Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America: (A Book Review)

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Today I want to take a look at a book by Rolling Stone magazine journalist, Matt Taibbi: Griftopia: Bubble Machines, Vampire Squids and the Long Con That Is Breaking America. It was published in 2010 in New York, by Spiegel and Grau.

This book is about the financial/economic crisis that erupted in 2008, which had been touched off by the unraveling of what turned out to be a housing bubble.

Question: Why was the title "Griftopia" given to this book? What is meant by the "long con that is breaking America"?

Answer: That question can best be answered by reading the way the book sees itself, reading the blurb on the inside jacket cover. So let's do that now.

"The financial crisis that exploded in 2008 isn't past but prologue. The stunning rise, fall, and rescue of Wall Street in the bubble-and-bailout era was the coming-out party for the network of looters who sit at the nexus of American political and economic power. The grifter class---made up of the largest players in the financial industry and the politicians who do their bidding---has been growing in power for a generation, transferring wealth upward through increasingly complex financial mechanisms and political maneuvers. The crisis was only one terrifying manifestation of how they've hijacked America's political and economic life.

"Rolling Stone's Matt Taibbi here unravels the whole fiendish story, digging beyond the headlines to get into the deeper roots and wider implications of the rise of the grifters. He traces the movement's origins to the cult of Ayn Rand and her most influential---and possibly weirdest---acolyte, Alan Greenspan, and offers fresh reporting on the backroom deals that decided the winners and losers in the government bailouts. He uncovers the hidden commodities bubble that transferred billions of dollars to Wall Street while creating food shortages around the world, and he shows how finance dominates politics, from the story of investment bankers auctioning off America's infrastructure to an inside account of the high-stakes battle for health-care reform---a battle the true reformers lost. Finally, he tells the story of Goldman Sachs, the 'vampire squid wrapped around the face of humanity.'

"Taibbi has combined deep sources, trailblazing reportage, and provocative analysis to create the most lucid, emotionally galvanizing, and scathingly funny account yet written of the ongoing political and financial crisis in America. This is essential reading for anyone who wants to understand the labyrinthine inner workings of politics and finance in this country, and the profound consequences for us all."

I frequently like to start this way---reading the inner jacket cover---when I write a review of a nonfiction book. The blurb on the inside cover is, in my opinion, a good place to start; it provides us with a good indication of the standard the book set for itself; and how the book sees itself, its analytical goal.

I want to say that, in my view, the actual book fulfills every word of the promises made on that inside jacket blurb. Griftopia is simply the best book I've seen by a journalist, on the topic of the 2008 financial crisis.

Question: Why is that?

Answer: Because the par for the course for books about economics, written by journalists, tends toward the cult of personality. What I mean by that is that the books on such topics, written by journalists, like to emphasize the "humanity of the tragedy," and the "flawed nature" of the principals actors, and so forth. Such books are always anxious to have us appreciate the Shakespearian drama of the events surrounding economic crisis, and the emotional suffering of the bankers, hedge fund managers, high-ranking politicos, and so forth.

I suppose that kind of thing is nice to dwell on for the purposes of cinema adaptation, but does not go a very long way in "informing the public," and all that good stuff, so that we can, supposedly, "make informed decisions," and all that.

Mr. Taibbi's book, refreshingly, does not do that. His book's marked superiority comes from the simple fact that it does, indeed, keep the promises made in the promotional blurb we just read together. He talks about how the "grifter class" who have been growing in power for many years now have indeed "transferred wealth upward through increasingly complex financial mechanisms and political maneuvers." This and only this, is the central issue. After all, the crisis did not just happen, "come out of nowhere." Other journalist book miss this crucial point: how the financial and economic crisis of 2008 represents the culmination of anti-New Deal political and economic and ideological forces that have been gathering since, I would say, 1970.

I also agree to the quote attributed to Ezra Klein (washingtonpost.com), which is found on the back cover: "An almost startling reminder of the power of good writing."

As far as I am concerned that is literally true. Mr. Taibbi's writing is very clear, easy-to-follow, and funny to the point of being downright irreverent. I have to say that his own, personal outrage comes through quite powerfully.

Bill Moyers said (on the back cover): Matt Taibbi [writes] in a no-holds-barred, often profane, but always informative and stimulating style that gets under the skin of the powerful."

Again, I have to give Taibbi "his props," as they used to say. I find the legendary Mr. Moyers's assessment literally correct. I would just say that I don't the powerful are paying much attention. Obliviousness is a luxury of the rich and powerful.

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All of this is not to say that I agree with every detail of Taibbi's analysis---I do not. But the book is even more valuable, to me, for that since we learn more from people who differ with us than those who agree. But, of course, there was very little that I could disagree with in Griftopia.

Let me start with a quote from Griftopia. Let's start with Chapter One: The Grifter Archipelago; or, Why the Tea Party Doesn't Matter.

On page 11 we read: "In the ghetto, nobody gets real dreams. What they get are short-term rip-off versions of real dreams. You don't get real wealth, with a home, credit, a yard, money for your kids' college---you get a fake symbol of wealth, a gold chain, a Fendi bag, a tricked-out car you bought with cash. Nobody gets to be really rich for long, but you do get to be pretend rich, for a few days, weeks, maybe even a few months. It makes you feel better to wear that gold, but when real criminals drive by on the overpass, they laugh."

Now then, I happen to love that quote. The reason I love that quote is because it is the perfect answer to the idea that class, in the United States, is either not really an issue or vastly overblown. Specifically, the above quote is a perfect answer to this from a 2002 book by Kevin Phillips:

"Class warfare, however is a false description, a perverse borrowing from Karl Marx. In the United States, the pro-wealth policies of the right have enjoyed substantial low and low-middle-income support, particularly among religious voters enlisted by cultural facets of conservatism" (1).

What Mr. Phillips seems to be saying here is that either one or the other must be true. Either there must be 'class warfare' or the 'substantial low and low-middle-income support' of 'the pro-wealth policies of the right.' If such support among the low and low-middle-income folks exists for such policies, then there must not be any 'class warfare,' right? And that means, conversely, if we have 'class warfare' on our hands, we should not find any 'low and low-middle-income support' for the 'pro-wealth policies of the right' whatsoever, yes?

It so happens that there is a third option regarding Mr. Phillips's juxtaposition of the low and low-middle-income classes and the pro-wealth policies of the right. The quote from Mr. Taibbi's Griftopia gives us a clue, in the form of what he calls "rip-off versions of real dreams."

This begs the question: What are "real dreams"; and what are their "rip-off versions." Well, we already read the answer to that on the inside cover; and that answer is what Griftopia is all about.

The "real dreams" are the upward transfer of wealth that has been effected by "increasingly complex financial mechanisms and political maneuvers."

Example of a "real dream." Taibbi does not talk about this in his book, however, we know from the financial historian Edward Chancellor, that in the 1980s, a big craze in corporate America was the leveraged buyout. This practice is what largely fuelled the stock market bubble that took off in the mid-1980s (2).

I have called the leveraged buyout nothing but financial piracy. It is the practice of identifying a vulnerable company, preferably one that can carry a heavy debt load. The next thing you do is borrow boat loads of money and then set about quietly buying up the shares until you have majority control. You make whatever deal you can with the company's board of directors to buy up the rest of the stock. The operation involves setting up a kind of shell company, which will actually 'receive' the targeted company. With a little accounting hocus pocus, you transfer the debt obligation from your books (Mr. Corporate Raider) onto the shoulders of the acquired company. What you have to do next, to pay off the "debt" is to sell off the company's various assets, fire personnel, force them to take pay cuts, etc. And finally, when you're all "lean and mean" again, you put the company back onto the stock market (you may have temporarily taken it 'private' to strip it). If you're a big enough player and you know what you're doing, you can make a real "killing," as they say (3).

The leveraged buyout, then, is one of the "increasingly complex financial mechanisms and political maneuvers" that Taibbi alludes to in the jacket cover blurb of his book, which have transferred wealth upward. The real wealth to be gained from the leveraged buyout is one example of a "real dream."

Question: What would be an example of a "rip-off version" of this dream, the marketing of which would be, presumably, aimed at the "low and low-middle-income" classes?

For the answer to that query we must migrate into the interior of Griftopia. The answer Taibbi gives us is house flipping. House flipping is the "rip-off version" of the "real dream" of leveraged buyouts. The people in the low and low-middle-income groups cannot "flip" companies, but they can flip or "leveraged buyout" houses.

Taibbi describes the "mechanism" for us. The thing to keep your eye on is what is called the option-ARM mortgage.

Taibbi quotes an anonymous source, "A trader we'll call Andy B., who worked at one of those big investment banks and managed one of these mortgage deals, [who] describes the process."

According to Andy B: 'Option-ARMs used to be a wealthy person's product[.] It was for people who had chunky cash flows. For instance, on Wall Street you get paid a bonus at the end of the year, [...] so I'll pay a little now, but at the end of the year I'll pay down the principal, true everything up---a wealthy person's product. Then it became the ultimate affordability product'---page 88.

Taibbi summarizing: "The option-ARM evolved into an arrangement where the home-buyer could put virtually nothing down and then have a monthly payment that wasn't just interest only, but, in some cases, less than interest only. Say the market interest rate was 5 percent; you could buy a house with no money down and just make a 1 percent payment every month, for years on end. In the meantime, those four points per month you're not paying just get added to the total amount of debt. 'The difference between that 5 percent and the 1 percent just gets tacked on later on in the form of negative amortization,' Andy explains"---pages88-89.

Its worth going on with this. Let's look on a little further as Taibbi writes:

"Here's how the scenario looks: You buy a $500,000 house, with no money down, which means you take out a mortgage for the full $500,000. Then instead of paying the 5 percent monthly interest payment, which would be $2,500 a month, you pay just $500 a month, and that $2,000 a month you're not paying just gets added to your mortgage debt. Within a couple of years, you don't owe $500,000 anymore; now you owe $548,000 plus deferred interest. 'If you're making the minimum payment, you could let your mortgage go up to 110 percent, 125 percent of the loan value,' says Andy. 'Sometimes it went as high as 135 percent or 140 percent. It was crazy'---page 89.

One more quote

"[A] lot of the homeowners taking out these loans were buying purely as a way of speculating on housing prices: their scheme was to keep up those 1 percent payments for a period of time, then flip the house for a profit before the ARM kicked in and the payments adjusted and grew real teeth. At the height of the boom this process in some places was pushed to the level of absurdity. A New Yorker article cited a broker in Fort Myers, Florida, who described the short resale history of a house that was built in 2005 and first sold on December 29, 2005, for $399,600. It sold the next day for $589,900. A month later it was in foreclosure and the real estate broker bought it all over again for $325,000. This was clearly a fraudulent transaction of some kind---the buyers on those back-to-back transactions were probably dummy buyers, with the application and appraisal process rigged somehow (probably with the aid of a Solomon Edwards type) to bilk the lenders, which in any case probably didn't mind at all and simply sold off the loans immediately, pocketing the fees---but this is the kind of thing that went on. The whole industry was infested with scam artists"---page 91.

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Conclusion

What are we looking at here?

Let me say, first, that I am strongly recommending this book. It is chock full of comprehensive information about the workings of banking and finance in the United States, as well as their interface with the Federal Reserve. All of it is delivered in a very clear, straightforward narrative voice, in such a way that even one such as I can follow it---and the book accomplishes all of this without "dumbing down" or oversimplifying the material.

Mr. Taibbi is indeed a gifted prose stylist. Let me repeat my agreement with Ezra Klein, to whom it is attributed the following quote about Griftopia: "An almost startling reminder of the power of good writing."

Personally, I learned a great deal by reading this book.

However, with that said...

There is only one fault that I find with the book.

First, Taibbi's thesis goes something like this: Several years ago, now, America capitalism and democracy was hijacked by segments of the political and economic elite, elements he calls collectively the "grifter class." They have succeeded in "rigging" the "system" into a harvesting system in which wealth travels upward, away from "all of us" into the hands of the top 1 percent (really the top tenth of one percent). Once upon a time, before these banksters and their political accomplices "hijacked America," American Democracy and Capitalism worked much better; things were more equal; there was broader democratic participation; and wealth and income were distributed on a more equitable basis, even while allowing for the rich to live a champagne lifestyle.

That's a pretty standard "hijacking of America" thesis; and that's fine. However what distinguishes Mr. Taibbi's book from that crowded field, is that he did---or started to do something interesting with it.

What he did was to suggest that there was, perhaps, a relational tension between what he called "real dreams" (of wealth) and their "rip-off versions." That's what I've been talking about in this essay, of course.

He also suggested that this tension had a political component. In chapter one he writes with a real sense of passionate moral outrage over the "bill of goods" we've "been sold," as it were.

On page 9 we read: "Here's the big difference between America and the third world: in America, our leaders put on a hell of a show for us voters, while in the third world, the bulk of the population gets squat. In the third world, most people know where they stand and don't have any illusions about it.

"Maybe they get a parade every now and then, get to wave at shock troops carrying order colors in an eyes-right salute. Or maybe, if they're lucky, the leader will spring for a piece of mainstream entertainment---he'll host a heavyweight title fight at the local Palace of Beheading. Something that puts the country on the map, cheers the national mood, distracts folks from their status as barefoot scrapers of the bottom of the international capitalist barrel."

Let's skip down a little

"We get more than that in America. We get beautifully choreographed eighteen-month entertainment put on once every four years, a beast called the presidential election that engrosses the population to the point of obsession. The ongoing drama allows everyone to subsume their hopes and dreams for the future into one all-out, all-or-nothing battle for the White House, a big alabaster symbol of power we see on television a lot. Who wins and who loses this contest is a matter of utmost importance to a hell of a lot of people in this country"--pages 9-10.

Let's quote on..

"But why it's so important to them is one of the great unexplored mysteries of our time. It's a mystery rooted in the central, horrifying truth about our national politics.

"Which is this: none of it really matters to us. The presidential election is a drama that we Americans have learned to wholly consume as entertainment, divorced completely from any expectations about concrete changes in our own lives. For the vast majority of people who follow national elections in this country, the payoff they're looking for when they campaign for this or that political figure is that warm and fuzzy feeling you get when the home team wins the big game. Or, more important, when a hated rival loses. Their stakes in the electoral game isn't a citizen's interest, but a rooting interest.

"Voters who throw their emotional weight into elections they know deep down inside won't produce real change in their lives are also indulging in a kind of fantasy. That's why voters still dream of politicians whose primary goal is to effectively govern and maintain a thriving first world society with great international ambitions. What voters don't realize, or don't want to realize, is that that dream was abandoned long ago by this country's leaders, who know the more prosaic reality and are looking beyond the fantasy, into the future, at an America plummeted into third world status.

"These leaders are like the drug lords who ruled America's ghettos in the crack age, men (and some women) interested in just two things: staying in power, and hoovering up enough of what's left of the cash on their blocks to drive around in an Escalade or a 633i for however long they have left. Our leaders know we're turning into a giant ghetto and they are taking every last hubcap they can get their hands on before the rest of us wake up and realize what's happened."

Okay, that's enough. The first chapter goes on like that. How, then, are the "grifter class" trying to take "every last hubcap they can get their hands on," and so forth? Through the use of the "increasingly complex financial mechanisms and political manuevers" which serve the purpose of "transferring wealth upward."

In answer to Kevin Phillips's observation about the "pro-wealth policies of the right" enjoying "substantial low and low-middle-income support" concerns the tension between "real dreams" and their "rip-off version," which we have been discussing in this essay. In other words, the lower classes engage in the practices they do in imitation of the big shots and as a way of "fighting fire with fire," as it were. That is to say, they're dealing the best way they can in an economy that does not primarily generate wealth by making things anymore.

Anyway, Taibbi's book completely drops this tension after the first chapter. It is no longer a thematic concern after chapter one. Instead, the ongoing thematic concern throughout the book is greed. Everything comes down to greed on all sides.

Speaking of the housing bubble---the example we discussed earlier---Taibbi simply writes: "The whole industry was infested with scam artists."

But if the "low and low-middle-income" groups deal in counterfeit, "rip-off versions" of "real dreams," we might wonder who sold the counterfeit methods of wealth creation to the low and low-middle classes.

If any of you reading this is forty-years old or older, you may recall that in the late 1980s/early 1990s, we saw the rise of the infomercial (half hour long commercials).

What were these infomercials selling us, for the most part?: get-rich-quick scemes, mostly involving buying "real estate with no money down) (Carleton Sheets). I have already shown, in this essay, how house flipping is the "poor man's" leveraged buyout of a company.

I think that Matt Taibbi's book would have been tremendously strengthened with a chapter on the media campaign that sold "us,"---via the infomercial---the "rip-off versions" of the "real dreams." In this way we would understand how "grifter class" made accomplices out of people from the "low and low-middle-income" strata, accomplices to the political and economic strip mining of America.

Thanks for Reading

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References

1. Phillips, Kevin. Wealth and Democracy: A Political History of the American Rich. Broadway Books, 2002. p.xiii

2. Chancellor, Edward. Devil Take the Hindmost: A History of Financial Speculation. Farrar, Straus, & Giroux, 1999. p.262

3. Korten, David C. When Corporations Rule the World. Kumarian Press, Inc./Berret-Koehler Publications, 1995. pp.207-209

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