Sunday, 26 July 2009

The Seven Immutable Laws of Bubbles: Example, Housing in USA, UK & Dubai

The cycle of bubble and bust in housing is drawing to a close. For many the ferocity of the bust and the collateral damage that followed was a shock, but bubbles and busts are not new; chances are there will be more.

I got interested in bubbles in early 2008 trying to figure out why my model of real estate prices that had worked perfectly for ten years was saying that prices in Dubai which is where I was at the time, "should" have been 30% less than where they were.

This is what I found out:

Law #1: All bubbles need a catalyst, like a stone to throw into a still pond.

Bubbles start in "good times", typically GDP is going up and people have money to spend and invest, so money starts chasing assets and if it takes time for the supply of those assets to increase, prices go up.

For example, the fundamental price of housing long-term is exactly equal to nominal GDP per house divided by a function of long-term interest rates ( When nominal GDP goes up a lot faster than the supply of housing does, then the price of housing goes up; that's supply and demand, there is nothing wrong with that but it's the pebble in your hand; just you didn't throw it yet.


Dubai rental prices decrease as some sale prices stabilise

Property units in areas seen as prestige developments and those that offer completed amenities and ease of commuting access to business zones have begun to see an increase in pricing, as buyers in the Dubai market continue to increasingly highlight differentiation between communities, according to a market report.

Properties on the Palm Jumeirah, which suffered some of the largest falls in price during Q4 2008 and Q1 2009, may be showing signs of stabilisation, driven by the slowdown in 'distressed' units coming onto the market, Dubai-based property services group Asteco has said.

Emirates Financial Tower - July 26 Construction Update

Emirates Financial Towers, Dubai International Financial Centre (DIFC)
The proposed development on Dubai International Financial Centre (DIFC Plot CP-06)

will be a mixed development with 61,300 sqm of Gross Floor Area, and over a million square feet of gross building area.

The massing of the project will consist of two towers linked by a tubular glass sky bridge. Both almost identical towers will sit on a four-storey podium and a four-storey basement. The podium will comply with the master plan for DIFC in that it will be physically attached to the neighboring plot as well as the retail mall. Below ground, the basements are intended to allow links to the central services, parking and services along the central spine of DIFC.

The elliptical plan profile will allow the shape of the towers to appear different depending on the angle at which the development is viewed from. The sky bridge will also be a distinct feature both from within and beyond the development.

The Towers and Sky Bridge
The two towers are elliptical in plan profile and identical in height. Both towers, each twenty seven-storeys high, will be commercial offices. Piercing the two towers at the 18th floor is the glass tubular sky bridge, which will house a commercial club.

The Podium
The podium and basement will contain the retail component and parking for the entire development. This parking will be able to accommodate four hundred cars.

Part of the podium abutting the retail spine is designed as terraces that will allow light, air and greenery into the retail elements. This will allow opportunities to enliven the retail experience with waterfalls, landscaped features, natural light and outdoor activities such as al fresco dining.

The sensuous and aerodynamic curves of the tower will complement yet distinguish itself from the hard edge buildings increasingly common in the competitive Dubai Skyline. The sculptural profile of the elliptical towers, the sky bridge, and the distinct angles of tower tops will allow the development to define its presence and identity while adding and complementing Dubai's already impressive skyline and cityscape

Sunday, 19 July 2009

Ajman and Dubai to be linked by Water Taxi service

The Ajman Municipality, together with Dubai RTA, plans to launch the water taxi service to link the two emirates. The Ajman Municipality had submitted a proposal regarding this to the RTA, which promptly accepted the joint project.

Ajman-Dubai Water Taxi service will get operational by the beginning of next year, with one million commuters expected to be transported annually.

About 30 percent of water taxi project has been completed at present. The first phase of the project will cost Dh.30million, and the RTA has so far approved 17 stops from Ajman. The first phase will include 10 stops, while the second will include 17, apart from the stops in Ajman.

In Ajman, the Municipality has chosen two locations to construct taxi stops – the Ajman Corniche and the Fish Market. The stops will be easily accessible to commuters from several pasts of the emirate and will be equipped with all necessities such as air-conditioning and vender machines, seats for snacks and soft drinks.

The project aims to develop the areas around the taxi stops, in which restaurants, cafeterias and other outlets will be constructed to attract investors. Booking services will also be available through phones. Commuters can hire taxis from the stops, or they could be rented for tourism purposes between the two emirates.

The project will also help ease traffic congestion between the emirates and is hoped to boost tourism.

Problems with Dubai Property sector

Dubai´s property market which already saw a plunge of more than 40 percent in the first quarter of 2009 suffered another blow after a respected ratings agency forecasted that the country is in debts that it may have trouble repaying.

According to a report by Property Frontiers, Standard & Poor´s Ratings Service (S&P) downgraded ratings for three government backed entities, namely, port operator DP World, the Jebel Ali Free Zone and Dubai Multi Commodities Centre Authority, putting the trio on credit watch since April.

“The rating actions reflect Standard & Poor’s reappraisal of the likelihood of extraordinary financial support by the Government of Dubai to ensure the timely repayment of their financial obligations,” the agency told Property Frontiers.

S&P said the reappraisal also was the result of “increased uncertainty in regards to the government’s willingness to provide such support” to Nakheel, the property developer who built Dubai’s manmade islands.
On a separate report by Property Wire, the downturn in the property market in Dubai has resulted in about 400 people losing their jobs at major developer, Nakheel.

Property Wire reported that Nakheel, whose ambitious projects include the Palm Islands, has made the latest redundancies on top of 500 that were carried out in December.

´Nakheel continues to re-adjust its current business objectives to match supply and demand in the most effective way,´ a company spokesman told Property Wire.

Developers, who were mostly reliant on off-plan sales to finance the construction of their projects, have struggled to collect payments, leading to rising defaults, while payments to suppliers have been delayed.

High profile development projects have also been delayed and it is estimated that currently over £335 billion of projects have been halted or are on hold.

Dubai´s real estate market is the second worst performing housing market according to a global housing price research, coming in 44th in ranking – second only to Latvia.

S&P said the downgrades “reflect our view of the stand-alone credit profiles of the entities, which in certain instances, we consider to have deteriorated.”

New procedure for UAE visit visas from 1st August 2009

Beginning next Tuesday, applications will be filed for new visit visas which were revamped under a Federal ruling last June, revealed an official at senior residency department.

The new fee schedule for visas ranging from visit visas to medical treatment visas, which should have been effective from 1st August, has been postponed due to the weekend holidays (30th July is an official government holiday). The rules are applicable to nationalites, requiring sponsorship for arriving in the country.

The DNRD (Dubai Naturalization and Residency Department) and the Economic Department will meet with representatives of tourist agencies, hotels, educational institutions and hospitals on Wednesday to brief them regarding the implementation of changes.

The Director-General of DNRD, Maj. Gen. Mohammad Ahmad Al Merri, has reiterated the fact that visitors should hold health insurance coverage, while the sponsors will have to pay a refundable deposit of Dh.1000.

The Visit visa holder will be permitted to enter UAE once in two months from the date of issuance of visa. As per the amendments, there will be 16 new types of visas.

Residents can seek visas for their spouse or blood relative. Expatriates will not be permitted to sponsor friends, while sponsoring blood relative will need prior permission of a senior officer.

As per the new regulations expatriates will not be eligible to apply for relatives seeking to enter UAE for any medical treatment. Only hospitals are allowed to do this.

New Visa Fees are as follows (in Dirrhams)
Short Entry (visit) Visa - 500 (1 month)
Long Entry (visit) Visa - 1,000 (3 months)
Multiple Entry Visa - 2,000
Entry Visa for Study - 1,000
Renewal of Study Visa - 500
Entry Visa for Medical Treatment - 1,000
Renewal of Medical Treatment Visa - 500
Entry Visa for Expos and Conferences - 100
Tourism Entry Visa - 100
Renewal of Tourism Visa - 500
Entry Visa for GCC State Residents - 100
Renewal of GCC State Resident's Visa - 500
Entry Visa for GCC State Resident's Companions - 100
Renewal of GCC State Residents Companions' Visa - 200
Mission Entry Visa - 200
Transit Entry Visa - 100

Thursday, 16 July 2009

Burj Dubai - July 02 2009

The most beatiful bulding in Dubai - filmed on July 02, 2009

Friday, 10 July 2009

Donald Trump - Dubai Tower

Donald Trump is one of the world’s most successful businessmen, with an impressive international property portfolio. Speaking from the Trump Tower boardroom in New York, he tells us about his latest venture in Dubai

Why have you bought in Dubai?

Dubai is a splendid place, which I’ve been to many times. Trump Tower Dubai is a project I’m involved with along with the property developers, Nakheel. It is unbelievable, it will be the best in the world.

Do you actually own there yourself, or are you just putting your name to the venture?

No, I’m keeping one of the apartments there for myself. I love the city, it’s a hot place, it’s a great place, and there will not be any other buildings or locations like it. People from around the world tend to buy wherever I build, so it represents a great investment.

Surely you must have one of the luxury penthouses?

No, it’s just an apartment. The penthouses are already in great demand and are setting property rice records at £3,000 per square foot which, for what they are getting, is an incredible bargain.

We’ve heard all about your plans for a golf development in Aberdeen, Scotland, being on hold because of various environmental issues. Has your experience there put you off developing?

Certainly not! We have 97 per cent agreement and are confident that it will go ahead – we’re swaying them! That course will be one of the world’s finest. I now even have the great 007, Sean Connery, on my side, which I’m very happy about. I certainly wouldn’t want him against me!

How does developing in Dubai compare with, say, developing in New York?

In Dubai they are building in the ocean, which has never been seen before – it’s really spectacular, a real engineering feat. I love building and I love engineering. I come from a country that likes to get things done but it’s now very hard to get things done in the US. With planning constraints, you couldn’t do what we’re doing in Dubai here in New York so I’ve great respect for what they’re achieving out there Your current portfolio includes the Grenadines, Seoul, São Paulo, Istanbul, Punta Bandera in Mexico, Cap Cana in the Dominican Republic, Tel Aviv, Toronto and Puerto Rico.

Wherever next?

We are looking at other things but I don’t want to say where until the contracts are signed. We want to make sure that Trump Tower Dubai is the great success which we know it will be, then we will be looking at other things, ideally with Nakheel.

Are there any destinations which you wouldn’t touch?

There are but I wouldn’t like to insult anyone by naming them.

With much of the world suffering an economic downturn, do you think your timing on this project is good?

I think the timing on this is great as Dubai is doing so well. Most of the USA’s not doing so well, although places like Manhattan are unique. I just sold a house in Palm Beach, Florida for over $100 million – that’s another unique area.

You front the original, American version of The Apprentice. Who is meaner, you or Sir Alan Sugar?

We’re different but I think he’s terrific and does a good job. We had plenty of choice for the UK show, lots of people wanted to do it but I think we made the right decision when we hired him.

You are involved in so many diverse products, from clothes to casinos even water and vodka. Which of your business interests gives you the most pleasure?

I take great pleasure in all of them, but I really hope the golf development works out in Scotland. The Apprentice has been great for the Trump brand – we’re all about quality and the show highlights that, all over the world.

You have numerous holiday homes around the world, and have just added to them with this latest Dubai property. Do you plan on taking many holidays there?

I’ll be visiting for business and to play golf, which I love – but no, I don’t take too many holidays. What do you like doing in your rare moments off? I love all sports, golf, tennis and soccer – or football as you call it in Europe.

Ajman - new building regulation

A new Law issued by H H Shaikh Saud bin Saqr Al Qasmi, the Crown Prince and Deputy Ruler of Ras Al Khaimah, will bring in better regulation to the building sector in the emirate.

According to Law No.1 of 2009 for regulation of buildings in the emirate, it will be applicable to all buildings, except those that come under special decree or resolution.

The Law does not permit anybody to construct a building or make additions, or expansion, or partly or wholly demolish it, or make any modifications, whether on the facet or internal divisions, without prior permission from the authorized section of emirate’s municipality.

The law is applicable to a range of topics dealing with buildings, such as designs, construction, architectural standards, specifications, license, additions, expansions, maintenance, safety, and penalties for breaching provisions of the law.

As per the law, the construction permit will remain valid for a period of one year from the date of issuance and will be considered void, if no construction happens on the site within the said period or if the work is stopped for more than six months, without valid reasons. The permit can be renewed within 30 days following expiry.

The Architect is responsible for the safety of the building for ten years after delivery. The Municipality Chairman has the right to instruct the concerned authorities to remove unlicensed caravans, pounds, and makeshift houses when their owners fail to do so after expiry of the grace period given to them.

Based on the Technical Committee recommendations, the Municipality Chairman can also order demolition of any worn-out buildings or facilities that may pose danger to inhabitants and passers-by or harm the environment and public health.

The law will be implemented within a month after its issuance and will be published in the gazette.

Monday, 6 July 2009


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


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 rear end in a top hat 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 multibillion-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. ...


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 small-time 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 investment-trust game late, then jumped in with both feet and went hog-wild. 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 ....

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 co-chairman 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. ...

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 cliche 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. ...

The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren't much more than pot-fueled ideas scrawled on napkins by up-too-late bong-smokers were taken public via IPOs, hyped in the media and sold to the public for megamillions. 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." ...

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 Nichol as Maier, the syndicate manager of Cramer & Co., the hedge fund run at the time by the now-famous chattering television rear end in a top hat Jim Cramer, himself a Goldman alum. ...

"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. ...

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.

Goldman's role in the sweeping 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. ...

None of that would have been possible without investment bankers like Goldman, who created vehicles to package those lovely 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 lovely 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. ...

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 1l,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 subprime - 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 2006-S3. 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. .... 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 hosed the investors who bought their horseshit CDOs by betting against its own crappy product, then it turned around and hosed the taxpayer by making him payoff 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.

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, subprime 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. ... In 1936, 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.

"1 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?'" ... [I]n 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 of2008, 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. ...

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 greenlighted 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 bankholding 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." ...

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 hosed 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."

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 billions 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 an 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. ....

"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.

The bubbles don't come 'til the end of the program... Turn off the bubbles... Turn off the bubble machine!

Dubai Real estate sector - July 2009 update

For instance, Nakheel has announced that parts of the Dh.350bn Jumeirah Garden City, the Trump International Hotel, the Tower on Palm Jumeirah, and the kilometer-high tower will be put on hold.

Even work on 'The Universe' will be restricted to preliminary studies, Nakheel said. Decrease in liquidity and financing has led to delay in progress of such projects, resulting in these projects bearing the brunt of financial turmoil. The mega-projects that had earlier brought about a property boom in Dubai, have now been put on hold.

Limitless too, revealed that it is reviewing construction schedule of Arabian Canal. The Head of Dubai's RERA, Marwan bin Galita, said that developers need to review their projects which are yet to be launched for sale. Recession is a very crucial phase, and RERA had been urging developers to do this about a year back, Galita said.

Moody's rating change - Emaar and Dubai Holding merger

Moody's yesterday reacted to this scenario by downgrading its credit rating on Dubai Holding from level A2 to A3 and placed it on review for further downgrade. Similarly, Emaar has been put on review for possible downgrade from the current Baa1.

Although Moody's acknowledges that Dubai property market have almost bottomed out, the financial implications of its decline have taken its toll on both companies 'debt protection metrics', said Phillip Lotter, Senior Vice President at Moody's and Lead Analyst for Dubai Holding.

Best real estate investment overseas

When it comes to overseas property investment there are several choices to be made. What type of investment a person makes depends on what they want from the property, and the type of investment they are making also affects the destinations they will consider.

If a person wants a holiday home that will pay for itself in rental income when the buyer is not using it, then that person is a holiday home investor. They must choose a property suitable to accommodate them and those they holiday with, in a destination that they would like to spend their holidays in, which also has a strong rental market.

Then there are pure-investors, which are then split into short-term investors and long-term investors.

Short-term investors must choose a property that is going to appreciate rapidly in value, in a location where there will be plenty of people to sell to 2-3 years down the line. For this they will probably be looking for a strong and/or growing internal housing market.

Long-term investors have a much wider choice; because, failing some catastrophic event, practically every property is going to appreciate in value over the long-term. The question is by how much?

For long-term investors it is primarily about economic growth and stability. It is growth in the economy that really pushes up house prices, and also increases internal demand for housing and second homes, which in turn provide the exit strategy.

Below we have attempted to narrow down this vast choice, by choosing five destinations we think will be among the most lucrative for long-term property investors.



Albania is busy making the transition into a great industrialised nation. The government has managed the economy excellently over the last decade, making some excellent structural reforms. Between 2002 and 2006 a quarter of Albania’s poorest were brought out of poverty. This led to the World Bank upping Albania’s status to a middle income country in 2007.

This meant that Albania could then apply for loans from international banks as oppose to being reliant on hand-outs from the likes of the International Monetary Fund.

Albania made the most of this; taking out several multi-million dollar loans for infrastructure projects to increase the productivity of the country.

These included a massive loan from the Japanese government to improve the country’s canal system, another from the European Bank for Reconstruction and Development to build a new terminal at Albania’s largest port in Duress, and another loan to build a major highway between Duress and Kosovo.

What’s more Albania is on track to join the European Union in 2014. Their loans and grants will aide in Albanian economic reforms, and EU membership will boost the economy massively.

Property values in Albanian cities, especially the capital Tirana will grow exponentially over the long-term, especially since they have such a low starting point. You can currently buy a luxury 2 bedroom apartment in Tirana for under £50K off the plan. This is likely to be worth £250-£500K within 7-10 years.



Even as almost every country in the world is falling into recession, the Panamanian economy is to grow by 3% this year according to the International Monetary Fund. Panama’s economy is primarily fuelled by its strong and massively growing services sector, especially the services involved in the operation of the Panama Canal, the only waterway that transverses the land-bank between Central and South America, as well as the Colon Free Trade Zone. More recently tourism has started to play a bigger part.

The Canal is currently being expanded to triple its capacity. This has led to Panama being at the centre of global investment, with many businesses seeing the benefit of having offices or distribution centres within range of the Canal. Because of this Panama’s economy will continue to grow between now and the completion of the expansion in 2014, when growth will accelerate.

The good thing about Panama is that it is the most popular choice for American retirees, to American’s what the Costas are to Brits if you like. This can be looked upon as an exit strategy for today’s investors. Panama property is likely to be worth 2-5 times its current value over the next 5-10-15 years.



In Brazil’s case it is simple. Brazil is among the top 5 largest food exporters in the world, with the world’s second largest cattle stocks, and is also the second largest exporter of meat. On top of that Brazil’s services sector is growing rapidly as are the hospitality, construction, tourism and health tourism sectors

The world’s leading analysts have predicted that Brazil will be the fifth largest economy in the world in the next 5-10 years. Yet property is currently a lot less expensive than in the world’s other leading economies — especially if you look at houses on the internal market. As Brazil grows into one of the largest economies, property will grow in value till prices are similar to those in the other major economies, at which point growth will slow to the established market average of 10% per annum.



Tunisia is also one of the fastest growing emerging market economies, based mainly on massive growth in the agricultural sector, and more recently stable growth in the construction industry. The Tunisian economy is expected to grow by over 4% this year according to the IMF.

Tunisia is unique among the emerging markets because the government would not allow foreigners to buy property until over 75% of the internal population owned their own homes. This is far more than in the world’s larger economies, including the UK in which only 71% of people own their own homes.

Property in Tunisia presents the opportunity to buy property at the low prices you’d expect to find in an emerging market, within the developed internal housing market you’d expect to find in an established market. A great combo for the long-term investor.



You can’t have a list of top overseas property investment destinations without including parts of Asia. The only reason there aren’t other Asian countries in this is because of laws preventing foreign ownership, and/or because they are better for short-term investment which is of course another article.

The Philippines is the tiger among the emerging markets of Asia. Its services sector continues to grow exponentially on the back of the outsourcing boom which has expanded due to the credit-crunch tightening the belts of global businesses. Worker remittances from the thousands of Filipinos working abroad also continue to grow. Because of these two industries and others, the Philippines economy is forecast to grow by over 4% this year according to the IMF.

The Philippines was among the worst affected by the Asian economic crash earlier this millennium, so property prices are currently among the lowest in Asia. Because of this and the fact that the two main growth sectors mentioned above are pretty much recession-resistant, the Philippines is an excellent long-term property investment destination.

Dubai real estate prices are heading down... 2009

Moves by the Dubai government to inspire confidence in the once booming property market seem to have backfired.

The recession has shown that Dubai’s growth was financed by billions of pounds of debt and this burden is threatening to drag the city under the desert sands.

Several government-backed developers were at the forefront of major residential and commercial buildings in Dubai.

Shares in the largest listed Arab developer Emaar Property had 10% wiped off their price on announcement of the merger with Dubai Properties, Sama Dubai and Tatweer.

These three companies are all subsidiaries of Dubai Holdings, which has the backing of the Dubai royal family and analysts fear in the background assets are just being shuffled on paper to shore up ailing companies.

The new company would have assets of £32 billion, according to Emaar chairman Mohammed Alabbar. The problem is no one knows how far property prices have plunged in Dubai and whether they have hit the bottom yet.

Dubai has already issued a $10 billion bond tranche to help the crisis hit economy, but still faces debt issues.

The last official figures showed 40% was wiped off residential property values in the first few weeks of this year - and Alabbar confirmed his valuation of the assets was on figures for the end of 2008.

The mergers smack of debt consolidation by using Emaar’s stronger balance sheet as security against the weaker financial positions of the other companies.

The move has yielded mixed results for Emaar, with Standard & Poors (S&P) saying it revised its ratings for the firm to developing while Moody’s Investors Service, in a separate statement, said it placed Emaar on review for possible downgrade. Moody’s also downgraded Dubai Holding’s and placed it on review for further downgrade.

S&P also downgraded credit ratings for port operator DP World, the Jebel Ali Free Zone and Dubai Multi Commodities Centre Authority, all of which had been on negative credit watch since April.

“The rating actions reflect Standard & Poor’s reappraisal of the likelihood of extraordinary financial support by the Government of Dubai to government related entities to ensure the timely repayment of their financial obligations,” said S&P.

The downgrades also “reflect our view of the stand-alone credit profiles of the entities, which in certain instances, we consider to have deteriorated,” said S&P.

The agency added the reappraisal also was the result of “increased uncertainty regarding the government’s willingness to provide such support” to Nakheel, the property developer famed for building Dubai’s manmade islands.

For property investors, the S&P and Moody’s downgrades are definite red light to putting any more cash in to Dubai until the storm has settled and the full extent of how much debt the government is carrying as a major shareholder in just about every business deal in the country.

Investors should remember that all property market and financial data is historical and it may take a year or so for accounts and statistics to catch up with what is really happening on the ground in Dubai.

Dubai property prices should rise in Q4

Dubai property prices are provisionally starting to stabilise as the market embarks on the road to recovery, according to Sherwoods Independent Property Consultants.

The company expects residential prices to start appreciating by Q4 2009, followed by a year of ‘stability’ in 2010.

Iseeb Rehman, managing director of Sherwoods says the fall in Dubai property prices has created the potential for good value for money deals for both buyers and investors.

Commenting on the fact that Dubai has recently introduced a series of property regulations and legal framework in an attempt to improve the sector’s transparency, Rehman told the press:

"I think the effort put in by RERA (Real Estate Regulatory Agency)has been extremely positive, but the challenge is to continue to carve out and enhance the regulatory framework and to ensure adherence of the same from all segments of the industry.

“Also, I think they now have to focus on sending positive signals into the market and make sure that the interests of every segment of the real estate industry is taken care of.”