I instinctively dislike "Occupy Wall Street," and its primitive, let's hold-hands-with-the-99%" egalitarianism. That said, it's hard not to conclude that the OWSs have a more penetrating critique of the American elite than the Tea Party.

A recent Pew Research Center study has highlighted the widening gap in wealth between American Whites and Blacks and Hispanics. It inspired quite a few op-eds on why America isn't "post-racial" enough and why more work must be done.     

The median wealth of white households is 20 times that of black households and 18 times that of Hispanic households, according to a Pew Research Center analysis of newly available government data from 2009.

These lopsided wealth ratios are the largest since the government began publishing such data a quarter century ago and roughly twice the size of the ratios that had prevailed between these three groups for the two decades prior to the Great Recession that ended in 2009.

What's most interesting, at least to me, is the Pew Center's conclusion: the gap wasn't increased by a decline in federal employment, nor even corporate layoffs, so much as the housing bust:  

The Pew Research analysis finds that, in percentage terms, the bursting of the housing market bubble in 2006 and the recession that followed from late 2007 to mid-2009 took a far greater toll on the wealth of minorities than whites. From 2005 to 2009, inflation-adjusted median wealth fell by 66% among Hispanic households and 53% among black households, compared with just 16% among white households.

As a result of these declines, the typical black household had just $5,677 in wealth (assets minus debts) in 2009; the typical Hispanic household had $6,325 in wealth; and the typical white household had $113,149.

Moreover, about a third of black (35%) and Hispanic (31%) households had zero or negative net worth in 2009, compared with 15% of white households. In 2005, the comparable shares had been 29% for blacks, 23% for Hispanics and 11% for whites.

Hispanics and blacks are the nation’s two largest minority groups, making up 16% and 12% of the U.S. population respectively.

These findings are based on the Pew Research Center’s analysis of data from the Survey of Income and Program Participation (SIPP), an economic questionnaire distributed periodically to tens of thousands of households by the U.S. Census Bureau. It is considered the most comprehensive source of data about household wealth in the United States by race and ethnicity. The two most recent administrations of SIPP that focused on household wealth were in 2005 and 2009. Data from the 2009 survey were only recently made available to researchers.¹

Plummeting house values were the principal cause of the recent erosion in household wealth among all groups, with Hispanics hit hardest by the meltdown in the housing market.

From 2005 to 2009, the median level of home equity held by Hispanic homeowners declined by half—from $99,983 to $49,145—while the homeownership rate among Hispanics was also falling, from 51% to 47%. A geographic analysis suggests the reason: A disproportionate share of Hispanics live in California, Florida, Nevada and Arizona, which were in the vanguard of the housing real estate market bubble of the 1990s and early 2000s but that have since been among the states experiencing the steepest declines in housing values.

Most who have cited the study have blamed evil subprime lenders for the plight of Blacks and Hispanics. Looked at another way, though, it was precisely this kind of affirmative-action lending (which Steve Sailer first talked about in his piece "The Diversity Recession") that was the primary means of racial wealth re-distribution throughout the first half of the 2000s. Taxing rich (mostly White) people, funnelling the money through Washington's massive bureaucratic apparatus, and then issuing it to minorities isn't as effective as, in essence, "financial socialism." America could be made more "post-racial" by giving minorities 30-year mortgages at 20:1 leverage, underwritten by a government agency and packaged as derivatives by Goldman Sachs.  

Since it's becoming clear to all that the housing bubble can't be blown up again, a new means of instituting equality will, no doubt, have to be found...    

Matt Taibbi has emerged as one of the country's most compelling writers on financial malfeasance, an achievement that is not limited to his legendary depiction of Goldman Sach as the "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

In his latest piece, Taibbi returns to familiar themes:

By the end of 2006, Goldman was sitting atop a $6 billion bet on American home loans. The bet was a byproduct of Goldman having helped create a new trading index called the ABX, through which it accumulated huge holdings in mortgage-related securities. But in December 2006, a series of top Goldman executives — including [David] Viniar, mortgage chief Daniel Sparks and senior executive Thomas Montag — came to the conclusion that Goldman was overexposed to mortgages and should get out from under its huge bet as quickly as possible. Internal memos indicate that the executives soon became aware of the host of scams that would crater the global economy: home loans awarded with no documentation, loans with little or no equity in them. On December 14th, Viniar met with Sparks and other executives, and stressed the need to get "closer to home" — i.e., to reduce the bank's giant bet on mortgages.

Sparks followed up that meeting with a seven-point memo laying out how to unload the bank's mortgages. Entry No. 2 is particularly noteworthy. "Distribute as much as possible on bonds created from new loan securitizations," Sparks wrote, "and clean previous positions." In other words, the bank needed to find suckers to buy as much of its risky inventory as possible. Goldman was like a car dealership that realized it had a whole lot full of cars with faulty brakes. Instead of announcing a recall, it surged ahead with a two-fold plan to make a fortune: first, by dumping the dangerous products on other people, and second, by taking out life insurance against the fools who bought the deadly cars.

The day he received the Sparks memo, Viniar seconded the plan in a gleeful cheerleading e-mail. "Let's be aggressive distributing things," he wrote, "because there will be very good opportunities as the markets [go] into what is likely to be even greater distress, and we want to be in a position to take advantage of them." Translation: Let's find as many suckers as we can as fast as we can, because we'll only make more money as more and more shit hits the fan.

By February 2007, two months after the Sparks memo, Goldman had gone from betting $6 billion on mortgages to betting $10 billion against them — a shift of $16 billion. Even CEO Lloyd "I'm doing God's work" Blankfein wondered aloud about the bank's progress in "cleaning" its crap. "Could/should we have cleaned up these books before," Blankfein wrote in one e-mail, "and are we doing enough right now to sell off cats and dogs in other books throughout the division?"

How did Goldman sell off its "cats and dogs"? Easy: It assembled new batches of risky mortgage bonds and dumped them on their clients, who took Goldman's word that they were buying a product the bank believed in. The names of the deals Goldman used to "clean" its books — chief among them Hudson and Timberwolf — are now notorious on Wall Street. Each of the deals appears to represent a different and innovative brand of shamelessness and deceit.

In the marketing materials for the Hudson deal, Goldman claimed that its interests were "aligned" with its clients because it bought a tiny, $6 million slice of the riskiest portion of the offering. But what it left out is that it had shorted the entire deal, to the tune of a $2 billion bet against its own clients. The bank, in fact, had specifically designed Hudson to reduce its exposure to the very types of mortgages it was selling — one of its creators, trading chief Michael Swenson, later bragged about the "extraordinary profits" he made shorting the housing market. All told, Goldman dumped $1.2 billion of its own crappy "cats and dogs" into the deal — and then told clients that the assets in Hudson had come not from its own inventory, but had been "sourced from the Street."

Hilariously, when Senate investigators asked Goldman to explain how it could claim it had bought the Hudson assets from "the Street" when in fact it had taken them from its own inventory, the bank's head of CDO trading, David Lehman, claimed it was accurate to say the assets came from "the Street" because Goldman was part of the Street. "They were like, 'We are the Street,'" laughs one investigator.

Hudson lost massive amounts of money almost immediately after the sale was completed. Goldman's biggest client, Morgan Stanley, begged it to liquidate the investment and get out while they could still salvage some value. But Goldman refused, stalling for months as its clients roasted to death in a raging conflagration of losses. At one point, John Pearce, the Morgan Stanley rep dealing with Goldman, lost his temper at the bank's refusal to sell, breaking his phone in frustration. "One day I hope I get the real reason why you are doing this to me," he told a Goldman broker.

Goldman insists it was only required to liquidate the assets "in an orderly fashion." But the bank had an incentive to drag its feet: Goldman's huge bet against the deal meant that the worse Hudson performed, the more money Goldman made. After all, the entire point of the transaction was to screw its own clients so Goldman could "clean its books." The crime was far from victimless: Morgan Stanley alone lost nearly $960 million on the Hudson deal, which admittedly doesn't do much to tug the heartstrings. Except that quickly after Goldman dumped this near-billion-dollar loss on Morgan Stanley, Morgan Stanley turned around and dumped it on taxpayers, who within a year were spending $10 billion bailing out the sucker bank through the TARP program.

Still, the allegation that Goldman has been ripping off some of its clients is hardly the most damaging: the firm is, after all, in the business of market-making. And it has also, no doubt, made many of its clients fabulously wealthy. What instead deserves more scrutiny is the ways in which Goldman enriched itself during the chaotic bailout era of the fall and winter of '08-'09, when so many genuinely thought the world was about to end and weren't asking questions when the Fed and Treasury doled out billions upon billions. 

Take this, for example, from Karl Denninger, regarding Goldman's tactic of, essentially, taking out two insurance policies on the same burning house and collecting on both:  

On the day it was announced he is to be awarded the Medal of Freedom, Warren Buffett wrote, in the New York Times, a “thank-you letter” to “Uncle Sam” for giving Wall Street billions of dollars and making sure that institutions like Goldman Sachs and AIG did not perish from the earth.

Though peppered with Buffett’s long-cultivated hokiness, the letter is equivalent to a man sending his prostitute a Christmas card.

Well, Uncle Sam, you delivered.

Buffett certainly took a hit in 2008, though I seriously doubt Berkshire Hathaway would have gone under, as he implies. No matter, Buffett benefited mightily from the bailout era. And “Uncle Sam”’s backstopping of price declines and flooding of the banks with capital was only the beginning. Buffett bought some 5 billion in preferred stock in Goldman Sachs at the height of the crisis in late September 2008, confident that “Uncle Sam” would do whatever it took not just to keep the “Bigs” from failing but make them wildly profitable again.

Only one counterforce was available, and that was you, Uncle Sam. Yes, you are often clumsy, even inept. But when businesses and people worldwide race to get liquid, you are the only party with the resources to take the other side of the transaction. And when our citizens are losing trust by the hour in institutions they once revered, only you can restore calm.

“Uncle Sam” was the only one willing to “take the other side of the transaction” because the assets “he” was buying were worthless.  The “price discovery” that Bernanke referred to in 2008 amounted to letting Wall Street price garbage and sell it to their caring “Uncle.”

And Buffett’s thank-you note is representative of something larger as well. As “Credit Bubble Stocks” writes,

Buffett is an excellent (though overrated) investor, but behind the aw-shucks Omaha façade is a much more "complex" character. He has a lot to answer for.

He is also in the complacent, "rah-rah America" class of investors who think that because the baby boomers lived such pampered lives, misfortune has been permanently banished from history.

I, too, respect Buffett’s “value investing” philosophy and methods. Who wouldn’t? But he is also an example of an entire class of American Baby Boomers (and those who just preceded them) who lived through the greatest credit bubble—and debt-financed consumption binge—in world history and think that they did something special. And the moment this 25-year cycle came to its inevitable end, and their portfolios of mutual funds and real-estate were put in jeopardy, they pleaded to the government to save them. Preserving their current nominal net-worth was so important that they had little compunction impoverishing their grandchildren and enshrining financiers as government-sponsored Masters of the Universe.

Thanks a lot.