Goldman Sachs isn’t the only bank to rip-off its clients and America. But because it is the best at what it does it is the most profitable bank in the world, for now.
Regular, old everyday trading is the key to Goldman’s success.What does that mean? I’m not talking about Goldman’s “big short” and how it bet massively against the subprime mortgage market while simultaneously selling huge quantities of designed-to-fail mortgage securities to its own customers.
And I’m not talking about how Goldman gamed AIG, the largest and certainly biggest too-big-to-fail insurance company in the world, into writing hundreds of billions of dollars of credit default swaps on subprime and AAA-rated mortgage pools for its own benefit. Then with its contracted ability to call on AIG for more collateral in the event of AIG’s downgrade helped to drive AIG’s downgrade and trigger the cash capital calls that sank AIG while (get this) simultaneously profiting on the rising price of the credit default swaps Goldman itself bought on (you guessed it) AIG.
As a former Wall Street executive and hedge fund manager, I’m in awe of the symmetry and elegance of those trades. But that’s not what I’m talking about.
I am talking about what Goldman does every day; its little old trades and how they set them up.
Here’s a good example. Just a couple of days ago Goldman sent out a non-public report to “institutional” clients, namely hedge funds. It was pretty dark. Apparently, its author, Alan Brazil, in the 54 page document said that European banks needed a trillion dollars more capital and that China’s growth miracle was unsustainable among other soothing prognostications.
Mind you, Mr. Brazil isn’t a research analyst walled off from Goldman’s trading desk. He sits on the trading desk where the bank’s customers’ business is transacted on their behalf by Goldman traders who also trade for the benefit of the House, namely, Goldman Sachs.
No doubt, Mr. Brazil was just alerting the bank’s big trading customers of some goings on around the world and offering some help on how they might protect themselves, which he did in the form of suggested trades he’d help them put on. Call it just business as usual.
Of course, Goldman traders, sitting on the trading desks where order flow from customers, clients and countries around the world ends up, would never front-run those orders, nor would they ever use that order flow and all the other order flow from all the other trading venues they have their hands in and on to feed their arbitrage-eating, high frequency trading algorithms. Never.
But, what they can do, legally, as market-makers, is take the other side of any of the trades that come their way. And for that matter, take any side of any trade, or take any side they want in anticipation of any trade they think might come their way in their duties as bona-fide market-makers.
It’s just everyday trading at Goldman that makes them so profitable. In 2010, only 9.3% of Goldman’s profit came from investment banking fees. Most of the rest came from everyday little transactions they often made as market-makers helping their clients.
But the weight of Goldman’s heavy foot on its clients and America is being resisted. The bank faces untold litigation costs and potential damages from pending suits too numerous to list. And worse, regulators and the Justice Department are looking under Goldman’s shoe to determine if it has a soul.
In my opinion, Goldman isn’t just a travesty of a mockery of a sham, it is a criminal enterprise and worthy of being stepped on itself.
As a note of disclaimer, I am not short Goldman. But after this piece is out for a few hours, by the end of today, I just might put my own foot down.