Goldman Sachs: The Great American Bubble Machine

Matt Taibbi on how Goldman Sachs has engineered every major market manipulation since the Great Depression

Read this fascinating story on Goldman Sachs and how they have been behind every major market manipulation.

Here is an excerpt...

"And 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."

For its part, Goldman strongly denies these claims.

On a personal note I can tell you this...a few years back I wrote a piece in the New York Post on how Goldman quietly changed the gasoline weighting in its Energy Index--an index that is used as a benchmark for many long-only institutional funds and investors.

I called over to Goldman before writing the story to get the details on the change and the person I spoke to did indeed tell me that the weightings had been altered. My mistake, as you will see, was not getting that person's name.

The resultant change in the makeup of the Index caused a huge spike in gasoline prices and that was the gist of my New York Post article, which ran in the business section as a full-page spread.

The next day Goldman brought tremendous pressure down on the Post and my editor and threatened to sue. My editor brought tremendous pressure down on me and I was barred from ever contributing to the Post again (and I had been a pretty regular contributor).

I am economist and not a journalist, so I guess I violated journalism rule #1, which is, get the names of your sources. In my excitement about the story itself, I didn't do that.

Anyway, the lesson is that Goldman flexed its muscles and the Post not only pulled the story but issued a formal retraction out of fear that Goldman would pursue legal action.