Sunday, April 25, 2010

Et tu Frank Rich?--Goldman Sachs and the Death of Journalism

For years now we have suffered through the gradual disappearance of fact-based reporting and journalistic standards. As frustrating as it has been, there were always at least a few places we could turn where facts and accuracy still counted for something.

But for all this slippage over the last few years, this was the week that the music truly died. The feeding frenzy to demonize Goldman Sachs has claimed the last bastions of solid journalism in just a few days.

The all out attack against Goldman began months ago because, unlike their competitors, this was the one firm that was smart and responsible enough not to put their entire company and the world financial system at risk by using huge leverage to make a single bet on a losing number.  Instead, Goldman chose to hedge its bets and as a result, unlike many of its former competitors, it is alive and thriving today.

Goldman has been unfairly singled out by the media and politicians from the outset, but on April 16, the SEC filed a civil fraud charge against them with so much fanfare that there was a general media presumption that Goldman must have been caught red-handed doing something really terrible.

The SEC accused Goldman of arranging a high stakes bet between a fund manager named John Paulson who was bearish on the sub-prime mortgage market and two sophisticated institutional investors who felt that high-yield lower quality mortgages represented a good investment since, even during bad economic times, most Americans always found a way to make their house payments.

Paulsen helped select the mortgage portfolio on which the bet was to be based. Goldman went to ACA, a highly respected firm which proudly declared on its website that they were the most sophisticated mortgage experts in the world. Paulson and ACA then sat down together and decided on the final portfolio. ACA made a lot of substitutions to the portfolio and eventually signed off on it.

A German bank bet $150 million and ACA bet $850 million that the value of the portfolio would go up. Paulson's fund bet $1 billion that it would go down. Goldman took a $15 million fee for being the bookie and says it bet $100 million of its own money along with the banks.

As the subprime mortgage market collapsed, Paulson pocketed the whole $1 billion while Goldman lost a net $85 million and the German bank and ACA lost their bets as well.

The SEC claims that Goldman committeed fraud because it didn't tell ACA up front that Paulson was the one who was betting against the portfolio.  This charge makes no sense for a number of reasons. First, given the magnitude of the collapse of the market, the outcome of the bet would have been the same no matter who picked the sub-prime mortgages.

Second, the claim is false on its face because Paulson did not, in fact select the portfolio on his own.  He did it along with ACA which made many changes before signing off.

Third, the only Goldman person named in the suit is a 28-year old junior vice-president who himself was bearish on the mortgage market (although, at the time, his bosses weren't) and was foolish or immature enough to try to impress his girlfriend with his power and prowess by raving about his own brilliance using his Goldman email. No managers. No bosses. No executives. Just one kid.

In a world where real journalists still existed, one might have expected them to point these things out in their news reports following the SEC charge. How the alleged "duped" investors were actually just two huge savvy institutions who wanted to make the bet they did.  How no Goldman management was cited as having done anything wrong.  How any winner-take-all bet between two willing and qualified parties by definition entails huge risk.

But instead, they caved and joined the Goldman-bashing party. It seems that the demand to feed the beast has just become too powerful. No media outlet (except the Wall Street Journal)  has resisted the temptation to demonize the one firm that had the chutzpah to be right when everyone else was wrong. How dare they stay alive at a time when everyone else was doing the patriotic thing and going broke!  They couldn't resist suggesting that the mighty omniscient pariah Goldman was preying on thousands of small helpless investors. 

One might expect this kind of sensationalism from publications such as Rolling Stone which was first out of the box last year when reporter Matt Taibbi called Goldman "a great vampire squid wrapped around the face of humanity relentlessly jamming its blood funnel into anything that smells like money."  In his current Truthout blog, Michael Winship calls Goldman "the Blackwater of finance--the lastest in a long line of companies you love to hate."

But until now, there were cooler heads around in the media--reporters who realized that mass hysteria and a lynch mob mentality do not constitute proof of wrongdoing.  No more.  Everybody is now in the pool.

The first journalistic pillar to crumble was the New York Times, which ran a front page news story this week claiming that Goldman had unleashed "a ticking time bomb on unwitting investors."  Why would Goldman deliberately help build a time bomb in an investment in which they themselves ended up losing $85 million?

But the more outrageous claim is that Goldman targeted "unwitting investors," implying that thousands of unsophisticated normal families were pressured by Goldman salesmen to put their nest eggs in these things. There were other firms out there doing that at the time, but Goldman was not one of them. Goldman doesn't deal with unwitting investors in transactions like this. They served as the casino where a few very sophisticated gamblers could find someone on the other side of their bet by paying Goldman a fee.

The second major pillar to fall was CBS News which  ran a story (watch it here) detailing how in 2007, while people who had borrowed $500,000 to buy a $400,000 home that cost $200,000 to build were losing their homes, Goldman Sachs executives were joking and laughing about all the money they were making on their cynical bets against America. This was based on 4 emails in which Goldman employees expressed joy over the fact that they were making money on bets they had recently placed against the mortgage market. 

To link the two pieces of the story in the way they did was deceptive and outrageous. The foreclosure crisis that is still going on in America was caused when real estate developers, lenders, and real estate brokers encouraged ordinary people to pay more than they could afford for homes that were worth much less than the purchase price. Goldman Sachs had nothing to do with any of that.

We live in a 24-7 worldwide financial trading market where it is possible to bet on the future direction of the price of anything. For CBS, the New York Times, and others to suggest that this is somehow unpatriotic is the height of foolishness and only misleads Americans. 

I am a huge University of Arizona sports fan.  Five years ago, LSU was coming to Tucson to play our Wildcats. I had watched our team and knew they were just in the early stages of rebuilding and had no chance to win the game.  LSU was favored by only 8 points. I thought the spread should have been 50 points so I bet $1000 on LSU--against the team I love.  Arizona lost by 63 points and I made $1,000.

My bet had no impact on the outcome of the game just as Goldman's bets against the mortgage market had none on the catastrophe that befell millions of Americans. Neither the homeowners nor the sports teams even knew the bet existed and each bet was irrelevant to the result on the field. 

Back in the good old days, the responsible media would be helping us understand the difference. Instead of piling on and adding to the distortions and misunderstanding, they would be writing articles like this one. But the appetite of the beast for outrage is growing daily and it needs to be fed with more and more villains.

Today was the worst--the true stake in the heart.  The dagger. The final straw.

I stay up until midnight on Saturday night (it's only 9 here in Arizona) to read Frank Rich's column in the Sunday Times. On just about every issue, I think he has made sense over the years and has done the best job of any columnist of sorting through the political jungle during complicated times.

Part of today's column explained well how the Goldman saga has been used effectively by President Obama to push forward his agenda for new broader financial regulation. Classic Frank Rich. But then he picked up a burning cross and joined the mob concluding that Goldman and "those who shorted the housing market bet against America."

Does Rich also believe that those who buy life insurance are betting against themselves and rooting for their own demise or that those who buy fire or car insurance are hoping that they have a catastrophic accident?
Was I untrue to my Wildcats when I used the mispricing of risk in Las Vegas to make some money?

Does Rich think that the firms like Lehman, Bear Stearns, Merrill, AIG, Fannie Mae, Freddie Mac, and dozens of others who placed huge bets on the home team with borrowed money and subsequently went broke and created a world financial crisis are the true patriots? Does he think that the network of regulatory and rating agencies who all failed to do their jobs were all just great patriots as well?  That Goldman Sachs is the major and only villain in this passion play?

I'm sending this article to Rich. If he apologizes, I'll let you know. Otherwise I'm truly finished. If he doesn't, I'm just going to watch and read more about sports and weather, saddened by the thought that today's reporting bears about as much resemblance to journalism as Hulk Hogan does to an Olympic champion.

If arrogance were against the law, hundreds of people at Goldman Sachs would probably spend the rest of their lives in jail.  They were major architects of a toxic Wall Street culture for which we have all paid dearly.

If a reporter says that, it's journalism.  But if he writes the kind of trash I talk about in this piece, he's one of the many who have brought the media--all of it--to its current sorry state.

In the interest of full disclosure, I am a managing director of an international investment firm that works and competes with Goldman Sachs.  I have many friends and a family member who are current or former employees of Goldman. It is my honest belief that none of those facts played a role in shaping the opinions expressed in this article.

Saturday, April 3, 2010

Confessions of a Pro-Israel Obama Supporter

I confess.

I voted for Barack Obama and I'm glad I did.  Like most of my fellow Jews, I think he's doing a pretty good job as President of the United States.  I also feel a special connection to the State of Israel and strongly support its right to exist as a democracy, defend itself, and not be held to a double standard by the U.N. or the rest of the world as it so often is today.

Those sentiments don't sound or feel the least bit radical or incongruous to me.  But that just shows how out of touch I must be with millions of other people who also say they care deeply about our country and the Jewish state.  Many of them have never been angrier or more concerned that Obama would like nothing better than to sell Israel down the river in his spare time as he bankrupts and destroys America with his socialist agenda. 

I would apologize for supporting this horrible man if I could just figure out what he is doing wrong.

We have a representative democracy that seems to have served us well over the years.  A majority of Americans elected Obama president 16 months ago .  The margin was even more dramatic if you consider that he won pretty much every state outside the former Confederacy and the Wilderness states where a large double-digit percentage of the voters acknowledged they would never vote for a Black man.  He was particularly popular with Jews who supported him by a 3-1 margin.

But many American Jews who identify themselves as staunchly "pro-Israel" have never been comfortable with Obama.  In recent weeks, several respected Jewish leaders have joined others who seem so confused that they don't know the difference between Haman and Mordechai--the villain and the hero of the Purim story in which an evil politician tries to destroy the Jewish people.

Obama is no Haman.  He has made it clear from the outset that he would like to be a force for progress in bringing about the two-state solution that is essential if Israel is to remain a Jewish democracy for longer than a few more years.

He has repeatedly stated his commitment to Israel's security and safety and has made it clear that the Palestinians and Arab states need to renounce terrorism and violence and recognize Israel's right to exist. 

Obama first voiced his unshakable support for Israel during his address to AIPAC prior to his election and recently sent Vice-President Biden to Israel affirm that commitment yet again. 

But when March Madness began on the basketball court, March Mishegos took over the Jewish press and several pro-Israel organizations.  And the insanity continues.

Like his predecessor, Obama has stated that the U.S. role in making peace would be made easier if Israel stopped building neighborhoods in the West Bank and parts of Jerusalem.  So the White House was understandably annoyed with both the timing and the substance of the decision to build 1600 new housing units in part of Jerusalem that was announced during Biden's visit.

The White House has made it clear that this awkward incident was a spat among friends--not a crisis or a major game-changer in U.S.--Israel relations. Israeli Prime Minister Binyamin Netanyahu apologized for the timing of the announcement and has repeatedly insisted that this incident did not provoke a crisis between his country and the U.S.

It never seemed like that big a deal.  But a number of Jewish "leaders" and journalists clearly disagree.
AIPAC, the largest pro-Israel organization in the U.S., immediately called on the Obama administration to "diffuse the tensions" with Israel, branding statements by the White House "a matter of serious concern."  the AIPAC statement cites no specific comments or incidents as the cause of the undefined tension nor did it state what the Israeli government should be doing to help improve the situation. 

The next day, Jerusalem Post columnist Caroline Glick announced that the incident in Israel "drove Obama into a fit of uncontrolled rage from which he has yet to recover" which caused him to "foment a crisis (and) launch a political war on Israel." 

Glick never offered quotes or any documentation for her dramatic claims but her column was lapped up and spread through the email network by concerned Jews.

A few days later, New York Post and Fox News military analyst Ralph Peters wrote a column featuring a very old photo of Obama standing next to Reverend Jeremiah Wright and stated that "regarding Israel, a lifetime of extremist associations has infected Obama with an emotional loathing for the Jewish state and a romantic vision of Palestinian terrorists as freedom fighters."  Like Glick, Peters cited no quotes or facts to substantiate his accusations.  But that email has also been widely distributed.

Then Former New York City mayor and Obama supporter Ed Koch went on Fox News to echo what he had just written--that Obama had "thrown Israel under the bus."  Koch criticized our president for his "abysmal attitude toward the State of Israel and his humiliating treatment of Netanyahu."  According to Koch, Obama insulted Bibi by having only a single photographer take pictures when the two met in Washington last week.  That was the humiliating treatment.  No specifics, facts, or quotes were cited by Koch to back his other serious accusations and criticism of Obama.

Netanyahu has said nothing publicly other than to "condemn and deny" a quote attributed to an anonymous source who quoted him as calling Obama "a disaster for Israel"  and to assert in a speech at AIPAC, that Israel has the right to build settlements in Jerusalem or anywhere else it wants to.

So what am I missing?  Where is the tension?  Where is the rage?  Where is the outrageous treatment of Netanyahu?  Where is anything resembling a crisis? 

After the embarrassing housing announcement in Israel for which Netanyahu apologized, Biden made a speech there in which he said:

"I am here to remind you, though I hope you will never forget, that America stands with you shoulder-to-shoulder in facing these threats. President Obama and I represent an unbroken chain of American leaders who have understood this critical, strategic relationship. As the President said recently, “I will never waver from ensuring Israel’s security and helping them secure themselves in what is a very hostile region.”

Doesn't sound like a crisis to me.

All this happened at the time when Obama was working around the clock to get health care reform passed during which he never mentioned Israel once.  After its passage, every time he appeared on TV he seemed downright giddy over his legislative triumph.  No anger or rage. No mention of a war on Israel or any talk about a crisis.

The larger and more troubling question is why so many Jewish organizations have jumped on the bandwagon expressing their concerns.  Their thinly-veiled message seemed to be that despite his repeated public statements of support for Israel they essentially agreed with those who questioned Obama's sincerity and motives. 

None of these individuals or groups did themselves or the Jewish people a service by adding to and promoting the unwarranted anger and hysteria that has swept the "pro-Israel" community.  A series of polls taken in both Israel and U.S. in recent days that show that most Jews support Obama and his concern about the negative impact of the radical settler movement and their damaging role in shaping Israel's domestic policies.

Polls released in two Israeli newspapers this week revealed that Israelis are evenly split on the issue of whether all neighborhood and settlement growth in the West Bank and Jerusalem should be halted.  A clear majority of non-Orthodox Jews in Israel support such a freeze.

A separate poll of Israelis showed that  69 percent of Israelis view Obama as "fair or friendly" to Israel while only 21 percent viewed the U.S. president as "hostile."

Recent polls by J-Street and Gallup show that more than 60 percent of American Jews approve of the job Obama is doing as president--15 percentage points higher than the U.S. population as a whole.

In addition, a Rasmussen poll of U.S. voters show that a majority believe that Israel should stop growing neighborhoods in the West Bank and Jerusalem.  By a 3-1 margin, American voters also believe that the Palestinians should recognize Israel's right to exist.

So not only are the alarmists who are trying to convince us that a U.S.-Israel crisis exists in the absence an any evidence, they are also out of touch with the majority of the constituencies they claim to represent.

There IS a serious crisis in Israel but it has nothing to do with Obama or the U.S.  It is the toxic impact of the Religious Right and the settler movement--a group that is small in numbers but huge in influence due to Israel's form of government which requires a leader like Netanyahu to put together a majority coalition to remain in power.  The religious Shas party is a key part of that group and Bibi had to name a Shas interior minister to form his government.  That minister is the one who blind-sided his own boss with the untimely announcement of the new construction in Jerusalem during Biden's visit.

Bibi's greatest challenge is not Obama.  It's deciding if and when he is going to spend more time and energy working on the inevitable two-state solution and less on sucking up to the fundamentalist fanatics who have consistently worked against the peace process.  Most American Jews don't want to acknowledge (much less deal with) those complexities so they just bash Muslims and Obama and define being "pro-Israel--American style" to include positions that most Israelis would find frightening.

Surveys have consistently shown that a majority of Israelis would be willing to give up the settlements if it would help the cause of peace.  Netanyahu certainly has the right to do whatever he wants.  The issue is whether it's smart for him to fly in the face of common sense, the will of his own people and most American Jews.

As a deeply committed Jew who has made almost two dozen trips to Israel and has held top positions in Federation, Israel Bonds, Jewish days schools, and other organizations I am aware of serious concerns in our community about continuity and the shrinking base of Jews who are choosing to become involved with existing community organizations.

It doesn't help our cause for those who claim to be leaders and staunchly pro-Israel to be so out of touch with the values and ideology of the majority of our people--particularly those who are not yet on Medicare.  They are our future and my sense is they are driven even further away by the posturing and lack of a factual basis for many of the claims and accusations that are supposedly being made on their behalf.

Jews are no strangers to crisis and we have suffered in the past under presidents and political leaders who were either indifferent or worse to our legitimate rights and concerns.  Now that we have a president and many other leaders who are truly advocates of peace and hope, it seems silly and counter-productive to ramp up the rhetoric and accusations without any facts or documentation to back them up.

Purim and March Michegos are over as is April Fool's Day.  Hopefully we can move forward from here with an approach that generates much more light and a lot less heat.  And if the leaders of the Chosen People or anyone else want to level vicious attacks against our president, they should at least back them with facts and sources. 

That's a change we can all believe in.