Published July 13, 2009 on Evans Politics, by Paul Evans
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In 2008, Goldman Sachs lost $53 billion, then changed its status to be eligible for a government bailout, took $10 billion of our money, and proceeded to award $5.6 billion in bonuses to its employees. (That is, its home office employees -- Goldman has been cited 173 times for failure to pay even minimum wage to its Burger King Workers.) The New York Times overview on Sachs that in 2007, it "paid its chief, Lloyd C. Blankfein, $68.7 million - the most ever for a Wall Street C.E.O." ...I want to make one one hundreth of that in my whole life and I'll be happy!
However, in a dramatic reversal of fortune, in the first quarter of 2009, Goldman posted a huge profit of $1.66 billion. The bank investment giant is projected to post a profit of about $2 billion for the second quarter.
See, For Goldman, A Swift Return to Lofty Profits, The New York Times, July 12, 2009, by Graham Bowley and Jenny Anderson:
"Startling, too, is how much of its revenue Goldman is expected to share with its employees. Analysts estimate that the bank will set aside enough money to pay a total of $18 billion in compensation and benefits this year to its 28,000 employees, or more than $600,000 an employee. Top producers stand to earn millions."
How, you might ask, is this possible, given the state of the American and world economy? There is a great deal of evidence that Goldman is manipulating the Market by means of sophisticated computer software. This year, in this economy, its shares have gone up 68 percent. The real news about this broke on July 2, with Matt Taibi's article over at Rolling Stone, The Great American Bubble Machine, not that it wasn't pretty widely suspected before:
"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.
<"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.</p>
"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."
Matt discusses Goldman's role in the internet and housing busts, Sachs "graduates" in government, the overriding degree of influence it enjoys, the move to feeding off of taxpayer money ($13 billion of AIG's bailout went to Goldman), and then fast forwards to today. It notes that candidate "Barack Obama receive(d) $981,000 from Sachs employees, and that Obama's Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, (are) both former Goldmanites." The article has good videos, too.
Taibi says that, "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 (more than the Republicans got from Sachs!) manages to push into existence a groundbreaking new commodities bubble, disguised as an 'environmental plan,' called cap-and-trade. ...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."
Taibi claims that Goldman "has the ear of the President if they want it." But how DID Goldman manipulate the markets and engineer these bubbles? ... We aren't sure about the earlier bubbles, but news came out over at Daily Kos on the 6th:
Breaking: FBI Arrest Opens Goldman-Sachs' Pandora's Box:
Daily Kos, July 6, 2009, by Bob Swern
Up until about two weeks ago, Matt Taibbi's favorite Goldman Sachs' market observers, the folks over at the Zero Hedge blog, had been continually commenting over the past six-plus months about how Goldman had all but cornered the market on program trading within the NY Stock Exchange. (Program trading is the automated stock trading via computers by firms specially authorized by the NYSE to facilitate same.) Clearly, according to Zero Hedge publisher Tyler Durden, something was up.
A couple of months ago, we also learned through Zero Hedge that Goldman had profited greatly from a sweetheart deal with the federal government concerning a new program instituted by the Feds known as "The Supplemental Liquidity Provider" Program ("SLP"), launched this past Thanksgiving, which was supposed to provide "market liquidity" (i.e.: an ongoing, active market) for selected groups of 500 different NYSE stocks per SLP participant. As Durden pointed out to all who were interested, it certainly appeared to him that Goldman was the only active participant in the program.
Bob Swern then cites the Zero Hedge blog from July 5th, Is A Case of Quant Trading Sabatoge About to Destroy Goldman Sachs?:
Major developing story: Matt Goldstein over at Reuters may have just broken a story that could spell doom for if not the entire Goldman Sachs program trading group, then at least those who deal with "low latency (microseconds) event-driven market data processing, strategy, and order submissions." Visions of swirling, gray storm clouds over Goldman's SLP and hi-fi traders begin to form."
That week, Goldman's name was completely missing from the NYSE Weekly Program Trading report:
...This week's NYSE Program Trading report was very odd: not only because program trading hit 48.6% of all NYSE trading, a record high at least since the NYSE keep tabs of this data, and a data point which in itself was startling enough to cause some serious red flags as I jaunt from village to village in what little is left of Europe's bison country, but what was shocking was the disappearance of the #1 mainstay of complete trading domination (i.e., Goldman Sachs) from not just the aforementioned #1 spot, but the entire complete list. In other words: Goldman went from 1st to N/A in one week.
Swern then posted a devastating update on July 11th:
DKos Diary Reverberates Throughout Wall St. (w/update
A diary posted here on Tuesday by diarist vets74 (See: "'Incredibly Shrinking Liquidity' as Goldman Flushed Quant Trading") has been the subject of much Wall Street-pundit commentary throughout the blogosphere over the past 48+ hours, starting with noted market observer Karl Denninger: "FLASH: Goldman Code Theft BOMBSHELL?"
This tempest-in-a-teapot--some are seeking to downplay it and they're calling it a "teacup"--is something I covered initially in a related diary a few days ago, in: "Breaking: FBI Arrest Opens Goldman-Sachs' Pandora's Box," and in a follow-up piece on Thursday (July 9th), entitled: "The Outrage Against Goldman Sachs Builds..."
...The abbreviated version of the story, in a few sentences: A senior technology strategist and Vice President at Goldman-Sachs, Sergey Aleynikov, copied much of his firm's "secret sauce"--an extensive set of proprietary, automated stock trading software code and algorithms--all related to "program trading." Upon finding out about this, senior officials at Goldman-Sachs informed the FBI of all of this and had Aleynikov arrested at Newark Airport on July 3rd.
The code, as it has been noted by many, including Goldman-Sachs, allows the firm to execute securities/commodities transactions in microseconds, thus providing their company with an extreme edge over their competitors. The tacit fact is, with proper monitoring of market trades, in general and as facilitated by Goldman's own practices, it's entirely conceivable--albeit significantly questionable from a legal standpoint--that the firm would be enabled to "frontrun" its competition at quite a grand scale, too, since it could see trades occurring in real-time, and then execute its own trades automatically at lightning speed, before the previously-observed trades of others were even concluded.
All along, for the past nine-plus months--and in part due to government-related authorizations (by appointing Goldman-Sachs as the only active player in a new effort known as the "Supplemental Liquidity Program") to enable Goldman to assist the Feds in propping up stock/commodities markets during the noted economic upheavals of same during this period--it has also been widely noted that Goldman had all but cornered the market, literally, in terms of the sheer volume of in-house trading the firm was engaged in during the time, supposedly, on its own behalf; to the point where it had been widely observed and documented that well over half of all program trading occuring on Wall Street (we're talking 20%-30% plus of all stock/commodities trades in this country, for all intents and purposes), during many weeks over the past nine months, was being executed by Goldman-Sachs, too.
...SNIP...
Over the past 48 hours, we're now hearing from many financial services professionals, and they're alluding to the reality that "frontrunning," the illegal practice of jumping ahead of legitimate stock/bond/equity trades to capitalize upon them, is pretty much a common practice; one that has run rampant throughout Wall Street for a very long time.
Along the way, it's made the front pages of numerous financial blogs and media outlets. Here are just a few of the links...
Corrente Wire: Did Goldman Sachs "sniff" trades before they were placed, then place its own trades, and front-run the world?
According to Zero Hedge, Denninger's story on vets74's diary prompted CNBC to summon him over to talk about it last night, "Denninger Goes On Air, One Minute Twenty Seconds Of Airtime Ensues."
The follow-on story by vets74 now appears to have culminated (at least for the moment) with a particularly damning piece posted Friday by Wall St. guru Bill King over at the widely-read GreenLight Advisor, "Automated Frontrunning On An Unfathomable Scale."
More from King, and GreenLight Advisor's comments about King, where we're also reminded that "firms could be making pennies a few billion times per day" from HFT trading:
While the Street is percolating with anger and curiosity about "High Frequency Trading" there is also frustration and astonishment that the media, regulators and our duly elected are not addressing what could be the biggest financial abuse story of our times, if not history.
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Goldman trading code can manipulate the market
From Bloomberg, July 12, 2009
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Other Current News on Goldman Sachs
See, Is Goldman Legally Frontrunning Its Clients?, Zero Hedge Blog, July 1, 2009, by Tyler Durden.
See, Goldman Sachs Manipulation of Commodity Prices - Gasoline and Crude Oil, The Market Oracle, November 1, 2007, by Jim Willie.
See, Banking Cartels Engineered Financial Crisis Endgame, The Market Oracle, July 11, 2009, by DeepCaster, LLC, with good information on the current legislation to audit the Fed.
See, Goldman Sachs Loses Grip on Its Doomsday Machine: Jonathan Weil, Bloomberg.com, July 9, 2009, by Jonathan Weil, covering arrest of Sergey Aleynikov by the F.B.I. and telling the whole story of Goldman and Aleynikov's relationship.
A current, disgusting development is from July 10th, The Huffington Post, by Jason Linkins:
Morgan Stanley, Goldman Sachs Plan to Rebrand Failure as Success
"I have wonderful news to report to everyone! Apparently I have woken up today in a parallel universe, where the sun is shining and the birds are singing and my coffee tastes like malted orgasm. There's something called a "Dylan Ratigan" on my teevee, asking shouty sports pundit Stephen A. Smith about auto bailouts, so it's not like EVERYTHING makes perfect sense, but here's the real good news! Apparently, the financial collapse in the derivatives market never happened! EVERYTHING OLD IS NEW AGAIN AND WILL SUCK AGAIN, YAY!
From this bizarro universe's Bloomberg:
Morgan Stanley plans to repackage a downgraded collateralized debt obligation (of $87 million) backed by leveraged loans into new securities with AAA ratings in the first transaction of its kind, said two people familiar with the sale. (Bloomberg then notes that currently, these bonds have a rating of Baa2, the second-lowest investment grade by Moody's Investors Service. - PE)
"HOW COULD THIS IDEA FAIL? How could anyone not want to put their money in this? This is so dizzying, it's like it is 2003 outside, and everything is new and shiny again."
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Commentary on the State of the Economy
by Paul Evans
To be truthful, the securities fraud referred to by Bloomberg is "just" an $87 million repackaging of some low class derivatives into AAA bonds, but the above thread of articles shows what Goldman Sachs and the other investment banks are up to... totally manipulating the stock market -- and probably largely in full control of it. These investment banks, as we speak, are repackaging their old crappy securities into new packages that will be sold to investors who will be told that, yes, you're buying AAA rated investments. We have to ask, also, how long have they been manipulating and controlling the Market with their program trading (remember that recently the program - software based and initiated - trades have accounted for up to 49 percent of the overall value traded on the market, altogether). These people are CRUD. They've learned nothing, and nothing has changed. Say hello to the next bubble.
The article from July 12th here on Evans Politics by Robert Reich (Clinton's Secretary of Labor), anticipates a slow, painful "recovery" into an economy which is fundamentally different than what we're used to. Looking at it based on what we can start to see happening with the stock market and investment banks versus what we see with jobs, housing and credit, we begin to see some of the outlines of the new economy. The next bubble, starting with the Recovery, will be a Recovery for the rich, and for the stock market, NOT for the lower and middle classes. Note that Goldman Sachs' stock is up 68 percent this year, with a projected profit of about $3.7 billion for the first half of this year. The rich will be making money, and the stock market is starting to recover quite well, but the job market will not be there for the average American, and credit will continue to be hard to get. They've actually done it. They've shipped the jobs overseas, are well into the process of impoverishing "regular" Americans, and the economy is now of, by and for the rich.