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“A great vampire squid wrapped around the face of humanity”

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  1. Lugus Luna says:

    One of the main arguments against Taibbi’s vampire theory of GS in this commentary article seems to be why GS, and their supposed co-conspirators, would blow up the cash machines they created. Though I agree that Taibbi has gotten a bit carried away, I don’t think this argues against his charges at all. The reason GS would build up a bubble and then pop it is blindingly simple. It’s called “selling short”. First of all, no matter how good you are at manipulation, no market can rise forever, so you either have to pop it or let it gradually run out of steam, which means you stop making money, or worse, it pops on its own and you get hammered along with everyone else. If you are in a position to know what the market is doing (like by being a great vampire squid), then market volitility is your friend — it matters little which direction it is moving. You make money as the bubble expands by buying long, then you pick when you are going to pop it and make money even faster on the way down by selling it short. It is commonly recognized that markets typically fall (quite a bit) faster than they rise, so you make as much money on the way down as you did on the way up, you just make it a lot faster. Then you do the whole thing over again in a different market. Just because they pop a bubble they created doesn’t mean they are popping their money machine — far from it — if anything, popping the bubble makes the machine spit money into their pockets even faster. That’s pretty much what the SEC is saying (albeit on a smaller scale) with the current law suit based on the Paulson deal. While I don’t think Taibbi has all his facts straight, and is being a bit too literal, I also think he is not all that far off the mark. I think we have witnessed, over the past few years, the biggest theft in human history. And I don’t think it’s over. Yes, some of the players got sucked into the drain, but I think that had more to do with thieves fighting over spoils than anything to do with normal market forces. Unless, of course, you consider vampire squids to be part of the normal market.

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