Goldman Sachs is back in the spotlight. This time, there is a chorus of disgust being expressed about how Goldman conducts its business. Back in June of 2009, Matt Taibbi famously characterized Goldman Sachs in the following terms:
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.
The latest episode of predation by the Vampire Squid concerns an August 16 report prepared by Alan Brazil, a member of Goldman’s trading team. Brazil prepared the 54-page presentation for the firm’s institutional clients as a guide to the impending economic collapse with some trading strategies to benefit from that event. Page 3 of the report starts with the headline: “Here We Go Again”. The statement was prescient in that the report itself initiated a renewed, consensual effort to condemn Goldman. Page 4 has the headline: “The Underlying Problem May Be Structural And Created By the Housing Bubble”. The extent to which the underlying problem may have been caused by Goldman Sachs had been previously discussed by Matt Taibbi, who explained Goldman’s propensity to act the way it always has:
If America is circling the drain, Goldman Sachs has found a way to be that drain . . .
Shah Gilani of Forbes reacted to the publication of Alan Brazil’s report with the following statement, which was used for the title of his own article:
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.
Susan Pulliam and Liz Rappaport broke the story on Goldman’s “Dark View” for The Wall Street Journal:
The report, released by the Hedge Fund Strategies group in Goldman’s securities division, provides a glimpse into the trading ideas that are generated for hedge funds through strategists, such as Mr. Brazil, who are part of Goldman’s trading operation rather than its research group.
Such strategists sit alongside the traders who are executing trades for their clients. Unlike analysts in firms’ research divisions—who are supposed to be walled off from information about the activity of the firm’s clients—these desk strategists have a front-row seat for viewing the ebb and flow of clients’ investment plays.
They can see if there is a groundswell of interest among hedge funds in taking bearish bets in a certain sector, and they watch trading volumes dry up or explode. Their point of view is informed by more, and often confidential, information about clients than analysts’ opinions, making their research and ideas highly prized by traders.
The report itself makes note that the information included isn’t considered research by Goldman. “This material is not independent advice and is not a product of Global Investment Research,” the report notes.
The idea that such a gloomy assessment had not been shared with the general public has become a frequently-expressed complaint. Michael T. Snyder wrote a piece for Seeking Alpha, which provided this explanation for the lack of candor:
As I wrote about the other day, the financial world is about to hit the panic button. Things could start falling apart at any time. Most of these big banks will not publicly admit how bad things are, but privately there is a whole lot of freaking out going on.
* * *
You aren’t going to hear the truth from the media or from our politicians, because keeping people calm is much more of a priority to them than is telling the truth.
Henry Blodget of The Business Insider dissuaded the “little people” from getting any grandiose ideas after reading Brazil’s briefing:
Unfortunately, lest you think your knowledge of this semi-secret report will finally allow you to out-trade hedge funds, it won’t. The hedge funds got the report on August 16th. As usual, you’re the last to know.
Beyond that, there is Goldman’s longstanding reputation for “front running” its own clients, which must have inspired this remark in a critique of Alan Brazil’s report, appearing at the Minyanville website:
Coincidentally, he had some surefire trading strategies for clients interested in capitalizing on this trend. Presumably, Goldman’s own traders began bidding the various recommended hedges up some time earlier, a possibility Goldman discloses up front.
So this is what the squid is down to these days: peddling the obvious to the bottom-feeders below it in the financial food chain.
By now, those commentators who had criticized Matt Taibbi for his tour de force against Goldman (such as Megan McArdle) must be experiencing a bit of remorse. Meanwhile, those of us who wrote items appearing at GoldmanSachs666.com are exercising our bragging rights.
Manifesto
For the past few years, a central mission of this blog has been to focus on Washington’s unending efforts to protect, pamper and bail out the Wall Street megabanks at taxpayer expense. From Maiden Lane III to TARP and through countless “backdoor bailouts”, the Federal Reserve and the Treasury Department have been pumping money into businesses which should have gone bankrupt in 2008. Worse yet, President Obama and Attorney General Eric Hold-harmless have expressed no interest in bringing charges against those miscreants responsible for causing the financial crisis. The Federal Reserve’s latest update to its Survey of Consumer Finances for 2010 revealed that during the period of 2007-2010, the median family net worth declined by a whopping thirty-eight percent. Despite the massive extent of wealth destruction caused by the financial crisis, our government is doing nothing about it.
I have always been a fan of economist John Hussman of the Hussman Funds, whose Weekly Market Comment essays are frequently referenced on this website. Professor Hussman’s most recent piece, “The Heart of the Matter” serves as a manifesto of how the financial crisis was caused, why nothing was done about it and why it is happening again both in the United States and in Europe. Beyond that, Professor Hussman offers some suggestions for remedying this unaddressed and unresolved set of circumstances. It is difficult to single out a passage to quote because every word of Hussman’s latest Market Comment is precious. Be sure to read it. What I present here are some hints as to the significance of this important essay:
For some insight as to why the American megabanks were never taken into temporary receivership, it is useful to look back to February of 2010 when Michael Shedlock (a/k/a“Mish”) provided us with a handy summary of the 224-page Quarterly Report from SIGTARP (the Special Investigator General for TARP — Neil Barofsky). My favorite comment from Mish appeared near the conclusion of his summary:
On January 29 2010, David Reilly wrote an article for Bloomberg BusinessWeek concerning the previous week’s hearing before the House Committee on Oversight and Government Reform. After quoting from Reilly’s article, Mish made this observation:
David Reilly began the Bloomberg Business Week piece this way:
That “secretive group” is The Federal Reserve of New York, whose president at the time of the AIG bailout was “Turbo” Tim Geithner. David Reilly’s disgust at the hearing’s revelations became apparent from the tone of his article:
At least in the Eurozone there is fear that the taxpayers will never submit to enhanced economic austerity measures, which would force the citizenry into an impoverished existence so that their increased tax burden could pay off the debts incurred by irresponsible bankers. In the United States there is no such concern. The public is much more compliant. Whether that will change is anyone’s guess.