their living), remaining CDOs were tranched again, and the better part again AAA rated, and tranched further so that eventually most of the mortgages ended up in AAA-rated instruments. The "time-bomb mortgages" were insured by credit default swap
s (CDSs) in an unregulated environment, so that neither sellers (such as AIG
) needed capitalization
, nor buyers needed to own the insured assets. Further, AIG's investment arm
invested in CDOs as a collateral to lend-out stocks further exposing itself to financial calamity.
The commodities bubble of 2008
led to global food shortages and prompted the price of oil to rise over $140 per barrel. Taibbi depicts as its cause investment-bank led commodity speculation
, after having convinced regulators to dismantle sensible regulations that had safeguarded the process of commodity trading, in place since the Great Depression
. Goldman Sachs
' invention was the Goldman Sachs Commodity Index
inviting pension funds and other investors to speculate long in such index trading leading to higher prices for commodities that directly affect the livelihoods of people.
The sell-off of public assets is described in another essay with examples of frittering away assets under value to the detriment of future generations.
The health care reform by the Obama administration
is described as a "grotesque give-away" to the health insurance industry and a betrayal of the public trust. Taibbi argues that the insurance industry unfairly continues to be exempted from anti-trust legislation.
Taibbi’s last chapter takes on Goldman Sachs (GS) in an updated version of his 2009 Rolling Stone
article where he "famously" likened it to "a great vampire squid wrapped around the face of humanity". He describes GS as it was in the forefront of pushing Initial public offering
s (IPOs) (most of which lost money ) during the internet bubble, at the heart of the commodity crisis of 2008 (enabling speculation in oil and other essentials and driving up their prices), and was right at the center of the financial crisis of 2008 ongoing. Taibbi indicates that, in 2008, in spite of $2 billion earnings and $10 billion compensation and bonuses, GS only paid $14 million in taxes at an effective tax rate of 1%. Goldman Sachs, which Taibbi refers to as "a company of criminals," is seen as the "apotheosis of the Grifter Era" controlling rules and regulations through manipulation of the government by money, pressure, insider connections, and revolving door
jobs as a "parasitic enterprise". The author asserts that "...in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy."
In the epilogue
Taibbi takes a look at the events after 2008. He addresses the issue that bankers in Financial Crisis Inquiry Commission
(FCIC) hearings laid the blame of the financial crisis on "lazy poor people living in too much house", a view Republicans embraced as a failure of mixing private enterprise and social engineering, while the Obama administration continues to let Wall Street run the economic policy of the White House. Much of the backroom dealing that resulted in the massive and selective bail-out has not seen the light of day. Taibbi addresses his critics of the 2009 Rolling Stone article who did not argue his facts, but instead took fault with him for not understanding that the bail-out was necessary. Taibbi finally points out that, after 2008, the financial landscape is more concentrated than ever, and efforts at its regulation have been watered down.
Taibbi names most sources he interviewed, however, in some instances sources remained anonymous for their protection. Other sourcing is self-evident from publicly known material.
, uses a journalistic style that incorporates R-rated language, similar to the salty language he encountered in some of his interviews. While it makes the book readable and "engaging", miles away from the dry tone people may expect when matters financial are discussed, the tone of the book has also been criticized as “playing dirty” and as distracting. As the New York Times states:
has noted that Griftopia is not a partisan book in the traditional sense as Taibbi dishes out criticism at both Republicans and Democrats.
Taibbi views the color of the US not red and blue but rather "puke green", but, as Salmon
says, "if muck is going to be raked, you want Taibbi to be doing the raking." Sheelah Kolhatkar has stated that Taibbi has "legitimate targets" and a "right to be angry", as most of the "perpetrators of the financial crisis have escaped more or less unscathed", and while "the worse things get for average Americans, the better off (are) the top 1 percent".
Jay Palmer and Ann Logue have criticized the book for failing to offer any solutions and for some of its language.
Matt Taibbi
Matthew C. "Matt" Taibbi is an American author and journalist reporting on politics, media, finance, and sports for Rolling Stone and Men's Journal, often in a polemical style. He has also edited and written for The eXile, the New York Press, and The Beast.- Early years :Taibbi grew up in the...
about the events that led to the financial crisis of 2008.
It argues that the crisis was not an accident of the free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
but the result of a complex and on-going politico-financial process taking place in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
whereby wealth and power is transferred to a super-rich "grifter class" that holds a grip on the political process. The book has been described as a "necessary ... corrective" of the assertion that bubbles are inevitable in the market system, and contests the notion that the greed of the American consumer was a primary cause of the problem.
Taibbi maintains that “all of us, conservatives and progressives, are being bled dry by a tiny oligarchy of extremely clever criminals and their castrato henchmen in government.”
Contents
Griftopia contains seven analytical essays, followed by an epilogue, and a note about the author’s sources.The introductory chapter is focused on the Tea Party movement
Tea Party movement
The Tea Party movement is an American populist political movement that is generally recognized as conservative and libertarian, and has sponsored protests and supported political candidates since 2009...
whose members are aiming for simple solutions with less government intrusion. Taibbi maintains that the real world is too complex, and the Tea Party adherents are being manipulated (and financed) to do the bidding of Wall Street
Wall Street
Wall Street refers to the financial district of New York City, named after and centered on the eight-block-long street running from Broadway to South Street on the East River in Lower Manhattan. Over time, the term has become a metonym for the financial markets of the United States as a whole, or...
. Dismantling of regulations and absence of control has been part of the problem of the recent fiasco. Taibbi sees the Tea Party as "top-down media con" initiated by CNBC
CNBC
CNBC is a satellite and cable television business news channel in the U.S., owned and operated by NBCUniversal. The network and its international spinoffs cover business headlines and provide live coverage of financial markets. The combined reach of CNBC and its siblings is 390 million viewers...
's Rick Santelli
Rick Santelli
Rick Santelli is an American on-air editor for the CNBC Business News network. He joined CNBC as an on-air editor on June 14, 1999, reporting primarily from the floor of the Chicago Board of Trade. He was formerly the vice president for an institutional trading and hedge fund account for...
when he denounced not the huge bailout of the banks but rather the relatively small bailout for people facing foreclosure
Foreclosure
Foreclosure is the legal process by which a mortgage lender , or other lien holder, obtains a termination of a mortgage borrower 's equitable right of redemption, either by court order or by operation of law...
.
Alan Greenspan
Alan Greenspan
Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...
, an Ayn Rand
Ayn Rand
Ayn Rand was a Russian-American novelist, philosopher, playwright, and screenwriter. She is known for her two best-selling novels The Fountainhead and Atlas Shrugged and for developing a philosophical system she called Objectivism....
acolyte, is described as the major enabler of the bubble economy and financial crisis. Taibbi catalogues his string of economic prognostications that were "awful at best". He holds him accountable for fueling economic bubbles during his watch at the Federal Reserve by pushing money and abandoning traditional evaluations when advocating that "ideas" (not financial results) had become the new paradigm of financial evaluation. Greenspan is criticized for advising the public to use adjustable-rate mortgages (ARMs) in preference to fixed–rate mortgages
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
shortly before his raising of interest rates. Taibbi accuses Greenspan of turning the Federal Reserve into a permanent bail-out system for the super-rich.
Taibbi dissects the housing bubble crisis as a complex scam involving players at many levels. Entry level assessments, income levels, and credit scores were falsified or neglected, allowing unqualified customers to acquire mortgages they could not carry. Taibbi maintains that ARMs and other "financial inventions" enlarged the pool of loans that could never be paid back, yet issuing agents and agencies were made rich by commissions. The real money, however, came in for the big banks that securitized
Securitization
Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation , to...
these loans, that is to say, repackaged them as investment vehicles (and in the process took the loan originators off the hook). Collateralized debt obligation
Collateralized debt obligation
Collateralized debt obligations are a type of structured asset-backed security with multiple "tranches" that are issued by special purpose entities and collateralized by debt obligations including bonds and loans. Each tranche offers a varying degree of risk and return so as to meet investor demand...
s (CDOs) then cut these bundled loans into "tranch
Securitization
Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation , to...
es", where the statistically more likely to be paid-back tranch would be given a AAA rating
Bond credit rating
In investment, the bond credit rating assesses the credit worthiness of a corporation's or government debt issues. It is analogous to credit ratings for individuals.-Table:...
(rating agencies depend on the banks for their living), remaining CDOs were tranched again, and the better part again AAA rated, and tranched further so that eventually most of the mortgages ended up in AAA-rated instruments. The "time-bomb mortgages" were insured by credit default swap
Credit default swap
A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...
s (CDSs) in an unregulated environment, so that neither sellers (such as AIG
AIG
AIG is American International Group, a major American insurance corporation.AIG may also refer to:* And-inverter graph, a concept in computer theory* Answers in Genesis, a creationist organization in the U.S.* Arta Industrial Group in Iran...
) needed capitalization
Capitalization
Capitalization is writing a word with its first letter as a majuscule and the remaining letters in minuscules . This of course only applies to those writing systems which have a case distinction...
, nor buyers needed to own the insured assets. Further, AIG's investment arm
Win Neuger
Win Jay Neuger was the Chief Executive Officer, Chairman, and Director at AIG Global Investment Corp in the years leading up to the financial crisis of 2008 and the fall of AIG. In March 2010, AIG sold its Global Investment Corporation renamed PineBridge Investments with Neuger as CEO to Bridge...
invested in CDOs as a collateral to lend-out stocks further exposing itself to financial calamity.
The commodities bubble of 2008
2007–2008 world food price crisis
World food prices increased dramatically in 2007 and the 1st and 2nd quarter of 2008 creating a global crisis and causing political and economical instability and social unrest in both poor and developed nations. Systemic causes for the worldwide increases in food prices continue to be the subject...
led to global food shortages and prompted the price of oil to rise over $140 per barrel. Taibbi depicts as its cause investment-bank led commodity speculation
Speculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...
, after having convinced regulators to dismantle sensible regulations that had safeguarded the process of commodity trading, in place since the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
. Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
' invention was the Goldman Sachs Commodity Index
Goldman Sachs Commodity Index
The S&P GSCI serves as a benchmark for investment in the commodity markets and as a measure of commodity performance over time. It is a tradable index that is readily available to market participants of the Chicago Mercantile Exchange. The index was originally developed by Goldman Sachs...
inviting pension funds and other investors to speculate long in such index trading leading to higher prices for commodities that directly affect the livelihoods of people.
The sell-off of public assets is described in another essay with examples of frittering away assets under value to the detriment of future generations.
The health care reform by the Obama administration
Health care reform in the United States
Health care reform in the United States has a long history, of which the most recent results were two federal statutes enacted in 2010: the Patient Protection and Affordable Care Act , signed March 23, 2010, and the Health Care and Education Reconciliation Act of 2010 , which amended the PPACA and...
is described as a "grotesque give-away" to the health insurance industry and a betrayal of the public trust. Taibbi argues that the insurance industry unfairly continues to be exempted from anti-trust legislation.
Taibbi’s last chapter takes on Goldman Sachs (GS) in an updated version of his 2009 Rolling Stone
Rolling Stone
Rolling Stone is a US-based magazine devoted to music, liberal politics, and popular culture that is published every two weeks. Rolling Stone was founded in San Francisco in 1967 by Jann Wenner and music critic Ralph J...
article where he "famously" likened it to "a great vampire squid wrapped around the face of humanity". He describes GS as it was in the forefront of pushing Initial public offering
Initial public offering
An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...
s (IPOs) (most of which lost money ) during the internet bubble, at the heart of the commodity crisis of 2008 (enabling speculation in oil and other essentials and driving up their prices), and was right at the center of the financial crisis of 2008 ongoing. Taibbi indicates that, in 2008, in spite of $2 billion earnings and $10 billion compensation and bonuses, GS only paid $14 million in taxes at an effective tax rate of 1%. Goldman Sachs, which Taibbi refers to as "a company of criminals," is seen as the "apotheosis of the Grifter Era" controlling rules and regulations through manipulation of the government by money, pressure, insider connections, and revolving door
Revolving door (politics)
The revolving door is the movement of personnel between roles as legislators and regulators and the industries affected by the legislation and regulation and on within lobbying companies. In some cases the roles are performed in sequence but in certain circumstances may be performed at the same time...
jobs as a "parasitic enterprise". The author asserts that "...in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy."
In the epilogue
Epilogue
An epilogue, epilog or afterword is a piece of writing at the end of a work of literature or drama, usually used to bring closure to the work...
Taibbi takes a look at the events after 2008. He addresses the issue that bankers in Financial Crisis Inquiry Commission
Financial Crisis Inquiry Commission
The Commission reported its findings in January 2011. It concluded that "the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the...
(FCIC) hearings laid the blame of the financial crisis on "lazy poor people living in too much house", a view Republicans embraced as a failure of mixing private enterprise and social engineering, while the Obama administration continues to let Wall Street run the economic policy of the White House. Much of the backroom dealing that resulted in the massive and selective bail-out has not seen the light of day. Taibbi addresses his critics of the 2009 Rolling Stone article who did not argue his facts, but instead took fault with him for not understanding that the bail-out was necessary. Taibbi finally points out that, after 2008, the financial landscape is more concentrated than ever, and efforts at its regulation have been watered down.
Taibbi names most sources he interviewed, however, in some instances sources remained anonymous for their protection. Other sourcing is self-evident from publicly known material.
Language
Taibbi, a reporter for Rolling StoneRolling Stone
Rolling Stone is a US-based magazine devoted to music, liberal politics, and popular culture that is published every two weeks. Rolling Stone was founded in San Francisco in 1967 by Jann Wenner and music critic Ralph J...
, uses a journalistic style that incorporates R-rated language, similar to the salty language he encountered in some of his interviews. While it makes the book readable and "engaging", miles away from the dry tone people may expect when matters financial are discussed, the tone of the book has also been criticized as “playing dirty” and as distracting. As the New York Times states:
Reception
Griftopia has been described as a "relentlessly disturbing, penetrating exploration" as well as a "provocative exploration" of the events leading to the financial crisis. Although Taibbi is not an economist, blogger Stefan Fergus credits him with providing the "clearest book to describe the financial crisis". Journalist Felix SalmonFelix Salmon
Felix Salmon is a financial journalist, formerly of Portfolio Magazine and Euromoney, and a blogging editor for Reuters. He was also author of a Wired cover story on the Gaussian copula....
has noted that Griftopia is not a partisan book in the traditional sense as Taibbi dishes out criticism at both Republicans and Democrats.
Taibbi views the color of the US not red and blue but rather "puke green", but, as Salmon
Felix Salmon
Felix Salmon is a financial journalist, formerly of Portfolio Magazine and Euromoney, and a blogging editor for Reuters. He was also author of a Wired cover story on the Gaussian copula....
says, "if muck is going to be raked, you want Taibbi to be doing the raking." Sheelah Kolhatkar has stated that Taibbi has "legitimate targets" and a "right to be angry", as most of the "perpetrators of the financial crisis have escaped more or less unscathed", and while "the worse things get for average Americans, the better off (are) the top 1 percent".
Jay Palmer and Ann Logue have criticized the book for failing to offer any solutions and for some of its language.