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Are Jobs the Solution to Poverty?

By Marianne Page

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PDF version of this article (with charts) can be found HERE

Here’s a common mantra: The only enduring solutions to poverty are economic growth and the jobs it delivers. Although the mantra is delivered especially frequently in the case of less developed countries, it’s also sometimes advanced as a poverty-reduction recipe for more developed ones like the United States. If the mantra were true, it would mean that we’d be well advised to focus all of our policy efforts on growing the economy and increasing employment opportunities, thus allowing us to treat more focused, poverty-specific policies merely as temporary stopgaps.

The purpose of this article is to evaluate whether a simple pro-jobs policy of this sort would reduce poverty in the United States as much as we’d like. In carrying out this evaluation, a natural starting point is to examine the empirical association between labor market conditions and poverty. After all, if it is established that the relationship between poverty and employment opportunities is not all that strong in the United States, then providing more jobs would not likely be a viable solution to poverty.

I begin by discussing how the jobs-poverty relationship has been weakening in recent decades, due in part to ongoing changes in (a) the types of jobs that our economy is creating and (b) the sectors of the labor market that are positioned to secure these jobs. After laying out these changes, I’ll discuss their implications for crafting antipoverty policy that works.

The Empirical Relationship Between Jobs and Poverty

It is well known that economic downturns increase poverty. Jobs disappear, working hours are cut, and wages fall. This is especially true at the bottom of the income distribution. The very groups that, even in the best of times, are close to the poverty line—blacks, Hispanics, young people, and the less educated— are those that tend to suffer most during recessions [1]. During the Great Recession, for example, the poverty rate of children increased more than the rate of any other age group. This is because children typically live with younger adults, who, as a result of their relative inexperience, tend to be among the first to lose their jobs during mass layoffs.

Unless safety-net programs fully replace lost income, an across-the-board rise in unemployment will mechanically increase the number of people who are poor. Figure 1 shows the close relationship between the economy’s overall health, as measured by unemployment, and the poverty rate. The correlation between changes in unemployment and changes in poverty is 0.65.

But is the strength of this relationship changing over time? Is aggregate job growth becoming a less effective lever on poverty?

Indeed it is. Figure 2, which graphs the change in the poverty rate against the change in the employment rate (for adults aged 25–54), shows that since the 1980s there has been a weakening in the jobs-poverty relationship. Recent labor market expansions, though similar in both magnitude and duration to the 1960s expansions, do not cut poverty as much as we’d come to expect. From 1962 to 1969, employment grew 4.7 percentage points, and poverty fell 9.8 points, more than twice the employment growth. In contrast, during the mid-1980s, despite significant labor market expansion, poverty fell far less.

Why Aren’t Jobs Delivering?

In understanding why the relationship between the employment rate and poverty is weakening, it’s useful to lay out the parameters that are relevant to the strength of this relationship, parameters that pertain to the types of jobs that are available, the capacity of the low-skill labor force to acquire these jobs, and its capacity to exit poverty through means other than work. These parameters are (a) the availability of unconditional benefits (benefits that are not conditioned on employment), (b) the availability of skill-compatible employment opportunities, (c) the extent to which the available jobs provide adequate wages, and (d) the extent to which these jobs come with other employment-conditioned benefits (e.g., Earned Income Tax Credit) that may compensate for low wages. For each of these conditions, I will lay out the relevant changes and their implications for the strength of the employment-poverty relationship. This discussion is summarized in Table 1.

Unconditional benefits: If nonworking families can acquire benefits that are not conditioned on work, then there’s a road out of poverty that does not require jobs or a booming economy. That is, when unconditional benefits are widely available, the macro-level relationship between jobs and poverty will be weakened.

The main development in this regard is the rise and fall of Aid to Families with Dependent Children (AFDC). The growing prevalence of cash welfare benefits in the form of AFDC mitigated the impact of downturns after the 1960s. Just as AFDC reduced poverty during downturns, poverty did not have as far to fall when the downturn ended and the economy turned around.

However, with the elimination of AFDC in 1996, the correlation between the employment rate and poverty should have strengthened. While AFDC provided cash benefits to lowincome and primarily single-parent families with children, the new Temporary Assistance to Needy Families (TANF) program imposed strict work requirements and sanctions for non-compliance, making it harder to obtain when jobs are scarce. In short, the countercyclical effect of cash welfare use has been reduced, meaning that the ability to rely on cash welfare during recessions has declined. As a result, relative to the pre-TANF era, we expect poverty to rise more during economic downturns and to fall more during upturns. Because we haven’t observed this pattern, it suggests that other forces must be in play that counteract this expected effect.

Skill compatibility: Why, then, is job growth reducing poverty less than it once did? It’s partly because the economy is not delivering the types of jobs that poor people can fill. As David Autor has shown, most of the job growth since the late 1980s has occurred within either the low-skill or high-skill sectors, with a consequent hollowing out of opportunities in the middle [2]. One reason is that technological advances have led to the automation of (and ultimately to the displacement of) many jobs that involve “routine” tasks. Manufacturing jobs, which used to provide opportunities for workers with moderate levels of education (such as a high school diploma), have sharply declined. The Great Recession has exacerbated this trend, as employment losses have been most severe in middle-skill jobs, both in the white-collar and blue-collar sectors. The higher prevalence of jobs at the bottom should help the poor, but what’s unclear is whether the associated hollowing out in the middle is a countervailing force that increases the competition between the poor and those who had before secured middle-class jobs. All else being equal, this competition may increase unemployment at the bottom of the labor market or lower wages among those who do get jobs [3].

Wage adequacy: Even if a low-skill job is acquired, it won’t be poverty-reducing unless it delivers enough in the way of wages (or transfers) to push the recipient over the poverty threshold [4]. Over the last 40 years, the wages of low-skill jobs have been stagnant for a number of reasons, including, for example, the declining real value of the minimum wage. Between 1975 and 1995, the 20th percentile of the weekly wage distribution declined from $473 to $386, resulting in fewer jobs that provided an above-poverty wage. Recent studies have shown that a $100 reduction in the real weekly wage among workers in the bottom 20 percent of the income distribution reduces the annual probability of escaping poverty by about 15 percent [5]. The declining payoff to work could also reduce the incentive to work at all, which may in turn lead to a deterioration of skills, further reducing the likelihood of escaping poverty.

Conditional benefits: The Earned Income Tax Credit (EITC) does of course supplement low wages and should thereby raise people out of poverty. The EITC, established in 1975, provides a tax-based earnings subsidy to low-income workers, which increases the income of low-earners and could counteract a decline in the minimum wage or any decline in wages that accompanies a recession. Because the generosity of the EITC expanded significantly during the early 1990s, one might expect that, over time, the relationship between labor market opportunities and poverty would have strengthened at the macro level, rather than weakened. However, although EITC subsidies have a significant effect on the number of families whose total income falls below the poverty threshold, the EITC does not directly affect the official poverty rate, because EITC income is not counted as “money income before taxes.” This measurement artifact helps explain why the official poverty rate changed so little through the mid-2000s despite the EITC’s expansion.

Moreover, as Figure 2 shows, poverty had already become less responsive to economic growth even before the EITC became more generous in 1993. The overall employment growth of 6.2 percentage points during the 1980s was accompanied by a poverty reduction of just 2.4 percentage points, far shy of the 9.8 point reduction in the 1960s.

It follows that the weakening in the aggregate employment poverty relationship is probably driven by (a) the shortage of low-skill jobs relative to the supply of workers competing for such jobs, and (b) the relatively low earning power of the available low-skill jobs. In the following section, I comment on the policy implications of this change in the employment-poverty relationship, with a particular focus on its implications for policies that seek to reduce poverty by increasing employment.

What’s to Be Done?

An antipoverty policy that focuses on jobs and employment will need to be targeted to the current employment regime if it is to have any payoff. A simple policy of “more jobs” has become a less viable poverty solution, but there may be a package of more targeted policies that, taken together, could have substantial poverty-reducing effects.

The first, and especially important, part of this package is to promote wage growth within the low-skill sector. This might be done by increasing the minimum wage, further increasing the EITC, or through other interventions in the labor market such as skill-enhancing training programs. The second part of this package is a strong unemployment insurance (UI) system, which plays a critical role in reducing poverty associated with recessions because it provides temporary partial-wage replacement to involuntarily unemployed workers, many of whom have incomes near the poverty line. Indeed, because the rate at which UI replaces earnings varies (negatively) with earnings, UI provides relatively greater protection to low-wage workers. In most states and years, UI benefits can be received for a maximum of 26 weeks, but during the most recent recession Congress enacted emergency extensions that increased benefits in most states to 99 weeks. These UI benefits make it possible for families to maintain their prior levels of food consumption (an important determinant of well-being) in the aftermath of a job loss.

The third and final part of this three-pronged package is the continued use of nutrition assistance (SNAP) and other non-cash safety-net programs. These programs have always been sensitive to the business cycle and have become significantly more responsive to economic cycles in the wake of welfare reform. According to recent studies, SNAP benefits have become especially useful in reducing the adverse income impacts of recessions after welfare reform. When poverty measures include SNAP benefits as income, poverty rates are much lower. For example, the 2009 poverty rate would have been 7.7 percentage points lower if SNAP benefits had counted as income [6]. Although we do not know whether they are as effective as straight-on cash assistance to the poor, we do know that new countercyclical programs, like UI and SNAP, have become critical poverty-mitigation programs in the current economic regime.

This combination of policies would acknowledge, in a real way, the weakening of the employment-poverty relationship. Will the policies themselves affect the strength of that relationship? They very likely will, but sometimes in opposing ways. That is, some of the proposed policies (e.g., more generous wage subsidies) serve to strengthen that relationship, while others work by providing benefits that are not conditional on having a job (e.g., extended unemployment insurance and a preserved SNAP program) and hence will serve to weaken the employment-poverty relationship. However, by keeping the unemployed out of poverty during downturns, both UI and SNAP help to maintain family well-being in the low-skill sector, which may increase employment and reduce poverty in the long run.

PDF version of this article (with charts) can be found HERE

About the Author

Marianne Page is a professor of economics at the University of California at Davis and the deputy director of the Center for Poverty Research. Her research examines the sources of inter-generational mobility and the impact of social programs.


[1]. Danziger, S., Chavez, K., & Cumberworth, E. 2012. “Poverty and the Great Recession.” Stanford, CA: Stanford Center on Poverty and Inequality; Hout, M. & Cumberworth, E. 2012. “The Labor Force and the Great Recession.” Stanford, CA: Stanford Center on Poverty and Inequality.

[2]. Autor, D. 2010. “The Polarization of Job Opportunities in the U.S. Labor Market: Implications for Employment and Earnings.” Center for American Progress Working Paper. http:// jobs-autor.

[3]. Potential scarring from long-term unemployment adds to the complicated nature of the jobs-poverty relationship. Not only must the poor have the skills necessary for the available jobs, but they might also lose in the labor market to the extent that employers perceive low job readiness among the long-term unemployed.

[4]. Blank, R. M. 1993. “Why Were Poverty Rates So High in the 1980s?” In Papadimitrious, Dimitri B. and Edward N. Wolff (eds.) Poverty and Prosperity in the U.S. in the Late Twentieth Century. London: Macmillan Press.

[5]. Stevens, A. H. 2012. “Poverty Transitions.” In Philip N. Jefferson (ed.). The Oxford Handbook of the Economics of Poverty. Oxford: Oxford University Press.

[6]. Tiehen, L., Jolliffe, D., & Gundersen, C. Alleviating Poverty in the United States: The Critical Role of SNAP Benefits, ERR-132, U.S. Department of Agriculture, Economic Research Service, April 2012.

Social Conflict Theory

by Kent McClelland

The several social theories that emphasize social conflict have roots in the ideas of Karl Marx (1818-1883), the great German theorist and political activist. The Marxist, conflict approach emphasizes a materialist interpretation of history, a dialectical method of analysis, a critical stance toward existing social arrangements, and a political program of revolution or, at least, reform.

The materialist view of history starts from the premise that the most important determinant of social life is the work people are doing, especially work that results in provision of the basic necessities of life, food, clothing and shelter.Marx thought that the way the work is socially organized and the technology used in production will have a strong impact on every other aspect of society. He maintained that everything of value in society results from human labor. Thus,Marx saw working men and women as engaged in making society, in creating the conditions for their own existence.

Marx summarized the key elements of this materialist view of history as follows:

In the social production of their existence, men inevitably enter into definite relations, which are independent of their will, namely relations of production appropriate to a given stage in the development of their material forces of production. The totality of these relations of production constitutes the economic structure of society, the real foundation, on which arises a legal and political superstructure and to which correspond definite forms of social consciousness. The mode of production of material life conditions the general process of social, political and intellectual life. It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness (Marx 1971:20).

Marx divided history into several stages, conforming to broad patterns in the economic structure of society. The most important stages for Marx’s argument were feudalism, capitalism, and socialism. The bulk of Marx’s writing is concerned with applying the materialist model of society to capitalism, the stage of economic and social development that Marx saw as dominant in 19th century Europe. For Marx, the central institution of capitalist society is private property, the system by which capital (that is, money, machines, tools, factories, and other material objects used in production) is controlled by a small minority of the population. This arrangement leads to two opposed classes, the owners of capital (called the bourgeoisie) and the workers (called the proletariat), whose only property is their own labor time, which they have to sell to the capitalists.

Owners are seen as making profits by paying workers less than their work is worth and, thus, exploiting them. (In Marxist terminology, material forces of production or means of production include capital, land, and labor, whereas social relations of production refers to the division of labor and implied class relationships.)

Economic exploitation leads directly to political oppression, as owners make use of their economic power to gain control of the state and turn it into a servant of bourgeois economic interests. Police power, for instance, is used to enforce property rights and guarantee unfair contracts between capitalist and worker. Oppression also takes more subtle forms: religion serves capitalist interests by pacifying the population; intellectuals, paid directly or indirectly by capitalists, spend their careers justifying and rationalizing the existing social and economic arrangements. In sum, the economic structure of society molds the superstructure, including ideas (e.g., morality, ideologies, art, and literature) and the social institutions that support the class structure of society (e.g., the state, the educational system, the family, and religious institutions). Because the dominant or ruling class (the bourgeoisie) controls the social relations of production, the dominant ideology in capitalist society is that of the ruling class. Ideology and social institutions, in turn, serve to reproduce and perpetuate the economic class structure. Thus, Marx viewed the exploitative economic arrangements of capitalism as the real foundation upon which the superstructure of social, political, and intellectual consciousness is built.

Marx’s view of history might seem completely cynical or pessimistic, were it not for the possibilities of change revealed by his method of dialectical analysis. (The Marxist dialectical method, based on Hegel’s earlier idealistic dialectic, focuses attention on how an existing social arrangement, or thesis, generates its social opposite, or antithesis, and on how a qualitatively different social form, orsynthesis, emerges from the resulting struggle.) Marx was an optimist. He believed that any stage of history based on exploitative economic arrangements generated within itself the seeds of its own destruction. For instance, feudalism, in which land owners exploited the peasantry, gave rise to a class of town-dwelling merchants, whose dedication to making profits eventually led to thebourgeois revolution and the modern capitalist era. Similarly, the class relations of capitalism will lead inevitably to the next stage, socialism. The class relations of capitalism embody a contradiction: capitalists need workers, and vice versa, but the economic interests of the two groups are fundamentally at odds. Such contradictions mean inherent conflict and instability, the class struggle. Adding to the instability of the capitalist system are the inescapable needs for ever-wider markets and ever-greater investments in capital to maintain the profits of capitalists. Marx expected that the resulting economic cycles of expansion and contraction, together with tensions that will build as the working class gains greater understanding of its exploited position (and thus attains class consciousness), will eventually culminate in a socialist revolution.

Despite this sense of the unalterable logic of history, Marxists see the need for social criticism and for political activity to speed the arrival of socialism, which, not being based on private property, is not expected to involve as many contradictions and conflicts as capitalism. Marxists believe that social theory and political practice are dialectically intertwined, with theory enhanced by political involvement and with political practice necessarily guided by theory. Intellectuals ought, therefore, to engage in praxis, to combine political criticism and political activity. Theory itself is seen as necessarily critical and value-laden, since the prevailing social relations are based upon alienating and dehumanizing  exploitation of the labor of the working classes.

Marx’s ideas have been applied and reinterpreted by scholars for over a hundred years, starting with Marx’s close friend and collaborator, Friedrich Engels (1825-95), who supported Marx and his family for many years from the profits of the textile factories founded by Engels’ father, while Marx shut himself away in the library of the British Museum. Later, Vladimir I. Lenin (1870-1924), leader of the Russian revolution, made several influential contributions to Marxist theory. In recent years Marxist theory has taken a great variety of forms, notably the world-systems theory proposed by Immanuel Wallerstein (1974, 1980) and the comparative theory of revolutions put forward by Theda Skocpol (1980). Marxist ideas have also served as a starting point for many of the modern feminist theorists. Despite these applications, Marxism of any variety is still a minority position among American sociologists.


Marx, Karl. 1971. Preface to A Contribution to the Critique of Political Economy, Tr. S. W. Ryanzanskaya, edited by M. Dobb. London: Lawrence & Whishart.

Skocpol, Theda. 1980. States and Social Revolutions: A Comparative Analysis of France, Russia, and China. New York: Cambridge University Press.

Wallerstein, Immanuel M. 1974. The Modern World-System: Capitalist Agriculture and the Origins of the European World-Economy in the Sixteenth Century. New York: Academic Press.

         . 1980. The Modern World-System II: Mercantilism and the Consolidation of the European World-Economy, 1600-1750. New York: Academic Press.

The Great American Bubble Machine

From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression — and they’re about to do it again

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By April 5, 2010


The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who’s Who of Goldman Sachs graduates.

 By now, most of us know the major players. As George Bush’s last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton’s former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup — which in turn got a $300 billion taxpayer bailout from Paulson. There’s John Thain, the asshole chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multi-billion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain’s sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden-parachute payments as his bank was self-destructing. There’s Joshua Bolten, Bush’s chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York — which, incidentally, is now in charge of overseeing Goldman — not to mention …

But then, any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

The bank’s unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere — high gas prices, rising consumer credit rates, half-eaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you’re losing, it’s going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it’s going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth — pure profit for rich individuals.

They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They’ve been pulling this same stunt over and over since the 1920s — and now they’re preparing to do it again, creating what may be the biggest and most audacious bubble yet.

If you want to understand how we got into this financial crisis, you have to first understand where all the money went — and in order to understand that, you need to understand what Goldman has already gotten away with. It is a history exactly five bubbles long — including last year’s strange and seemingly inexplicable spike in the price of oil. There were a lot of losers in each of those bubbles, and in the bailout that followed. But Goldman wasn’t one of them.

BUBBLE #1 The Great Depression

Goldman wasn’t always a too-big-to-fail Wall Street behemoth, the ruthless face of kill-or-be-killed capitalism on steroids —just almost always. The bank was actually founded in 1869 by a German immigrant named Marcus Goldman, who built it up with his son-in-law Samuel Sachs. They were pioneers in the use of commercial paper, which is just a fancy way of saying they made money lending out short-term IOUs to smalltime vendors in downtown Manhattan.

You can probably guess the basic plotline of Goldman’s first 100 years in business: plucky, immigrant-led investment bank beats the odds, pulls itself up by its bootstraps, makes shitloads of money. In that ancient history there’s really only one episode that bears scrutiny now, in light of more recent events: Goldman’s disastrous foray into the speculative mania of pre-crash Wall Street in the late 1920s.

This great Hindenburg of financial history has a few features that might sound familiar. Back then, the main financial tool used to bilk investors was called an “investment trust.” Similar to modern mutual funds, the trusts took the cash of investors large and small and (theoretically, at least) invested it in a smorgasbord of Wall Street securities, though the securities and amounts were often kept hidden from the public. So a regular guy could invest $10 or $100 in a trust and feel like he was a big player. Much as in the 1990s, when new vehicles like day trading and e-trading attracted reams of new suckers from the sticks who wanted to feel like big shots, investment trusts roped a new generation of regular-guy investors into the speculation game.

Beginning a pattern that would repeat itself over and over again, Goldman got into the investmenttrust game late, then jumped in with both feet and went hogwild. The first effort was the Goldman Sachs Trading Corporation; the bank issued a million shares at $100 apiece, bought all those shares with its own money and then sold 90 percent of them to the hungry public at $104. The trading corporation then relentlessly bought shares in itself, bidding the price up further and further. Eventually it dumped part of its holdings and sponsored a new trust, the Shenandoah Corporation, issuing millions more in shares in that fund — which in turn sponsored yet another trust called the Blue Ridge Corporation. In this way, each investment trust served as a front for an endless investment pyramid: Goldman hiding behind Goldman hiding behind Goldman. Of the 7,250,000 initial shares of Blue Ridge, 6,250,000 were actually owned by Shenandoah — which, of course, was in large part owned by Goldman Trading.

The end result (ask yourself if this sounds familiar) was a daisy chain of borrowed money, one exquisitely vulnerable to a decline in performance anywhere along the line. The basic idea isn’t hard to follow. You take a dollar and borrow nine against it; then you take that $10 fund and borrow $90; then you take your $100 fund and, so long as the public is still lending, borrow and invest $900. If the last fund in the line starts to lose value, you no longer have the money to pay back your investors, and everyone gets massacred.

In a chapter from The Great Crash, 1929 titled “In Goldman Sachs We Trust,” the famed economist John Kenneth Galbraith held up the Blue Ridge and Shenandoah trusts as classic examples of the insanity of leveragebased investment. The trusts, he wrote, were a major cause of the market’s historic crash; in today’s dollars, the losses the bank suffered totaled $475 billion. “It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity,” Galbraith observed, sounding like Keith Olbermann in an ascot. “If there must be madness, something may be said for having it on a heroic scale.”

BUBBLE #2 Tech Stocks

Fast-forward about 65 years. Goldman not only survived the crash that wiped out so many of the investors it duped, it went on to become the chief underwriter to the country’s wealthiest and most powerful corporations. Thanks to Sidney Weinberg, who rose from the rank of janitor’s assistant to head the firm, Goldman became the pioneer of the initial public offering, one of the principal and most lucrative means by which companies raise money. During the 1970s and 1980s, Goldman may not have been the planet-eating Death Star of political influence it is today, but it was a top-drawer firm that had a reputation for attracting the very smartest talent on the Street.

It also, oddly enough, had a reputation for relatively solid ethics and a patient approach to investment that shunned the fast buck; its executives were trained to adopt the firm’s mantra, “long-term greedy.” One former Goldman banker who left the firm in the early Nineties recalls seeing his superiors give up a very profitable deal on the grounds that it was a long-term loser. “We gave back money to ‘grownup’ corporate clients who had made bad deals with us,” he says. “Everything we did was legal and fair — but ‘long-term greedy’ said we didn’t want to make such a profit at the clients’ collective expense that we spoiled the marketplace.”

But then, something happened. It’s hard to say what it was exactly; it might have been the fact that Goldman’s cochairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. While the American media fell in love with the story line of a pair of baby-boomer, Sixties-child, Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised crush on Rubin, who was hyped as without a doubt the smartest person ever to walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far behind.

Rubin was the prototypical Goldman banker. He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nightmare about being forced to fly coach. It became almost a national clichè that whatever Rubin thought was best for the economy — a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline The Committee To Save The World. And “what Rubin thought,” mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. During his tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy — beginning with Rubin’s complete and total failure to regulate his
old firm during its first mad dash for obscene short-term profits.

The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren’t much more than potfueled ideas scrawled on napkins by uptoolate bongsmokers were taken public via IPOs, hyped in the media and sold to the public for mega-millions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.

It sounds obvious now, but what the average investor didn’t know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system — one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman’s later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry’s standards of quality control.

“Since the Depression, there were strict underwriting guidelines that Wall Street adhered to when taking a company public,” says one prominent hedge-fund manager. “The company had to be in business for a minimum of five years, and it had to show profitability for three consecutive years. But Wall Street took these guidelines and threw them in the trash.” Goldman completed the snow job by pumping up the sham stocks: “Their analysts were out there saying is worth $100 a share.”

The problem was, nobody told investors that the rules had changed. “Everyone on the inside knew,” the manager says. “Bob Rubin sure as hell knew what the underwriting standards were. They’d been intact since the 1930s.”

Jay Ritter, a professor of finance at the University of Florida who specializes in IPOs, says banks like Goldman knew full well that many of the public offerings they were touting would never make a dime. “In the early Eighties, the major underwriters insisted on three years of profitability. Then it was one year, then it was a quarter. By the time of the Internet bubble, they were not even requiring profitability in the foreseeable future.”

Goldman has denied that it changed its underwriting standards during the Internet years, but its own statistics belie the claim. Just as it did with the investment trust in the 1920s, Goldman started slow and finished crazy in the Internet years. After it took a little-known company with weak financials called Yahoo! public in 1996, once the tech boom had already begun, Goldman quickly became the IPO king of the Internet era. Of the 24 companies it took public in 1997, a third were losing money at the time of the IPO. In 1999, at the height of the boom, it took 47 companies public, including stillborns like Webvan and eToys, investment offerings that were in many ways the modern equivalents of Blue Ridge and Shenandoah. The following year, it underwrote 18 companies in the first four months, 14 of which were money losers at the time. As a leading underwriter of Internet stocks during the boom, Goldman provided profits far more volatile than those of its competitors: In 1999, the average Goldman IPO leapt 281 percent above its offering price, compared to the Wall Street average of 181 percent.

How did Goldman achieve such extraordinary results? One answer is that they used a practice called “laddering,” which is just a fancy way of saying they manipulated the share price of new offerings. Here’s how it works: Say you’re Goldman Sachs, and comes to you and asks you to take their company public. You agree on the usual terms: You’ll price the stock, determine how many shares should be released and take the CEO on a “road show” to schmooze investors, all in exchange for a substantial fee (typically six to seven percent of the amount raised). You then promise your best clients the right to buy big chunks of the IPO at the low offering price — let’s say’s starting share price is $15 — in exchange for a promise that they will buy more shares later on the open market. That seemingly simple demand gives you inside knowledge of the IPO’s future, knowledge that wasn’t disclosed to the day trader schmucks who only had the prospectus to go by: You know that certain of your clients who bought X amount of shares at $15 are also going to buy Y more shares at $20 or $25, virtually guaranteeing that the price is going to go to $25 and beyond. In this way, Goldman could artificially jack up the new company’s price, which of course was to the bank’s benefit — a six percent fee of a $500 million IPO is serious money.

Goldman was repeatedly sued by shareholders for engaging in laddering in a variety of Internet IPOs, including Webvan and NetZero. The deceptive practices also caught the attention of Nicholas Maier, the syndicate manager of Cramer & Co., the hedge fund run at the time by the now-famous chattering television asshole Jim Cramer, himself a Goldman alum. Maier told the SEC that while working for Cramer between 1996 and 1998, he was repeatedly forced to engage in laddering practices during IPO deals with Goldman.

“Goldman, from what I witnessed, they were the worst perpetrator,” Maier said. “They totally fueled the bubble. And it’s specifically that kind of behavior that has caused the market crash. They built these stocks upon an illegal foundation — manipulated up — and ultimately, it really was the small person who ended up buying in.” In 2005, Goldman agreed to pay $40 million for its laddering violations — a puny penalty relative to the enormous profits it made. (Goldman, which has denied wrongdoing in all of the cases it has settled, refused to respond to questions for this story.)

Another practice Goldman engaged in during the Internet boom was “spinning,” better known as bribery. Here the investment bank would offer the executives of the newly public company shares at extra-low prices, in exchange for future underwriting business. Banks that engaged in spinning would then undervalue the initial offering price — ensuring that those “hot” opening-price shares it had handed out to insiders would be more likely to rise quickly, supplying bigger first-day rewards for the chosen few. So instead of opening at $20, the bank would approach the CEO and offer him a million shares of his own company at $18 in exchange for future business — effectively robbing all of Bullshit’s new shareholders by diverting cash that should have gone to the company’s bottom line into the private bank account of the company’s CEO.

In one case, Goldman allegedly gave a multimillion-dollar special offering to eBay CEO Meg Whitman, who later joined Goldman’s board, in exchange for future i-banking business. According to a report by the House Financial Services Committee in 2002, Goldman gave special stock offerings to executives in 21 companies that it took public, including Yahoo! cofounder Jerry Yang and two of the great slithering villains of the financial-scandal age — Tyco’s Dennis Kozlowski and Enron’s Ken Lay. Goldman angrily denounced the report as “an egregious distortion of the facts” — shortly before paying $110 million to settle an investigation into spinning and other manipulations launched by New York state regulators. “The spinning of hot IPO shares was not a harmless corporate perk,” then-attorney general Eliot Spitzer said at the time. “Instead, it was an integral part of a fraudulent scheme to win new investment-banking business.”

Such practices conspired to turn the Internet bubble into one of the greatest financial disasters in world history: Some $5 trillion of wealth was wiped out on the NASDAQ alone. But the real problem wasn’t the money that was lost by shareholders, it was the money gained by investment bankers, who received hefty bonuses for tampering with the market. Instead of teaching Wall Street a lesson that bubbles always deflate, the Internet years demonstrated to bankers that in the age of freely flowing capital and publicly owned financial companies, bubbles are incredibly easy to inflate, and individual bonuses are actually bigger when the mania and the irrationality are greater.

Nowhere was this truer than at Goldman. Between 1999 and 2002, the firm paid out $28.5 billion in compensation and benefits — an average of roughly $350,000 a year per employee. Those numbers are important because the key legacy of the Internet boom is that the economy is now driven in large part by the pursuit of the enormous salaries and bonuses that such bubbles make possible. Goldman’s mantra of “long-term greedy” vanished into thin air as the game became about getting your check before the melon hit the pavement.

The market was no longer a rationally managed place to grow real, profitable businesses: It was a huge ocean of Someone Else’s Money where bankers hauled in vast sums through whatever means necessary and tried to convert that money into bonuses and payouts as quickly as possible. If you laddered and spun 50 Internet IPOs that went bust within a year, so what? By the time the Securities and Exchange Commission got around to fining your firm $110 million, the yacht you bought with your IPO bonuses was already six years old. Besides, you were probably out of Goldman by then, running the U.S. Treasury or maybe the state of New Jersey. (One of the truly comic moments in the history of America’s recent financial collapse came when Gov. Jon Corzine of New Jersey, who ran Goldman from 1994 to 1999 and left with $320 million in IPO-fattened stock, insisted in 2002 that “I’ve never even heard the term ‘laddering’ before.”)

For a bank that paid out $7 billion a year in salaries, $110 million fines issued half a decade late were something far less than a deterrent —they were a joke. Once the Internet bubble burst, Goldman had no incentive to reassess its new, profit-driven strategy; it just searched around for another bubble to inflate. As it turns out, it had one ready, thanks in large part to Rubin.

BUBBLE #3 The Housing Craze

Goldman’s role in the sweeping global disaster that was the housing bubble is not hard to trace. Here again, the basic trick was a decline in underwriting standards, although in this case the standards weren’t in IPOs but in mortgages. By now almost everyone knows that for decades mortgage dealers insisted that home buyers be able to produce a down payment of 10 percent or more, show a steady income and good credit rating, and possess a real first and last name. Then, at the dawn of the new millennium, they suddenly threw all that shit out the window and started writing mortgages on the backs of napkins to cocktail waitresses and ex-cons carrying five bucks and a Snickers bar.

None of that would have been possible without investment bankers like Goldman, who created vehicles to package those shitty mortgages and sell them en masse to unsuspecting insurance companies and pension funds. This created a mass market for toxic debt that would never have existed before; in the old days, no bank would have wanted to keep some addict ex-con’s mortgage on its books, knowing how likely it was to fail. You can’t write these mortgages, in other words, unless you can sell them to someone who doesn’t know what they are.

Goldman used two methods to hide the mess they were selling. First, they bundled hundreds of different mortgages into instruments called Collateralized Debt Obligations. Then they sold investors on the idea that, because a bunch of those mortgages would turn out to be OK, there was no reason to worry so much about the shitty ones: The CDO, as a whole, was sound. Thus, junk-rated mortgages were turned into AAA-rated investments. Second, to hedge its own bets, Goldman got companies like AIG to provide insurance — known as credit default swaps — on the CDOs. The swaps were essentially a racetrack bet between AIG and Goldman: Goldman is betting the ex-cons will default, AIG is betting they won’t.

There was only one problem with the deals: All of the wheeling and dealing represented exactly the kind of dangerous speculation that federal regulators are supposed to rein in. Derivatives like CDOs and credit swaps had already caused a series of serious financial calamities: Procter & Gamble and Gibson Greetings both lost fortunes, and Orange County, California, was forced to default in 1994. A report that year by the Government Accountability Office recommended that such financial instruments be tightly regulated — and in 1998, the head of the Commodity Futures Trading Commission, a woman named Brooksley Born, agreed. That May, she circulated a letter to business leaders and the Clinton administration suggesting that banks be required to provide greater disclosure in derivatives trades, and maintain reserves to cushion against losses.

More regulation wasn’t exactly what Goldman had in mind. “The banks go crazy — they want it stopped,” says Michael Greenberger, who worked for Born as director of trading and markets at the CFTC and is now a law professor at the University of Maryland. “Greenspan, Summers, Rubin and [SEC chief Arthur] Levitt want it stopped.”

Clinton’s reigning economic foursome — “especially Rubin,” according to Greenberger — called Born in for a meeting and pleaded their case. She refused to back down, however, and continued to push for more regulation of the derivatives. Then, in June 1998, Rubin went public to denounce her move, eventually recommending that Congress strip the CFTC of its regulatory authority. In 2000, on its last day in session, Congress passed the now-notorious Commodity Futures Modernization Act, which had been inserted into an 11,000-page spending bill at the last minute, with almost no debate on the floor of the Senate. Banks were now free to trade default swaps with impunity.

But the story didn’t end there. AIG, a major purveyor of default swaps, approached the New York State Insurance Department in 2000 and asked whether default swaps would be regulated as insurance. At the time, the office was run by one Neil Levin, a former Goldman vice president, who decided against regulating the swaps. Now freed to underwrite as many housing-based securities and buy as much credit-default protection as it wanted, Goldman went berserk with lending lust. By the peak of the housing boom in 2006, Goldman was underwriting $76.5 billion worth of mortgage-backed securities — a third of which were sub-prime — much of it to institutional investors like pensions and insurance companies. And in these massive issues of real estate were vast swamps of crap.

Take one $494 million issue that year, GSAMP Trust 2006S3. Many of the mortgages belonged to second-mortgage borrowers, and the average equity they had in their homes was 0.71 percent. Moreover, 58 percent of the loans included little or no documentation — no names of the borrowers, no addresses of the homes, just zip codes. Yet both of the major ratings agencies, Moody’s and Standard & Poor’s, rated 93 percent of the issue as investment grade. Moody’s projected that less than 10 percent of the loans would default. In reality, 18 percent of the mortgages were in default within 18 months.

Not that Goldman was personally at any risk. The bank might be taking all these hideous, completely irresponsible mortgages from beneath-gangster-status firms like Countrywide and selling them off to municipalities and pensioners — old people, for God’s sake — pretending the whole time that it wasn’t grade D horseshit. But even as it was doing so, it was taking short positions in the same market, in essence betting against the same crap it was selling. Even worse, Goldman bragged about it in public. “The mortgage sector continues to be challenged,” David Viniar, the bank’s chief financial officer, boasted in 2007. “As a result, we took significant markdowns on our long inventory positions … However, our risk bias in that market was to be short, and that net short position was profitable.” In other words, the mortgages it was selling were for chumps. The real money was in betting against those same mortgages.

“That’s how audacious these assholes are,” says one hedge fund manager. “At least with other banks, you could say that they were just dumb — they believed what they were selling, and it blew them up. Goldman knew what it was doing.”

I ask the manager how it could be that selling something to customers that you’re actually betting against — particularly when you know more about the weaknesses of those products than the customer — doesn’t amount to securities fraud.

“It’s exactly securities fraud,” he says. “It’s the heart of securities fraud.”

Eventually, lots of aggrieved investors agreed. In a virtual repeat of the Internet IPO craze, Goldman was hit with a wave of lawsuits after the collapse of the housing bubble, many of which accused the bank of withholding pertinent information about the quality of the mortgages it issued. New York state regulators are suing Goldman and 25 other underwriters for selling bundles of crappy Countrywide mortgages to city and state pension funds, which lost as much as $100 million in the investments. Massachusetts also investigated Goldman for similar misdeeds, acting on behalf of 714 mortgage holders who got stuck holding predatory loans. But once again, Goldman got off virtually scot-free, staving off prosecution by agreeing to pay a paltry $60 million — about what the bank’s CDO division made in a day and a half during the real estate boom.

The effects of the housing bubble are well known — it led more or less directly to the collapse of Bear Stearns, Lehman Brothers and AIG, whose toxic portfolio of credit swaps was in significant part composed of the insurance that banks like Goldman bought against their own housing portfolios. In fact, at least $13 billion of the taxpayer money given to AIG in the bailout ultimately went to Goldman, meaning that the bank made out on the housing bubble twice: It fucked the investors who bought their horseshit CDOs by betting against its own crappy product, then it turned around and fucked the taxpayer by making him pay off those same bets.

And once again, while the world was crashing down all around the bank, Goldman made sure it was doing just fine in the compensation department. In 2006, the firm’s payroll jumped to $16.5 billion — an average of $622,000 per employee. As a Goldman spokesman explained, “We work very hard here.”

But the best was yet to come. While the collapse of the housing bubble sent most of the financial world fleeing for the exits, or to jail, Goldman boldly doubled down — and almost single-handedly created yet another bubble, one the world still barely knows the firm had anything to do with.

BUBBLE #4 $4 a Gallon

By the beginning of 2008, the financial world was in turmoil. Wall Street had spent the past two and a half decades producing one scandal after another, which didn’t leave much to sell that wasn’t tainted. The terms junk bond, IPO, sub-prime mortgage and other once-hot financial fare were now firmly associated in the public’s mind with scams; the terms credit swaps and CDOs were about to join them. The credit markets were in crisis, and the mantra that had sustained the fantasy economy throughout the Bush years — the notion that housing prices never go down — was now a fully exploded myth, leaving the Street clamoring for a new bullshit paradigm to sling.

Where to go? With the public reluctant to put money in anything that felt like a paper investment, the Street quietly moved the casino to the physical-commodities market — stuff you could touch: corn, coffee, cocoa, wheat and, above all, energy commodities, especially oil. In conjunction with a decline in the dollar, the credit crunch and the housing crash caused a “flight to commodities.” Oil futures in particular skyrocketed, as the price of a single barrel went from around $60 in the middle of 2007 to a high of $147 in the summer of 2008.

That summer, as the presidential campaign heated up, the accepted explanation for why gasoline had hit $4.11 a gallon was that there was a problem with the world oil supply. In a classic example of how Republicans and Democrats respond to crises by engaging in fierce exchanges of moronic irrelevancies, John McCain insisted that ending the moratorium on offshore drilling would be “very helpful in the short term,” while Barack Obama in typical liberal-arts yuppie style argued that federal investment in hybrid cars was the way out.

But it was all a lie. While the global supply of oil will eventually dry up, the short-term flow has actually been increasing. In the six months before prices spiked, according to the U.S. Energy Information Administration, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped from 86.82 million barrels a day to 86.07 million. Not only was the short-term supply of oil rising, the demand for it was falling — which, in classic economic terms, should have brought prices at the pump down.

So 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.

As is so often the case, there had been a Depression-era law in place designed specifically to prevent this sort of thing. The commodities market was designed in large part to help farmers: A grower concerned about future price drops could enter into a contract to sell his corn at a certain price for delivery later on, which made him worry less about building up stores of his crop. When no one was buying corn, the farmer could sell to a middleman known as a “traditional speculator,” who would store the grain and sell it later, when demand returned. That way, someone was always there to buy from the farmer, even when the market temporarily had no need for his crops.

In 1936, however, Congress recognized that there should never be more speculators in the market than real producers and consumers. If that happened, prices would be affected by something other than supply and demand, and price manipulations would ensue. A new law empowered the Commodity Futures Trading Commission — the very same body that would later try and fail to regulate credit swaps — to place limits on speculative trades in commodities. As a result of the CFTC’s oversight, peace and harmony reigned in the commodities markets for more than 50 years.

All that changed in 1991 when, unbeknownst to almost everyone in the world, a Goldman-owned commodities-trading subsidiary called J. Aron wrote to the CFTC and made an unusual argument. Farmers with big stores of corn, Goldman argued, weren’t the only ones who needed to hedge their risk against future price drops — Wall Street dealers who made big bets on oil prices also needed to hedge their risk, because, well, they stood to lose a lot too.

This was complete and utter crap — the 1936 law, remember, was specifically designed to maintain distinctions between people who were buying and selling real tangible stuff and people who were trading in paper alone. But the CFTC, amazingly, bought Goldman’s argument. It issued the bank a free pass, called the “Bona Fide Hedging” exemption, allowing Goldman’s subsidiary to call itself a physical hedger and escape virtually all limits placed on speculators. In the years that followed, the commission would quietly issue 14 similar exemptions to other companies.

Now Goldman and other banks were free to drive more investors into the commodities markets, enabling speculators to place increasingly big bets. That 1991 letter from Goldman more or less directly led to the oil bubble in 2008, when the number of speculators in the market — driven there by fear of the falling dollar and the housing crash — finally overwhelmed the real physical suppliers and consumers. By 2008, at least three quarters of the activity on the commodity exchanges was speculative, according to a congressional staffer who studied the numbers — and that’s likely a conservative estimate. By the middle of last summer, despite rising supply and a drop in demand, we were paying $4 a gallon every time we pulled up to the pump.

What is even more amazing is that the letter to Goldman, along with most of the other trading exemptions, was handed out more or less in secret. “I was the head of the division of trading and markets, and Brooksley Born was the chair of the CFTC,” says Greenberger, “and neither of us knew this letter was out there.” In fact, the letters only came to light by accident. Last year, a staffer for the House Energy and Commerce Committee just happened to be at a briefing when officials from the CFTC made an offhand reference to the exemptions.

“I had been invited to a briefing the commission was holding on energy,” the staffer recounts. “And suddenly in the middle of it, they start saying, ‘Yeah, we’ve been issuing these letters for years now.’ I raised my hand and said, ‘Really? You issued a letter? Can I see it?’ And they were like, ‘Duh, duh.’ So we went back and forth, and finally they said, ‘We have to clear it with Goldman Sachs.’ I’m like, ‘What do you mean, you have to clear it with Goldman Sachs?'”

The CFTC cited a rule that prohibited it from releasing any information about a company’s current position in the market. But the staffer’s request was about a letter that had been issued 17 years earlier. It no longer had anything to do with Goldman’s current position. What’s more, Section 7 of the 1936 commodities law gives Congress the right to any information it wants from the commission. Still, in a classic example of how complete Goldman’s capture of government is, the CFTC waited until it got clearance from the bank before it turned the letter over.

Armed with the semi-secret government exemption, Goldman had become the chief designer of a giant commodities betting parlor. Its Goldman Sachs Commodities Index — which tracks the prices of 24 major commodities but is overwhelmingly weighted toward oil — became the place where pension funds and insurance companies and other institutional investors could make massive long-term bets on commodity prices. Which was all well and good, except for a couple of things. One was that index speculators are mostly “long only” bettors, who seldom if ever take short positions — meaning they only bet on prices to rise. While this kind of behavior is good for a stock market, it’s terrible for commodities, because it continually forces prices upward. “If index speculators took short positions as well as long ones, you’d see them pushing prices both up and down,” says Michael Masters, a hedge fund manager who has helped expose the role of investment banks in the manipulation of oil prices. “But they only push prices in one direction: up.”

Complicating matters even further was the fact that Goldman itself was cheerleading with all its might for an increase in oil prices. In the beginning of 2008, Arjun Murti, a Goldman analyst, hailed as an “oracle of oil” by The New York Times, predicted a “super spike” in oil prices, forecasting a rise to $200 a barrel. At the time Goldman was heavily invested in oil through its commodities trading subsidiary, J. Aron; it also owned a stake in a major oil refinery in Kansas, where it warehoused the crude it bought and sold. Even though the supply of oil was keeping pace with demand, Murti continually warned of disruptions to the world oil supply, going so far as to broadcast the fact that he owned two hybrid cars. High prices, the bank insisted, were somehow the fault of the piggish American consumer; in 2005, Goldman analysts insisted that we wouldn’t know when oil prices would fall until we knew “when American consumers will stop buying gas-guzzling sport utility vehicles and instead seek fuel-efficient alternatives.”

But it wasn’t the consumption of real oil that was driving up prices — it was the trade in paper oil. By the summer of 2008, in fact, commodities speculators had bought and stockpiled enough oil futures to fill 1.1 billion barrels of crude, which meant that speculators owned more future oil on paper than there was real, physical oil stored in all of the country’s commercial storage tanks and the Strategic Petroleum Reserve combined. It was a repeat of both the Internet craze and the housing bubble, when Wall Street jacked up present-day profits by selling suckers shares of a fictional fantasy future of endlessly rising prices.

In what was by now a painfully familiar pattern, the oil-commodities melon hit the pavement hard in the summer of 2008, causing a massive loss of wealth; crude prices plunged from $147 to $33. Once again the big losers were ordinary people. The pensioners whose funds invested in this crap got massacred: CalPERS, the California Public Employees’ Retirement System, had $1.1 billion in commodities when the crash came. And the damage didn’t just come from oil. Soaring food prices driven by the commodities bubble led to catastrophes across the planet, forcing an estimated 100 million people into hunger and sparking food riots throughout the Third World.

Now oil prices are rising again: They shot up 20 percent in the month of May and have nearly doubled so far this year. Once again, the problem is not supply or demand. “The highest supply of oil in the last 20 years is now,” says Rep. Bart Stupak, a Democrat from Michigan who serves on the House energy committee. “Demand is at a 10-year low. And yet prices are up.”

Asked why politicians continue to harp on things like drilling or hybrid cars, when supply and demand have nothing to do with the high prices, Stupak shakes his head. “I think they just don’t understand the problem very well,” he says. “You can’t explain it in 30 seconds, so politicians ignore it.”

BUBBLE #5 Rigging the Bailout

After the oil bubble collapsed last fall, there was no new bubble to keep things humming — this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.

It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers — one of Goldman’s last real competitors — collapse without intervention. (“Goldman’s superhero status was left intact,” says market analyst Eric Salzman, “and an investment banking competitor, Lehman, goes away.”) The very next day, Paulson green-lighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.

Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year-old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bank holding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding — most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs — and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.

Converting to a bank-holding company has other benefits as well: Goldman’s primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict of interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman — New York Fed president William Dudley — is yet another former Goldmanite.

The collective message of all this — the AIG bailout, the swift approval for its bank holding conversion, the TARP funds — is that when it comes to Goldman Sachs, there isn’t a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. “In the past it was an implicit advantage,” says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. “Now it’s more of an explicit advantage.”

Once the bailouts were in place, Goldman went right back to business as usual, dreaming up impossibly convoluted schemes to pick the American carcass clean of its loose capital. One of its first moves in the post-bailout era was to quietly push forward the calendar it uses to report its earnings, essentially wiping December 2008 — with its $1.3 billion in pretax losses — off the books. At the same time, the bank announced a highly suspicious $1.8 billion profit for the first quarter of 2009 — which apparently included a large chunk of money funneled to it by taxpayers via the AIG bailout. “They cooked those first quarter results six ways from Sunday,” says one hedge fund manager. “They hid the losses in the orphan month and called the bailout money profit.”

Two more numbers stand out from that stunning first-quarter turnaround. The bank paid out an astonishing $4.7 billion in bonuses and compensation in the first three months of this year, an 18 percent increase over the first quarter of 2008. It also raised $5 billion by issuing new shares almost immediately after releasing its first quarter results. Taken together, the numbers show that Goldman essentially borrowed a $5 billion salary payout for its executives in the middle of the global economic crisis it helped cause, using half-baked accounting to reel in investors, just months after receiving billions in a taxpayer bailout.

Even more amazing, Goldman did it all right before the government announced the results of its new “stress test” for banks seeking to repay TARP money — suggesting that Goldman knew exactly what was coming. The government was trying to carefully orchestrate the repayments in an effort to prevent further trouble at banks that couldn’t pay back the money right away. But Goldman blew off those concerns, brazenly flaunting its insider status. “They seemed to know everything that they needed to do before the stress test came out, unlike everyone else, who had to wait until after,” says Michael Hecht, a managing director of JMP Securities. “The government came out and said, ‘To pay back TARP, you have to issue debt of at least five years that is not insured by FDIC — which Goldman Sachs had already done, a week or two before.”

And here’s the real punch line. After playing an intimate role in four historic bubble catastrophes, after helping $5 trillion in wealth disappear from the NASDAQ, after pawning off thousands of toxic mortgages on pensioners and cities, after helping to drive the price of gas up to $4 a gallon and to push 100 million people around the world into hunger, after securing tens of billions of taxpayer dollars through a series of bailouts overseen by its former CEO, what did Goldman Sachs give back to the people of the United States in 2008?

Fourteen million dollars.

That is what the firm paid in taxes in 2008, an effective tax rate of exactly one, read it, one percent. The bank paid out $10 billion in compensation and benefits that same year and made a profit of more than $2 billion — yet it paid the Treasury less than a third of what it forked over to CEO Lloyd Blankfein, who made $42.9 million last year.

How is this possible? According to Goldman’s annual report, the low taxes are due in large part to changes in the bank’s “geographic earnings mix.” In other words, the bank moved its money around so that most of its earnings took place in foreign countries with low tax rates. Thanks to our completely fucked corporate tax system, companies like Goldman can ship their revenues offshore and defer taxes on those revenues indefinitely, even while they claim deductions upfront on that same untaxed income. This is why any corporation with an at least occasionally sober accountant can usually find a way to zero out its taxes. A GAO report, in fact, found that between 1998 and 2005, roughly two-thirds of all corporations operating in the U.S. paid no taxes at all.

This should be a pitchfork-level outrage — but somehow, when Goldman released its post-bailout tax profile, hardly anyone said a word. One of the few to remark on the obscenity was Rep. Lloyd Doggett, a Democrat from Texas who serves on the House Ways and Means Committee. “With the right hand out begging for bailout money,” he said, “the left is hiding it offshore.”

BUBBLE #6 Global Warming

Fast-forward to today. It’s early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs — its employees paid some $981,000 to his campaign — sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.

Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm’s co-head of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an “environmental plan,” called cap-and-trade.

The new carbon credit market is a virtual repeat of the commodities-market casino that’s been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won’t even have to rig the game. It will be rigged in advance.

Here’s how it works: If the bill passes, there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy “allocations” or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billion worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.

The feature of this plan that has special appeal to speculators is that the “cap” on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison’s sake, the annual combined revenues of all electricity suppliers in the U.S. total $320 billion.

Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigm-shifting legislation, (2) make sure that they’re the profit-making slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for cap-and-trade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank’s environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Paulson’s report argued that “voluntary action alone cannot solve the climate change problem.” A few years later, the bank’s carbon chief, Ken Newcombe, insisted that cap-and-trade alone won’t be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies) and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time, “We’re not making those investments to lose money.”

The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utah-based firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There’s also a $500 million Green Growth Fund set up by a Goldmanite to invest in green-tech … the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energy futures market?

“Oh, it’ll dwarf it,” says a former staffer on the House energy committee.

Well, you might say, who cares? If cap-and-trade succeeds, won’t we all be saved from the catastrophe of global warming? Maybe — but cap-and-trade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and-trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax collection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it’s even collected.

“If it’s going to be a tax, I would prefer that Washington set the tax and collect it,” says Michael Masters, the hedge fund director who spoke out against oil futures speculation. “But we’re saying that Wall Street can set the tax, and Wall Street can collect the tax. That’s the last thing in the world I want. It’s just asinine.”

Cap-and-trade is going to happen. Or, if it doesn’t, something like it will. The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees — while the actual victims in this mess, ordinary taxpayers, are the ones paying for it.

It’s not always easy to accept the reality of what we now routinely allow these people to get away with; there’s a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can’t really register the fact that you’re no longer a citizen of a thriving first-world democracy, that you’re no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there.

But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It’s a gangster state, running on gangster economics, and even prices can’t be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can’t stop it, but we should at least know where it’s all going.

This article originally appeared in the July 9-23, 2009 of Rolling Stone.

Further Reading:

Invasion of the Home Snatchers, by Matt Taibbi (2010)

The Feds vs. Goldman, By Matt Taibbi (2010)

Wall Street’s Big Win, by Matt Taibai (2010)

Apocalypse, New Jersey: A Dispatch from America’s Most desperate Town, by Matt Taibbi (2013)

Taibblog: Commentary on Politics and the Economy by Matt Taibbi

The Invisible Crime

It’s called the invisible crime.  The $32 billion annual human trafficking industry coerces approximately 20 to 30 million adults and children into the sex trade or indentured servitude each year. What many Americans do not realize is just how prevalent human trafficking is right here in the U.S. and how varied the victims are.
Trafficking cuts across gender and ethnicity, with some victims being brought to the U.S. with false promises of a better life. Others are vulnerable U.S. citizens who have been coerced or manipulated into indentured servitude. Human trafficking is the third largest international crime industry and an estimated 14,500 to 17,500 victims are trafficked into the U.S. each year.
Human trafficking is present when a person is recruited, harbored, provided for or obtained for the purposes of exploitation — often sold as chattel property.  According to the United Nations Office on Drugs and Crime, trafficking victims, two-thirds of whom are female, are recruited by means of force, fraud, or coercion and are often subjected to sexual servitude or compelled to perform manual and service labor. Under U.S. law, any minor under the age of 18 engaging in commercial sex is a victim of sex trafficking, regardless of the presence of force, fraud, or coercion.

More Individuals are Being Trafficked Today Than at Any Other Point in History

Though the institution of slavery has been banned across the globe, more than 29 million people are living in forced servitude, the greatest number in recorded history. Trafficking laws vary from state to state, with victims often being arrested and treated like criminals, reinforcing their belief that the police can’t be trusted. Advocates are calling for a “Uniform Law,” one that will allow all agencies to properly identify victims, provide rehabilitative services, and prosecute traffickers.

Some 15,000 people are trafficked each year right here in the U.S. and they’re most likely working for you. According to, there’s a good chance that a number of trafficking victims have contributed to making the food you eat, the clothes you wear and the laptop on which you’re reading this story. Find out how many slaves you employ by taking the Slavery Footprint quiz and then learn how you can urge major retailers to be more transparent.


The Statistics

  • Human trafficking is the third largest international crime industry (behind illegal drugs and arms trafficking). It reportedly generates a profit of $32 billion every year. Of that number, $15.5 billion is made in industrialized countries.
  • Globally, the average cost of a slave is $90.
  • There are approximately 20 to 30 million slaves in the world today.
  • According to the U.S. State Department, 600,000 to 800,000 people are trafficked across international borders every year, of which 80% are female and half are children.
  • Between 14,500 and 17,500 people are trafficked into the U.S. each year.
  • According to some estimates, approximately 80% of trafficking involves sexual exploitation, and 19% involves labor exploitation.
  • The average age a teen enters the sex trade in the U.S. is 12 to 14 years old. Many victims are runaway girls who were sexually abused as children.
  • California harbors 3 of the FBI’s 13 highest child sex trafficking areas on the nation: Los Angeles, San Francisco and San Diego.
  • The National Human Trafficking Hotline receives more calls from Texas than any other state in the US. 15% of those calls are from the Dallas-Fort Worth area.
  • The Super Bowl has the largest annual incidence of human trafficking in the U.S. One rescued trafficking victim states that she was expected to sleep with approximately 25 men per day during such events.

Assisting a Victim is Easier than You Might Think

Learn to Recognize the Red Flags. The following is a partial list of potential red flags and indicators of human trafficking and modern slavery. If you recognize any of these signs, please call 1-888-373-7888 to report a situation to the National Human Trafficking Resource Center hotline. A number of organizations, including the Polaris Project, Not for Sale and the Project to End Human Trafficking, are also working to put an end to modern-day slavery.

The presence of these red flags is an indication that further assessment may be necessary to identify a potential human trafficking situation. This list is not exhaustive and represents only a selection of possible indicators. Also, the red flags in this list may not be present in all trafficking cases and are not cumulative. Indicators reference conditions a potential victim might exhibit.

A person may be trafficked if he or she:

  • Cannot leave his or her job to find another one
  • Does not have control over his or her wages or money
  • Works but receives little or no pay
  • Has no choice about hours worked or under what conditions
  • Shows signs of physical abuse or injury
  • Is accompanied everywhere by someone who speaks for him/her
  • Appears to be fearful of or under the control of another person
  • Has health issues that have not been attended to
  • Owes money to an employer or another person whom s/he feels bound to repay
  • May describe moving or changing jobs suddenly and often
  • Is unfamiliar with the neighborhood where they live or work
  • Is not working in the job originally promised to him/her
  • Is travelling with minimal or inappropriate luggage/belongings
  • Lacks identification, passport or other travel documents or does not have control over his or her documentation
  • Does not have control over his or her finances
  • Provides sexual services in a strip club, massage parlor, brothel or other locations and has a manager or pimp
  • Is a laborer, domestic servant or caretaker but never leave the home or workplace
  • Is unable to freely contact friends or family
  • Is not allowed to socialize or attend religious services
  • Has restricted freedom of movement
  • Is a juvenile engaged in a commercial sex act

Trafficking victims may be reluctant to report or seek services because they:

  • Do not know or understand that they are being exploited
  • Are threatened that if they tell anyone, they or their families will be hurt
  • Have complex relationships with their traffickers that involve deep levels of psychological conditioning based on fear or misplaced feelings of love
  • Are unfamiliar with their surroundings and do not know whom to trust
  • Do not know help exists or where to go for it
  • Are unfamiliar with the laws, cultures, and languages of the destination location or country
  • Fear retribution and forcible removal or deportation to countries in which they may face imprisonment or other hardship
  • Fear law enforcement and other authorities
  • Are addicted to drugs
  • Are in debt to their traffickers
  • Are sending much needed money back ‘home’ and worry about not being able to do this

Religious Intolerance in America


Despite America’s public commitment to religious freedom, intolerance remains prevalent.

by Contributing Writer

Religious intolerance is a very broad term. It can be as private and individual as a parent forbidding a child to date someone of a particular faith or as public as the historical tar-and-feathering of Joseph Smith, founder of the Mormon religion. In every case, however, it boils down to the actions or attitudes of individuals or organizations against others over differences in religious belief or practice. The United States has struggled with this since before its early colonial days and — despite the best efforts of our founders to foster a national culture that would provide what James Madison described as “an Asylum to the persecuted and oppressed of every Nation and Religion” — religious intolerance continues to be an all-too-common occurrence against which no group is immune. .


Muslims have long been the targets of discrimination in the U.S., but following the tragedies of 9/11, anti-Muslim sentiment and activity have risen sharply. Events such as the controversies surrounding the so-called “Ground Zero Mosque” and Florida pastor, Terry Jones, who burned copies of the Quran, are well publicized but they are far from isolated incidents. The American Civil Liberties Union reports what they call “anti-mosque activities” in 31 states between December, 2005, and September, 2012, ranging in severity from simple graffiti and other minor vandalism to arson and bombings. In one case, a Muslim woman was verbally assaulted and pepper-sprayed in front of an Islamic center in Columbus, Ohio.


Despite its dominance among American faiths, Christians have been the victims of religious intolerance throughout our nation’s history and non-Protestant denominations — particularly Catholics and Mormons — have borne the brunt of it. The same conflagration that began with Joseph Smith’s tarring and feathering also saw massacres, the forced removal of Mormons from Missouri and, ultimately, the assassination of Smith and his brother in 1844. To this day, Mormons are regularly accused of condoning polygamy, despite the fact that the denomination, also known as the Church of Jesus Christ of Latter-day Saints, has been one of the most vigorous opponents of the practice since 1890. Catholics, as well, have long been maligned by their fellow Americans. Many states had laws restricting Catholic civil rights, including the right to hold public office, and one of Benedict Arnold’s stated reasons for his betrayal was America’s alliance with Catholic France during the Revolution. Driven by nationalist fears of papal allegiance, riots and other violent incidents against Catholics persisted well into the 19th century.


The persecution of Jews throughout history stands, perhaps, as the epitome of religious intolerance and they’ve suffered it in the United States as they have almost everywhere else. A strong current of anti-Semitism has run through American society since it’s inception and came to a peak in the years leading up to World War II. At that time, according to historian Johnathan D. Sarna, “Jews faced physical attacks, many forms of discrimination, and intense vilification in print, on the airwaves, in movies, and on stage.” This period also saw the birth of Nazism both abroad and in the U.S., and violent, anti-Semitic activity continues to be a problem in the present day. Eighty percent of the 1400 religiously motivated hate crimes reported to the FBI in 1998 were “anti-Jewish” in nature.

Native Americans

Of all the groups that have experienced religious intolerance in what is now the United States, perhaps none have suffered longer than Native Americans. Beginning with some of their first interactions with European settlers, Native Americans were driven off ancestral lands for centuries, denied access to holy sites and forced to attend government-run schools in an effort to “kill the Indian and save the man”; students were typically divorced from all aspects of tribal culture, including religion and language. The final prohibitions against practicing Native American religions were lifted in 1994. Native religious leaders continue to be surveilled by government agencies and tribes still frequently lose access to sacred sites because of urban and industrial development. A 1999 Special Report to the UN Commission on Human Rights noted that such losses were often the result of “an indifference and even hostility on the part of the various officials and other parties involved . . . with regard to the values and beliefs of the original inhabitants of the United States.”

Secular Humanists and other Non-theists

A 2003 study by the University of Minnesota on the acceptance of various racial, religious and other groups in America, found nearly half of Americans (47.6 percent) would disapprove if their child wanted to marry an atheist. In addition, 39.6 percent said atheists “do not at all agree with my vision of American society.” A 2012 report by the International Humanist and Ethical Union found seven states with constitutional prohibitions against atheists holding office. In Arkansas, non-theists are legally disqualified from bearing witness in court, despite the fact that the Supreme Court declared such provisions unconstitutional in 1961. The report found many other examples of discrimination, particularly in the military, including mandatory attendance of religious services and service members not being allowed to list “Humanist” as their religious affiliation. Finally, Secular Humanists were denied representation at the interfaith memorial service on April 18, 2013, following the Boston Marathon bombing, despite the fact that at least two of the victims of the bombing were affiliated with Boston’s secular community.

Hashtag Activism Isn’t a Cop-Out

An organizer of Ferguson protests argues that social-media tools encourage demonstrations, rather than deflating them.


Mainstream-media figures often portray social media as a buzzing hive of useless outrage. Thinkpieces present hashtag activism as vanity activism, in which narcissistic pronouncements substitute for actual engagement, and anger is leveraged at best for petty entertainment and at worst for coordinated harassment.

Yet activists themselves often argue that social media is important to their work. DeRay Mckesson, who has emerged as one of a number of leading organizers and activists against police brutality, has spoken on his feed about how vital Twitter is for boosting a movement. When he first drove from his home in Minneapolis—where he works as a school administrator, traveling for protests mainly on weekends—to Ferguson to participate in the protests, Mckesson knew no one; he didn’t even know where he would sleep. Facebook networks found him a couch, and social media was vital in connecting him with the community of protestors. Mckesson reports live from protests through Twitter, where his following has ballooned from 800 followers to more than 61,000 since he began his activism. He’s also used social networks to raise awareness and to organize, by for example creating a text-message alert that informed thousands the instant the grand jury in Ferguson returned a no-indictment verdict in the Michael Brown case.

I talked to Mckesson about social media, protest, and the connections between the two. This interview has been edited for length and clarity.

Noah Berlatsky: What role has social-media activism played in the movement against police brutality that started in Ferguson?

DeRay Mckesson: Missouri would have convinced you that we did not exist if it were not for social media. The intensity with which they responded to protestors very early—we were able to document that and share it quickly with people in a way that we never could have without social media. We were able to tell our own stories.

The history of blackness is also a history of erasure. Everybody has told the story of black people in struggle except black people. The black people in the struggle haven’t had the means to tell the story historically. There were a million slaves but you see very few slave narratives. And that is intentional. So what was powerful in the context of Ferguson is that there were many people able to tell their story as the story unfolded.

The other thing I will add is that Twitter specifically has been interesting because we’re able to get feedback and responses in real time. If we think about this as community building, and we think of community building as a manifestation of love, and we think about love being about accountability, and accountability about justice, what’s interesting is that Twitter has kept us honest. There’s a democracy of feedback. I’ve had really robust conversations with people who aren’t physically in the space, but who have such great ideas. And that’s proven to be invaluable.
Berlatsky: The civil-rights movement of the ’60s obviously didn’t have Twitter or social media or the Internet, but it was able to get its message out to the media in other ways. Why wouldn’t traditional media be adequate now?

Mckesson: Ferguson exists in a tradition of protest. But what is different about Ferguson, or what is important about Ferguson, is that the movement began with regular people. There was no Martin, there was no Malcolm, there was no NAACP, it wasn’t the Urban League. People came together who didn’t necessarily know each other, but knew what they were experiencing was wrong. And that is what started this. What makes that really important, unlike previous struggle, is that—who is the spokesperson? The people. The people, in a very democratic way, became the voice of the struggle.

Our access to information is also so much greater than in the past. For instance, there’s an officer in Ferguson who is really aggressive with protestors for no reason. And I was able to take a picture of him—he would cover his badge with his hand, he would not show his name. So I took a picture of him, put it online, and within 30 minutes they knew everything about him. And that’s a different way of empowering people.

Berlatsky: It sounds like you’re saying that Twitter allowed the movement to be a lot more decentralized. Is that an advantage or a disadvantage? It seems like it might be a disadvantage in terms of settling on specific goals, for example.
Mckesson: It is not that we’re anti-organization. There are structures that have formed as a result of protest, that are really powerful. It is just that you did not need those structures to begin protest. You are enough to start a movement. Individual people can come together around things that they know are unjust. And they can spark change. Your body can be part of the protest; you don’t need a VIP pass to protest. And Twitter allowed that to happen.

I think that what we are doing is building a radical new community in struggle that did not exist before. Twitter has enabled us to create community. I think the phase we’re in is a community-building phase. Yes, we need to address policy, yes, we need to address elections; we need to do all those things. But on the heels of building a strong community.

A screenshot of Mckesson's Twitter profile (Twitter)
A screenshot of Mckesson’s Twitter profile (Twitter)

Berlatsky: You also publish—along with Johnetta (Netta) Elzie—an online newsletter about the protest movement called Words to Action. Do you see yourself as a journalist? Or as an activist? Or both? How important is social media to those roles, or to combining them?

Mckesson: I see myself as a protestor who is also telling the story as it happens. The newsletter started—I remember when Trayvon died, I wanted to follow the case, but I didn’t know what was fact or fiction. I didn’t want that to be the story of Mike Brown. There was so much news; there was so much stuff that was unclear. There were so many questions. The goal was to create a space where people could go to get true news.
Now the movement has spread beyond St. Louis, we cover stories from around the country. So the goal was to be a hub of information. I think the first newsletter that went out had 400 subscribers, and we’re at a little bit less than 14,000 now. And we did a text-message alert for the no-indictment—you could sign up to get a text when the decision came out. And 21,000 people signed up in 10 days, which was wild. So the work is focused on, how can we use the tools we have access to in order to create infrastructure for the movement.

And that’s what Netta and I have been focused on. None of this takes away from our protesting. We don’t put the newsletter out when we’re out until 4 in the morning protesting. The trade-off always veers in the favor of protest. It’s rooted in the confrontation and disruption that is protest. We want to make structures to empower people. The newsletter is a way to empower people. Because we believe that the truth is actually so damning that we can just tell you all the news that’s happening and you should be radicalized. We believe that.

Berlatsky: I saw you talking about Iggy Azalea and issues of appropriation on Twitter a little bit back. That’s the sort of cultural issue that I think many people would say is just a distraction, or is just a way for people to express outrage without working for social change. Do you see cultural conversations around Iggy, or similar issues, as a distraction from your work as an organizer? Or are they complementary?
Mckesson: Good lord. Iggy. (laughs) You’re really trying to get me in trouble.

When people think about protest, they think that protest is always confrontation, protest is always disruption. But protest is also intellectual confrontation and disruption. So part of what we do when the police speak is that we question. The thing about people like Iggy is that we also question. We question what it means to have your success be on a medium and a platform that was born of black struggle, like hip-hop or rap, and what does it mean that you identify with everything but the struggle part? Which is the Iggy issue.

We question these issues of race and struggle and white privilege, because we know that those issues are real, and because those issues have real implications in black communities. And white supremacy is not only dangerous but it is deadly. We know this to be true.

Berlatsky: Do you get a lot of harassment on social media?

Mckesson: Yeah, the death threats aren’t fun. They put my address out there, that’s not fun. I get called a nigger more than I’ve ever been called that in my entire life. I’ve blocked over 9,000 people, so I don’t personally see it as much anymore, but my friends do. So that sort of stuff I don’t love.

But what social media has done is that it has exposed the intensity of hatred in America. People who you wouldn’t expect to be racist … some of the tweets are from people who are well-intentioned but racist. And I appreciate that that’s exposed. People now understand where you’re coming from. And it’s deeply problematic. But we don’t have to guess anymore; we get it.

The harassment is never a good thing. But there’s something valuable in making sure you’re not surrounded by people who think like you. It helps you understand what you think better. And I appreciate that about Twitter. It’s a cacophony of voices. Even when you don’t agree, you at least understand different perspectives. The medium itself sets that up.

Sex Trafficking in the U.S.

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 Sex trafficking is a form of modern slavery that exists throughout the United States and globally.

Sex traffickers use violence, threats, lies, debt bondage, and other forms of coercion to force women, men and children to engage in commercial sex against their will. Under federal law, any minor under the age of 18 years induced into commercial sex is a victim of sex trafficking—regardless of whether or not the trafficker used force, fraud, or coercion.

Sex traffickers may lure their victims with the false promise of a high-paying job. Others promise a romantic relationship, where they first establish an initial period of false love and feigned affection. During this period they offer gifts, compliments, and sexual and physical intimacy, while making elaborate promises of a better life, fast money, and future luxuries. However, the trafficker eventually employs a variety of control tactics, including physical and emotional abuse, sexual assault, confiscation of identification and money, isolation from friends and family, and even renaming victims.

U.S. citizens, foreign nationals, women, men, children, and LGBTQ individuals can be victims of sex trafficking. Runaway and homeless youth, victims of domestic violence, sexual assault, war or conflict, or social discrimination are frequently targeted by traffickers.

Sex trafficking exists within diverse venues including fake massage businesses, online escort services, residential brothels, in public on city streets and in truck stops, strip clubs, hotels and motels, and elsewhere.

In street-based sex trafficking, victims are often expected to earn a nightly quota, ranging from $500 to $1000 or more, which is confiscated by the pimp. Women in brothels disguised as massage businesses typically live on-site where they are coerced into providing commercial sex to 6 to 10 men a day, 7 days a week.

Learn more about sex trafficking, including specific details of the venues where sex trafficking frequently occurs, at



  • Learn to Recognize the Signs of human trafficking in your community.
  • Call the hotline at 1-888-373-7888 if you or someone you know is a victim of human trafficking.
  • Send a text to BeFree (233733) if you need help.
  • Visit our Action Center to find opportunities to tell your elected officials to take action against sex trafficking.