Tuesday, April 27, 2010


In 1919 the Chicago White Sox lost the World Series to the Cincinnati Reds. All would have been left to the record books except for one thing. Eight of the White Sox ball players conspired to throw the series for money. Driven by poor pay and a genuine hatred for a tightwad and less than pleasant owner, Charles Comiskey, the eight players colluded with shady gambling elements to fix the 1919 World Series.

While the eight players were eventually cleared in court (of conspiring to defraud the public) the "Black Sox" scandal ended the careers, and destroyed the reputations, of the players involved.

I bring this story up because every day we learn more about Goldman Sachs and their efforts to fix the market game by selling goods they knew were toxic. Like the money men who paid the White Sox players to rig the 1919 World Series, Goldman Sachs made big bets on the outcome of markets that they helped rig. 

The similarities between Goldman Sachs and the gamblers who funded the Black Sox scandal are striking.

* THE CON: The gamblers of 1919 bet against a team that was supposed to win ... Goldman bet against AAA instruments that they had put together and sold to investors as solid, or winning, investments.

* HIDING TOXIC CRAP: The gamblers of 1919 bought off a group of players whose compromised status was hidden by public trust, and the fact that they played on baseball's top rated team ... Goldman purchased and bundled toxic mortgages into complex financial instruments, and then paid credit rating agencies to label them as AAA securities, which they would then sell to trusting investors (pensions, foreign banks, etc.).

* THE HEAD FAKE: The gamblers of 1919 made it appear as if their bets were legitimate and all in a day's work. But the size of the bets and the number of people involved in funding the buyoff insured that others would find out and make more bets ... Goldman's 2009 annual report suggested that their bets were all in a day's work, stating that the firm "did not generate enormous net revenues by betting against residential related products". But recently released e-mails show that Goldman knew they would make a lot of money from the bets they made against the mortgage market. 

* THE "THEY CAN'T BLAME ME" HALO: One of the most prominent gambler-sportsmen in America, Arnold "Big Bankroll" Rothstein, got involved in the scheme, even after learning about the number of people who knew the fix was in, commenting: "If nine guys go to bed with a girl, she'll have a tough time proving the tenth is the father!" (pre-DNA testing, mind you) ... Showing there's a difference between a lifetime of working on the street 1919, and a lifetime of working for Wall Street in the 21st century, Lloyd Blankfein, CEO of Goldman, claimed: "I'm doing God's work."
At the end of the day what we're looking at is simple fraud. You shouldn't be able to fix a game, or the market, and then make bets on the outcomes. Hiding behind "It was legal" (Blankfein/Goldman Sachs), "Everyone else was doing it" (Arnold Rothestein), or "No one caught me in the act" (Al Capone, or Charlie Manson; you pick) is no way to run a society.

Currently, Goldman Sachs is facing a shareholder lawsuit, which accuses Blankfein and his board of directors of "systematic failure." The eight White Sox players won their case, but lost their livelihood (and reputations). Rothestein was never convicted of anything in his lifetime. He eventually gave up gambling and went into other (more reputable?) business endeavors, like drug dealing, bootlegging, and labor racketeering.

Given Washington's penchant for embracing Wall Street, it's difficult to imagine Blankfein, or Goldman Sachs, having to give up their chosen professions. Indeed, with the Republicans, once again, voting down financial reform legislation today, you can expect the gambling that Goldman Sachs did to continue long into the future.

On many levels, it would appear that the only crime committed by the White Sox 8 was that they didn't work for Wall Street in the 21st century.

- Mark

P.S. Here's a pretty good clip, with a nice list of metaphors, explaining what's been happening with Goldman Sachs, and on Wall Street.

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