Following on from Geithner’s failure to foresee and prevent the S&P downgrade, attention moves to Obama’s next move. If Geithner — the first Treasury Secretary to ever preside over a downgrade — stays in his job, he would be easy meat for vicious Republican attacks next year. So who better to run the Treasury and put the economy on a sounder footing than former New Jersey Governor, and Master of the Universe Jon Corzine? Unfortunately Corzine’s record is far from unblemished. Corzine was Chairman and CEO of Goldman Sachs during the dot-com bubble, in which Wall Street and Goldman Sachs worked together to profit greatly from the ignorance and irrational exuberance of middle class investors.
“The Great American Bubble Machine,” written by Rolling Stone editor Matt Taibbi, noted that the dot-com bubble was stoked by Wall Street banks such as Goldman engaging in the practice of overhyping stocks that they knew would tank — much like their other practice of selling securities to clients, and then betting against those stocks during the sub-prime housing bubble. According to Jay Ritter, professor of finance at the University of Florida:
Of the 24 companies Goldman took public in 1997, a third were losing money. In 1999 Goldman took another 47 companies public “including stillborns like Webvan and eToys. In 2000 Goldman offered IPOs for another 18 companies, 14 of which were losing money.
The dot-com hype machine brought in trillions for Wall Street while ultimately costing investors upwards of $5 trillion. Taibbi explains:
It sounds obvious now, but what the average investor didn’t know at the time is 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 [read: naïve] investor who was invited to chase soaring prices the banks themselves knew were irrational.
Goldman also offered shares of the IPO to the company’s executives at discounted prices, thus ensuring an immediate — and totally fraudulent — profit for those executives when the issue went public. Taibbi called this bribery. Eliot Spitzer, former Governor and Attorney General of New York — and this publication’s 2012 and 2016 Democratic Presidential choice — called it a “fraudulent scheme to win new investment-banking business.”
When Goldman went public itself with its own IPO, Corzine cashed out with a personal gain of $320 million. But none of these issues has cost Corzine favour with the perennially Wall Street-friendly Obama administration. President Obama already refers to Corzine as “our Wall Street guy.” The real question is, who in the Obama administration is not a “Wall Street guy [or gal]“?
