Saturday, November 28, 2009

Bye Bye Dubai - " DuBubble Done Bust"

(h/t Washington's Blog and Zero Hedge)

The Emirate of Dubai is in the news, in a way no one
saw coming.

On the eve of both the Thanksgiving holiday in the U.S.
and the Eid festival in the Islamic world, Dubai World,
the Emirate's principal investment arm, has asked
for a "standstill" on $ 59 billion of debt coming due
next month.

And of course, as usual when a major "bust" occurs,
you guessed it - "No one saw this coming".

In fact, the "Powers That Be" had been putting out the
opposite message right up until the last minute.
Deutsche Bank called Dubai "fundamentally sound"
in September. HSBC, Europe's biggest bank and Dubai
Worlds' largest Western creditor with $17 billion in
exposure, said its position was "manageable", even
though it was "concerned" about the 50% collapse
in residential real estate values since December of

And Dubai's ruler, Sheikh Mohammed Al-Rashid
Al-Makhtoum, told a western journalist to "shut up"
last month, when he tried to ask some inconvenient
questions about the Emirate's finances at a press

Well, to our financial geniuses, that settled it.
If the Big Man said there was "no problem",
well, that meant "No Problem". What part
of that don't you understand?

But to even the casual observer, it is now
apparent that Dubai was nothing but problems -
a slow-motion train wreck waiting to happen.

First of all, over-the-top excess as far as the eye
could see. A veritable Manhattan of the Middle
East in the business district, but full of futuristic
half-empty skyscrapers. Luxury hotels and resorts
everywhere - in the words of one journalist "A Las Vegas
on steroids" (minus the gambling), built for a tourist
boom that never materialized. High-end housing
developments built on palm-tree shaped artificial
islands in the Gulf, now half-built and three-quarters

There's really nothing like this anywhere in the West,
unless you're talking about the equally over-the-top
$8.5 billion CityCenter development about to open
in Las Vegas. And guess what - Dubai World owns
50% of that too, in partnership with MGM Grand.

With all due respect to Las Vegas, my take on
CityCenter is that this extravagant monstrosity
will come a cropper in similar fashion - but that's
another story.

However, in all fairness to the good Sheikh and
everyone else, the original development concept made
sense. Unlike the other Emirates that make up the
UAE, Dubai has no oil. And, with the exception of
Bahrain, there are no "Westernized" outposts of
trade, transshipment or finance anywhere in the Gulf.

So Sheikh Mohammed and his advisers saw an
opportunity. The original intent was to create a Middle
Eastern Hong Kong - a low-tax, expatriate-friendly
"free port", where trade and finance could be transacted.

And the first steps in this went well. Dubai World bought
the global port operations of P&O shipping - a world-respected
name. However, problems arose when the US Congress didn't
think that having a fundamentalist Muslim country control
six of the U.S.'s major container ports was a terribly good idea.
So, those were spun off - to Hutchison Whampoa Ltd, a
Chinese government-controlled enterprise.

Next, a world-class global airline - Emirates - was built from
scratch. And the first modern skyscrapers in Dubai proper
were built. The first expatriate professionals, mostly from the
UK and Europe, started to arrive and build a modern business

So far, so good. But now came the problems.

Caught up in the worldwide real estate "Asset Bubble",
the "professionals" began to shift the investment emphasis
to Real Estate development, completely convinced that
it could only go one way - up.

But, just as in physics, in finance there's a law of gravity
as well- if it can go up, it can go down as well.

And the results of all this border on the bizarre. The
world's tallest office building (2,063 ft) will most likely
never be finished and stand permanently vacant.
The Tiger Woods-designed golf course, which requires
four million gallons of fresh water a day, is likely to be
reclaimed by the desert. And the three-square mile
enclosed, air -conditioned shopping mall (with a
ski-hill with real snow)? Unbelievable.

Man's capacity to dream, build, and innovate is exceeded
only by his capacity to deceive himself.

And we're going to be following this exercise in self-deception
very closely, both in Dubai and Las Vegas.

Stay Tuned.

Wednesday, November 25, 2009

Happy Thanksgiving

Tomorrow, November 26th, is Thanksgiving Day - that
uniquely American holiday.

Like millions of Americans everywhere, at The
Thinking Nationalist's house, we'll be sitting down
to Turkey with all the trimmings and side dishes,
crowned by the better half's Velvet Bundt Cake
and Sweet Potato and Pumpkin Pie.

Wow - my waistline can hardly wait.

And we'll be joined by friends and loved ones
coming in from out of town, as many of you will.

So while we get ready to celebrate, let's remember
some very special people who either won't be sitting down
to turkey tomorrow, or if they do, in a far place thousands
of miles from home.

I'm talking about the one million men and women of
our Armed Forces - and especially those in Iraq and
Afghanistan, who will be eating a cold MRE
(Meal Ready to Eat - "three lies in one") if they get
anything at all.

With all that is going on in our country right now,
let's not forget that these young men and women
are OUR REAL HEROES - young people who have left
Home and Family to Fight for Freedom in some of the
world's most godforsaken places.

What can we do? Let's remember them, for one thing.
And should we be fortunate enough to meet one of
them in uniform, let's step up and thank them for their

I do - every chance I get.

And if you've got an extra place at your table, invite
someone who is serving to Thanksgiving Dinner at
your house. They'll love you for it.

And so will the rest of us.

So - Happy Thanksgiving to All - and we'll be back with
more posts on Friday.

"Going Rogue" - Don't Count Sarah Out

Politics has a new rock star in the person of Sarah Palin.

The "Going Rogue" book-signing tour is playing as if it
were a tour by Lady GaGa or Madonna.

And the "Going Rogue" tour is off and running, playing to
enthusiastic crowds at every stop. And like a rock star's
tour, it's not just thrown together - it's carefully planned
months in advance, with all the panoply that accompanies
a touring rock act: roadies, media support, advance men,
heavy security, scarce tickets, and advertising.

It even has a tour bus plastered with the "Going Rogue"
tour logo, heading up a caravan of support vehicles.

But that's where the similarity ends.

As I've said in these pages, Sarah Palin is crazy and
brainless - like a fox.

Make that a beautiful and (to this observer) a
surprisingly articulate fox. One that knows how to
put together a successful tour.

First of all, it's no accident that the tour is not playing
the Establishment's concert venues. New York, Washington D.C.,
and Los Angeles are not on the schedule.

But Grand Rapids Michigan and Cincinnati and Columbus
Ohio are , along with Sioux City Iowa, Sioux Falls South Dakota,
Reno Nevada, Ft. Bragg, North Carolina, and (importantly),
Ft. Hood Texas. Among big cities, Phoenix, Minneapolis,
Dallas, and Salt Lake City will also welcome the tour.

Places populated by Real Americans, dealing with real
problems that for the most part they didn't create.

And this is what has driven the "Chattering Classes"
(including faux-conservatives Ross Douthat and David Brooks)

To begin with, they pointedly weren't invited to participate.
You don't have to be a rocket scientist to see how that's playing
in New York editorial offices or Washington salons.

And second,( even among so-called conservative pundits), the
lack of "specifics" has all these great thinkers tied up in knots.

And here is where I am going to differ with the rest of
"punditocracy". At this stage of the game, the specifics
aren't important - but "rallying the base" IS.

So Sarah, here's my advice.

First of all, look at the calendar. It's three years
to the general election - and twenty-five months until
Iowa and New Hampshire. And if history is any guide,
the issues that will dominate that campaign may be totally
different from the issues we face now.

Rolling out early with "specifics" has really helped presidential
contenders - you can ask Mike Huckabee, Mitt Romney and
Fred Thompson about that. All that does is set you up to be a
target to be shot at by those who would never support you

So , this is the time to be developing Broad Themes -
the ones that will play to the audience that has already
embraced you. And you should roll these themes out
one at a time, carefully, after the book tour.

And what should these themes be? The ones that have
always played well to Real Americans and conservatives
everywhere in all places, at all times.

Low Taxes. Limited Government. Sound Money.
Individual Responsibility and Initiative.

The specifics can come later. Trade policies that favor
America rather than China, India, Mexico or Brazil.
Immigration policies that reverse "The Silent Invasion"
from South of The Border. Banking reform that helps banks
on Main Street and punishes the crimes of banksters on
Wall Street.

And, most importantly, no more wars where our
interests aren't threatened - unless it's to punish a country
that has struck at us. Which is why we should never have
invaded Iraq or Afghanistan - but rather have made Saudi Arabia
glow in the dark.

Do this - stick with the broad themes and fill in the details later -
and you'll be following in some pretty good company.

Fellow by the name of Ronald Reagan did pretty well with that
approach, as I recall. And if anything, the "Chattering Classes"
disliked him him even more than they do you.

So, I'm not counting you out - as I see it, you'll either get elected
or decide who does.

Not bad for a gal from Wasilla. Not bad at all.

Sunday, November 15, 2009

Yet More Squiddery: Doing "Gods Work"

And just when we thought we were done talking about
The Squid, and all its many friends in high places,
guess what - they're baaaack.

In a wide-ranging interview with John Arlidge of the
London Times, Goldman Sachs Chief Squid Lloyd
Blankfein touches on both the sacred and the profane.

In comments as to why Goldman has managed to do
so well while competitors Bear Stearns and Lehman
Brothers fell by the wayside, Blankfein opines:

"Well, we didn't f**k up like the other guys. We still
have a balance sheet. So that gives us a richer and bigger
pot to p**s in" .

But, it wasn't all locker room profanity. Affably greeting his
guest, Blankfein proceeds to give him the Grand Tour and
then escort him to his office, where he waxes both practical
and philosophic on the business of Investment Banking,
concluding his comments with "you know,
we're really doing God's work here. "

Now, until he uttered that phrase, the interview had been
entirely uncontroversial and even explanatory. Giving
many real-world examples, The Chief Squid was low-key
and courteous, the very picture of the diligent investment
banker, valiantly doing his best in difficult times and trying
to get his side of the story understood.

But "Doing God's Work?" That's a bit over the top. That's
the explanation your British Vice Chairman, Lord Griffiths,
tried to use to justify his "inequality is good" remarks. It's also
the explanation the bonehead Chairman of Barclay's actually
offered at Sunday Services.

So Lloyd, even though that remark isn't fresh, I'd be real
careful about that if I were you.

Because even though I'm not a particularly religious man,
I don't see how mocking a Deity (One with distinctly different
published views on the matter, by the way), is going to help
your cause with a skeptical and suspicious public.

But then, maybe you have the stats to back it up.
Looking at your latest 10-Q (quarterly filing), you show
modest revenue from Merger, Acquisition and Advisory
activity, and even a slight uptick in client trading -all
traditional investment banking activity.

Not bad - considering the times.

But boy, on the prop side (proprietary trading), you guys
really made out - revenues from equity prop trading
went from 348 million to 938 million in just this quarter!

And in commodities, fixed income, options and derivatives,
your proprietary trading (trading for your own benefit with
your "own" money), went from 1.3 billion to 6 billion, when
compared with the same quarter last year!

And in just this last quarter, out of 65 business days, your
trading ops were profitable in 64 of them!

Wow - I guess I stand corrected. I had thought that your
zero-interest, no-limit access to the discount window was
the secret. Or your high-frequency arbitrage trading. Or
your front-running clients through dark pools. Nope.

What's now apparent is that The Really Big Guy
upstairs has seen the light, signed off on everything
and told you to go for it.

It's not regulatory capture, or Congressional capture,
or Fed capture that counts.

Divine Capture anyone?

There are friends in High Places - and friends in Really
High Places as well.

Well, it looks as if us mere mortals will have to revise things,
beginning with Scripture.

How about this?

" Our Chairman
Who art at Goldman
Blankfein be thy name
The Rally comes,
Thy will be done
In the Markets as in Heaven and Earth
And Give us this day our Daily Gains
And lead us not into Bankruptcy
As you bankrupted Bear and Lehman before us
And lead us not into Indictment
But deliver us our bonuses
For Thine is the Fed and Treasury
The White House and Congress
Forever and ever
Amen " (h/t Barry Ritholz)

The Jihadi's Day In Court

On the Guantanamo front, it seems as if things are finally moving.

This week, the decision was finally made to to move the
self-proclaimed mastermind of the 9/11 attacks,
Khalid Sheikh Mohammed, to New York City to stand trial
for his role in those events along with four of his alleged

Yes, I have to say, I am impressed.

After five years of self-imposed legal wrangling, it seems
we've finally decided to get on with things and let the
Wheels of Justice turn. But, things could still go wrong.

To begin with, there will be years of more legal wrangling
to decide just what to charge Mohammed and his cohorts
with and where to prosecute them.

Do we charge them with terrorist acts ( a federal crime),
or with 2,000+ counts of first-degree murder?

The latter would have to be prosecuted in New York State
courts - which would lead to years more legal wrangling.

And don't think for a minute that the jihadis would lack
for legal representation - the New York City Criminal
Defense Bar will be all over this like a cheap suit, in
pursuit of both reputations and the considerable retainers
the Saudi Royal Family will provide.

The chances are excellent that these individuals will have
better, bigger-name legal talent for their defense than will
the prosecution.

And when you get down to the evidence, the prosecution
will have even more problems.

It appears that so much of the damning evidence was obtained
by torture - Mohammed himself was "waterboarded" a reported
136 times - that it will not take much to convince some liberal
Federal District or Appeals Court Judge to throw out the entire case.

Naturally, the more gruesome aspects of this "torture" - as well
as the "unlawful" nature of the defendants' apprehension and
detention, will be well emphasized by the defense.

But, there's a way out of this - if President Obama and
Attorney General Holder have the stomach for it.

First of all, Obama and Holder can simply remove Mohammed
and the others from the jurisdiction of the Federal Courts and
of the courts of New York State.

They can do this by simply re-affirming all of the Bush
Administration legal memoranda and findings regarding
terrorists and terrorism, and the prescribed means for their
prosecution and punishment.

These memoranda anticipated the problems inherent
in affording terrorists and unlawful combatants the
protections of our legal system, and provided means
to overcome them.

Sure, there may be some howls from liberals and the
Anti-Bush crowd - but that would be nothing compared
to the uproar that would ensue if these "jihadis" were to
walk free, thanks to the generous protections of our legal

So let's get on with things. Let's have The Mother of All
Show Trials, right in Manhattan, under special rules similar
to the Military Commissions envisioned by Bush.

First, Military Judges - picked from officers who have
served in Afghanistan or Iraq. Have to have people on
the bench familiar with the Islamic mindset. And let's
bring in Eliot Spitzer (or even Rudy Guiliani) as Special

We can count on them to be both fair and just.

For the defense? Let them have whoever they want - but, as
the outcome of this tribunal will be explicitly pre-determined,
it won't matter.

And, to make things fair, we'll also have a jury - twelve relatives
of Police and Firefighters who lost their lives on 9/11.

And no appeals of any kind - this tribunal's judgment will be final.

And the sentence? Ritual Defilement and Beheading at Ground Zero.

Let them be smeared with pig fat - and slapped by a
thousand shoes, after which they shall mount the scaffold
to be beheaded by the biggest, most muscular Orthodox Jew
volunteer we can find.

And let's have Al-Jazeera broadcast the entire proceedings live.

No it's not Justice - but healthy societies have as much need
for vengeance as they do justice. And vengeance is the only
thing the Muslim World understands.

So, let's oblige them. On with the show.

Sunday, November 8, 2009

Maj. Malik Hasan Nidal: It was Bound to Happen Sooner or Later.

It was bound to happen sooner or later.

Last Thursday, the world was shocked as Major Malik
Hasan Nidal, a Muslim Palestinian-born Army psychiatrist,
burst into a Ft. Hood TX troop processing center, shouting
"Allahu Akbar" with guns blazing.

Before he himself was finally wounded by a civilian Killeen TX
policewoman, this "good Muslim" Army doctor had killed
thirteen and wounded thirty.

Now, before we get all tied up in knots about "Why?", let's
get a few things understood.

This didn't have to happen. And the only reason it did
happen was because of two things we as a Nation must
hang our heads in shame for:

"Diversity" and "Political Correctness".

"Diversity" meant that this individual of suspect background
and loyalty was able to attend one of the country's least-known
but most highly-regarded military educational institutions,
the Medical College of The Armed Forces, on the taxpayer's dime.

This institution is highly competitive for admissions -
graduates of the Service Academies have to rank in the top 5%
of their classes AND have outstanding test scores to be admitted.
Graduates of civilian universities have to be equally outstanding.

You just have to wonder how much "diversity" and
"inclusiveness" figured into selecting this guy over someone
whose selection might have made the student body "less diverse".

And if "Diversity" opened the door for this homicidal shrink,
"Political Correctness" kept the authorities from catching him.

Here's what's known about Maj. Nidal thus far:

- He had problems "getting along" with colleagues at his previous
duty station, Walter Reed Medical Center;

- He had been "warned and counseled" about his aggressive
proselytising for Islam while on duty, which resulted in a
"poor" Fitness Report prior to transferring to Ft. Hood;

- He had openly attended a "radical" Mosque in suburban
Virginia, striking up a close friendship with a known radical
imam now in hiding in Yemen;

- He had openly spoken about the necessity of "jihad" and
"martyrdom" to his family and friends.

Yet, despite all of this, he was PROMOTED and sent to
Ft. Hood, to work with troops preparing to deploy to Iraq
and Afghanistan and to counsel returnees. Why?

Political Correctness.

In the Army bureaucracy, failure to "promote Diversity"
or be "Politically Correct" in making personnel decisions
can be a career-threatening move. So, better to just
promote this guy and move him somewhere rather
than investigate. Make it someone else's problem.

Well, it's just a little bit too late for that for forty-three
unlucky victims. But here are some things we can do
immediately to begin putting things right.

First, scrap "Diversity Training" . Replace it with
"Americanism Training". You can start by digging out
some of the old Frank Capra "Why We Fight" training films
from WWII and the Cold War for starters. You can bet every
other country in the world indoctrinates its soldiers -
why shoudn't we?

Second, scrap "Political Correctness" . Whether we like it
or not, we are in a Political War against Political
(as opposed to religious), Islam. And we didn't pick
this fight - it came to us on 9/11/01.

That means Muslims in "sensitive" positions - such
as military officers - should be watched, and suspicious
behavior reported and recorded. And if they "cross a line",
get rid of them - quickly and permanently. As in
summary detention or deportation.

And as for Major Nidal? Well, he had the ill-fortune
to survive his jihadist escapade. So, let's offer him a

He's a good Muslim, right? And doesn't like our laws
or society, right? So let's have the Saudis try him according
to Sharia - the Muslim legal code. They'll go along - they owe
us a few favors.

And he'll get what he deserves - a ten-minute trial - and
a public beheading after prayers next Friday.

Health Care: All Eyes on the Senate

On the Health Care front, things are now getting very

In a huge victory for President Barack Obama and
House Speaker Nancy Pelosi, the House passed its
version of Health Care reform on a narrow 220-215
roll call vote.

As expected, this one came down to the wire, with 219
Democrats and one Republican voting "yes" and
176 Republicans and 39 rural, small-state Democrats
voting "no".

On paper, the House bill appears to be significant reform.
Among other things, it includes a government-sponsored
Public Option, a requirement that by 2013 all those not
covered by insurance purchase it, requirements that all
but the smallest employers offer coverage to their
employees, and an end to denial of claims and coverage
by insurers on the grounds of "pre-existing medical

The House bill also goes further in that it also vastly
restricts premium rating by age, gender and geography
and ends the anti-trust exemption for the Health
Insurance industry.

But now comes the hard part.

This whole thing now has to go to the Senate, where
Harry Reid has to do the almost impossible.

He has to reconcile two diametrically opposite Senate
versions of the Health Care bill - one from the Health,
Education and Labor Committee that, with the exception
of a Public Option, tracks fairly closely with the House
version, with another from the Senate Finance
Committee that, with the exception of a coverage mandate,
does little to extend coverage to the uninsured or make
"health care" more affordable.

And it is this "internal reconciliation" debate inside the
Senate where the Health Care battle will be ultimately
won or lost.

And, I think it will go down to ultimate defeat. Here's why:

First of all, the "lowering of expectations" has already begun.
Senator Reid has already stated that the Senate's debate will
not start until after Thanksgiving and that final action will most
likely slip until early next year. That means that the insurance
companies, Big Pharma, the hospital chains and the AMA still
have time to hand out yet more campaign donations to stop

Second, the Republican leadership is already on record as
saying that they will accept no bill that does not preserve the
health and viability of the for-profit health insurance industry.
That means no public option. No rate regulation. No limits
on claim or coverage denials. No removal of the anti-trust
exemption. In short, no changes at all except the coverage
mandate, which will provide 30 million new customers
for the industry.

You have to give them credit. Once bought, they stay bought.

So, to get the necessary 60 votes to end debate and get
something passed, Reid is going to have to go hunting
among the "Blue Dogs" - Senators such as Max Baucus,
Ben Nelson, Byron Dorgan, Kent Conrad, and others.

Good luck with that.

These Senators have been the recipients of record
contributions from both the Health Insurance industry
and Big Pharma, and it's inconceivable that they would
stiff their benefactors. And ideologically, they might as
well be Republicans, with their insistence on "fiscal
responsibility" and " the private sector knows best".

Coming from small isolated states with little industry
or other mass employment, it's not hard to understand
their point of view. And it's also easy to understand how
Big Money from Big Interests can sway

Where they're from they don't see a lot of that.

And that means it's a done deal. In America,
Organized Money always beats a disorganized public.
But, there's always a chance.

Which is what will make this upcoming debate so

Sunday, November 1, 2009

Still More Squiddery: The SEC's new Chief Enforcer.

When it comes to "Squiddery" , the activities of everyone's
favorite financial cephalopod Goldman Sachs, it seems the
story never ends.

Two weeks ago Wall Street was set on its ear when the
SEC announced the appointment of the new Chief
Operating Officer of its Enforcement Division,
Adam Storch.

Now comes word that Mr. Storch will be the
"Managing Executive" of the entire SEC enforcement
division, reporting directly to Enforcement Chief Robert
Khuzami and SEC Head Mary Shapiro.

Wow - I'm impressed. Is Mr. Storch a former prosecutor?
Or a hyper-powerful securities lawyer doing some public
service? Or a veteran banking or securities regulator at
the peak of his career?

Well, no. Mr. Storch is 29 years old, a graduate of SUNY
Buffalo, with a bachelor's degree in accounting and
finance, and some graduate work (but not a degree)
from NYU's Stern School of Business. And, he's a CPA.

And his most important qualifications? He's a former
Vice President at Goldman Sachs. Prior to that, he had
been an audit junior at Deloitte and Touche.

Hmm. Seems a decent and clean young man. Just
right for a line examiner or auditor. If he keeps his
nose clean, might even become an examination senior.

The kind of young kid that if I were SEC Chief, I'd
hire five hundred more of , specifically for a general
investigation of all Squid activities.

But Chief Operating Officer of Enforcement?
Managing Executive? You've got to be kidding.

First of all, that position should require a law degree.
With 10+ years experience in either the U.S. Attorney's
Office, IRS Enforcement Division, NY Attorney General's
Office, or similar regulatory, enforcement, or prosecutorial

But that's not going to happen. And once you understand
Mr. Storch's role, you'll understand why.

His job is to be a minder. Specifically, to mind Mr.
Khuzami and Ms. Shapiro on behalf of his boss,
Chief Squid Lloyd Blankfein.

His job is to alert Chief Squid of any intention these
worthies might have of making any move against
Squid Central on issues such as HFT, dark pools,
front-running, scalping, naked shorting, inside trading,
squeezing, or any other activity that most of us might
regard as market manipulation.

In addition, his job is to make sure that The Squid's
franchise is protected. Self-dealing market manipulation
is The Squid's exclusive franchise - both Timmy at Treasury
and Bennie at the Fed said so. That means any poachers -
Galleon for example - need to be prosecuted to the fullest
extent of the law. We can't have unauthorized competition.

After all, what's good for The Squid is good for the
country - capece?

And you don't want to get into an argument with
Washington about that. That could be a career-limiting move.
So let's get along, go along, and do what Daddy Squid tells us.

And who knows, there just might be spots for you guys
at 85 Broad when this is all over, if you do as I say.

More Squiddery: Goldman Sachs and The Mortgage Crash

When discussing the Great Casino that is Wall Street, we
all have to admire the ability of The Great Vampire Squid,
Goldman Sachs.

As we have covered here previously, the ability of this wily
financial cephalopod to outwit, outrun, and profit from every
twist and turn of the market is nothing short of amazing.

Was it because of their High-Speed Trading algorithms?
Partly. Being able to front-run your own clients legally
is a huge advantage in any market.

Or was it because of their extraordinary political influence?
Partly. Having all the right spots in all the right places
filled by your alumni or seconded employees sure helps.

In late 2008, when the markets collapsed and Squid competitors
Lehman Bros. and Merrill Lynch disappeared, it didn't hurt
to have the immediate past CEO of Goldman Sachs, Henry Paulson,
as Treasury Secretary.

If you're Chief Squid Lloyd Blankfein, you knew your
call to Treasury would always be returned. And Treasury
would be calling to ask you for your instructions and orders.

But there's always one more explanation.

How about good old-fashioned Fraud?

In a series of articles beginning today, McClatchy Newspapers
(The Sacramento Bee), details how from 2001 to 2007 ,
Goldman hawked $135 billion of of high-risk mortgage-backed
securities filed with loans from "subprime" lenders to
institutional investors, almost all backed with "AAA" ratings
from the ratings agencies.

But did Goldman believe its own propaganda? Don't bet on it.

In fact, it believed the exact opposite. Beginning in mid-2006,
Goldman had come to the conclusion that the subprime
mortgage boom had just about run its course.

Underwriting standards were non-existent. If you could walk
and chew gum at the same time, you could get a subprime
or even an "Alt-A" mortgage - one step above toxic waste.

And The Squid was starting to see what it hates most -
competition from other securities operators.

So, it then began to do what any smart operator would do.

It started to play the downside.

First, it quietly liquidated much of its remaining MBS
inventory, while continuing to hawk the product as a safe,
high-yielding investment to unsuspecting institutional

Then, it began to go short. But not too obviously.
That could wreck bid/ask spreads and tip people off.
So, working through "dark pools" and off-shore vehicles,
it began to short the broader MBS (Mortgage-Backed Securities)

Next, it went short directly against its remaining inventory,
a move known as "collapsing the box", while insuring what
it couldn't otherwise eliminate with a collateralized debt swap
from AIG.

That meant no matter what happened in the MBS market,
The Squid came up a winner.

Finally, to cap it all off, it started buying "naked swaps" -
credit default insurance against MBS positions it didn't own.
That's like my buying fire insurance on your house
without your knowledge, hoping that "Marvin The
Torch" will soon strike.

In all, a perfectly executed "Pump and Dump" against
the MBS market, with all of the risk pushed off on
unsuspecting other parties and all of the gain
firmly wrapped up in the Squid's tentacles.

Oh, to be sure, there was an anxious moment - when AIG
went under, it appeared that some of the Squid's bets
might not pay off. But, thanks to the link with Treasury,
AIG paid off those bets at 100 cents on the dollar - some
$13 billion worth.

But here's the key - as much as half of that amount
was on "naked swaps" - bets on positions it didn't own.
That's like Wynn's paying off on my side bets against
the other players on the craps table.

Now to be sure, there are some repercussions.
The State of Mississippi lost 5/6ths of its six million
dollar investment in "AAA rated" Goldman Sachs
MBS bonds. They are suing. So is CALPERS -
The California Public Employee Retirement System -
which lost $50 million of a $64 million investment.
And the Squid settled with the state of Massachusetts
on a similar deal, to avoid criminal prosecution under
state law.

Meanwhile, both California and Mississippi are seeking
class-action certification for their suits - and the attorneys
general of two dozen other states are watching things very closely.

But, if you're The Squid, all this is just par for the course -
after all, you have all the right friends in all the right places.
Nothing could go wrong.

Or could it? Now that Main Street's media is on the case,
as well as hundreds of anti-Squid bloggers, hey,Squid,
know what? All bets are off.

If I were you, I'd be watching very closely.

With my bags packed and passport at the ready.