Analysts list
EXCERPT:
Analyst List
Firm Analyst Phone
Atlantic Equities Nathan Judge 44 (0) 20 7382 2907
Barclays Capital Rick Gross 212-526-3143
BMO Capital Markets Carl Kirst 713-546-9756
Citigroup Faisel Khan 212-816-2825
Goldman Sachs Ted Durbin 212-902-2312
Howard Weil Holly Stewart 713-393-4512
JP Morgan Joe Allman 212-622-4864
Morgan Stanley Stephen Maresca 212-761-8343
Raymond James Darren Horowitz 713-278-5269
RBC Capital Lasan Johong 212-428-6462
Tuohy Brothers Craig Shere 212-605-0450
UBS Ronald Barone 212-713-3848
Wells Fargo Securities Jonathan Lefebvre 212-214-8026
El Paso Corp. is followed by the analysts listed above. Please note that any opinions, estimates or forecasts regarding El Paso Corp.'s performance made by these analysts are theirs alone and do not represent opinions, forecasts or predictions of El Paso Corp. or its management. El Paso Corp. does not by its reference above or distribution imply its endorsement of or concurrence with such information, conclusions or recommendations.
Management Team
EXCERPT:
Doug Foshee, President & CEO
James Yardley, President, Pipeline Group
Brent J. Smolik, President, El Paso Exploration & Production
Mark Leland, Executive Vice President & Chief Financial Officer
Bob Baker, Executive Vice President & General Counsel
Dan Martin, Senior Vice President, Pipeline Group Operations
Jim Cleary, President, Western Pipelines
Sue Ortenstone, Senior Vice President, Human Resources & Administration
3 Trustees A.I.G. Are Quiet, Perhaps to a Fault
EXCERPT:
3 Trustees of A.I.G. Are Quiet, Perhaps to a Fault
By EDMUND L. ANDREWS
Published: April 19, 2009
WASHINGTON — In an early sign of just how tricky corporate governance has become in the era of taxpayer bailouts, three little-known trustees with no office, no staff and almost no mission will soon be deciding questions that affect the fate of American International Group, the giant insurance company.
Craig Harley/Bloomberg News
Douglas Foshee, one of the A.I.G. trustees.
The trustees include a retired Wall Street executive, the head of a Texas pipeline company and the chairwoman of a firm in Bermuda that provides administrative services to hedge funds.
Douglas Foshee CEO of El Paso Corp. and former employee of Halliburton
3 EXCERPTS:
1) Prior to joining El Paso in 2003, Foshee served as executive vice president and chief operating officer for Halliburton. He joined Halliburton in 2001 as executive vice president and chief financial officer.
2) Douglas L. Foshee is chairman, president, and chief executive officer of El Paso Corporation, which owns North America’s largest natural gas pipeline system and one of North America’s largest natural gas producers.
3) Foshee serves on the boards of Cameron International Corporation, Texas Business Hall of Fame Foundation, Central Houston, Inc., and Greater Houston Partnership. He also chairs the board of directors of The Federal Reserve Bank of Dallas, Houston Branch. From January 2009 until February 2010, Foshee was appointed by the U.S. Treasury and the Federal Reserve Bank of New York to serve in a leadership role as an independent trustee of the AIG Credit Facility Trust. The Trust was established by the U.S. Treasury to hold the 77.9-percent equity interest in American International Group (AIG).
Former El Paso Corp natural gas trader indicted
EXCERPT:
Former El Paso Corp. Natural Gas Trader Indicted in Price Manipulation Probe
Posted on: Tuesday, 1 November 2005, 00:00 CST
By Tom Fowler, Houston Chronicle
Nov. 1--The former head of El Paso's natural gas trading desk has been indicted as part of an ongoing investigation of alleged manipulation of natural gas prices.
An attorney for Jim Brooks said prosecutors informed him of the indictment on Monday and that he must turn himself in on Wednesday for booking.
Brooks' attorney, Wendell Odom, said he has not seen the indictment and did not know what the charges were. They were added to existing charges against James Pat Phillips, a former El Paso gas trader who was indicted last November on two counts of false reporting, one count of conspiracy and one count of wire fraud. Phillips pleaded not guilty.
El Paso Corp. and donations to Republicans
EXCERPT:
The El Paso Corporation, which gave $750,000 to the Republican campaign, is now under investigation for manipulating the California power market.
Charles D. Rice commits suicide
EXCERPT:
HOUSTON -- A high-ranking energy executive died in an apparent suicide over the weekend, officials said Monday.
El Paso Corp. Senior Vice President and Treasurer Charles Dana Rice was found dead at his southwest Houston home Sunday, company officials said.
Rice, 47, had been employed by the company for 25 years . El Paso Corp. officials said that the employees are deeply saddened by Rice's death.
Corp/CEO scandal
EXCERPT:
El Paso/ William Wise Identified 125 "round trip" trades used to bolster revenues and market share. SEC, CFTC, Houston US Attorney's office Deloitte & Touche LLP to Democrats: $0; $0 CEO; to Republicans: $277,569; $8,558 CEO $39,286,780 salary stock option grants
William A. Wise of El Paso Corp. takes mucho $$$ when he leaves and some of his family benefited as well
EXCERPT:
Friday, April 18, 2003
Wise leaves El Paso with bountiful booty
Former leader took home $50 million during last three years, could get $840,000 annually in retirement
Read more: Wise leaves El Paso with bountiful booty - Houston Business Journal
NOTICE THE DATE
El Paso Corp. August, 2001
EXCERPT:
In their second allegation, authorities claim that the company withheld pipeline capacity into California to jack up prices illegally; a judge's ruling is expected in October. Regulators note that spot prices for natural gas in Southern California spiked to more than double national spot rates. "A big reason for the increase in consumers' electricity bills is because El Paso manipulated prices at the California border," alleges Harvey Y. Morris, the state utilities commission attorney arguing the case before FERC.
El Paso Corporation
EXCERPT:
The Ruby Pipeline is owned by El Paso Corporation who are no strangers from scandal and legal proceedings. In August, 2006 the company was involved in a securities fraud claim resulting in fines and restitutions amounting to $285,000,000. Shortly after the suicide of Enron executive Clifford Baxter, who had been in the middle of being questioned about El Paso Corporation, another executive Charles Rice was found dead with a gunshot wound to his head. Authorities labeled Rice's death as a suicide also. El Paso paid 15.5 million dollars to the State of California to settle the Enron scandal claiming that El Paso had manipulated power sources and prices in California.
The El Paso Corporation was fined 2.3 million, the largest fine ever levied against a pipeline company for the 2006 accident and death of Bobby Ray Ownens, Jr. of Louisiana. Owens was a bulldozer operator working in the Rockies Express Pipeline when his machinery struck a buried 36" natural gas pipeline owned by El Paso Corporation. Owens was killed, and the explosion and fire devoured 600 acres. An investigation revealed that federal requirements which require pipelines to be specifically marked as to location to provide protection for American workers had not been done.
The list of complaints continue from non-compliance with New Jersey's Air Pollution Control Act with a fine of 1.1 million dollars to complaints in Kentucy for releasing PCBs without permits.
So how much are the wild horses really impacting the environment as the BLM contends? Ginger Kathrens, Executive Director of The Cloud Foundation states, " The BLM is spending more than $30 million dollars to quickly eradicate an irreplaceable piece of American living history. I ask myself, what's the rush? Is it only pressure from ranchers? Does the BLM fear the ROAM Act will pass? Is it to clear the land for the Ruby Pipeline project, or is it something else?
Judge steps down that owned stock in El Paso Corp.
EXCERPT:
The judge has an investment in Ocean Energy valued between $15,001 and $50,000, which produces interest valued between $1,001 and $2,500.
Other holdings include investments in Provident Energy Trust, El Paso Corp., Energy Transfer Equity, Basic Energy Services, Valero Energy Corp. and Crosstex Energy LP.
An Associated Press analysis has found that more than half of the federal judges in districts where the bulk of Gulf oil spill-related lawsuits are pending have financial connections to the oil and gas industry. This could complicate the task of finding judges without conflicts to hear the cases.
El Paso Corp. Wikipedia
EXCERPT:
El Paso Corporation (NYSE: EP), provides natural gas and related energy products and is one of North America's largest independent natural gas producers. It is headquartered at 1001 Louisiana Street in Downtown Houston, Texas. United States.[1]
The company owns North America's largest natural gas pipeline system which goes from border-to-border and coast-to-coast. The system includes Colorado Interstate Gas, El Paso Natural Gas, Southern Natural Gas, and Tennessee Gas Pipeline. The El Paso Corporation also owns fifty percent of Great Lakes Transmission and Florida Gas Transmission and employs 6,000 people. Florida Gas is part of Southern Natural Gas. In 1999 the company doubled in size when it merged with Birmingham, Alabama based natural gas giant Sonat.[citation needed] The company's major offices are located in Houston, Texas, Birmingham, Alabama and Colorado Springs, Colorado. The company's current CEO is Douglas L. Foshee.
El Paso youtube channel
Tuesday, July 6, 2010
Douglas Foshee CEO of El Paso Corp. and former employee of Halliburton
3 EXCERPTS:
1) Prior to joining El Paso in 2003, Foshee served as executive vice president and chief operating officer for Halliburton. He joined Halliburton in 2001 as executive vice president and chief financial officer.
2) Douglas L. Foshee is chairman, president, and chief executive officer of El Paso Corporation, which owns North America’s largest natural gas pipeline system and one of North America’s largest natural gas producers.
3) Foshee serves on the boards of Cameron International Corporation, Texas Business Hall of Fame Foundation, Central Houston, Inc., and Greater Houston Partnership. He also chairs the board of directors of The Federal Reserve Bank of Dallas, Houston Branch. From January 2009 until February 2010, Foshee was appointed by the U.S. Treasury and the Federal Reserve Bank of New York to serve in a leadership role as an independent trustee of the AIG Credit Facility Trust. The Trust was established by the U.S. Treasury to hold the 77.9-percent equity interest in American International Group (AIG).
El Paso Corp. and donations to Republicans
EXCERPT:
The El Paso Corporation, which gave $750,000 to the Republican campaign, is now under investigation for manipulating the California power market.
Charles D. Rice commits suicide
EXCERPT:
HOUSTON -- A high-ranking energy executive died in an apparent suicide over the weekend, officials said Monday.
El Paso Corp. Senior Vice President and Treasurer Charles Dana Rice was found dead at his southwest Houston home Sunday, company officials said.
Rice, 47, had been employed by the company for 25 years . El Paso Corp. officials said that the employees are deeply saddened by Rice's death.
Corp/CEO scandal
EXCERPT:
El Paso/ William Wise Identified 125 "round trip" trades used to bolster revenues and market share. SEC, CFTC, Houston US Attorney's office Deloitte & Touche LLP to Democrats: $0; $0 CEO; to Republicans: $277,569; $8,558 CEO $39,286,780 salary stock option grants
William A. Wise of El Paso Corp. takes mucho $$$ when he leaves and some of his family benefited as well
EXCERPT:
Friday, April 18, 2003
Wise leaves El Paso with bountiful booty
Former leader took home $50 million during last three years, could get $840,000 annually in retirement
Read more: Wise leaves El Paso with bountiful booty - Houston Business Journal
NOTICE THE DATE
El Paso Corp. August, 2001
EXCERPT:
In their second allegation, authorities claim that the company withheld pipeline capacity into California to jack up prices illegally; a judge's ruling is expected in October. Regulators note that spot prices for natural gas in Southern California spiked to more than double national spot rates. "A big reason for the increase in consumers' electricity bills is because El Paso manipulated prices at the California border," alleges Harvey Y. Morris, the state utilities commission attorney arguing the case before FERC.
El Paso Corporation
EXCERPT:
The Ruby Pipeline is owned by El Paso Corporation who are no strangers from scandal and legal proceedings. In August, 2006 the company was involved in a securities fraud claim resulting in fines and restitutions amounting to $285,000,000. Shortly after the suicide of Enron executive Clifford Baxter, who had been in the middle of being questioned about El Paso Corporation, another executive Charles Rice was found dead with a gunshot wound to his head. Authorities labeled Rice's death as a suicide also. El Paso paid 15.5 million dollars to the State of California to settle the Enron scandal claiming that El Paso had manipulated power sources and prices in California.
The El Paso Corporation was fined 2.3 million, the largest fine ever levied against a pipeline company for the 2006 accident and death of Bobby Ray Ownens, Jr. of Louisiana. Owens was a bulldozer operator working in the Rockies Express Pipeline when his machinery struck a buried 36" natural gas pipeline owned by El Paso Corporation. Owens was killed, and the explosion and fire devoured 600 acres. An investigation revealed that federal requirements which require pipelines to be specifically marked as to location to provide protection for American workers had not been done.
The list of complaints continue from non-compliance with New Jersey's Air Pollution Control Act with a fine of 1.1 million dollars to complaints in Kentucy for releasing PCBs without permits.
So how much are the wild horses really impacting the environment as the BLM contends? Ginger Kathrens, Executive Director of The Cloud Foundation states, " The BLM is spending more than $30 million dollars to quickly eradicate an irreplaceable piece of American living history. I ask myself, what's the rush? Is it only pressure from ranchers? Does the BLM fear the ROAM Act will pass? Is it to clear the land for the Ruby Pipeline project, or is it something else?
Judge steps down that owned stock in El Paso Corp.
EXCERPT:
The judge has an investment in Ocean Energy valued between $15,001 and $50,000, which produces interest valued between $1,001 and $2,500.
Other holdings include investments in Provident Energy Trust, El Paso Corp., Energy Transfer Equity, Basic Energy Services, Valero Energy Corp. and Crosstex Energy LP.
An Associated Press analysis has found that more than half of the federal judges in districts where the bulk of Gulf oil spill-related lawsuits are pending have financial connections to the oil and gas industry. This could complicate the task of finding judges without conflicts to hear the cases.
El Paso Corp. Wikipedia
EXCERPT:
El Paso Corporation (NYSE: EP), provides natural gas and related energy products and is one of North America's largest independent natural gas producers. It is headquartered at 1001 Louisiana Street in Downtown Houston, Texas. United States.[1]
The company owns North America's largest natural gas pipeline system which goes from border-to-border and coast-to-coast. The system includes Colorado Interstate Gas, El Paso Natural Gas, Southern Natural Gas, and Tennessee Gas Pipeline. The El Paso Corporation also owns fifty percent of Great Lakes Transmission and Florida Gas Transmission and employs 6,000 people. Florida Gas is part of Southern Natural Gas. In 1999 the company doubled in size when it merged with Birmingham, Alabama based natural gas giant Sonat.[citation needed] The company's major offices are located in Houston, Texas, Birmingham, Alabama and Colorado Springs, Colorado. The company's current CEO is Douglas L. Foshee.
3 EXCERPTS:
1) Prior to joining El Paso in 2003, Foshee served as executive vice president and chief operating officer for Halliburton. He joined Halliburton in 2001 as executive vice president and chief financial officer.
2) Douglas L. Foshee is chairman, president, and chief executive officer of El Paso Corporation, which owns North America’s largest natural gas pipeline system and one of North America’s largest natural gas producers.
3) Foshee serves on the boards of Cameron International Corporation, Texas Business Hall of Fame Foundation, Central Houston, Inc., and Greater Houston Partnership. He also chairs the board of directors of The Federal Reserve Bank of Dallas, Houston Branch. From January 2009 until February 2010, Foshee was appointed by the U.S. Treasury and the Federal Reserve Bank of New York to serve in a leadership role as an independent trustee of the AIG Credit Facility Trust. The Trust was established by the U.S. Treasury to hold the 77.9-percent equity interest in American International Group (AIG).
El Paso Corp. and donations to Republicans
EXCERPT:
The El Paso Corporation, which gave $750,000 to the Republican campaign, is now under investigation for manipulating the California power market.
Charles D. Rice commits suicide
EXCERPT:
HOUSTON -- A high-ranking energy executive died in an apparent suicide over the weekend, officials said Monday.
El Paso Corp. Senior Vice President and Treasurer Charles Dana Rice was found dead at his southwest Houston home Sunday, company officials said.
Rice, 47, had been employed by the company for 25 years . El Paso Corp. officials said that the employees are deeply saddened by Rice's death.
Corp/CEO scandal
EXCERPT:
El Paso/ William Wise Identified 125 "round trip" trades used to bolster revenues and market share. SEC, CFTC, Houston US Attorney's office Deloitte & Touche LLP to Democrats: $0; $0 CEO; to Republicans: $277,569; $8,558 CEO $39,286,780 salary stock option grants
William A. Wise of El Paso Corp. takes mucho $$$ when he leaves and some of his family benefited as well
EXCERPT:
Friday, April 18, 2003
Wise leaves El Paso with bountiful booty
Former leader took home $50 million during last three years, could get $840,000 annually in retirement
Read more: Wise leaves El Paso with bountiful booty - Houston Business Journal
NOTICE THE DATE
El Paso Corp. August, 2001
EXCERPT:
In their second allegation, authorities claim that the company withheld pipeline capacity into California to jack up prices illegally; a judge's ruling is expected in October. Regulators note that spot prices for natural gas in Southern California spiked to more than double national spot rates. "A big reason for the increase in consumers' electricity bills is because El Paso manipulated prices at the California border," alleges Harvey Y. Morris, the state utilities commission attorney arguing the case before FERC.
El Paso Corporation
EXCERPT:
The Ruby Pipeline is owned by El Paso Corporation who are no strangers from scandal and legal proceedings. In August, 2006 the company was involved in a securities fraud claim resulting in fines and restitutions amounting to $285,000,000. Shortly after the suicide of Enron executive Clifford Baxter, who had been in the middle of being questioned about El Paso Corporation, another executive Charles Rice was found dead with a gunshot wound to his head. Authorities labeled Rice's death as a suicide also. El Paso paid 15.5 million dollars to the State of California to settle the Enron scandal claiming that El Paso had manipulated power sources and prices in California.
The El Paso Corporation was fined 2.3 million, the largest fine ever levied against a pipeline company for the 2006 accident and death of Bobby Ray Ownens, Jr. of Louisiana. Owens was a bulldozer operator working in the Rockies Express Pipeline when his machinery struck a buried 36" natural gas pipeline owned by El Paso Corporation. Owens was killed, and the explosion and fire devoured 600 acres. An investigation revealed that federal requirements which require pipelines to be specifically marked as to location to provide protection for American workers had not been done.
The list of complaints continue from non-compliance with New Jersey's Air Pollution Control Act with a fine of 1.1 million dollars to complaints in Kentucy for releasing PCBs without permits.
So how much are the wild horses really impacting the environment as the BLM contends? Ginger Kathrens, Executive Director of The Cloud Foundation states, " The BLM is spending more than $30 million dollars to quickly eradicate an irreplaceable piece of American living history. I ask myself, what's the rush? Is it only pressure from ranchers? Does the BLM fear the ROAM Act will pass? Is it to clear the land for the Ruby Pipeline project, or is it something else?
Judge steps down that owned stock in El Paso Corp.
EXCERPT:
The judge has an investment in Ocean Energy valued between $15,001 and $50,000, which produces interest valued between $1,001 and $2,500.
Other holdings include investments in Provident Energy Trust, El Paso Corp., Energy Transfer Equity, Basic Energy Services, Valero Energy Corp. and Crosstex Energy LP.
An Associated Press analysis has found that more than half of the federal judges in districts where the bulk of Gulf oil spill-related lawsuits are pending have financial connections to the oil and gas industry. This could complicate the task of finding judges without conflicts to hear the cases.
El Paso Corp. Wikipedia
EXCERPT:
El Paso Corporation (NYSE: EP), provides natural gas and related energy products and is one of North America's largest independent natural gas producers. It is headquartered at 1001 Louisiana Street in Downtown Houston, Texas. United States.[1]
The company owns North America's largest natural gas pipeline system which goes from border-to-border and coast-to-coast. The system includes Colorado Interstate Gas, El Paso Natural Gas, Southern Natural Gas, and Tennessee Gas Pipeline. The El Paso Corporation also owns fifty percent of Great Lakes Transmission and Florida Gas Transmission and employs 6,000 people. Florida Gas is part of Southern Natural Gas. In 1999 the company doubled in size when it merged with Birmingham, Alabama based natural gas giant Sonat.[citation needed] The company's major offices are located in Houston, Texas, Birmingham, Alabama and Colorado Springs, Colorado. The company's current CEO is Douglas L. Foshee.
Saturday, July 3, 2010
Cotton Fields CCR youtube
Indian Outlaw Tim McGraw youtube
Zydeco dance youtube
Sesame Street film - Louisiana Zydeco music youtube
Gilroy Garlic Festival video
Great Garlic Cook-off
Great Garlic Cook-Off Identifies Eight Finalists
GILROY, California - "Watermelon crabmeat", "Crawfish Gravy over Grits", and "Cranberry Bread Pudding" are three of the ingredients in the eight recipes selected for the Great Garlic Cook-Off, Gilroy Garlic Festival Association officials announced today.
The Cook-Off, the centerpiece of the annual Gilroy Garlic Festival, will begin at 10 a.m. PDT July 24. The 32nd annual Garlic Festival, three days of live music, cooking exhibitions, arts & crafts exhibits, children's entertainment and an appearance by Top Chef sensation Fabio Viviani, will run July 23-25 at Christmas Hill Park here.
The Festival's Recipe Committee reviewed submissions from across North America before identifying eight finalists. Each amateur chef will have two hours to prepare, plate and serve their delicacy to a panel of five judges on the Cook-Off stage. The winner receives $1,000 in cash and the traditional crown of cloves.
The Cook-Off stage will host three days of popular cooking competitions, culminating with the July 25 Garlic Showdown presented by Raley's, Bel Air and Nob Hill Foods. A quartet of Northern California professional chefs will battle iron chef-style for a $5,000 top prize.
Information on all Festival activity is available at gilroygarlicfestival.com
Tickets offering a $2. discount on adult, children and senior admissions can be purchased at all Raley's, Bel Air and Nob Hill Foods locations throughout Northern California.
2010 GREAT GILROY GARLIC COOK-OFF
FINALISTS
Saturday July 24
10 a.m. Cook-Off Stage
Warm Weather Watermelon Crabmeat Kissed South Seas Soup
Margi Berry / Trout Lake, WA
Sautéed Butterfly Prawns with Spicy Garlic Cranberry Bread Pudding & Garlic Studded Pinot Noir Sauce
Renata Stanko / Lebanon, OR
Garlic & Crawfish Gravy over Grits with Roasted Garlic Waffles
Derick Thurman / Charlotte, NC
Garlic Paella with Garlic Allioli
Michael G. Labrador / Newhall, CA
Potentially Pretentious Pork Tendorloin with Garlic Five Ways
Leslie Shearer / Mooreseville, NC
Emerald City Pelau
Susan Mason / Milton, WA
Deconstructed Beef Wellington with Garlic - Tarragon Aioli
Jamie Miller / Napa, CA
Roasted Garlic Blueberry & Pear Cobbler with Garlic Pecan Brickle Cream
Penny Malcolm / Americus, GA
Garlic Festival Will Re-focus Effort To Feature Regional Products
Three-Year Plan to Increase Sustainability
GILROY, CA --- Unveiling a three-year plan focused on increased sustainability, Greg Bozzo, President of the 2010 Gilroy Garlic Festival (gilroygarlicfestival.com) , introduced eight food and food product partners at a press briefing May 13 at Solis Winery in Gilroy. All eight concerns re-establish the Festival's efforts to feature local and regional cuisine in Gourmet Alley and throughout the internationally-heralded three-day event.
The 32nd annual Garlic Festival will entertain over 100,000 visitors at Christmas Hill Park in Gilroy July 23-25, host three popular cooking competitions, present 60 live concerts, return dynamic "Top Chef" Fabio Viviani to the Cook-Off Stage and serve a critically-acclaimed cuisine enhanced with over two tons of fresh California garlic.
"We're heading in a direction to be as eco-friendly as possible," Bozzo, who heads a workforce of more than 4,000 volunteers, explained. "The Festival has initiated a three-year program toward sustainability. While many of these elements have been in place for years, we are going to aggressively re-focus our efforts.
"Among these components are Monterey Bay caught squid, domestic caught shrimp, California chicken and compostable cutlery," Bozzo added.
Present at the recent media event were representatives of Christopher Ranch garlic, Monterey Bay Mushrooms, Lucero Olive Oil, Monterey Fish Company, the Wineries of Santa Clara Valley and Eduardo's Pasta of San Francisco.
Bozzo also identified Foster Farms Chicken and Natur-Bag, a manufacturer of compostable cutlery, as participating concerns.
"You can get calamari from China, from Taiwan, from Thailand," said Sal Tringali of the Monterey Fish Company. "I think the general public appreciates the fact that the Festival chooses to serve a local product."
The newest delicacy in Gourmet Alley will be Eduardo's Pasta, a San Francisco-based pasta to be used in the preparation of Gourmet Alley's "Pasta Con Pesto".
"There are many good local manufacturers, little guys like us, who appreciate the Garlic Festival's efforts to feature local products," said Sandor Halasz, President of Eduardo's Pasta.
Diners on Gourmet Alley will also be introduced to a new utensil to assist their experience, the "spork", a compostable half spoon / half fork.
"In previous years our guests used 50,000 plastic forks, which when disposed of, wound up in the landfill," Bozzo explained. "Now, along with the paper plates, the cutlery will be composted as well."
The 2010 Gilroy Garlic Festival will be open from 10 a.m. to 7 p.m. July 23-25 at Christmas Hill Park in Gilroy. Admission is $17 for adults, $8 for seniors ages 60 and up and $8 for children ages 6-12. Children under age 6 will be admitted free. Parking is also free.
Advance tickets offering a $2 discount will be available beginning June 1 online at www.gilroygarlicfestival.com.
Information can be obtained by calling the festival office at (408) 842-1625.
Media Note: Broadcast quality video of the May 13 Press Briefing is available in the Media Center at www.gilroygarlicfestival.com.
Press Briefing
Greg Bozzo, President of the 2010 Gilroy Garlic Festival, will address in detail plans to make the 32-year-old event more sustainable. Joining Bozzo will be representatives from various local/regional food & beverage entities including the Wineries of Santa Clara County, Monterey Mushrooms, Christopher Ranch and Eduardo's Pasta of San Francisco
Since its inception, the Garlic Festival has exercised many sustainable practices. Bozzo will outline a more aggressive strategy for 2010 and describe elements of the program that will directly involve the 100,000-plus visitors to the event regarded internationally as "America's premier summertime food festival."
32nd Anniversary, July 23-25, 2010
Established in 1979, this three-day summertime celebration requires the work of 4,000 community volunteers, whose efforts have returned More than
$ 8.5 MILLION to various local charities.
31-Year Attendance
The Festival has entertained 3,630,763 visitors in 31 years of operation
31-year Breakdown
The pyro-chefs on Gourmet Alley have served over 3 million visitors in 29 years.
To feed the masses, the chefs have required:
396 tons of beef
140 tons of pasta
80 tons of scampi
62 tons of calamari
and 80 tons of fresh California garlic
GREAT GARLIC COOK-OFF
Saturday July 24, 10a -1p on Cook-Off Stage
The finals of the 2010 cooking competition which entertained 800 worldwide submissions. Eight finalists will prepare their recipe for a panel of five celebrity judges. Results and broadcast quality video of finals will be available through gilroygarlicfestival.com at 2 p.m. PDT July 24.
2010 Fact Sheet
10 tons of beef...4 tons of pasta... 4 tons of calamari... 2 tons of scampi
2 TONS of fresh Christopher Ranch garlic
& $8.2 million raised for local charity
Downloadable images and broadcast quality video are available
in the MEDIA CENTER at www.gilroygarlicfestival.com
Great Garlic Cook-Off Finals will be streamed LIVE on the internet
at www.gilroygarlicfestival.com
July 24, 2010 / 10 a.m.-1 p.m. Pacific Daylight Time
Who: Gilroy Garlic Festival
What: The 32nd annual “Ultimate Summer Food Fair”; three days of incredible food, beverages, arts & crafts and live entertainment
Where: Christmas Hill Park; Gilroy,CA
30 miles south of San Jose off Highway 101
When: Friday, Saturday & Sunday
July 23-25, 2010
10 a.m. - 7 p.m. (Gates close at 6 p.m.)
How: Tickets: Adult General Admission $ 17.00
Children (ages 6-12) $ 8.00
(under 6 free)
Seniors (60+) $ 8.00
Advance tickets available online at
gilroygarlicfestival.com
Fabio Returns
Top Chef Star Returns To Festival
Fabio Viviani , the dynamic star of Bravo Television Network's "Top Chef" series, will conduct a cooking demonstration on July 24 and host Garlic Showdown on July 25.
The Garlic Showdown, presented by Raley's and Nob Hill Foods, will match four prominent Bay Area cooking professionals in an Iron Chef competition on the Festival's cook-off stage. The contestants will be given a "secret ingredient" and will have two hours to prepare, plate and serve their creations to a select panel of judges.
The winner of the competition will be awarded $5,000.
San Francisco chef Ryan Scott won the 2009 Garlic Showdown.
In addition to his rising television career, Fabio Viviani is the partner and executive chef of Firenze Osteria in Toluca Lake, northeast of Los Angeles. A native of Florence, Italy, Fabio currently specializes in molecular cuisine, using cutting-edge technology in the preparation of food. Fabio said his specialty is "northern Italian comfort-style foods".
The acquisition of Fabio as Garlic Showdown host is regarded as a strong boost to the event, according to Garlic Festival recipe chairman Dennis Harrigan.
"The Festival introduced the Garlic Showdown two years ago as a way of recognizing the enormous number of skilled professional chefs in Northern California," Harrigan said. "The public response to this event has been incredible and has demanded that we take this activity to the next level."
Fabio will also be available to autograph copies of his new book, "Viviani's Café Firenze Cookbook", scheduled for release July 22 and available in the Festival Mercantile.
2010 Gilroy Garlic Festival
MENU
From the pyro chefs in Gourmet Alley
Garlic Calamari Garlic Scampi
Stuffed Mushrooms Italian Sausage Sandwich
Peppersteak Sandwich Garlic Ginger Chicken Stir-Fry
Garlic Fries Garlic Bread
Penne Pasta Con Pesto
Available through vendors in Christmas Hill Park...
Escargot Oysters on the Half Shell
Cajun Crawdads Blackened Shrimp & Rice
Chicken & Sausage Jambalaya Cajun Fried Catfish
Roasted Garlic Chicken Quesadillas BBQ Ribs & Turkey Drums
Guacamole w/chips Garlic Ice Cream
Garlic Watermelon Garlic Jelly
Key Lime Calamari Shrimp Quesadillas
Garlic Poppers Garlic Veggie Wrap
Gyros Garlic Frog Legs
Fried Garlic Garlic Chicken Wings
Garlic Chocolate Garlic Kettlekorn
French Fried Garlic Artichoke Hearts Garlic Chicken Pizza
Garlic Rosemary Chicken Sandwich Lumpia
Garlic Crab Fries Vegetarian Falafel Platter
Paella Philly Cheesesteak
Gator, Buffalo, Crispy Duck, Kangaroo or Wild Boar on a Stick
Garlic Fried-Green Tomatoes
Garlic Showdown
WHO 32nd Gilroy Garlic Festival
Raley’s and Nob Hill Foods
WHAT Garlic SHOWDOWN
WHERE Gilroy Garlic Festival Cook-Off Stage
WHEN July 25, 2010
Day Three of the Garlic Festival
Four prominent Bay Area chefs will appear on the Garlic Festival Cook Off stage on Sunday July 26 to participate in the ultimate kitchen showdown. Cooking's Fabulous Foursome will be challenged to prepare a personal entrée featuring the day's key ingredient: GARLIC.
The grand Prize will be $5,000 in cash for the winning chef . Contestants will be allowed to bring their favorite spices and cookware. The contestants will be given a "secret ingredient" and will have two hours to prepare, plate and serve their creations to a select panel of judges .
The featured ingredient of the contest - garlic.
Each chef will be expected to prepare at least one entrée with the accompanying side dishes. The four contestants will start at 10 minute intervals and will each stop after their two hours have elapsed. The cook-off stage will supply the ingredients to be used by the contestants, ingredients that will be revealed the day of the contest.
Previous Champions:
2009 Ryan Scott, San Francisco
2008 James Waller, Monterey Plaza Hotel
2007 Tony Baker, Montrio Bistro
DeFrancesco Bros.
Losing the Garlic War
"...if we continue on the path that we are on,
the American farmer is going to be out of business."
By Robert Rodriguez
The Fresno Bee
Sunday, March 28, 2004
FIREBAUGH -- As head of one of the region's largest onion and garlic dehydrating companies, Frank De Francesco fought for more than a decade against the influx of cheaper Chinese garlic.
The family-run company proudly used U.S.-grown garlic, placing American flag stickers on its 55-gallon fiber drums.
But its battle over Chinese imports is nearing an end.
This summer, De Francesco & Sons will begin buying less-expensive Chinese garlic to supplement its local supply of the pungent vegetable. De Francesco says he tried to hold off as long as possible, but
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a sudden drop in price, rising costs and continued pressure from buyers for cheaper product pushed the company to the inevitable.
"It was either buy Chinese garlic or sell the company," De Francesco says. "And I couldn't undo what has taken us 35 years to build."
Across California's garlic country, China's dominance as a major agricultural producer is forcing some in the industry to reduce their work forces, farm fewer acres and push for greater consumer awareness about foreign-grown produce.
California produces 85% of the nation's garlic supply, while China grows 66% of the world's supply.
"I don't think the American consumer wants to be in the same situation that we are with oil," says John Vessey, part owner of Sequoia Packing, a fresh-garlic packer in Coalinga. "But if we continue on the path that we are on, the American farmer is going to be out of business."
Vessey has sliced the number of garlic acres he farms in garlic-rich Fresno County from 1,000 to 500. The county's vast west-side farms boast 27,210 acres, the largest concentration of garlic acreage in the nation. In 2002, the county's garlic crop was valued at $131 million.
Vessey says cheaper imports and the shrinking number of buyers may cause him to cut operations in half at his west-side packinghouse. The company hires about 400 employees from July through November.
Sequoia Packing has two shifts during the harvest season. The company is a joint venture between Vessey and Spice World Inc. of Orlando, Fla.
"Spice World has been in business for 50 years, but they could be out in a couple of years if this continues," Vessey says.
Analysts don't see the tide turning any time soon, if at all.
China is moving away from growing bulk commodities such as corn, wheat, and soybeans and into specialized, higher-value crops.
"Unfortunately, a lot of what they are discovering is what San Joaquin Valley farmers are doing, including garlic," says Mechel Paggi, director of the Center for Agricultural Business at California State University, Fresno.
While China is broadening its agricultural base, California farmers are dealing with a shrinking number of buyers who possess greater leverage over prices.
"Buyers are saying we want product for our stores so we can supply our consumers seven days a week with consistent production and at a certain quality," Paggi says. "And they want it at the lowest price possible."
Also frustrating California's fresh-garlic growers is that China's harvest nearly coincides with its own, making the temptation to buy cheaper Chinese garlic more alluring.
Don Christopher, founder of Christopher Ranch, one of the nation's leading makers of fresh garlic products, also has succumbed in the battle over Chinese garlic. The Gilroy company began buying Chinese garlic last year.
Like the De Francescos, the decision for Christopher was not an easy one. The Gilroy company has spent hundreds of thousands of dollars for lobbyists and attorneys to try to block Chinese imports that were being shipped for less than the cost to produce, also known as dumping.
Christopher Ranch and other companies were successful in getting the United States to tack a 367% tariff on Chinese fresh garlic. But the flow of garlic only slowed.
And while some processors may argue over the quality of Chinese garlic, no one debates the price difference. In some cases, Chinese garlic is about half the cost of American-grown garlic.
"I suppose I can't blame the buyers too much when you are talking about a product that may taste a little different but is sold at a much lower price," Christopher says. "It is getting to the point where I couldn't compete anymore without the Chinese garlic. "
Christopher Ranch also has reduced its garlic acreage from 4,300 two years ago, to about 3,000 last year, a bulk of the acreage in Fresno County.
"And we expect to cut that again next year, by about another 500 acres," Christopher says.
At 69, Christopher is close to retirement. He marvels at the changes he has seen in the industry, including China's rise as a worldwide agricultural force.
"We used to sell to Japan and all of sudden we got dropped," Christopher says. "We didn't think anything of it, until Europe dropped us and then Australia. After a while there was no export market left. Little by little, we could see China coming."
At Gilroy Foods, a division of ConAgra Foods, company officials say they remain committed to U.S.-grown garlic, adding that "virtually all the garlic that we are handling is being grown in California."
Greg Estep, senior vice president for Gilroy Foods' dehydration division, acknowledges that China's role as a major supplier of dehydrated garlic grew during the late 1990s when California's crop fell short.
And while Gilroy Foods bought garlic from offshore sources during that period, "we wanted to move back to buying California garlic as fast as we could," Estep says.
De Francesco realizes that in today's global market China can easily be criticized but it can't be ignored.
It was a hard lesson for the family. The company's steadfast commitment to U.S.-grown garlic may have been the right thing to do, De Francesco admits, but it wasn't realistic in a price-sensitive market.
Dehydrated Chinese garlic can sell for 70 cents a pound, while California garlic is $1.25 pound.
"The fact is our customer list is shrinking and we needed to do something to remain competitive," says David Musson of De Francesco's sales and marketing department. "We didn't want to be a good-looking corpse wrapped in the American flag."
As part of its new selling program, De Francesco & Sons will offer customers three products: a Chinese dehydrated product, a blend of American and Chinese and solely American garlic.
The De Francescos' customers include spaghetti sauce makers to spice companies.
For the moment, the De Francescos don't anticipate reducing their work force. During its late summer harvest, the company has 500 employees, pulling people from Firebaugh and as far away as Los Banos. It has about 250 year-round workers.
Mario De Francesco III, vice president of sales and marketing, says that because Chinese garlic does not require processing, the company could increase its production of local garlic and potentially land larger clients.
"This is a whole new ballgame," says Mario De Francesco. "We didn't anticipate we would be doing this, but this is where we are at."
The reporter can be reached at brodriguez@fresnobee.com or 441-6327.
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Gilroy Garlic Festival video
Great Garlic Cook-off
Great Garlic Cook-Off Identifies Eight Finalists
GILROY, California - "Watermelon crabmeat", "Crawfish Gravy over Grits", and "Cranberry Bread Pudding" are three of the ingredients in the eight recipes selected for the Great Garlic Cook-Off, Gilroy Garlic Festival Association officials announced today.
The Cook-Off, the centerpiece of the annual Gilroy Garlic Festival, will begin at 10 a.m. PDT July 24. The 32nd annual Garlic Festival, three days of live music, cooking exhibitions, arts & crafts exhibits, children's entertainment and an appearance by Top Chef sensation Fabio Viviani, will run July 23-25 at Christmas Hill Park here.
The Festival's Recipe Committee reviewed submissions from across North America before identifying eight finalists. Each amateur chef will have two hours to prepare, plate and serve their delicacy to a panel of five judges on the Cook-Off stage. The winner receives $1,000 in cash and the traditional crown of cloves.
The Cook-Off stage will host three days of popular cooking competitions, culminating with the July 25 Garlic Showdown presented by Raley's, Bel Air and Nob Hill Foods. A quartet of Northern California professional chefs will battle iron chef-style for a $5,000 top prize.
Information on all Festival activity is available at gilroygarlicfestival.com
Tickets offering a $2. discount on adult, children and senior admissions can be purchased at all Raley's, Bel Air and Nob Hill Foods locations throughout Northern California.
2010 GREAT GILROY GARLIC COOK-OFF
FINALISTS
Saturday July 24
10 a.m. Cook-Off Stage
Warm Weather Watermelon Crabmeat Kissed South Seas Soup
Margi Berry / Trout Lake, WA
Sautéed Butterfly Prawns with Spicy Garlic Cranberry Bread Pudding & Garlic Studded Pinot Noir Sauce
Renata Stanko / Lebanon, OR
Garlic & Crawfish Gravy over Grits with Roasted Garlic Waffles
Derick Thurman / Charlotte, NC
Garlic Paella with Garlic Allioli
Michael G. Labrador / Newhall, CA
Potentially Pretentious Pork Tendorloin with Garlic Five Ways
Leslie Shearer / Mooreseville, NC
Emerald City Pelau
Susan Mason / Milton, WA
Deconstructed Beef Wellington with Garlic - Tarragon Aioli
Jamie Miller / Napa, CA
Roasted Garlic Blueberry & Pear Cobbler with Garlic Pecan Brickle Cream
Penny Malcolm / Americus, GA
Garlic Festival Will Re-focus Effort To Feature Regional Products
Three-Year Plan to Increase Sustainability
GILROY, CA --- Unveiling a three-year plan focused on increased sustainability, Greg Bozzo, President of the 2010 Gilroy Garlic Festival (gilroygarlicfestival.com) , introduced eight food and food product partners at a press briefing May 13 at Solis Winery in Gilroy. All eight concerns re-establish the Festival's efforts to feature local and regional cuisine in Gourmet Alley and throughout the internationally-heralded three-day event.
The 32nd annual Garlic Festival will entertain over 100,000 visitors at Christmas Hill Park in Gilroy July 23-25, host three popular cooking competitions, present 60 live concerts, return dynamic "Top Chef" Fabio Viviani to the Cook-Off Stage and serve a critically-acclaimed cuisine enhanced with over two tons of fresh California garlic.
"We're heading in a direction to be as eco-friendly as possible," Bozzo, who heads a workforce of more than 4,000 volunteers, explained. "The Festival has initiated a three-year program toward sustainability. While many of these elements have been in place for years, we are going to aggressively re-focus our efforts.
"Among these components are Monterey Bay caught squid, domestic caught shrimp, California chicken and compostable cutlery," Bozzo added.
Present at the recent media event were representatives of Christopher Ranch garlic, Monterey Bay Mushrooms, Lucero Olive Oil, Monterey Fish Company, the Wineries of Santa Clara Valley and Eduardo's Pasta of San Francisco.
Bozzo also identified Foster Farms Chicken and Natur-Bag, a manufacturer of compostable cutlery, as participating concerns.
"You can get calamari from China, from Taiwan, from Thailand," said Sal Tringali of the Monterey Fish Company. "I think the general public appreciates the fact that the Festival chooses to serve a local product."
The newest delicacy in Gourmet Alley will be Eduardo's Pasta, a San Francisco-based pasta to be used in the preparation of Gourmet Alley's "Pasta Con Pesto".
"There are many good local manufacturers, little guys like us, who appreciate the Garlic Festival's efforts to feature local products," said Sandor Halasz, President of Eduardo's Pasta.
Diners on Gourmet Alley will also be introduced to a new utensil to assist their experience, the "spork", a compostable half spoon / half fork.
"In previous years our guests used 50,000 plastic forks, which when disposed of, wound up in the landfill," Bozzo explained. "Now, along with the paper plates, the cutlery will be composted as well."
The 2010 Gilroy Garlic Festival will be open from 10 a.m. to 7 p.m. July 23-25 at Christmas Hill Park in Gilroy. Admission is $17 for adults, $8 for seniors ages 60 and up and $8 for children ages 6-12. Children under age 6 will be admitted free. Parking is also free.
Advance tickets offering a $2 discount will be available beginning June 1 online at www.gilroygarlicfestival.com.
Information can be obtained by calling the festival office at (408) 842-1625.
Media Note: Broadcast quality video of the May 13 Press Briefing is available in the Media Center at www.gilroygarlicfestival.com.
Press Briefing
Greg Bozzo, President of the 2010 Gilroy Garlic Festival, will address in detail plans to make the 32-year-old event more sustainable. Joining Bozzo will be representatives from various local/regional food & beverage entities including the Wineries of Santa Clara County, Monterey Mushrooms, Christopher Ranch and Eduardo's Pasta of San Francisco
Since its inception, the Garlic Festival has exercised many sustainable practices. Bozzo will outline a more aggressive strategy for 2010 and describe elements of the program that will directly involve the 100,000-plus visitors to the event regarded internationally as "America's premier summertime food festival."
32nd Anniversary, July 23-25, 2010
Established in 1979, this three-day summertime celebration requires the work of 4,000 community volunteers, whose efforts have returned More than
$ 8.5 MILLION to various local charities.
31-Year Attendance
The Festival has entertained 3,630,763 visitors in 31 years of operation
31-year Breakdown
The pyro-chefs on Gourmet Alley have served over 3 million visitors in 29 years.
To feed the masses, the chefs have required:
396 tons of beef
140 tons of pasta
80 tons of scampi
62 tons of calamari
and 80 tons of fresh California garlic
GREAT GARLIC COOK-OFF
Saturday July 24, 10a -1p on Cook-Off Stage
The finals of the 2010 cooking competition which entertained 800 worldwide submissions. Eight finalists will prepare their recipe for a panel of five celebrity judges. Results and broadcast quality video of finals will be available through gilroygarlicfestival.com at 2 p.m. PDT July 24.
2010 Fact Sheet
10 tons of beef...4 tons of pasta... 4 tons of calamari... 2 tons of scampi
2 TONS of fresh Christopher Ranch garlic
& $8.2 million raised for local charity
Downloadable images and broadcast quality video are available
in the MEDIA CENTER at www.gilroygarlicfestival.com
Great Garlic Cook-Off Finals will be streamed LIVE on the internet
at www.gilroygarlicfestival.com
July 24, 2010 / 10 a.m.-1 p.m. Pacific Daylight Time
Who: Gilroy Garlic Festival
What: The 32nd annual “Ultimate Summer Food Fair”; three days of incredible food, beverages, arts & crafts and live entertainment
Where: Christmas Hill Park; Gilroy,CA
30 miles south of San Jose off Highway 101
When: Friday, Saturday & Sunday
July 23-25, 2010
10 a.m. - 7 p.m. (Gates close at 6 p.m.)
How: Tickets: Adult General Admission $ 17.00
Children (ages 6-12) $ 8.00
(under 6 free)
Seniors (60+) $ 8.00
Advance tickets available online at
gilroygarlicfestival.com
Fabio Returns
Top Chef Star Returns To Festival
Fabio Viviani , the dynamic star of Bravo Television Network's "Top Chef" series, will conduct a cooking demonstration on July 24 and host Garlic Showdown on July 25.
The Garlic Showdown, presented by Raley's and Nob Hill Foods, will match four prominent Bay Area cooking professionals in an Iron Chef competition on the Festival's cook-off stage. The contestants will be given a "secret ingredient" and will have two hours to prepare, plate and serve their creations to a select panel of judges.
The winner of the competition will be awarded $5,000.
San Francisco chef Ryan Scott won the 2009 Garlic Showdown.
In addition to his rising television career, Fabio Viviani is the partner and executive chef of Firenze Osteria in Toluca Lake, northeast of Los Angeles. A native of Florence, Italy, Fabio currently specializes in molecular cuisine, using cutting-edge technology in the preparation of food. Fabio said his specialty is "northern Italian comfort-style foods".
The acquisition of Fabio as Garlic Showdown host is regarded as a strong boost to the event, according to Garlic Festival recipe chairman Dennis Harrigan.
"The Festival introduced the Garlic Showdown two years ago as a way of recognizing the enormous number of skilled professional chefs in Northern California," Harrigan said. "The public response to this event has been incredible and has demanded that we take this activity to the next level."
Fabio will also be available to autograph copies of his new book, "Viviani's Café Firenze Cookbook", scheduled for release July 22 and available in the Festival Mercantile.
2010 Gilroy Garlic Festival
MENU
From the pyro chefs in Gourmet Alley
Garlic Calamari Garlic Scampi
Stuffed Mushrooms Italian Sausage Sandwich
Peppersteak Sandwich Garlic Ginger Chicken Stir-Fry
Garlic Fries Garlic Bread
Penne Pasta Con Pesto
Available through vendors in Christmas Hill Park...
Escargot Oysters on the Half Shell
Cajun Crawdads Blackened Shrimp & Rice
Chicken & Sausage Jambalaya Cajun Fried Catfish
Roasted Garlic Chicken Quesadillas BBQ Ribs & Turkey Drums
Guacamole w/chips Garlic Ice Cream
Garlic Watermelon Garlic Jelly
Key Lime Calamari Shrimp Quesadillas
Garlic Poppers Garlic Veggie Wrap
Gyros Garlic Frog Legs
Fried Garlic Garlic Chicken Wings
Garlic Chocolate Garlic Kettlekorn
French Fried Garlic Artichoke Hearts Garlic Chicken Pizza
Garlic Rosemary Chicken Sandwich Lumpia
Garlic Crab Fries Vegetarian Falafel Platter
Paella Philly Cheesesteak
Gator, Buffalo, Crispy Duck, Kangaroo or Wild Boar on a Stick
Garlic Fried-Green Tomatoes
Garlic Showdown
WHO 32nd Gilroy Garlic Festival
Raley’s and Nob Hill Foods
WHAT Garlic SHOWDOWN
WHERE Gilroy Garlic Festival Cook-Off Stage
WHEN July 25, 2010
Day Three of the Garlic Festival
Four prominent Bay Area chefs will appear on the Garlic Festival Cook Off stage on Sunday July 26 to participate in the ultimate kitchen showdown. Cooking's Fabulous Foursome will be challenged to prepare a personal entrée featuring the day's key ingredient: GARLIC.
The grand Prize will be $5,000 in cash for the winning chef . Contestants will be allowed to bring their favorite spices and cookware. The contestants will be given a "secret ingredient" and will have two hours to prepare, plate and serve their creations to a select panel of judges .
The featured ingredient of the contest - garlic.
Each chef will be expected to prepare at least one entrée with the accompanying side dishes. The four contestants will start at 10 minute intervals and will each stop after their two hours have elapsed. The cook-off stage will supply the ingredients to be used by the contestants, ingredients that will be revealed the day of the contest.
Previous Champions:
2009 Ryan Scott, San Francisco
2008 James Waller, Monterey Plaza Hotel
2007 Tony Baker, Montrio Bistro
DeFrancesco Bros.
Losing the Garlic War
"...if we continue on the path that we are on,
the American farmer is going to be out of business."
By Robert Rodriguez
The Fresno Bee
Sunday, March 28, 2004
FIREBAUGH -- As head of one of the region's largest onion and garlic dehydrating companies, Frank De Francesco fought for more than a decade against the influx of cheaper Chinese garlic.
The family-run company proudly used U.S.-grown garlic, placing American flag stickers on its 55-gallon fiber drums.
But its battle over Chinese imports is nearing an end.
This summer, De Francesco & Sons will begin buying less-expensive Chinese garlic to supplement its local supply of the pungent vegetable. De Francesco says he tried to hold off as long as possible, but
Home
Michigan
Platform
Michigan's
RFP Officers
Printable Reform
Party of Michigan
APPLICATION FORM
Register to Vote
PRINT OUT FORM
Official 2008-2009 Website
a sudden drop in price, rising costs and continued pressure from buyers for cheaper product pushed the company to the inevitable.
"It was either buy Chinese garlic or sell the company," De Francesco says. "And I couldn't undo what has taken us 35 years to build."
Across California's garlic country, China's dominance as a major agricultural producer is forcing some in the industry to reduce their work forces, farm fewer acres and push for greater consumer awareness about foreign-grown produce.
California produces 85% of the nation's garlic supply, while China grows 66% of the world's supply.
"I don't think the American consumer wants to be in the same situation that we are with oil," says John Vessey, part owner of Sequoia Packing, a fresh-garlic packer in Coalinga. "But if we continue on the path that we are on, the American farmer is going to be out of business."
Vessey has sliced the number of garlic acres he farms in garlic-rich Fresno County from 1,000 to 500. The county's vast west-side farms boast 27,210 acres, the largest concentration of garlic acreage in the nation. In 2002, the county's garlic crop was valued at $131 million.
Vessey says cheaper imports and the shrinking number of buyers may cause him to cut operations in half at his west-side packinghouse. The company hires about 400 employees from July through November.
Sequoia Packing has two shifts during the harvest season. The company is a joint venture between Vessey and Spice World Inc. of Orlando, Fla.
"Spice World has been in business for 50 years, but they could be out in a couple of years if this continues," Vessey says.
Analysts don't see the tide turning any time soon, if at all.
China is moving away from growing bulk commodities such as corn, wheat, and soybeans and into specialized, higher-value crops.
"Unfortunately, a lot of what they are discovering is what San Joaquin Valley farmers are doing, including garlic," says Mechel Paggi, director of the Center for Agricultural Business at California State University, Fresno.
While China is broadening its agricultural base, California farmers are dealing with a shrinking number of buyers who possess greater leverage over prices.
"Buyers are saying we want product for our stores so we can supply our consumers seven days a week with consistent production and at a certain quality," Paggi says. "And they want it at the lowest price possible."
Also frustrating California's fresh-garlic growers is that China's harvest nearly coincides with its own, making the temptation to buy cheaper Chinese garlic more alluring.
Don Christopher, founder of Christopher Ranch, one of the nation's leading makers of fresh garlic products, also has succumbed in the battle over Chinese garlic. The Gilroy company began buying Chinese garlic last year.
Like the De Francescos, the decision for Christopher was not an easy one. The Gilroy company has spent hundreds of thousands of dollars for lobbyists and attorneys to try to block Chinese imports that were being shipped for less than the cost to produce, also known as dumping.
Christopher Ranch and other companies were successful in getting the United States to tack a 367% tariff on Chinese fresh garlic. But the flow of garlic only slowed.
And while some processors may argue over the quality of Chinese garlic, no one debates the price difference. In some cases, Chinese garlic is about half the cost of American-grown garlic.
"I suppose I can't blame the buyers too much when you are talking about a product that may taste a little different but is sold at a much lower price," Christopher says. "It is getting to the point where I couldn't compete anymore without the Chinese garlic. "
Christopher Ranch also has reduced its garlic acreage from 4,300 two years ago, to about 3,000 last year, a bulk of the acreage in Fresno County.
"And we expect to cut that again next year, by about another 500 acres," Christopher says.
At 69, Christopher is close to retirement. He marvels at the changes he has seen in the industry, including China's rise as a worldwide agricultural force.
"We used to sell to Japan and all of sudden we got dropped," Christopher says. "We didn't think anything of it, until Europe dropped us and then Australia. After a while there was no export market left. Little by little, we could see China coming."
At Gilroy Foods, a division of ConAgra Foods, company officials say they remain committed to U.S.-grown garlic, adding that "virtually all the garlic that we are handling is being grown in California."
Greg Estep, senior vice president for Gilroy Foods' dehydration division, acknowledges that China's role as a major supplier of dehydrated garlic grew during the late 1990s when California's crop fell short.
And while Gilroy Foods bought garlic from offshore sources during that period, "we wanted to move back to buying California garlic as fast as we could," Estep says.
De Francesco realizes that in today's global market China can easily be criticized but it can't be ignored.
It was a hard lesson for the family. The company's steadfast commitment to U.S.-grown garlic may have been the right thing to do, De Francesco admits, but it wasn't realistic in a price-sensitive market.
Dehydrated Chinese garlic can sell for 70 cents a pound, while California garlic is $1.25 pound.
"The fact is our customer list is shrinking and we needed to do something to remain competitive," says David Musson of De Francesco's sales and marketing department. "We didn't want to be a good-looking corpse wrapped in the American flag."
As part of its new selling program, De Francesco & Sons will offer customers three products: a Chinese dehydrated product, a blend of American and Chinese and solely American garlic.
The De Francescos' customers include spaghetti sauce makers to spice companies.
For the moment, the De Francescos don't anticipate reducing their work force. During its late summer harvest, the company has 500 employees, pulling people from Firebaugh and as far away as Los Banos. It has about 250 year-round workers.
Mario De Francesco III, vice president of sales and marketing, says that because Chinese garlic does not require processing, the company could increase its production of local garlic and potentially land larger clients.
"This is a whole new ballgame," says Mario De Francesco. "We didn't anticipate we would be doing this, but this is where we are at."
The reporter can be reached at brodriguez@fresnobee.com or 441-6327.
Video Thermal Depolymerization Process Brian S. Appel
Thermal Depolymerization Process
EXCERPT:
How it Works
CWT's Thermal Conversion Process reforms organic waste into renewable fuel oil, without combustion, incineration or toxic residue. TCP breaks down waste into its smallest chemical units and reforms them into new combinations to produce alternative fuels and specialty chemicals. The process emulates the earth’s natural geothermal activity, whereby organic material is converted into fossil fuel under conditions of extreme heat and pressure over millions of years. TCP uses pipes and controls temperature and pressure to reduce the bio-remediation process from millions of years to mere hours. TCP is more than 80% energy efficient.
By utilizing above-ground waste streams, energy produced by TCP does not add new carbon to the atmosphere, and therefore contributes to the arrest of global warming. In addition, it provides a solution for solid waste management while creating a renewable domestic source of energy without toxic emissions.
The Thermal Conversion Process, or TCP, mimics the earth’s natural geothermal process by using water, heat and pressure to transform organic and inorganic wastes into oils, gases, carbons, metals and ash. Even heavy metals are transformed into harmless oxides.
Laddering and Goldman Sachs -Tyco World Com and Enron
EXCERPT:
The Company
Goldman Sachs is a major investment banking firm that operates across the world. It is headquartered in New York, where it has been operating since 1869. Goldman Sachs has performed investment banking for such clients as Enron, Ford Motors, Tyco and WorldCom. It was divulged through recent investigations that the executives of these companies, Kenneth Lay, William Ford, Dennis Kozlowski, and John Sidgmore, respectively, received IPO shares from Goldman Sachs. The firm is suspected of having offered these and other investment banking clients' large portions of IPO shares in return for their continued business.
BP Solar and Goldman Sachs
EXCERPT:
The fund structure consists of construction loans, senior term loans and partnership equity, all of which will be drawn down over the course of one year. Hudson United Capital, a division of Hudson United Bank, provided the construction and senior term loans. An affiliate of The Goldman Sachs Group provides the equity. Affiliates of Marathon Capital, LLC acted as exclusive financial advisor to SunEdison, LLC.
BP Solar Energy Solutions includes the solar system hardware and support products that ensure the systems are easily operated and monitored. BP Solar’s use of proven system designs and materials along with their 25-year product warranty gives them the ability to guarantee the energy output of the solar system making possible the offer of a fixed energy price to the end customer.
Ken Lay and Cap and Trade Meeting with Al Gore and Bill Clinton
EXCERPT:
Whatever its impact on the environment, the cap-and-trade carbon scheme is sure to boost the economic and political prospects of people and groups that are behind it. Before the company collapsed under the weight of financial scandal, Enron under CEO Ken Lay was a key proponent of the cap-and-trade idea. So was BP’s Lord John Browne, before he resigned last May under a cloud of personal scandal. In August 1997, Lay and Browne met with President Bill Clinton and Vice President Gore in the Oval Office to develop administration positions for the Kyoto negotiations that resulted in an international treaty to regulate greenhouse gas emissions.
Horizon Wind Energy and Goldman Sachs
EXCERPT:
Horizon Wind Energy is a wind energy developer and independent power producer, based in Houston, Texas. Horizon has developed wind farms in New York, Iowa, Pennsylvania, Washington, Oklahoma, Minnesota, Oregon, Texas and Illinois. Originally Zilkha Renewable Energy, Horizon was purchased by investment bank Goldman Sachs in 2005 for an undisclosed sum, and was acquired by Energias de Portugal in 2007 for $2.15 billion.[1] Horizon, together with its European counterpart, Neo Energia, comprise EDP Renewables (EDP Renováveis), which launched an IPO for 25 percent of the company on June 1, 2008.[2][3]
Horizon Wind Energy has developed the following operating projects:
Blue Canyon Wind Farm[4][5]
Elkhorn Valley Wind Farm[6]
Lone Star Wind Farm[7]
Lost Lakes Wind Farm
Madison Wind Farm
Wild Horse Wind Farm[8]
Maple Ridge Wind Farm[9]
Meadow Lake Wind Farm[10]
Meridian Way Wind Farm[11]
Mill Run Wind Energy Center in Pennsylvania
Pioneer Prairie Wind Farm
Prairie Star Wind Farm[12]
Rail Splitter Wind Farm[13]
Rattlesnake Road Wind Farm
Top Crop Wind Farm
Twin Groves Wind Farm[14]
Wheat Field Wind Farm
Gulf oil spill to drag Goldman Sachs into trading scnadal
EXCERPT:
Is there really evidence here to support claims of a sinister conspiracy? Financiers Goldman Sachs not only fortuitously dumped millions of its shares in the British oil company, but has strong financial links to the chemical clean up firm tackling the disaster. Moreover, the Wall Street giant's new chairman was boss of BP only three months before.
Sections of the blogosphere are running into overdrive at the stark fact that Goldman Sachs Management (US) sold 6,025,387 of its shares in the British oil giant, BP on March 31, 2010 just days before the rupture of a pipe extracting deep sea oil. Experts variously estimate the spill to be dumping the equivalent of 5,000- 25,000 barrels of oil a day into the Gulf gravely impacting wildlife.
Changing World Technologies Wikipedia
EXCERPT:
Baskis has since left CWT, but the company has retained the rights to his patents, primarily 5,269,947 - Thermal Depolymerizing Reforming Process and Apparatus.
In 1998, CWT started a subsidiary, Thermo-Depolymerization Process, LLC (TDP), which developed a demonstration and test plant for the thermal depolymerization technology. The plant opened in 1999 in Philadelphia, Pennsylvania.
Another of CWT’s subsidiaries and affiliate companies is Renewable Environmental Solutions, LLC (RES), which was formed in 2000. It is a joint venture between ConAgra Foods and CWT to develop the processing of agricultural waste and low-value streams throughout the world.[1][2] RES, now wholly owned by CWT, has the "first commercial biorefinery in the world that can make oil from a variety of waste streams,[3] principally waste from the nearby ConAgra Butterball turkey processing plant in Carthage, Missouri. According to Biomass magazine, "CWT’s thermal conversion process is a commercially viable method of reforming organic waste that converts approximately 250 tons of turkey offal and fats per day into approximately 500 barrels of renewable diesel."[4] In addition to other problems, production costs turned out to be $80 a barrel, much higher than the anticipated $15. As of 2006[update], however, the Carthage plant was expected to generate a small profit.[3]
Meg Whitman and Goldman Sachs
EXCERPT:
In recent years, Whitman has kept part of her fortune, estimated by Forbes magazine to be $1.2 billion, in investment funds managed by Goldman, her financial disclosure report indicates. For her campaign, she's received $105,500 in donations from Goldman executives, state records show.
Major player in finance
Meanwhile, Goldman is a major player in California state finance. It has been the underwriter of $78.9 billion in bonds issued by the state since 2006, records show, second only to Merrill Lynch, now a division of Bank of America, which was underwriter of $79.3 billion in the same period.
Spinning and Meg Whitman
EXCERPT:
From 1998 to 2002, while she was CEO of eBay, Whitman helped steer millions of dollars of her company's investment banking business to Goldman, court records show.
Thermal Depolymerization Process
EXCERPT:
How it Works
CWT's Thermal Conversion Process reforms organic waste into renewable fuel oil, without combustion, incineration or toxic residue. TCP breaks down waste into its smallest chemical units and reforms them into new combinations to produce alternative fuels and specialty chemicals. The process emulates the earth’s natural geothermal activity, whereby organic material is converted into fossil fuel under conditions of extreme heat and pressure over millions of years. TCP uses pipes and controls temperature and pressure to reduce the bio-remediation process from millions of years to mere hours. TCP is more than 80% energy efficient.
By utilizing above-ground waste streams, energy produced by TCP does not add new carbon to the atmosphere, and therefore contributes to the arrest of global warming. In addition, it provides a solution for solid waste management while creating a renewable domestic source of energy without toxic emissions.
The Thermal Conversion Process, or TCP, mimics the earth’s natural geothermal process by using water, heat and pressure to transform organic and inorganic wastes into oils, gases, carbons, metals and ash. Even heavy metals are transformed into harmless oxides.
Laddering and Goldman Sachs -Tyco World Com and Enron
EXCERPT:
The Company
Goldman Sachs is a major investment banking firm that operates across the world. It is headquartered in New York, where it has been operating since 1869. Goldman Sachs has performed investment banking for such clients as Enron, Ford Motors, Tyco and WorldCom. It was divulged through recent investigations that the executives of these companies, Kenneth Lay, William Ford, Dennis Kozlowski, and John Sidgmore, respectively, received IPO shares from Goldman Sachs. The firm is suspected of having offered these and other investment banking clients' large portions of IPO shares in return for their continued business.
BP Solar and Goldman Sachs
EXCERPT:
The fund structure consists of construction loans, senior term loans and partnership equity, all of which will be drawn down over the course of one year. Hudson United Capital, a division of Hudson United Bank, provided the construction and senior term loans. An affiliate of The Goldman Sachs Group provides the equity. Affiliates of Marathon Capital, LLC acted as exclusive financial advisor to SunEdison, LLC.
BP Solar Energy Solutions includes the solar system hardware and support products that ensure the systems are easily operated and monitored. BP Solar’s use of proven system designs and materials along with their 25-year product warranty gives them the ability to guarantee the energy output of the solar system making possible the offer of a fixed energy price to the end customer.
Ken Lay and Cap and Trade Meeting with Al Gore and Bill Clinton
EXCERPT:
Whatever its impact on the environment, the cap-and-trade carbon scheme is sure to boost the economic and political prospects of people and groups that are behind it. Before the company collapsed under the weight of financial scandal, Enron under CEO Ken Lay was a key proponent of the cap-and-trade idea. So was BP’s Lord John Browne, before he resigned last May under a cloud of personal scandal. In August 1997, Lay and Browne met with President Bill Clinton and Vice President Gore in the Oval Office to develop administration positions for the Kyoto negotiations that resulted in an international treaty to regulate greenhouse gas emissions.
Horizon Wind Energy and Goldman Sachs
EXCERPT:
Horizon Wind Energy is a wind energy developer and independent power producer, based in Houston, Texas. Horizon has developed wind farms in New York, Iowa, Pennsylvania, Washington, Oklahoma, Minnesota, Oregon, Texas and Illinois. Originally Zilkha Renewable Energy, Horizon was purchased by investment bank Goldman Sachs in 2005 for an undisclosed sum, and was acquired by Energias de Portugal in 2007 for $2.15 billion.[1] Horizon, together with its European counterpart, Neo Energia, comprise EDP Renewables (EDP Renováveis), which launched an IPO for 25 percent of the company on June 1, 2008.[2][3]
Horizon Wind Energy has developed the following operating projects:
Blue Canyon Wind Farm[4][5]
Elkhorn Valley Wind Farm[6]
Lone Star Wind Farm[7]
Lost Lakes Wind Farm
Madison Wind Farm
Wild Horse Wind Farm[8]
Maple Ridge Wind Farm[9]
Meadow Lake Wind Farm[10]
Meridian Way Wind Farm[11]
Mill Run Wind Energy Center in Pennsylvania
Pioneer Prairie Wind Farm
Prairie Star Wind Farm[12]
Rail Splitter Wind Farm[13]
Rattlesnake Road Wind Farm
Top Crop Wind Farm
Twin Groves Wind Farm[14]
Wheat Field Wind Farm
Gulf oil spill to drag Goldman Sachs into trading scnadal
EXCERPT:
Is there really evidence here to support claims of a sinister conspiracy? Financiers Goldman Sachs not only fortuitously dumped millions of its shares in the British oil company, but has strong financial links to the chemical clean up firm tackling the disaster. Moreover, the Wall Street giant's new chairman was boss of BP only three months before.
Sections of the blogosphere are running into overdrive at the stark fact that Goldman Sachs Management (US) sold 6,025,387 of its shares in the British oil giant, BP on March 31, 2010 just days before the rupture of a pipe extracting deep sea oil. Experts variously estimate the spill to be dumping the equivalent of 5,000- 25,000 barrels of oil a day into the Gulf gravely impacting wildlife.
Changing World Technologies Wikipedia
EXCERPT:
Baskis has since left CWT, but the company has retained the rights to his patents, primarily 5,269,947 - Thermal Depolymerizing Reforming Process and Apparatus.
In 1998, CWT started a subsidiary, Thermo-Depolymerization Process, LLC (TDP), which developed a demonstration and test plant for the thermal depolymerization technology. The plant opened in 1999 in Philadelphia, Pennsylvania.
Another of CWT’s subsidiaries and affiliate companies is Renewable Environmental Solutions, LLC (RES), which was formed in 2000. It is a joint venture between ConAgra Foods and CWT to develop the processing of agricultural waste and low-value streams throughout the world.[1][2] RES, now wholly owned by CWT, has the "first commercial biorefinery in the world that can make oil from a variety of waste streams,[3] principally waste from the nearby ConAgra Butterball turkey processing plant in Carthage, Missouri. According to Biomass magazine, "CWT’s thermal conversion process is a commercially viable method of reforming organic waste that converts approximately 250 tons of turkey offal and fats per day into approximately 500 barrels of renewable diesel."[4] In addition to other problems, production costs turned out to be $80 a barrel, much higher than the anticipated $15. As of 2006[update], however, the Carthage plant was expected to generate a small profit.[3]
Meg Whitman and Goldman Sachs
EXCERPT:
In recent years, Whitman has kept part of her fortune, estimated by Forbes magazine to be $1.2 billion, in investment funds managed by Goldman, her financial disclosure report indicates. For her campaign, she's received $105,500 in donations from Goldman executives, state records show.
Major player in finance
Meanwhile, Goldman is a major player in California state finance. It has been the underwriter of $78.9 billion in bonds issued by the state since 2006, records show, second only to Merrill Lynch, now a division of Bank of America, which was underwriter of $79.3 billion in the same period.
Spinning and Meg Whitman
EXCERPT:
From 1998 to 2002, while she was CEO of eBay, Whitman helped steer millions of dollars of her company's investment banking business to Goldman, court records show.
Goldman Sachs in Rolling Stone
By Matt Taibbi
Apr 05, 2010 3:58 PM EDT
This article originally appeared in RS 1082-1083 from July 9-23, 2009. This issue and the rest of the Rolling Stone archives are available via All Access, Rolling Stone's premium subscription plan. If you are already a subscriber, you can click here to see the full story. Not a member? Click here to learn more about All Access.
The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who's Who of Goldman Sachs graduates.
By now, most of us know the major players. As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup — which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the asshole chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multi-billion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden-parachute payments as his bank was self-destructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York — which, incidentally, is now in charge of overseeing Goldman — not to mention …
But then, any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.
The bank's unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere — high gas prices, rising consumer credit rates, half-eaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you're losing, it's going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it's going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth — pure profit for rich individuals.
They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They've been pulling this same stunt over and over since the 1920s — and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.
If you want to understand how we got into this financial crisis, you have to first understand where all the money went — and in order to understand that, you need to understand what Goldman has already gotten away with. It is a history exactly five bubbles long — including last year's strange and seemingly inexplicable spike in the price of oil. There were a lot of losers in each of those bubbles, and in the bailout that followed. But Goldman wasn't one of them.
BUBBLE #1 The Great Depression
Goldman wasn't always a too-big-to-fail Wall Street behemoth, the ruthless face of kill-or-be-killed capitalism on steroids —just almost always. The bank was actually founded in 1869 by a German immigrant named Marcus Goldman, who built it up with his son-in-law Samuel Sachs. They were pioneers in the use of commercial paper, which is just a fancy way of saying they made money lending out short-term IOUs to smalltime vendors in downtown Manhattan.
You can probably guess the basic plotline of Goldman's first 100 years in business: plucky, immigrant-led investment bank beats the odds, pulls itself up by its bootstraps, makes shitloads of money. In that ancient history there's really only one episode that bears scrutiny now, in light of more recent events: Goldman’s disastrous foray into the speculative mania of pre-crash Wall Street in the late 1920s.
This great Hindenburg of financial history has a few features that might sound familiar. Back then, the main financial tool used to bilk investors was called an "investment trust." Similar to modern mutual funds, the trusts took the cash of investors large and small and (theoretically, at least) invested it in a smorgasbord of Wall Street securities, though the securities and amounts were often kept hidden from the public. So a regular guy could invest $10 or $100 in a trust and feel like he was a big player. Much as in the 1990s, when new vehicles like day trading and e-trading attracted reams of new suckers from the sticks who wanted to feel like big shots, investment trusts roped a new generation of regular-guy investors into the speculation game.
Beginning a pattern that would repeat itself over and over again, Goldman got into the investmenttrust game late, then jumped in with both feet and went hogwild. The first effort was the Goldman Sachs Trading Corporation; the bank issued a million shares at $100 apiece, bought all those shares with its own money and then sold 90 percent of them to the hungry public at $104. The trading corporation then relentlessly bought shares in itself, bidding the price up further and further. Eventually it dumped part of its holdings and sponsored a new trust, the Shenandoah Corporation, issuing millions more in shares in that fund — which in turn sponsored yet another trust called the Blue Ridge Corporation. In this way, each investment trust served as a front for an endless investment pyramid: Goldman hiding behind Goldman hiding behind Goldman. Of the 7,250,000 initial shares of Blue Ridge, 6,250,000 were actually owned by Shenandoah — which, of course, was in large part owned by Goldman Trading.
The end result (ask yourself if this sounds familiar) was a daisy chain of borrowed money, one exquisitely vulnerable to a decline in performance anywhere along the line. The basic idea isn't hard to follow. You take a dollar and borrow nine against it; then you take that $10 fund and borrow $90; then you take your $100 fund and, so long as the public is still lending, borrow and invest $900. If the last fund in the line starts to lose value, you no longer have the money to pay back your investors, and everyone gets massacred.
In a chapter from The Great Crash, 1929 titled "In Goldman Sachs We Trust," the famed economist John Kenneth Galbraith held up the Blue Ridge and Shenandoah trusts as classic examples of the insanity of leveragebased investment. The trusts, he wrote, were a major cause of the market's historic crash; in today's dollars, the losses the bank suffered totaled $475 billion. "It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity," Galbraith observed, sounding like Keith Olbermann in an ascot. "If there must be madness, something may be said for having it on a heroic scale."
Fast-forward about 65 years. Goldman not only survived the crash that wiped out so many of the investors it duped, it went on to become the chief underwriter to the country's wealthiest and most powerful corporations. Thanks to Sidney Weinberg, who rose from the rank of janitor's assistant to head the firm, Goldman became the pioneer of the initial public offering, one of the principal and most lucrative means by which companies raise money. During the 1970s and 1980s, Goldman may not have been the planet-eating Death Star of political influence it is today, but it was a top-drawer firm that had a reputation for attracting the very smartest talent on the Street.
It also, oddly enough, had a reputation for relatively solid ethics and a patient approach to investment that shunned the fast buck; its executives were trained to adopt the firm's mantra, "long-term greedy." One former Goldman banker who left the firm in the early Nineties recalls seeing his superiors give up a very profitable deal on the grounds that it was a long-term loser. "We gave back money to 'grownup' corporate clients who had made bad deals with us," he says. "Everything we did was legal and fair — but 'long-term greedy' said we didn't want to make such a profit at the clients' collective expense that we spoiled the marketplace."
But then, something happened. It's hard to say what it was exactly; it might have been the fact that Goldman's cochairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. While the American media fell in love with the story line of a pair of baby-boomer, Sixties-child, Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised crush on Rubin, who was hyped as without a doubt the smartest person ever to walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far behind.
Rubin was the prototypical Goldman banker. He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nightmare about being forced to fly coach. It became almost a national clichè that whatever Rubin thought was best for the economy — a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline The Committee To Save The World. And "what Rubin thought," mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. During his tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy — beginning with Rubin's complete and total failure to regulate his
old firm during its first mad dash for obscene short-term profits.
The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren't much more than potfueled ideas scrawled on napkins by uptoolate bongsmokers were taken public via IPOs, hyped in the media and sold to the public for mega-millions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.
It sounds obvious now, but what the average investor didn't know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system — one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman's later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry's standards of quality control.
"Since the Depression, there were strict underwriting guidelines that Wall Street adhered to when taking a company public," says one prominent hedge-fund manager. "The company had to be in business for a minimum of five years, and it had to show profitability for three consecutive years. But Wall Street took these guidelines and threw them in the trash." Goldman completed the snow job by pumping up the sham stocks: "Their analysts were out there saying Bullshit.com is worth $100 a share."
The problem was, nobody told investors that the rules had changed. "Everyone on the inside knew," the manager says. "Bob Rubin sure as hell knew what the underwriting standards were. They'd been intact since the 1930s."
Jay Ritter, a professor of finance at the University of Florida who specializes in IPOs, says banks like Goldman knew full well that many of the public offerings they were touting would never make a dime. "In the early Eighties, the major underwriters insisted on three years of profitability. Then it was one year, then it was a quarter. By the time of the Internet bubble, they were not even requiring profitability in the foreseeable future."
Goldman has denied that it changed its underwriting standards during the Internet years, but its own statistics belie the claim. Just as it did with the investment trust in the 1920s, Goldman started slow and finished crazy in the Internet years. After it took a little-known company with weak financials called Yahoo! public in 1996, once the tech boom had already begun, Goldman quickly became the IPO king of the Internet era. Of the 24 companies it took public in 1997, a third were losing money at the time of the IPO. In 1999, at the height of the boom, it took 47 companies public, including stillborns like Webvan and eToys, investment offerings that were in many ways the modern equivalents of Blue Ridge and Shenandoah. The following year, it underwrote 18 companies in the first four months, 14 of which were money losers at the time. As a leading underwriter of Internet stocks during the boom, Goldman provided profits far more volatile than those of its competitors: In 1999, the average Goldman IPO leapt 281 percent above its offering price, compared to the Wall Street average of 181 percent.
How did Goldman achieve such extraordinary results? One answer is that they used a practice called "laddering," which is just a fancy way of saying they manipulated the share price of new offerings. Here's how it works: Say you're Goldman Sachs, and Bullshit.com comes to you and asks you to take their company public. You agree on the usual terms: You'll price the stock, determine how many shares should be released and take the Bullshit.com CEO on a "road show" to schmooze investors, all in exchange for a substantial fee (typically six to seven percent of the amount raised). You then promise your best clients the right to buy big chunks of the IPO at the low offering price — let's say Bullshit.com's starting share price is $15 — in exchange for a promise that they will buy more shares later on the open market. That seemingly simple demand gives you inside knowledge of the IPO's future, knowledge that wasn't disclosed to the day trader schmucks who only had the prospectus to go by: You know that certain of your clients who bought X amount of shares at $15 are also going to buy Y more shares at $20 or $25, virtually guaranteeing that the price is going to go to $25 and beyond. In this way, Goldman could artificially jack up the new company's price, which of course was to the bank's benefit — a six percent fee of a $500 million IPO is serious money.
Goldman was repeatedly sued by shareholders for engaging in laddering in a variety of Internet IPOs, including Webvan and NetZero. The deceptive practices also caught the attention of Nicholas Maier, the syndicate manager of Cramer & Co., the hedge fund run at the time by the now-famous chattering television asshole Jim Cramer, himself a Goldman alum. Maier told the SEC that while working for Cramer between 1996 and 1998, he was repeatedly forced to engage in laddering practices during IPO deals with Goldman.
"Goldman, from what I witnessed, they were the worst perpetrator," Maier said. "They totally fueled the bubble. And it's specifically that kind of behavior that has caused the market crash. They built these stocks upon an illegal foundation — manipulated up — and ultimately, it really was the small person who ended up buying in." In 2005, Goldman agreed to pay $40 million for its laddering violations — a puny penalty relative to the enormous profits it made. (Goldman, which has denied wrongdoing in all of the cases it has settled, refused to respond to questions for this story.)
Another practice Goldman engaged in during the Internet boom was "spinning," better known as bribery. Here the investment bank would offer the executives of the newly public company shares at extra-low prices, in exchange for future underwriting business. Banks that engaged in spinning would then undervalue the initial offering price — ensuring that those "hot" opening-price shares it had handed out to insiders would be more likely to rise quickly, supplying bigger first-day rewards for the chosen few. So instead of Bullshit.com opening at $20, the bank would approach the Bullshit.com CEO and offer him a million shares of his own company at $18 in exchange for future business — effectively robbing all of Bullshit's new shareholders by diverting cash that should have gone to the company's bottom line into the private bank account of the company's CEO.
In one case, Goldman allegedly gave a multimillion-dollar special offering to eBay CEO Meg Whitman, who later joined Goldman's board, in exchange for future i-banking business. According to a report by the House Financial Services Committee in 2002, Goldman gave special stock offerings to executives in 21 companies that it took public, including Yahoo! cofounder Jerry Yang and two of the great slithering villains of the financial-scandal age — Tyco's Dennis Kozlowski and Enron's Ken Lay. Goldman angrily denounced the report as "an egregious distortion of the facts" — shortly before paying $110 million to settle an investigation into spinning and other manipulations launched by New York state regulators. "The spinning of hot IPO shares was not a harmless corporate perk," then-attorney general Eliot Spitzer said at the time. "Instead, it was an integral part of a fraudulent scheme to win new investment-banking business."
Such practices conspired to turn the Internet bubble into one of the greatest financial disasters in world history: Some $5 trillion of wealth was wiped out on the NASDAQ alone. But the real problem wasn't the money that was lost by shareholders, it was the money gained by investment bankers, who received hefty bonuses for tampering with the market. Instead of teaching Wall Street a lesson that bubbles always deflate, the Internet years demonstrated to bankers that in the age of freely flowing capital and publicly owned financial companies, bubbles are incredibly easy to inflate, and individual bonuses are actually bigger when the mania and the irrationality are greater.
Nowhere was this truer than at Goldman. Between 1999 and 2002, the firm paid out $28.5 billion in compensation and benefits — an average of roughly $350,000 a year per employee. Those numbers are important because the key legacy of the Internet boom is that the economy is now driven in large part by the pursuit of the enormous salaries and bonuses that such bubbles make possible. Goldman's mantra of "long-term greedy" vanished into thin air as the game became about getting your check before the melon hit the pavement.
The market was no longer a rationally managed place to grow real, profitable businesses: It was a huge ocean of Someone Else's Money where bankers hauled in vast sums through whatever means necessary and tried to convert that money into bonuses and payouts as quickly as possible. If you laddered and spun 50 Internet IPOs that went bust within a year, so what? By the time the Securities and Exchange Commission got around to fining your firm $110 million, the yacht you bought with your IPO bonuses was already six years old. Besides, you were probably out of Goldman by then, running the U.S. Treasury or maybe the state of New Jersey. (One of the truly comic moments in the history of America's recent financial collapse came when Gov. Jon Corzine of New Jersey, who ran Goldman from 1994 to 1999 and left with $320 million in IPO-fattened stock, insisted in 2002 that "I've never even heard the term 'laddering' before.")
For a bank that paid out $7 billion a year in salaries, $110 million fines issued half a decade late were something far less than a deterrent —they were a joke. Once the Internet bubble burst, Goldman had no incentive to reassess its new, profit-driven strategy; it just searched around for another bubble to inflate. As it turns out, it had one ready, thanks in large part to Rubin.
Goldman has denied that it changed its underwriting standards during the Internet years, but its own statistics belie the claim. Just as it did with the investment trust in the 1920s, Goldman started slow and finished crazy in the Internet years. After it took a little-known company with weak financials called Yahoo! public in 1996, once the tech boom had already begun, Goldman quickly became the IPO king of the Internet era. Of the 24 companies it took public in 1997, a third were losing money at the time of the IPO. In 1999, at the height of the boom, it took 47 companies public, including stillborns like Webvan and eToys, investment offerings that were in many ways the modern equivalents of Blue Ridge and Shenandoah. The following year, it underwrote 18 companies in the first four months, 14 of which were money losers at the time. As a leading underwriter of Internet stocks during the boom, Goldman provided profits far more volatile than those of its competitors: In 1999, the average Goldman IPO leapt 281 percent above its offering price, compared to the Wall Street average of 181 percent.
How did Goldman achieve such extraordinary results? One answer is that they used a practice called "laddering," which is just a fancy way of saying they manipulated the share price of new offerings. Here's how it works: Say you're Goldman Sachs, and Bullshit.com comes to you and asks you to take their company public. You agree on the usual terms: You'll price the stock, determine how many shares should be released and take the Bullshit.com CEO on a "road show" to schmooze investors, all in exchange for a substantial fee (typically six to seven percent of the amount raised). You then promise your best clients the right to buy big chunks of the IPO at the low offering price — let's say Bullshit.com's starting share price is $15 — in exchange for a promise that they will buy more shares later on the open market. That seemingly simple demand gives you inside knowledge of the IPO's future, knowledge that wasn't disclosed to the day trader schmucks who only had the prospectus to go by: You know that certain of your clients who bought X amount of shares at $15 are also going to buy Y more shares at $20 or $25, virtually guaranteeing that the price is going to go to $25 and beyond. In this way, Goldman could artificially jack up the new company's price, which of course was to the bank's benefit — a six percent fee of a $500 million IPO is serious money.
Goldman was repeatedly sued by shareholders for engaging in laddering in a variety of Internet IPOs, including Webvan and NetZero. The deceptive practices also caught the attention of Nicholas Maier, the syndicate manager of Cramer & Co., the hedge fund run at the time by the now-famous chattering television asshole Jim Cramer, himself a Goldman alum. Maier told the SEC that while working for Cramer between 1996 and 1998, he was repeatedly forced to engage in laddering practices during IPO deals with Goldman.
"Goldman, from what I witnessed, they were the worst perpetrator," Maier said. "They totally fueled the bubble. And it's specifically that kind of behavior that has caused the market crash. They built these stocks upon an illegal foundation — manipulated up — and ultimately, it really was the small person who ended up buying in." In 2005, Goldman agreed to pay $40 million for its laddering violations — a puny penalty relative to the enormous profits it made. (Goldman, which has denied wrongdoing in all of the cases it has settled, refused to respond to questions for this story.)
Another practice Goldman engaged in during the Internet boom was "spinning," better known as bribery. Here the investment bank would offer the executives of the newly public company shares at extra-low prices, in exchange for future underwriting business. Banks that engaged in spinning would then undervalue the initial offering price — ensuring that those "hot" opening-price shares it had handed out to insiders would be more likely to rise quickly, supplying bigger first-day rewards for the chosen few. So instead of Bullshit.com opening at $20, the bank would approach the Bullshit.com CEO and offer him a million shares of his own company at $18 in exchange for future business — effectively robbing all of Bullshit's new shareholders by diverting cash that should have gone to the company's bottom line into the private bank account of the company's CEO.
In one case, Goldman allegedly gave a multimillion-dollar special offering to eBay CEO Meg Whitman, who later joined Goldman's board, in exchange for future i-banking business. According to a report by the House Financial Services Committee in 2002, Goldman gave special stock offerings to executives in 21 companies that it took public, including Yahoo! cofounder Jerry Yang and two of the great slithering villains of the financial-scandal age — Tyco's Dennis Kozlowski and Enron's Ken Lay. Goldman angrily denounced the report as "an egregious distortion of the facts" — shortly before paying $110 million to settle an investigation into spinning and other manipulations launched by New York state regulators. "The spinning of hot IPO shares was not a harmless corporate perk," then-attorney general Eliot Spitzer said at the time. "Instead, it was an integral part of a fraudulent scheme to win new investment-banking business."
Such practices conspired to turn the Internet bubble into one of the greatest financial disasters in world history: Some $5 trillion of wealth was wiped out on the NASDAQ alone. But the real problem wasn't the money that was lost by shareholders, it was the money gained by investment bankers, who received hefty bonuses for tampering with the market. Instead of teaching Wall Street a lesson that bubbles always deflate, the Internet years demonstrated to bankers that in the age of freely flowing capital and publicly owned financial companies, bubbles are incredibly easy to inflate, and individual bonuses are actually bigger when the mania and the irrationality are greater.
Nowhere was this truer than at Goldman. Between 1999 and 2002, the firm paid out $28.5 billion in compensation and benefits — an average of roughly $350,000 a year per employee. Those numbers are important because the key legacy of the Internet boom is that the economy is now driven in large part by the pursuit of the enormous salaries and bonuses that such bubbles make possible. Goldman's mantra of "long-term greedy" vanished into thin air as the game became about getting your check before the melon hit the pavement.
The market was no longer a rationally managed place to grow real, profitable businesses: It was a huge ocean of Someone Else's Money where bankers hauled in vast sums through whatever means necessary and tried to convert that money into bonuses and payouts as quickly as possible. If you laddered and spun 50 Internet IPOs that went bust within a year, so what? By the time the Securities and Exchange Commission got around to fining your firm $110 million, the yacht you bought with your IPO bonuses was already six years old. Besides, you were probably out of Goldman by then, running the U.S. Treasury or maybe the state of New Jersey. (One of the truly comic moments in the history of America's recent financial collapse came when Gov. Jon Corzine of New Jersey, who ran Goldman from 1994 to 1999 and left with $320 million in IPO-fattened stock, insisted in 2002 that "I've never even heard the term 'laddering' before.")
For a bank that paid out $7 billion a year in salaries, $110 million fines issued half a decade late were something far less than a deterrent —they were a joke. Once the Internet bubble burst, Goldman had no incentive to reassess its new, profit-driven strategy; it just searched around for another bubble to inflate. As it turns out, it had one ready, thanks in large part to Rubin.
Eventually, lots of aggrieved investors agreed. In a virtual repeat of the Internet IPO craze, Goldman was hit with a wave of lawsuits after the collapse of the housing bubble, many of which accused the bank of withholding pertinent information about the quality of the mortgages it issued. New York state regulators are suing Goldman and 25 other underwriters for selling bundles of crappy Countrywide mortgages to city and state pension funds, which lost as much as $100 million in the investments. Massachusetts also investigated Goldman for similar misdeeds, acting on behalf of 714 mortgage holders who got stuck holding predatory loans. But once again, Goldman got off virtually scot-free, staving off prosecution by agreeing to pay a paltry $60 million — about what the bank's CDO division made in a day and a half during the real estate boom.
The effects of the housing bubble are well known — it led more or less directly to the collapse of Bear Stearns, Lehman Brothers and AIG, whose toxic portfolio of credit swaps was in significant part composed of the insurance that banks like Goldman bought against their own housing portfolios. In fact, at least $13 billion of the taxpayer money given to AIG in the bailout ultimately went to Goldman, meaning that the bank made out on the housing bubble twice: It fucked the investors who bought their horseshit CDOs by betting against its own crappy product, then it turned around and fucked the taxpayer by making him pay off those same bets.
And once again, while the world was crashing down all around the bank, Goldman made sure it was doing just fine in the compensation department. In 2006, the firm's payroll jumped to $16.5 billion — an average of $622,000 per employee. As a Goldman spokesman explained, "We work very hard here."
But the best was yet to come. While the collapse of the housing bubble sent most of the financial world fleeing for the exits, or to jail, Goldman boldly doubled down — and almost single-handedly created yet another bubble, one the world still barely knows the firm had anything to do with.
BUBBLE #4 $4 a Gallon
Illustration by Victor Juhasz
By the beginning of 2008, the financial world was in turmoil. Wall Street had spent the past two and a half decades producing one scandal after another, which didn't leave much to sell that wasn't tainted. The terms junk bond, IPO, sub-prime mortgage and other once-hot financial fare were now firmly associated in the public's mind with scams; the terms credit swaps and CDOs were about to join them. The credit markets were in crisis, and the mantra that had sustained the fantasy economy throughout the Bush years — the notion that housing prices never go down — was now a fully exploded myth, leaving the Street clamoring for a new bullshit paradigm to sling.
Where to go? With the public reluctant to put money in anything that felt like a paper investment, the Street quietly moved the casino to the physical-commodities market — stuff you could touch: corn, coffee, cocoa, wheat and, above all, energy commodities, especially oil. In conjunction with a decline in the dollar, the credit crunch and the housing crash caused a "flight to commodities." Oil futures in particular skyrocketed, as the price of a single barrel went from around $60 in the middle of 2007 to a high of $147 in the summer of 2008.
That summer, as the presidential campaign heated up, the accepted explanation for why gasoline had hit $4.11 a gallon was that there was a problem with the world oil supply. In a classic example of how Republicans and Democrats respond to crises by engaging in fierce exchanges of moronic irrelevancies, John McCain insisted that ending the moratorium on offshore drilling would be "very helpful in the short term," while Barack Obama in typical liberal-arts yuppie style argued that federal investment in hybrid cars was the way out.
But it was all a lie. While the global supply of oil will eventually dry up, the short-term flow has actually been increasing. In the six months before prices spiked, according to the U.S. Energy Information Administration, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped from 86.82 million barrels a day to 86.07 million. Not only was the short-term supply of oil rising, the demand for it was falling — which, in classic economic terms, should have brought prices at the pump down.
So what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help — there were other players in the physical commodities market — but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.
As is so often the case, there had been a Depression-era law in place designed specifically to prevent this sort of thing. The commodities market was designed in large part to help farmers: A grower concerned about future price drops could enter into a contract to sell his corn at a certain price for delivery later on, which made him worry less about building up stores of his crop. When no one was buying corn, the farmer could sell to a middleman known as a "traditional speculator," who would store the grain and sell it later, when demand returned. That way, someone was always there to buy from the farmer, even when the market temporarily had no need for his crops.
In 1936, however, Congress recognized that there should never be more speculators in the market than real producers and consumers. If that happened, prices would be affected by something other than supply and demand, and price manipulations would ensue. A new law empowered the Commodity Futures Trading Commission — the very same body that would later try and fail to regulate credit swaps — to place limits on speculative trades in commodities. As a result of the CFTC's oversight, peace and harmony reigned in the commodities markets for more than 50 years.
All that changed in 1991 when, unbeknownst to almost everyone in the world, a Goldman-owned commodities-trading subsidiary called J. Aron wrote to the CFTC and made an unusual argument. Farmers with big stores of corn, Goldman argued, weren't the only ones who needed to hedge their risk against future price drops — Wall Street dealers who made big bets on oil prices also needed to hedge their risk, because, well, they stood to lose a lot too.
This was complete and utter crap — the 1936 law, remember, was specifically designed to maintain distinctions between people who were buying and selling real tangible stuff and people who were trading in paper alone. But the CFTC, amazingly, bought Goldman's argument. It issued the bank a free pass, called the "Bona Fide Hedging" exemption, allowing Goldman's subsidiary to call itself a physical hedger and escape virtually all limits placed on speculators. In the years that followed, the commission would quietly issue 14 similar exemptions to other companies.
Now Goldman and other banks were free to drive more investors into the commodities markets, enabling speculators to place increasingly big bets. That 1991 letter from Goldman more or less directly led to the oil bubble in 2008, when the number of speculators in the market — driven there by fear of the falling dollar and the housing crash — finally overwhelmed the real physical suppliers and consumers. By 2008, at least three quarters of the activity on the commodity exchanges was speculative, according to a congressional staffer who studied the numbers — and that's likely a conservative estimate. By the middle of last summer, despite rising supply and a drop in demand, we were paying $4 a gallon every time we pulled up to the pump.
What is even more amazing is that the letter to Goldman, along with most of the other trading exemptions, was handed out more or less in secret. "I was the head of the division of trading and markets, and Brooksley Born was the chair of the CFTC," says Greenberger, "and neither of us knew this letter was out there." In fact, the letters only came to light by accident. Last year, a staffer for the House Energy and Commerce Committee just happened to be at a briefing when officials from the CFTC made an offhand reference to the exemptions.
"I had been invited to a briefing the commission was holding on energy," the staffer recounts. "And suddenly in the middle of it, they start saying, 'Yeah, we've been issuing these letters for years now.' I raised my hand and said, 'Really? You issued a letter? Can I see it?' And they were like, 'Duh, duh.' So we went back and forth, and finally they said, 'We have to clear it with Goldman Sachs.' I'm like, 'What do you mean, you have to clear it with Goldman Sachs?'"
The CFTC cited a rule that prohibited it from releasing any information about a company's current position in the market. But the staffer's request was about a letter that had been issued 17 years earlier. It no longer had anything to do with Goldman's current position. What's more, Section 7 of the 1936 commodities law gives Congress the right to any information it wants from the commission. Still, in a classic example of how complete Goldman's capture of government is, the CFTC waited until it got clearance from the bank before it turned the letter over.
Armed with the semi-secret government exemption, Goldman had become the chief designer of a giant commodities betting parlor. Its Goldman Sachs Commodities Index — which tracks the prices of 24 major commodities but is overwhelmingly weighted toward oil — became the place where pension funds and insurance companies and other institutional investors could make massive long-term bets on commodity prices. Which was all well and good, except for a couple of things. One was that index speculators are mostly "long only" bettors, who seldom if ever take short positions — meaning they only bet on prices to rise. While this kind of behavior is good for a stock market, it's terrible for commodities, because it continually forces prices upward. "If index speculators took short positions as well as long ones, you'd see them pushing prices both up and down," says Michael Masters, a hedge fund manager who has helped expose the role of investment banks in the manipulation of oil prices. "But they only push prices in one direction: up."
Complicating matters even further was the fact that Goldman itself was cheerleading with all its might for an increase in oil prices. In the beginning of 2008, Arjun Murti, a Goldman analyst, hailed as an "oracle of oil" by The New York Times, predicted a "super spike" in oil prices, forecasting a rise to $200 a barrel. At the time Goldman was heavily invested in oil through its commodities trading subsidiary, J. Aron; it also owned a stake in a major oil refinery in Kansas, where it warehoused the crude it bought and sold. Even though the supply of oil was keeping pace with demand, Murti continually warned of disruptions to the world oil supply, going so far as to broadcast the fact that he owned two hybrid cars. High prices, the bank insisted, were somehow the fault of the piggish American consumer; in 2005, Goldman analysts insisted that we wouldn't know when oil prices would fall until we knew "when American consumers will stop buying gas-guzzling sport utility vehicles and instead seek fuel-efficient alternatives."
But it wasn't the consumption of real oil that was driving up prices — it was the trade in paper oil. By the summer of 2008, in fact, commodities speculators had bought and stockpiled enough oil futures to fill 1.1 billion barrels of crude, which meant that speculators owned more future oil on paper than there was real, physical oil stored in all of the country's commercial storage tanks and the Strategic Petroleum Reserve combined. It was a repeat of both the Internet craze and the housing bubble, when Wall Street jacked up present-day profits by selling suckers shares of a fictional fantasy future of endlessly rising prices.
In what was by now a painfully familiar pattern, the oil-commodities melon hit the pavement hard in the summer of 2008, causing a massive loss of wealth; crude prices plunged from $147 to $33. Once again the big losers were ordinary people. The pensioners whose funds invested in this crap got massacred: CalPERS, the California Public Employees' Retirement System, had $1.1 billion in commodities when the crash came. And the damage didn't just come from oil. Soaring food prices driven by the commodities bubble led to catastrophes across the planet, forcing an estimated 100 million people into hunger and sparking food riots throughout the Third World.
Now oil prices are rising again: They shot up 20 percent in the month of May and have nearly doubled so far this year. Once again, the problem is not supply or demand. "The highest supply of oil in the last 20 years is now," says Rep. Bart Stupak, a Democrat from Michigan who serves on the House energy committee. "Demand is at a 10-year low. And yet prices are up."
Asked why politicians continue to harp on things like drilling or hybrid cars, when supply and demand have nothing to do with the high prices, Stupak shakes his head. "I think they just don't understand the problem very well," he says. "You can't explain it in 30 seconds, so politicians ignore it."
BUBBLE #5 Rigging the Bailout
After the oil bubble collapsed last fall, there was no new bubble to keep things humming — this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.
It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers — one of Goldman's last real competitors — collapse without intervention. ("Goldman's superhero status was left intact," says market analyst Eric Salzman, "and an investment banking competitor, Lehman, goes away.") The very next day, Paulson green-lighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.
Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year-old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bank holding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding — most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs — and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.
Converting to a bank-holding company has other benefits as well: Goldman's primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict of interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman — New York Fed president William Dudley — is yet another former Goldmanite.
The collective message of all this — the AIG bailout, the swift approval for its bank holding conversion, the TARP funds — is that when it comes to Goldman Sachs, there isn't a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. "In the past it was an implicit advantage," says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. "Now it's more of an explicit advantage."
Once the bailouts were in place, Goldman went right back to business as usual, dreaming up impossibly convoluted schemes to pick the American carcass clean of its loose capital. One of its first moves in the post-bailout era was to quietly push forward the calendar it uses to report its earnings, essentially wiping December 2008 — with its $1.3 billion in pretax losses — off the books. At the same time, the bank announced a highly suspicious $1.8 billion profit for the first quarter of 2009 — which apparently included a large chunk of money funneled to it by taxpayers via the AIG bailout. "They cooked those first quarter results six ways from Sunday," says one hedge fund manager. "They hid the losses in the orphan month and called the bailout money profit."
Two more numbers stand out from that stunning first-quarter turnaround. The bank paid out an astonishing $4.7 billion in bonuses and compensation in the first three months of this year, an 18 percent increase over the first quarter of 2008. It also raised $5 billion by issuing new shares almost immediately after releasing its first quarter results. Taken together, the numbers show that Goldman essentially borrowed a $5 billion salary payout for its executives in the middle of the global economic crisis it helped cause, using half-baked accounting to reel in investors, just months after receiving billions in a taxpayer bailout.
Even more amazing, Goldman did it all right before the government announced the results of its new "stress test" for banks seeking to repay TARP money — suggesting that Goldman knew exactly what was coming. The government was trying to carefully orchestrate the repayments in an effort to prevent further trouble at banks that couldn't pay back the money right away. But Goldman blew off those concerns, brazenly flaunting its insider status. "They seemed to know everything that they needed to do before the stress test came out, unlike everyone else, who had to wait until after," says Michael Hecht, a managing director of JMP Securities. "The government came out and said, 'To pay back TARP, you have to issue debt of at least five years that is not insured by FDIC — which Goldman Sachs had already done, a week or two before."
And here's the real punch line. After playing an intimate role in four historic bubble catastrophes, after helping $5 trillion in wealth disappear from the NASDAQ, after pawning off thousands of toxic mortgages on pensioners and cities, after helping to drive the price of gas up to $4 a gallon and to push 100 million people around the world into hunger, after securing tens of billions of taxpayer dollars through a series of bailouts overseen by its former CEO, what did Goldman Sachs give back to the people of the United States in 2008?
Fourteen million dollars.
That is what the firm paid in taxes in 2008, an effective tax rate of exactly one, read it, one percent. The bank paid out $10 billion in compensation and benefits that same year and made a profit of more than $2 billion — yet it paid the Treasury less than a third of what it forked over to CEO Lloyd Blankfein, who made $42.9 million last year.
How is this possible? According to Goldman's annual report, the low taxes are due in large part to changes in the bank's "geographic earnings mix." In other words, the bank moved its money around so that most of its earnings took place in foreign countries with low tax rates. Thanks to our completely fucked corporate tax system, companies like Goldman can ship their revenues offshore and defer taxes on those revenues indefinitely, even while they claim deductions upfront on that same untaxed income. This is why any corporation with an at least occasionally sober accountant can usually find a way to zero out its taxes. A GAO report, in fact, found that between 1998 and 2005, roughly two-thirds of all corporations operating in the U.S. paid no taxes at all.
This should be a pitchfork-level outrage — but somehow, when Goldman released its post-bailout tax profile, hardly anyone said a word. One of the few to remark on the obscenity was Rep. Lloyd Doggett, a Democrat from Texas who serves on the House Ways and Means Committee. "With the right hand out begging for bailout money," he said, "the left is hiding it offshore."
BUBBLE #6 Global Warming
Fast-forward to today. It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs — its employees paid some $981,000 to his campaign — sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.
Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's co-head of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade.
The new carbon credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.
Here's how it works: If the bill passes, there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy "allocations" or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billion worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.
The feature of this plan that has special appeal to speculators is that the "cap" on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison's sake, the annual combined revenues of all electricity suppliers in the U.S. total $320 billion.
Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigm-shifting legislation, (2) make sure that they're the profit-making slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for cap-and-trade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank's environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Paulson's report argued that "voluntary action alone cannot solve the climate change problem." A few years later, the bank's carbon chief, Ken Newcombe, insisted that cap-and-trade alone won't be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies) and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time, "We're not making those investments to lose money."
The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utah-based firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There's also a $500 million Green Growth Fund set up by a Goldmanite to invest in green-tech … the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energy futures market?
"Oh, it'll dwarf it," says a former staffer on the House energy committee.
Well, you might say, who cares? If cap-and-trade succeeds, won't we all be saved from the catastrophe of global warming? Maybe — but cap-and-trade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and-trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax collection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it's even collected.
"If it's going to be a tax, I would prefer that Washington set the tax and collect it," says Michael Masters, the hedge fund director who spoke out against oil futures speculation. "But we're saying that Wall Street can set the tax, and Wall Street can collect the tax. That's the last thing in the world I want. It's just asinine."
Cap-and-trade is going to happen. Or, if it doesn't, something like it will. The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees — while the actual victims in this mess, ordinary taxpayers, are the ones paying for it.
It's not always easy to accept the reality of what we now routinely allow these people to get away with; there's a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can't really register the fact that you're no longer a citizen of a thriving first-world democracy, that you're no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there.
But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It's a gangster state, running on gangster economics, and even prices can't be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can't stop it, but we should at least know where it's all going.
This article originally appeared in RS 1082-1083 from July 9-23, 2009. This issue and the rest of the Rolling Stone archives are available via All Access, Rolling Stone's premium subscription plan. If you are already a subscriber, you can click here to see the full story. Not a member? Click here to learn more about All Access.
By Matt Taibbi
Apr 05, 2010 3:58 PM EDT
This article originally appeared in RS 1082-1083 from July 9-23, 2009. This issue and the rest of the Rolling Stone archives are available via All Access, Rolling Stone's premium subscription plan. If you are already a subscriber, you can click here to see the full story. Not a member? Click here to learn more about All Access.
The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who's Who of Goldman Sachs graduates.
By now, most of us know the major players. As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup — which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the asshole chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multi-billion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden-parachute payments as his bank was self-destructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York — which, incidentally, is now in charge of overseeing Goldman — not to mention …
But then, any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.
The bank's unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere — high gas prices, rising consumer credit rates, half-eaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you're losing, it's going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it's going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth — pure profit for rich individuals.
They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They've been pulling this same stunt over and over since the 1920s — and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.
If you want to understand how we got into this financial crisis, you have to first understand where all the money went — and in order to understand that, you need to understand what Goldman has already gotten away with. It is a history exactly five bubbles long — including last year's strange and seemingly inexplicable spike in the price of oil. There were a lot of losers in each of those bubbles, and in the bailout that followed. But Goldman wasn't one of them.
BUBBLE #1 The Great Depression
Goldman wasn't always a too-big-to-fail Wall Street behemoth, the ruthless face of kill-or-be-killed capitalism on steroids —just almost always. The bank was actually founded in 1869 by a German immigrant named Marcus Goldman, who built it up with his son-in-law Samuel Sachs. They were pioneers in the use of commercial paper, which is just a fancy way of saying they made money lending out short-term IOUs to smalltime vendors in downtown Manhattan.
You can probably guess the basic plotline of Goldman's first 100 years in business: plucky, immigrant-led investment bank beats the odds, pulls itself up by its bootstraps, makes shitloads of money. In that ancient history there's really only one episode that bears scrutiny now, in light of more recent events: Goldman’s disastrous foray into the speculative mania of pre-crash Wall Street in the late 1920s.
This great Hindenburg of financial history has a few features that might sound familiar. Back then, the main financial tool used to bilk investors was called an "investment trust." Similar to modern mutual funds, the trusts took the cash of investors large and small and (theoretically, at least) invested it in a smorgasbord of Wall Street securities, though the securities and amounts were often kept hidden from the public. So a regular guy could invest $10 or $100 in a trust and feel like he was a big player. Much as in the 1990s, when new vehicles like day trading and e-trading attracted reams of new suckers from the sticks who wanted to feel like big shots, investment trusts roped a new generation of regular-guy investors into the speculation game.
Beginning a pattern that would repeat itself over and over again, Goldman got into the investmenttrust game late, then jumped in with both feet and went hogwild. The first effort was the Goldman Sachs Trading Corporation; the bank issued a million shares at $100 apiece, bought all those shares with its own money and then sold 90 percent of them to the hungry public at $104. The trading corporation then relentlessly bought shares in itself, bidding the price up further and further. Eventually it dumped part of its holdings and sponsored a new trust, the Shenandoah Corporation, issuing millions more in shares in that fund — which in turn sponsored yet another trust called the Blue Ridge Corporation. In this way, each investment trust served as a front for an endless investment pyramid: Goldman hiding behind Goldman hiding behind Goldman. Of the 7,250,000 initial shares of Blue Ridge, 6,250,000 were actually owned by Shenandoah — which, of course, was in large part owned by Goldman Trading.
The end result (ask yourself if this sounds familiar) was a daisy chain of borrowed money, one exquisitely vulnerable to a decline in performance anywhere along the line. The basic idea isn't hard to follow. You take a dollar and borrow nine against it; then you take that $10 fund and borrow $90; then you take your $100 fund and, so long as the public is still lending, borrow and invest $900. If the last fund in the line starts to lose value, you no longer have the money to pay back your investors, and everyone gets massacred.
In a chapter from The Great Crash, 1929 titled "In Goldman Sachs We Trust," the famed economist John Kenneth Galbraith held up the Blue Ridge and Shenandoah trusts as classic examples of the insanity of leveragebased investment. The trusts, he wrote, were a major cause of the market's historic crash; in today's dollars, the losses the bank suffered totaled $475 billion. "It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity," Galbraith observed, sounding like Keith Olbermann in an ascot. "If there must be madness, something may be said for having it on a heroic scale."
Fast-forward about 65 years. Goldman not only survived the crash that wiped out so many of the investors it duped, it went on to become the chief underwriter to the country's wealthiest and most powerful corporations. Thanks to Sidney Weinberg, who rose from the rank of janitor's assistant to head the firm, Goldman became the pioneer of the initial public offering, one of the principal and most lucrative means by which companies raise money. During the 1970s and 1980s, Goldman may not have been the planet-eating Death Star of political influence it is today, but it was a top-drawer firm that had a reputation for attracting the very smartest talent on the Street.
It also, oddly enough, had a reputation for relatively solid ethics and a patient approach to investment that shunned the fast buck; its executives were trained to adopt the firm's mantra, "long-term greedy." One former Goldman banker who left the firm in the early Nineties recalls seeing his superiors give up a very profitable deal on the grounds that it was a long-term loser. "We gave back money to 'grownup' corporate clients who had made bad deals with us," he says. "Everything we did was legal and fair — but 'long-term greedy' said we didn't want to make such a profit at the clients' collective expense that we spoiled the marketplace."
But then, something happened. It's hard to say what it was exactly; it might have been the fact that Goldman's cochairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. While the American media fell in love with the story line of a pair of baby-boomer, Sixties-child, Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised crush on Rubin, who was hyped as without a doubt the smartest person ever to walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far behind.
Rubin was the prototypical Goldman banker. He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nightmare about being forced to fly coach. It became almost a national clichè that whatever Rubin thought was best for the economy — a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline The Committee To Save The World. And "what Rubin thought," mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. During his tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy — beginning with Rubin's complete and total failure to regulate his
old firm during its first mad dash for obscene short-term profits.
The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren't much more than potfueled ideas scrawled on napkins by uptoolate bongsmokers were taken public via IPOs, hyped in the media and sold to the public for mega-millions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.
It sounds obvious now, but what the average investor didn't know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system — one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman's later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry's standards of quality control.
"Since the Depression, there were strict underwriting guidelines that Wall Street adhered to when taking a company public," says one prominent hedge-fund manager. "The company had to be in business for a minimum of five years, and it had to show profitability for three consecutive years. But Wall Street took these guidelines and threw them in the trash." Goldman completed the snow job by pumping up the sham stocks: "Their analysts were out there saying Bullshit.com is worth $100 a share."
The problem was, nobody told investors that the rules had changed. "Everyone on the inside knew," the manager says. "Bob Rubin sure as hell knew what the underwriting standards were. They'd been intact since the 1930s."
Jay Ritter, a professor of finance at the University of Florida who specializes in IPOs, says banks like Goldman knew full well that many of the public offerings they were touting would never make a dime. "In the early Eighties, the major underwriters insisted on three years of profitability. Then it was one year, then it was a quarter. By the time of the Internet bubble, they were not even requiring profitability in the foreseeable future."
Goldman has denied that it changed its underwriting standards during the Internet years, but its own statistics belie the claim. Just as it did with the investment trust in the 1920s, Goldman started slow and finished crazy in the Internet years. After it took a little-known company with weak financials called Yahoo! public in 1996, once the tech boom had already begun, Goldman quickly became the IPO king of the Internet era. Of the 24 companies it took public in 1997, a third were losing money at the time of the IPO. In 1999, at the height of the boom, it took 47 companies public, including stillborns like Webvan and eToys, investment offerings that were in many ways the modern equivalents of Blue Ridge and Shenandoah. The following year, it underwrote 18 companies in the first four months, 14 of which were money losers at the time. As a leading underwriter of Internet stocks during the boom, Goldman provided profits far more volatile than those of its competitors: In 1999, the average Goldman IPO leapt 281 percent above its offering price, compared to the Wall Street average of 181 percent.
How did Goldman achieve such extraordinary results? One answer is that they used a practice called "laddering," which is just a fancy way of saying they manipulated the share price of new offerings. Here's how it works: Say you're Goldman Sachs, and Bullshit.com comes to you and asks you to take their company public. You agree on the usual terms: You'll price the stock, determine how many shares should be released and take the Bullshit.com CEO on a "road show" to schmooze investors, all in exchange for a substantial fee (typically six to seven percent of the amount raised). You then promise your best clients the right to buy big chunks of the IPO at the low offering price — let's say Bullshit.com's starting share price is $15 — in exchange for a promise that they will buy more shares later on the open market. That seemingly simple demand gives you inside knowledge of the IPO's future, knowledge that wasn't disclosed to the day trader schmucks who only had the prospectus to go by: You know that certain of your clients who bought X amount of shares at $15 are also going to buy Y more shares at $20 or $25, virtually guaranteeing that the price is going to go to $25 and beyond. In this way, Goldman could artificially jack up the new company's price, which of course was to the bank's benefit — a six percent fee of a $500 million IPO is serious money.
Goldman was repeatedly sued by shareholders for engaging in laddering in a variety of Internet IPOs, including Webvan and NetZero. The deceptive practices also caught the attention of Nicholas Maier, the syndicate manager of Cramer & Co., the hedge fund run at the time by the now-famous chattering television asshole Jim Cramer, himself a Goldman alum. Maier told the SEC that while working for Cramer between 1996 and 1998, he was repeatedly forced to engage in laddering practices during IPO deals with Goldman.
"Goldman, from what I witnessed, they were the worst perpetrator," Maier said. "They totally fueled the bubble. And it's specifically that kind of behavior that has caused the market crash. They built these stocks upon an illegal foundation — manipulated up — and ultimately, it really was the small person who ended up buying in." In 2005, Goldman agreed to pay $40 million for its laddering violations — a puny penalty relative to the enormous profits it made. (Goldman, which has denied wrongdoing in all of the cases it has settled, refused to respond to questions for this story.)
Another practice Goldman engaged in during the Internet boom was "spinning," better known as bribery. Here the investment bank would offer the executives of the newly public company shares at extra-low prices, in exchange for future underwriting business. Banks that engaged in spinning would then undervalue the initial offering price — ensuring that those "hot" opening-price shares it had handed out to insiders would be more likely to rise quickly, supplying bigger first-day rewards for the chosen few. So instead of Bullshit.com opening at $20, the bank would approach the Bullshit.com CEO and offer him a million shares of his own company at $18 in exchange for future business — effectively robbing all of Bullshit's new shareholders by diverting cash that should have gone to the company's bottom line into the private bank account of the company's CEO.
In one case, Goldman allegedly gave a multimillion-dollar special offering to eBay CEO Meg Whitman, who later joined Goldman's board, in exchange for future i-banking business. According to a report by the House Financial Services Committee in 2002, Goldman gave special stock offerings to executives in 21 companies that it took public, including Yahoo! cofounder Jerry Yang and two of the great slithering villains of the financial-scandal age — Tyco's Dennis Kozlowski and Enron's Ken Lay. Goldman angrily denounced the report as "an egregious distortion of the facts" — shortly before paying $110 million to settle an investigation into spinning and other manipulations launched by New York state regulators. "The spinning of hot IPO shares was not a harmless corporate perk," then-attorney general Eliot Spitzer said at the time. "Instead, it was an integral part of a fraudulent scheme to win new investment-banking business."
Such practices conspired to turn the Internet bubble into one of the greatest financial disasters in world history: Some $5 trillion of wealth was wiped out on the NASDAQ alone. But the real problem wasn't the money that was lost by shareholders, it was the money gained by investment bankers, who received hefty bonuses for tampering with the market. Instead of teaching Wall Street a lesson that bubbles always deflate, the Internet years demonstrated to bankers that in the age of freely flowing capital and publicly owned financial companies, bubbles are incredibly easy to inflate, and individual bonuses are actually bigger when the mania and the irrationality are greater.
Nowhere was this truer than at Goldman. Between 1999 and 2002, the firm paid out $28.5 billion in compensation and benefits — an average of roughly $350,000 a year per employee. Those numbers are important because the key legacy of the Internet boom is that the economy is now driven in large part by the pursuit of the enormous salaries and bonuses that such bubbles make possible. Goldman's mantra of "long-term greedy" vanished into thin air as the game became about getting your check before the melon hit the pavement.
The market was no longer a rationally managed place to grow real, profitable businesses: It was a huge ocean of Someone Else's Money where bankers hauled in vast sums through whatever means necessary and tried to convert that money into bonuses and payouts as quickly as possible. If you laddered and spun 50 Internet IPOs that went bust within a year, so what? By the time the Securities and Exchange Commission got around to fining your firm $110 million, the yacht you bought with your IPO bonuses was already six years old. Besides, you were probably out of Goldman by then, running the U.S. Treasury or maybe the state of New Jersey. (One of the truly comic moments in the history of America's recent financial collapse came when Gov. Jon Corzine of New Jersey, who ran Goldman from 1994 to 1999 and left with $320 million in IPO-fattened stock, insisted in 2002 that "I've never even heard the term 'laddering' before.")
For a bank that paid out $7 billion a year in salaries, $110 million fines issued half a decade late were something far less than a deterrent —they were a joke. Once the Internet bubble burst, Goldman had no incentive to reassess its new, profit-driven strategy; it just searched around for another bubble to inflate. As it turns out, it had one ready, thanks in large part to Rubin.
Goldman has denied that it changed its underwriting standards during the Internet years, but its own statistics belie the claim. Just as it did with the investment trust in the 1920s, Goldman started slow and finished crazy in the Internet years. After it took a little-known company with weak financials called Yahoo! public in 1996, once the tech boom had already begun, Goldman quickly became the IPO king of the Internet era. Of the 24 companies it took public in 1997, a third were losing money at the time of the IPO. In 1999, at the height of the boom, it took 47 companies public, including stillborns like Webvan and eToys, investment offerings that were in many ways the modern equivalents of Blue Ridge and Shenandoah. The following year, it underwrote 18 companies in the first four months, 14 of which were money losers at the time. As a leading underwriter of Internet stocks during the boom, Goldman provided profits far more volatile than those of its competitors: In 1999, the average Goldman IPO leapt 281 percent above its offering price, compared to the Wall Street average of 181 percent.
How did Goldman achieve such extraordinary results? One answer is that they used a practice called "laddering," which is just a fancy way of saying they manipulated the share price of new offerings. Here's how it works: Say you're Goldman Sachs, and Bullshit.com comes to you and asks you to take their company public. You agree on the usual terms: You'll price the stock, determine how many shares should be released and take the Bullshit.com CEO on a "road show" to schmooze investors, all in exchange for a substantial fee (typically six to seven percent of the amount raised). You then promise your best clients the right to buy big chunks of the IPO at the low offering price — let's say Bullshit.com's starting share price is $15 — in exchange for a promise that they will buy more shares later on the open market. That seemingly simple demand gives you inside knowledge of the IPO's future, knowledge that wasn't disclosed to the day trader schmucks who only had the prospectus to go by: You know that certain of your clients who bought X amount of shares at $15 are also going to buy Y more shares at $20 or $25, virtually guaranteeing that the price is going to go to $25 and beyond. In this way, Goldman could artificially jack up the new company's price, which of course was to the bank's benefit — a six percent fee of a $500 million IPO is serious money.
Goldman was repeatedly sued by shareholders for engaging in laddering in a variety of Internet IPOs, including Webvan and NetZero. The deceptive practices also caught the attention of Nicholas Maier, the syndicate manager of Cramer & Co., the hedge fund run at the time by the now-famous chattering television asshole Jim Cramer, himself a Goldman alum. Maier told the SEC that while working for Cramer between 1996 and 1998, he was repeatedly forced to engage in laddering practices during IPO deals with Goldman.
"Goldman, from what I witnessed, they were the worst perpetrator," Maier said. "They totally fueled the bubble. And it's specifically that kind of behavior that has caused the market crash. They built these stocks upon an illegal foundation — manipulated up — and ultimately, it really was the small person who ended up buying in." In 2005, Goldman agreed to pay $40 million for its laddering violations — a puny penalty relative to the enormous profits it made. (Goldman, which has denied wrongdoing in all of the cases it has settled, refused to respond to questions for this story.)
Another practice Goldman engaged in during the Internet boom was "spinning," better known as bribery. Here the investment bank would offer the executives of the newly public company shares at extra-low prices, in exchange for future underwriting business. Banks that engaged in spinning would then undervalue the initial offering price — ensuring that those "hot" opening-price shares it had handed out to insiders would be more likely to rise quickly, supplying bigger first-day rewards for the chosen few. So instead of Bullshit.com opening at $20, the bank would approach the Bullshit.com CEO and offer him a million shares of his own company at $18 in exchange for future business — effectively robbing all of Bullshit's new shareholders by diverting cash that should have gone to the company's bottom line into the private bank account of the company's CEO.
In one case, Goldman allegedly gave a multimillion-dollar special offering to eBay CEO Meg Whitman, who later joined Goldman's board, in exchange for future i-banking business. According to a report by the House Financial Services Committee in 2002, Goldman gave special stock offerings to executives in 21 companies that it took public, including Yahoo! cofounder Jerry Yang and two of the great slithering villains of the financial-scandal age — Tyco's Dennis Kozlowski and Enron's Ken Lay. Goldman angrily denounced the report as "an egregious distortion of the facts" — shortly before paying $110 million to settle an investigation into spinning and other manipulations launched by New York state regulators. "The spinning of hot IPO shares was not a harmless corporate perk," then-attorney general Eliot Spitzer said at the time. "Instead, it was an integral part of a fraudulent scheme to win new investment-banking business."
Such practices conspired to turn the Internet bubble into one of the greatest financial disasters in world history: Some $5 trillion of wealth was wiped out on the NASDAQ alone. But the real problem wasn't the money that was lost by shareholders, it was the money gained by investment bankers, who received hefty bonuses for tampering with the market. Instead of teaching Wall Street a lesson that bubbles always deflate, the Internet years demonstrated to bankers that in the age of freely flowing capital and publicly owned financial companies, bubbles are incredibly easy to inflate, and individual bonuses are actually bigger when the mania and the irrationality are greater.
Nowhere was this truer than at Goldman. Between 1999 and 2002, the firm paid out $28.5 billion in compensation and benefits — an average of roughly $350,000 a year per employee. Those numbers are important because the key legacy of the Internet boom is that the economy is now driven in large part by the pursuit of the enormous salaries and bonuses that such bubbles make possible. Goldman's mantra of "long-term greedy" vanished into thin air as the game became about getting your check before the melon hit the pavement.
The market was no longer a rationally managed place to grow real, profitable businesses: It was a huge ocean of Someone Else's Money where bankers hauled in vast sums through whatever means necessary and tried to convert that money into bonuses and payouts as quickly as possible. If you laddered and spun 50 Internet IPOs that went bust within a year, so what? By the time the Securities and Exchange Commission got around to fining your firm $110 million, the yacht you bought with your IPO bonuses was already six years old. Besides, you were probably out of Goldman by then, running the U.S. Treasury or maybe the state of New Jersey. (One of the truly comic moments in the history of America's recent financial collapse came when Gov. Jon Corzine of New Jersey, who ran Goldman from 1994 to 1999 and left with $320 million in IPO-fattened stock, insisted in 2002 that "I've never even heard the term 'laddering' before.")
For a bank that paid out $7 billion a year in salaries, $110 million fines issued half a decade late were something far less than a deterrent —they were a joke. Once the Internet bubble burst, Goldman had no incentive to reassess its new, profit-driven strategy; it just searched around for another bubble to inflate. As it turns out, it had one ready, thanks in large part to Rubin.
Eventually, lots of aggrieved investors agreed. In a virtual repeat of the Internet IPO craze, Goldman was hit with a wave of lawsuits after the collapse of the housing bubble, many of which accused the bank of withholding pertinent information about the quality of the mortgages it issued. New York state regulators are suing Goldman and 25 other underwriters for selling bundles of crappy Countrywide mortgages to city and state pension funds, which lost as much as $100 million in the investments. Massachusetts also investigated Goldman for similar misdeeds, acting on behalf of 714 mortgage holders who got stuck holding predatory loans. But once again, Goldman got off virtually scot-free, staving off prosecution by agreeing to pay a paltry $60 million — about what the bank's CDO division made in a day and a half during the real estate boom.
The effects of the housing bubble are well known — it led more or less directly to the collapse of Bear Stearns, Lehman Brothers and AIG, whose toxic portfolio of credit swaps was in significant part composed of the insurance that banks like Goldman bought against their own housing portfolios. In fact, at least $13 billion of the taxpayer money given to AIG in the bailout ultimately went to Goldman, meaning that the bank made out on the housing bubble twice: It fucked the investors who bought their horseshit CDOs by betting against its own crappy product, then it turned around and fucked the taxpayer by making him pay off those same bets.
And once again, while the world was crashing down all around the bank, Goldman made sure it was doing just fine in the compensation department. In 2006, the firm's payroll jumped to $16.5 billion — an average of $622,000 per employee. As a Goldman spokesman explained, "We work very hard here."
But the best was yet to come. While the collapse of the housing bubble sent most of the financial world fleeing for the exits, or to jail, Goldman boldly doubled down — and almost single-handedly created yet another bubble, one the world still barely knows the firm had anything to do with.
BUBBLE #4 $4 a Gallon
Illustration by Victor Juhasz
By the beginning of 2008, the financial world was in turmoil. Wall Street had spent the past two and a half decades producing one scandal after another, which didn't leave much to sell that wasn't tainted. The terms junk bond, IPO, sub-prime mortgage and other once-hot financial fare were now firmly associated in the public's mind with scams; the terms credit swaps and CDOs were about to join them. The credit markets were in crisis, and the mantra that had sustained the fantasy economy throughout the Bush years — the notion that housing prices never go down — was now a fully exploded myth, leaving the Street clamoring for a new bullshit paradigm to sling.
Where to go? With the public reluctant to put money in anything that felt like a paper investment, the Street quietly moved the casino to the physical-commodities market — stuff you could touch: corn, coffee, cocoa, wheat and, above all, energy commodities, especially oil. In conjunction with a decline in the dollar, the credit crunch and the housing crash caused a "flight to commodities." Oil futures in particular skyrocketed, as the price of a single barrel went from around $60 in the middle of 2007 to a high of $147 in the summer of 2008.
That summer, as the presidential campaign heated up, the accepted explanation for why gasoline had hit $4.11 a gallon was that there was a problem with the world oil supply. In a classic example of how Republicans and Democrats respond to crises by engaging in fierce exchanges of moronic irrelevancies, John McCain insisted that ending the moratorium on offshore drilling would be "very helpful in the short term," while Barack Obama in typical liberal-arts yuppie style argued that federal investment in hybrid cars was the way out.
But it was all a lie. While the global supply of oil will eventually dry up, the short-term flow has actually been increasing. In the six months before prices spiked, according to the U.S. Energy Information Administration, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped from 86.82 million barrels a day to 86.07 million. Not only was the short-term supply of oil rising, the demand for it was falling — which, in classic economic terms, should have brought prices at the pump down.
So what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help — there were other players in the physical commodities market — but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.
As is so often the case, there had been a Depression-era law in place designed specifically to prevent this sort of thing. The commodities market was designed in large part to help farmers: A grower concerned about future price drops could enter into a contract to sell his corn at a certain price for delivery later on, which made him worry less about building up stores of his crop. When no one was buying corn, the farmer could sell to a middleman known as a "traditional speculator," who would store the grain and sell it later, when demand returned. That way, someone was always there to buy from the farmer, even when the market temporarily had no need for his crops.
In 1936, however, Congress recognized that there should never be more speculators in the market than real producers and consumers. If that happened, prices would be affected by something other than supply and demand, and price manipulations would ensue. A new law empowered the Commodity Futures Trading Commission — the very same body that would later try and fail to regulate credit swaps — to place limits on speculative trades in commodities. As a result of the CFTC's oversight, peace and harmony reigned in the commodities markets for more than 50 years.
All that changed in 1991 when, unbeknownst to almost everyone in the world, a Goldman-owned commodities-trading subsidiary called J. Aron wrote to the CFTC and made an unusual argument. Farmers with big stores of corn, Goldman argued, weren't the only ones who needed to hedge their risk against future price drops — Wall Street dealers who made big bets on oil prices also needed to hedge their risk, because, well, they stood to lose a lot too.
This was complete and utter crap — the 1936 law, remember, was specifically designed to maintain distinctions between people who were buying and selling real tangible stuff and people who were trading in paper alone. But the CFTC, amazingly, bought Goldman's argument. It issued the bank a free pass, called the "Bona Fide Hedging" exemption, allowing Goldman's subsidiary to call itself a physical hedger and escape virtually all limits placed on speculators. In the years that followed, the commission would quietly issue 14 similar exemptions to other companies.
Now Goldman and other banks were free to drive more investors into the commodities markets, enabling speculators to place increasingly big bets. That 1991 letter from Goldman more or less directly led to the oil bubble in 2008, when the number of speculators in the market — driven there by fear of the falling dollar and the housing crash — finally overwhelmed the real physical suppliers and consumers. By 2008, at least three quarters of the activity on the commodity exchanges was speculative, according to a congressional staffer who studied the numbers — and that's likely a conservative estimate. By the middle of last summer, despite rising supply and a drop in demand, we were paying $4 a gallon every time we pulled up to the pump.
What is even more amazing is that the letter to Goldman, along with most of the other trading exemptions, was handed out more or less in secret. "I was the head of the division of trading and markets, and Brooksley Born was the chair of the CFTC," says Greenberger, "and neither of us knew this letter was out there." In fact, the letters only came to light by accident. Last year, a staffer for the House Energy and Commerce Committee just happened to be at a briefing when officials from the CFTC made an offhand reference to the exemptions.
"I had been invited to a briefing the commission was holding on energy," the staffer recounts. "And suddenly in the middle of it, they start saying, 'Yeah, we've been issuing these letters for years now.' I raised my hand and said, 'Really? You issued a letter? Can I see it?' And they were like, 'Duh, duh.' So we went back and forth, and finally they said, 'We have to clear it with Goldman Sachs.' I'm like, 'What do you mean, you have to clear it with Goldman Sachs?'"
The CFTC cited a rule that prohibited it from releasing any information about a company's current position in the market. But the staffer's request was about a letter that had been issued 17 years earlier. It no longer had anything to do with Goldman's current position. What's more, Section 7 of the 1936 commodities law gives Congress the right to any information it wants from the commission. Still, in a classic example of how complete Goldman's capture of government is, the CFTC waited until it got clearance from the bank before it turned the letter over.
Armed with the semi-secret government exemption, Goldman had become the chief designer of a giant commodities betting parlor. Its Goldman Sachs Commodities Index — which tracks the prices of 24 major commodities but is overwhelmingly weighted toward oil — became the place where pension funds and insurance companies and other institutional investors could make massive long-term bets on commodity prices. Which was all well and good, except for a couple of things. One was that index speculators are mostly "long only" bettors, who seldom if ever take short positions — meaning they only bet on prices to rise. While this kind of behavior is good for a stock market, it's terrible for commodities, because it continually forces prices upward. "If index speculators took short positions as well as long ones, you'd see them pushing prices both up and down," says Michael Masters, a hedge fund manager who has helped expose the role of investment banks in the manipulation of oil prices. "But they only push prices in one direction: up."
Complicating matters even further was the fact that Goldman itself was cheerleading with all its might for an increase in oil prices. In the beginning of 2008, Arjun Murti, a Goldman analyst, hailed as an "oracle of oil" by The New York Times, predicted a "super spike" in oil prices, forecasting a rise to $200 a barrel. At the time Goldman was heavily invested in oil through its commodities trading subsidiary, J. Aron; it also owned a stake in a major oil refinery in Kansas, where it warehoused the crude it bought and sold. Even though the supply of oil was keeping pace with demand, Murti continually warned of disruptions to the world oil supply, going so far as to broadcast the fact that he owned two hybrid cars. High prices, the bank insisted, were somehow the fault of the piggish American consumer; in 2005, Goldman analysts insisted that we wouldn't know when oil prices would fall until we knew "when American consumers will stop buying gas-guzzling sport utility vehicles and instead seek fuel-efficient alternatives."
But it wasn't the consumption of real oil that was driving up prices — it was the trade in paper oil. By the summer of 2008, in fact, commodities speculators had bought and stockpiled enough oil futures to fill 1.1 billion barrels of crude, which meant that speculators owned more future oil on paper than there was real, physical oil stored in all of the country's commercial storage tanks and the Strategic Petroleum Reserve combined. It was a repeat of both the Internet craze and the housing bubble, when Wall Street jacked up present-day profits by selling suckers shares of a fictional fantasy future of endlessly rising prices.
In what was by now a painfully familiar pattern, the oil-commodities melon hit the pavement hard in the summer of 2008, causing a massive loss of wealth; crude prices plunged from $147 to $33. Once again the big losers were ordinary people. The pensioners whose funds invested in this crap got massacred: CalPERS, the California Public Employees' Retirement System, had $1.1 billion in commodities when the crash came. And the damage didn't just come from oil. Soaring food prices driven by the commodities bubble led to catastrophes across the planet, forcing an estimated 100 million people into hunger and sparking food riots throughout the Third World.
Now oil prices are rising again: They shot up 20 percent in the month of May and have nearly doubled so far this year. Once again, the problem is not supply or demand. "The highest supply of oil in the last 20 years is now," says Rep. Bart Stupak, a Democrat from Michigan who serves on the House energy committee. "Demand is at a 10-year low. And yet prices are up."
Asked why politicians continue to harp on things like drilling or hybrid cars, when supply and demand have nothing to do with the high prices, Stupak shakes his head. "I think they just don't understand the problem very well," he says. "You can't explain it in 30 seconds, so politicians ignore it."
BUBBLE #5 Rigging the Bailout
After the oil bubble collapsed last fall, there was no new bubble to keep things humming — this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.
It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers — one of Goldman's last real competitors — collapse without intervention. ("Goldman's superhero status was left intact," says market analyst Eric Salzman, "and an investment banking competitor, Lehman, goes away.") The very next day, Paulson green-lighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.
Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year-old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bank holding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding — most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs — and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.
Converting to a bank-holding company has other benefits as well: Goldman's primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict of interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman — New York Fed president William Dudley — is yet another former Goldmanite.
The collective message of all this — the AIG bailout, the swift approval for its bank holding conversion, the TARP funds — is that when it comes to Goldman Sachs, there isn't a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. "In the past it was an implicit advantage," says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. "Now it's more of an explicit advantage."
Once the bailouts were in place, Goldman went right back to business as usual, dreaming up impossibly convoluted schemes to pick the American carcass clean of its loose capital. One of its first moves in the post-bailout era was to quietly push forward the calendar it uses to report its earnings, essentially wiping December 2008 — with its $1.3 billion in pretax losses — off the books. At the same time, the bank announced a highly suspicious $1.8 billion profit for the first quarter of 2009 — which apparently included a large chunk of money funneled to it by taxpayers via the AIG bailout. "They cooked those first quarter results six ways from Sunday," says one hedge fund manager. "They hid the losses in the orphan month and called the bailout money profit."
Two more numbers stand out from that stunning first-quarter turnaround. The bank paid out an astonishing $4.7 billion in bonuses and compensation in the first three months of this year, an 18 percent increase over the first quarter of 2008. It also raised $5 billion by issuing new shares almost immediately after releasing its first quarter results. Taken together, the numbers show that Goldman essentially borrowed a $5 billion salary payout for its executives in the middle of the global economic crisis it helped cause, using half-baked accounting to reel in investors, just months after receiving billions in a taxpayer bailout.
Even more amazing, Goldman did it all right before the government announced the results of its new "stress test" for banks seeking to repay TARP money — suggesting that Goldman knew exactly what was coming. The government was trying to carefully orchestrate the repayments in an effort to prevent further trouble at banks that couldn't pay back the money right away. But Goldman blew off those concerns, brazenly flaunting its insider status. "They seemed to know everything that they needed to do before the stress test came out, unlike everyone else, who had to wait until after," says Michael Hecht, a managing director of JMP Securities. "The government came out and said, 'To pay back TARP, you have to issue debt of at least five years that is not insured by FDIC — which Goldman Sachs had already done, a week or two before."
And here's the real punch line. After playing an intimate role in four historic bubble catastrophes, after helping $5 trillion in wealth disappear from the NASDAQ, after pawning off thousands of toxic mortgages on pensioners and cities, after helping to drive the price of gas up to $4 a gallon and to push 100 million people around the world into hunger, after securing tens of billions of taxpayer dollars through a series of bailouts overseen by its former CEO, what did Goldman Sachs give back to the people of the United States in 2008?
Fourteen million dollars.
That is what the firm paid in taxes in 2008, an effective tax rate of exactly one, read it, one percent. The bank paid out $10 billion in compensation and benefits that same year and made a profit of more than $2 billion — yet it paid the Treasury less than a third of what it forked over to CEO Lloyd Blankfein, who made $42.9 million last year.
How is this possible? According to Goldman's annual report, the low taxes are due in large part to changes in the bank's "geographic earnings mix." In other words, the bank moved its money around so that most of its earnings took place in foreign countries with low tax rates. Thanks to our completely fucked corporate tax system, companies like Goldman can ship their revenues offshore and defer taxes on those revenues indefinitely, even while they claim deductions upfront on that same untaxed income. This is why any corporation with an at least occasionally sober accountant can usually find a way to zero out its taxes. A GAO report, in fact, found that between 1998 and 2005, roughly two-thirds of all corporations operating in the U.S. paid no taxes at all.
This should be a pitchfork-level outrage — but somehow, when Goldman released its post-bailout tax profile, hardly anyone said a word. One of the few to remark on the obscenity was Rep. Lloyd Doggett, a Democrat from Texas who serves on the House Ways and Means Committee. "With the right hand out begging for bailout money," he said, "the left is hiding it offshore."
BUBBLE #6 Global Warming
Fast-forward to today. It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs — its employees paid some $981,000 to his campaign — sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.
Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's co-head of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade.
The new carbon credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.
Here's how it works: If the bill passes, there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy "allocations" or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billion worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.
The feature of this plan that has special appeal to speculators is that the "cap" on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison's sake, the annual combined revenues of all electricity suppliers in the U.S. total $320 billion.
Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigm-shifting legislation, (2) make sure that they're the profit-making slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for cap-and-trade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank's environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Paulson's report argued that "voluntary action alone cannot solve the climate change problem." A few years later, the bank's carbon chief, Ken Newcombe, insisted that cap-and-trade alone won't be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies) and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time, "We're not making those investments to lose money."
The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utah-based firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There's also a $500 million Green Growth Fund set up by a Goldmanite to invest in green-tech … the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energy futures market?
"Oh, it'll dwarf it," says a former staffer on the House energy committee.
Well, you might say, who cares? If cap-and-trade succeeds, won't we all be saved from the catastrophe of global warming? Maybe — but cap-and-trade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and-trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax collection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it's even collected.
"If it's going to be a tax, I would prefer that Washington set the tax and collect it," says Michael Masters, the hedge fund director who spoke out against oil futures speculation. "But we're saying that Wall Street can set the tax, and Wall Street can collect the tax. That's the last thing in the world I want. It's just asinine."
Cap-and-trade is going to happen. Or, if it doesn't, something like it will. The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees — while the actual victims in this mess, ordinary taxpayers, are the ones paying for it.
It's not always easy to accept the reality of what we now routinely allow these people to get away with; there's a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can't really register the fact that you're no longer a citizen of a thriving first-world democracy, that you're no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there.
But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It's a gangster state, running on gangster economics, and even prices can't be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can't stop it, but we should at least know where it's all going.
This article originally appeared in RS 1082-1083 from July 9-23, 2009. This issue and the rest of the Rolling Stone archives are available via All Access, Rolling Stone's premium subscription plan. If you are already a subscriber, you can click here to see the full story. Not a member? Click here to learn more about All Access.
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