Banned in, well not Boston, but by a hysterical Yves Smith at Naked Capitalism

I’ve been banned from the website Naked Capitalism run by Yves Smith. (Follow the link to read our exchange – beware the language used by Smith is not for the faint hearted.)

This is the first time that has happened, but in the atmosphere now being created it is not a surprise. Interestingly the ban occurred not after I expressed disagreement with Smith over the Goldman SEC case, which I had done several times but only after I asked her about her claim to have reviewed her legal conclusions with firms involved in the case. She is refusing to tell her readers who those firms are or at least what their role in the case is. Yet, as I explain here, that is important.

It is pretty clear there is a layer of naive anti-Wall Street populism emerging now that would rather not bother with niceties like arguments about the rule of law. Yves Smith is, unfortunately, one of the leaders of this pack. And she has penned a rather simplistic attack on finance called “Econned” which takes up the populists’ cause, laying particular blame at the foot of – wait for it – economics professors! Who knew academics could be so powerful.

But Smith is not alone in the populist crowd. Carl Levin, of course, is another leading figure as is the SEC. They all want to find a dastardly evil doer in the latest crisis of capitalism and they decided to pick Goldman Sachs (although now apparently Goldman has company.) Smith, sadly, picked up the borderline anti-semitic attack on Goldman penned by Matt Taibbi, who infamously called Goldman a “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money” and she has allowed the slur to fester on her site.

(Megan McArdle has the silver bullet response to Taibbi’s Goldman conspiracy theory in The Atlantic here.)

Of course, whether intentional or not, Taibbi is tapping into ages old anti-semitic imagery. While Smith now is attempting to distance herself from the remark, here on the Corrente Wire blog she seemed to welcome a similar form of this horrific imagery. There are literally dozens of references on her site including by guest bloggers like Marshal Auerback to vampires or vampire squids. One typical comment from a Naked Capitalism commenter:

“With no blood left to suck, the mercantile vampire must finally go thirsty. With no one left to borrow, and no one any longer able to service the existing debts, the lender must finally face reality.”

Or this:

“Of course, we could allow the FDIC to grant forbearance to banks who would be even more insolvent after cram-down legislation passed than they are now, but then get ready for a Japan-esque lost 2 decades, with vampire banks sucking the life out of the rest of the economy.”

Or this:

“I am very angry. Families are in the streets, spouses who have lost EVERYTHING murdering their entire families because they don’t see a way out. Yet Congress REFUSES to regulate these vampires. These people should get NOTHING but orange jumpsuits and flip flops. I’m shaking with anger right now.”

Or this:

“From zombies to vampires. That is the problem – as long as these undead institutions are left to roam, they will suck the life blood out of anything healthy. By all means put a stake in it.”

Yves Smith’s reply?  None. In fact, as far as I can tell none of these contributors or commenters has been banned or even slapped on the wrist for using a slur that Smith herself now admits has anti-semitic overtones.

One reader used the following double metaphor to attack former Goldman Sachs and Citi executive Robert Rubin:

double-crossing s.o.b.
“hands everywhere sort of like an octopus”
when officially he wasn’t part of the giant vampire squid

Smith’s reply? “Personally, I think Rubin has gotten a free pass on too many fronts, so I see this piece [referring to a tell all article by someone who alleges she had an affair with Rubin that Smith linked to on her site] as a teeny bit of karmic payback.”

One reader recently gave Smith a golden opportunity to distance herself from the use of such slurs. He wrote:

Sadly, you never hear this complaint from the pitchfork crowd and instead hear buzzwords like, “free market failed”, “manipulation”, “vampire squid”, “failure of capitalism”, “Wall Street is evil”, bla bla bla

But Smith continued on her rampage against a statement by banker Jamie Dimon that the banks were being “demonized,” seeming to rely on the vampire myth (“more powerful than ever”) itself when she wrote in reply:

What just passed [apparently referencing the TARP funds] was the greatest looting of the public purse in history. The industry is not only unreformed (and the reforms on the table are a joke, despite the industry’s posturing to the contrary), but more powerful than ever.

(References to alleged “looting” by bankers is a constant theme of Smith’s.)

She went out of her way and actually quoted a reader using the vampire slur in order to amplify her attack on finance:

“Reader Swedish Lex noted:

‘In parallel with the Greece/Goldman/default swaps/hedge fund vampire night dinners, etc., the EU is slowly advancing on the proposal to regulate hedge funds and private equity firms (and their managers).’

….Yves here. The chutzpah [of financial firms] is breathtaking.”

One reader commented: “I recognize that no one here is interested in hearing the other side of things, so please, continue to feed your misinformed minds with all the “facts” that support your vampire squid theories.”

Again Yves avoided the chance to admit that such references were inappropriate and responded in part: “The reason that readers have reacted as they do is that your view is so off base f that it sounds as if it comes from someone who has a strong vested interest in Goldman’s image, hence the assumption that you are an employee. And the level of delusion in what you write is so high that being a GS employee (or flack) is the most flattering interpretation.” No attempt to distance herself from the vampire squid reference only another attack on Goldman and the reader.

And, finally, she herself wrote (in 2008 long before the Taibbi article): “It is wonderfully perverse that vampire bats are more community-minded than Wall Street.”

As I recommended to readers at Naked Capitalism when I still could, readers interested in some balance on this issue should start with this piece by Michael Kinsley at The Atlantic website. Kinsley’s reaction to the initial Taibbi slur is relevant here:

Taibbi claims to have been utterly blindsided by accusations that his article was anti-Semitic. He says he finds the idea “ludicrous.” He denies any relation between his words and classic anti-Semitic stereotypes. His critics find this impossible to believe. Could such a sophisticated writer (the article skewers Goldman with great skill and style) actually not know about the stereotypes and ancient lies that this passage echoes, and could he actually be surprised that there would be people calling his article, fairly or otherwise, anti-semitic? It may be possible to call Goldman Sachs a bloodsucker without being an anti-Semite. But is it possible to call Goldman Sachs a bloodsucker and then be surprised when you’re called an anti-Semite?

Smith’s “defense” of her use of the vampire squid reference is made up of similar arguments.

The Daily Kos has another useful perspective on the problem created by Taibbi and Naked Capitalism’s use of such slurs here. Stanford professor Neil Mahotra and Columbia professor Yotam Margolit called attention to widespread anti-semitic attitudes in connection with the financial crisis in an article in the Boston Review in 2009. They reported:

In order to assess explicit prejudice toward Jews, we directly asked respondents “How much to blame were the Jews for the financial crisis?” with responses falling under five categories: a great deal, a lot, a moderate amount, a little, not at all. Among non-Jewish respondents, a strikingly high 24.6 percent of Americans blamed “the Jews” a moderate amount or more, and 38.4 percent attributed at least some level of blame to the group.

Beyond repeating Taibbi’s absurd remark, Smith is of the view that Goldman suckered a large German bank, IKB, in the now well known Abacus CDO deal. Goldman, readers will recall, set up the deal that allowed a hedge fund known as Paulson & Co. to go short on housing while IKB went long. Goldman and other banks have been doing deals like this for decades but the pace picked up significantly in the late stages of the housing bubble.

In this particular deal Goldman initially acted as the required short investor (buying CDS protection on the underlying reference portfolio) so that IKB could invest some 140 million dollars or so that it had raised selling commercial paper to a genuinely unsophisticated investor, King County in the state of Washington.

King lost millions on their CP investments with IKB, which was taking advantage of a huge hole in the securities laws that allows CP to be sold without any SEC review of the transaction. IKB then reinvested the money from King County residents in the Abacus deal. King is now suing IKB and IKB is being sued in Germany, too.

Yet somehow Yves Smith, populist defender of the little guy, thinks the SEC should waste its precious resources defending IKB against Goldman Sachs!

When the SEC first issued its complaint I replied to Henry Blodget, the former Internet analyst now barred from the securities industry for his role in the dot com crash, who was dismissive of the SEC charges. Since he seemed to ignore the possibility of a material misstatement I pointed out based on the SEC complaint that if the hedge fund Paulson & Co had influenced the selection of the portfolio in the Abacus deal then it might have been a misstatement not to have revealed Paulson’s role. But soon the private response memo of Goldman’s lawyers was leaked as were the once private offering materials Goldman prepared and these contained new facts about the deal such as pages and pages of risk factors prepared by Goldman warning IKB of the risks in the fast deteriorating housing market. And evidence emerged, too, that IKB did know about Paulson’s role.

Based on my review of these new facts I concluded that the SEC’s case was weak, not impossible to win, but unlikely. In my view it is more akin to a strike suit by a small group of shareholders who don’t like the fact they have lost money in a company. The suit costs management more to defend so they settle rather than drag things out. Goldman may think they can win in court but why go through all that if you can settle.  It is even possible that the SEC is counting on that since they might lose. There are numerous securities law experts out there besides me who agree with this view and very few who don’t. One of them is Frank Partnoy at the University of San Diego, someone I actually disagree with on quite a lot. But he is right about Goldman and the SEC.

Smith, however, is sticking to her guns. She decided to use Partnoy’s column in the FT explaining the problem with the SEC suit to repeat her views. That kind of narrow minded inflexibility is classical in a populist phase of politics – it is important to demonize the target and when you are trying to hawk a book called “Econned” it probably makes for good marketing, too.

She says she has reviewed her legal conclusions with “firms that are involved in this litigation” who tell her the SEC case “has decent odds of success,” but when I questioned who those firms could possibly be I was sent packing. Of course the only lawyers involved in the litigation are those representing Goldman (who clearly would disabuse Smith of her prejudices), the Government (who are certainly not talking to her) and the class action lawyers who want to free load on the SEC suit and settle for big fees. Naturally the class action lawyers would be happy to have Smith touting their views. But if that is the case then she ought to share that information with her readers so the incentives are factored into an assessment of the validity of their conclusion.

In her typical ill-tempered style, Smith now alleges I am a shil for the bankers (ha!) and will no longer let me comment on her site. Of course, I have no relationship to any of the parties involved in the litigation, unlike her, and while I was involved in transactions with Goldman in private practice more than a decade ago, over the last ten years I have only been an adversary of theirs, on behalf of organized labor, in deals like the Vodafone/Mannesmann merger, the PetroChina IPO and the Chunghwa Telecom privatization. I am not here to argue Goldman’s case – the rule of law is the rule of law even if politicians and populist pundits want to see it tossed aside blithely.