Matt Taibbi, conspiracy theorist on steroids

In the latest Rolling Stone magazine there is an article by their political analyst, Matt Taibbi, entitled "Everything Is Rigged".  Perhaps the word "theorist" in the title of this post is not used correctly.  Should it be manipulator, exaggerator, attention seeker, or simply just someone who writes well but understands very little, meaning not so insightful.

A little background  --- we started receiving Rolling Stone magazine a few months ago under my younger daughter's name, yet she was in college and did not subscribe so maybe someone else did it for her or Rolling Stone's demographic analysis found that she would be a perfect fit for their advertising promotions, and the subscription was actually a free circulation builder.  Who knows.  We now receive it, and I admit to finding articles that I like such as the one on Bruno Mars in the same current issue.

Matt Taibbi is another issue.  Of course he has made a name for himself as a conspiracy theorist and anti-corporate, especially anti-financial, corporate writer. At times I have been told that he writes about issues of consequence that might be sound and less vindidictive, but  I have read part of his occasionally clever hostile work before and seen him on a Bill Maher panel.  One might be inclined to call him a liberal, but that would be an insult to most intelligent people on that side of the aisle.  He is a polemicist in the worst way, a conspiracy theorist whose trade is exaggertion and distortion, combined with a lack of any real knowledge.  Yeah, he can write, but he makes the ever searching cynic Oliver Stone, sometimes rightly so, look like the even-thinking Thomas Friedman.

In this article he focuses on "scandals" involving the fixing of Libor rates(interest rates) and ISDA rates(interest rate swap rates) involving major financial institutions.  Point taken should be that any system involving multiple corporations reporting and then having aggregated their day's rates will not be perfect.  To Taibbi it is a vast conspiracy.

He backs up his "thesis" with unattributed quotes from seemingly mid-level, sometimes seemingly low level bureaucrats.  In this wired world, simple braggerts and jokers remarks are taken as an indication of a corporation's policies.  Goldman's scapegoat on a poorly structured mortgage security was Fab Five, a braggert who exaggerated his role in e-mails.  Carl Levin, over and over again in his inimitable ugly style, constantly used a phrase from some mid-level's e-mail that called that security "shit".  Was the mid-level trader referring to it as "shit" for Goldman(they lost money on it) or for investors.  Investors who bought that security at discounted prices were not me, you, or a barber in Peoria.  They were major instituions with analytical groups and fiduciary responsibilities who freely chose to buy that security.  There was no gun at their heads.  I will completely admit that the security in question was poorly structured and having a major investor complicit in designing the security seems questionable, but it was not illegal.  Major institutional investors were not those who sued the company as they were responsible for their decisions, it was the government whose behind was not kissed that found a way to torture Goldman for being fairly successful during a dire U.S. financial crisis.

But now back to Taibbi.  It seems as if, it is a fact that, he has never worked in a complex financial organization with thousands of employees and customers, and a complexity that is such that there can always be imperfections.  What does he want?  Does he want governments to set Libor and swap rates daily, political appointees with minimal financial experience controlling financial markets.  There could be more oversight, but only if there are government officials who have any understanding of these issues and are not making just political decisions.  Or does he want God to come down from heaven each night and set the rates perfectly, maybe blessed by the chronically corrupt Vatican. 

There are two decisive examples of his what must be purposely exaggerated extremism in his conspiracy theory approach.  First, in discussing the interest rate swap market and the supposed massive exposures there, he uses notional numbers.  They are meaningless.  Not to be pedantic, but notional figures are what the swaps are based on and have no relationship to credit exposure.  If a corporate or municipality issues a billion dollar bond at a floating rate because it will sell better and will offer a short term benefit, that's not abnormal.  Often they will then enter into an interest rate swap with a bank that switches their floating rate to a fixed rate so that they can better budget for the future(there are more reasons but that's another story).  The credit risk is not the billion dollar bond, it is simply the market moves that emanate from the swap.  If rates go up, the corporate or municipal issuer benefits, if rates go down they have opportunity cost and the bank that writes the swap benefits.  Of course, the banks do not set up these arrangements or issue bonds for free and if the banks have losses they have more financial capacity to hedge those losses.  They are businesses and not national utilities.  Those costs are generally transparent to financially aware folks, but unfortunately that term cannot be applied to some of the governors, mayors, and CEO's who make these decisions and are backed by their financially illiterate political appointees.  Taibbi ignores all complexity, and simply goes for jugular on blame and conspiracy.

The second example of his intentional exaggeration can be captured by this quote referring to all traded markets, not just interest rate or swap markets, but gold, gas, oil, and other commodities.  He writes "prices all over the world are dependent upon little private cabals of cigar chomping insiders we're forced to trust".  Just as an aside "cigar chomping" in public or semi-public meetings went out of style twenty years ago in most places beyond the newly emerging markets that have no effect on what he is talking about.  That's a minor point but an example of his intense resentment and tainted reporting.

Think about this.  Can anyone imagine, even remotely, the CEO's of Goldman, JPMorgan, UBS, Morgan Stanley, HSBC, Deutsche, and other banks sitting around table and fixing rates.  That is the last thing on earth that they would do.  This would not be, is not, the primary way that they make money.  These firms are all such intense, could I repeat INTENSE, competitors that they could never agree on anything as a group.  They want efficient markets and they are well aware that they are targets for any perceived violation of anything, as governments have shifted all blame for the financial crisis to the banks and never to their shoddy rules, crummy legislatures, corrupt leaders, and inadequate supervision.  The U.S. government under Obama is a prime example of this.  My strong belief is that the banks sincerely want the markets to work efficiently.  Trust is everything to banking success.

One thinks back to the days of the great Hunter Thompson at Rolling Stone as a political analyst who could make sometimes outrageous points, at times aggressive "liberal" one, but often good ones, and always with a sense of irony or humor involved.  Taibbi has no concept of a light touch.  He is on a vendetta of his own making and encouraged by hyper-egotists like Bill Maher and other disruptive and distorting activists, and some with well meaning resentments(who doesn't have a few of these) but with limited knowledge.

Taibbi is worth reading only to see someone prostrate himself before a radical fringe, incite a financially illiterate resentful public that needs someone to blame, and all of this really  must just be for his professional success.  I say that because he obviously must know the difference between notional and credit exposure in the swaps market unless he is not too, not at all, bright.  Why is he not worse with these distortions than the financial institutions that he attacks.