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Monday, July 27, 2009

Goldman Sachs: The Great Vampire Squid Watch — July 27, 2009

Items of Interest:

Inside Goldman Sachs, America’s most successful, cynical, envied, despised, and (in its view, anyway) misunderstood engine of capitalism...
“The god is Goldman. You subjugate yourself to that god, and in return we will make you a gazillionaire.”
Joe Hagan / NY Magazine:
Is Goldman Sachs Evil? Or Just Too Good? -- Inside Goldman Sachs, America’s most successful, cynical, envied, despised, and (in its view, anyway) misunderstood engine of capitalism...

Salvation came on November 25, a few days after Goldman’s stock price plunged to $52 a share, down from the year’s high of $200 and the lowest price the company had seen since it went public. Again, the white knight was the government. It turned out that Goldman’s conversion to a garden-variety bank-holding company offered an amazing advantage: Goldman now had access to incredibly cheap money. Exploiting its new status, Goldman became the first financial institution to sell $5 billion in government-backed bonds through the Federal Deposit Insurance Corporation, which allowed Goldman to start doing deals when the markets were at a near standstill. “Goldman was desperate for it,” says a prominent Goldman alumnus. “Everybody knows it. Those FDIC notes they got were lifesaving because they couldn’t issue any debt. If it had gone on another week or two, Goldman would have failed, they would have gone the way of Lehman, and you’d be talking about Lloyd the way you talk about [Lehman CEO] Dick Fuld...

... two former clients told me they had observed firsthand how Goldman traded against their interests to improve its own bottom line—one who didn’t like it, the other accepting it with a shrug and saying, admiringly, that Goldman’s ability to convince the world that it is a “client-oriented” business was its most masterful PR coup...

Goldman’s profiting from this ethical gray area was exemplified by the real-estate market and the subprime-mortgage collapse: Goldman Sachs sold subprime-mortgage investments to its clients for years, but then in 2006 began trading against subprime on its own balance sheet without informing its clients, a hedge that ultimately let it profit when the real-estate market cratered. For some, this was a prescient call; for others, a glaring conflict of interest and inherently dishonest, since the firm let its clients take the fall.

Goldman’s penchant for playing all sides has been business as usual for years, but no one really paid much attention—partly because the economy was booming and there seemed to be plenty of profit to go around. But what once seemed like ruthless laissez-faire capitalism now looks like a rigged market in which Goldman Sachs has far too much control. Earlier this month, Goldman had an ex-employee arrested for allegedly stealing computer codes that could be used, as the prosecutor noted, “to manipulate markets in unfair ways.” Some hedge-fund traders and financial bloggers have speculated that Goldman itself could have been using the codes for the same purpose...
discussion:
Felix Salmon / Reuters: Was the AIG bailout a Goldman bailout by proxy?
Matt Taibbi / TrueSlant: New Info: Goldman Really Was In Trouble
Michael van der Galien / PoiGazette: The Evil Called Goldman Sachs
GoldmanSachs666: Goldman Sachs was on the brink of going under...

Business Insider - Cluster Stock:
Buy CDS From An Insurer That Wasn't AIG? You Got 13 Cents On The Dollar

CBS: The Shine Comes Off Of Goldman Sachs
Kansas City Star: Pro-Con | Does Goldman Sachs deserve the public's wrath?
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Ryan Grim / Huffington Post:
Goldman Sachs: Gambling With Your Money? -- Goldman Sachs is using its new taxpayer-subsidized status to bring increased risk to the financial system, a group of House members charged Monday. They want to know why the Federal Reserve is allowing it.

The group on Monday sent a letter to the Fed asking for an explanation of why Goldman Sachs is being allowed to speculate wildly even while officially redesignating itself a bank holding company, which theoretically means stricter regulation. The bank designation gives Goldman access to dirt-cheap Federal Reserve loans...
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Michael Maiello / Forbes:
It's Time To Break Up Goldman Sachs -- The country and investors would be better served by smaller financial companies.

If we agree on a few basic things that we all want, breaking up Goldman Sachs and most of the other big Wall Street banks makes a lot of sense. Let's start with the wants: The taxpayer should never again be asked to save the banks from the costs of their own investment decisions; American consumers and businesses should have access to financial products, credit and financing; bank shareholders deserve a chance to make some money...
----
How much front-running does Goldman do?

NY Times:
Stock Traders Find Speed Pays, in Milliseconds -- It is the hot new thing on Wall Street, a way for a handful of traders to master the stock market, peek at investors’ orders and, critics say, even subtly manipulate share prices.

It is called high-frequency trading [HFT] — and it is suddenly one of the most talked-about and mysterious forces in the markets...

High-frequency traders often confound other investors by issuing and then canceling orders almost simultaneously. Loopholes in market rules give high-speed investors an early glance at how others are trading. And their computers can essentially bully slower investors into giving up profits — and then disappear before anyone even knows they were there...
discussion:
Zero Hedge:
Ron Insana On HFT --
"I'd prefer that regulators look into whether a firm like Goldman Sachs (GS) unfairly view [sic] order and information flow ahead of its customers and clients..."
The Motley Fool:
The Goldman Sach's HFT Story is refusing to die... -- So it seems Goldman Sachs may have brought more attention to High Frequency Trading (HFT) than they wanted in their legal action towards Mr. Alekynikov. Again though, it was pretty much a Catch 22 for them...

Tyler Durden / Zero Hedge:
JPM's Carl Carrie On Algorithmic Trading -- When the former head of product development in the electronic client solutions group at none other than JP Morgan, Carl Carrie, was last quoted on Zero Hedge, he had some very nasty words for High Frequency Trading. Today, in a podcast transcript by algotradingpodcast Carl shares much more light in just why any reform movement against HFT and PT in general will be met by a huge pushback by exchanges, brokers, infrastructure providers, telcos, and all derivative market players...

Reuters:
Goldman fires back on HFT -- Goldman Sachs is not known for being particularly forth coming with the press. The investment firm’s two favorite words for dealing with media inquiries are “no comment.”

But all of sudden Goldman is taking an aggressive stance when it comes to the subject of rapid-fire high frequency stock and commodities trading–an activity that is drawing increasing scrutiny from the press, regulators and even the folks on Capitol Hill...
----
Bloomberg:
High-Frequency Trading Faces Challenge From Schumer -- High-speed trading in the U.S. stock market may face its biggest threat after Senator Charles Schumer proposed prohibiting so-called flash orders...
related:
Reuters: Schumer aka Flash Gordon
Zero Hedge: Schumer Letter To Mary Shapiro
Zero Hedge: Goldman's Ed Canaday On The Requirements For High Frequency Trading Oversight
----
James Howard Kunstler / kunstler.com:
Evil Syndicated -- By now, everyone in that fraction of the world that pays attention to something other than American Idol and their platter of TGI Friday's loaded potato skins knows that Goldman Sachs has been caught at another racket in the stock market: front-running trades. What a clever gambit, done with the help of the markets themselves - the Nasdaq in particular - in which information on trades is held back a fraction of a second from public view, while the data is shoveled to the computers of privileged subscribers who can execute zillions of programmed micro-trades before the rest of the herd makes a move. This allows them to vacuum up hundreds of millions of dollars by doing absolutely nothing of value...
----
Tyler Durden / Zero Hedge:
The Goldman VaR Exemption Question Escalates -- It seems only yesterday that Zero Hedge had some questions in regard to Goldman's VaR Fed exemption. No response was received from 85 Broad. Today it appears several Congressmen, lead by Alan Grayson, are willing to drive a sharp stick pretty deep into the hornets' nest, by sending a letter directly to Wall Street Don Ben Bernanke, demanding an explanation exactly to the question of Goldman's VaR Exemption...
----
MSNBC:
Here’s how Goldman Sachs makes all that cash -- While the U.S. banking industry struggles to right itself, Goldman Sachs has figured out how to turn financial turmoil into gold. Here’s how.

The answer is that Goldman Sachs isn’t really a bank. It’s a gigantic investment company that offers very limited conventional banking services — like lending money — on the side. Because it’s one of the few investment banks left standing, it has the highly profitable field of trading and underwriting pretty much to itself...

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Paul Krugman - NY Times

The Big Picture - Barry Ritholtz

naked capitalism - Yves Smith

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The Daily Reckoning - Australia

Financial Sector and Stocks Analysis from Seeking Alpha

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