They Still Don’t Get It: Wall Street May Sue Obama

Please join us at lunchtime on January 21st in front of Goldman Sachs to let the financial elites know that Americans will no longer sit quietly and allow un-American and unpatriotic behavior that bankrupts our country. Noon-2 pm–85 Broad St, Manhattan, New York (and if you can’t come, spread the word)

Tasini for US Senate

Over at New Deal 2.0, Nomi Prins, a former Goldman insider, thinks the answer's no:

But, the question is, would the massive bailout of the financial sector have occurred, had women been at its helm? Indeed, Davos economists this year speculated that the presence of more women on Wall Street might have averted the downturn.

She lines up the likes of Elizabeth Warren, Sheila Blair, Brooksely Borne against some of the more prominent vampire squid -- Bernke, Paulson, Geithner, Lloyd Blankfein (of we're doing "God's work" fame) et al and thinks the gender split may be not just coincidental.

The Nation:

Who drafted this dubious piece of legislation? Bankers (or their lawyers) did. The leading sellers of derivatives are an exclusive club of five very large financial institutions--Citigroup, JPMorgan Chase, Bank of America, Morgan Stanley and Goldman Sachs--that hold 95 percent of the derivatives exposure among the largest banks (the total contract value exceeds $290 trillion). These are the same folks who toppled the global economy and compelled government to intervene with gigantic bailouts.

Here:

Education

* Bank Street College of Education

Industry

Gambling & Casinos

Haw.

Dean Baker asks a good question:

The NYT had a bizarre piece in which it reported on the FBI's arrest of a former Goldman Sachs employee because he allegedly stole software from Goldman Sachs which the article says a federal prosecutor claims: "could be used to 'unfairly manipulate' stock prices."

Having bailed them out with billions of TARP dollars, we must now allow them to make even more money. Reuters:

Wall Street banks and lawyers could collect nearly $1 billion in fees from the Federal Reserve Bank of New York and American International Group Inc to help manage and break apart the insurer, The Wall Street Journal said on Wednesday, citing its own analysis.

Morgan Stanley could collect as much as $250 million, the newspaper said, citing banking experts and documents released by the New York Fed.

Matt Taibbi asks: Is Goldman screwing taxpayers on TARP negotiations?

Can you guess what the answer is? I knew you could!

Goldman Sachs and its ilk, who received billions in taxpayer money through TARP to keep them in business, have recently posted high quarterly profits. But what do the taxpayers get for our largesse? This is not a non-sequitur, as a post in naked capitalism today makes clear; and at least 6 House Democrats want to do something about the situation. That is the PROFIT act, which Mary Jo Kilroy (D-OH) and six others (Reps. Brad Sherman, John Boccieri, Betty Sutton, Jackie Speier, Marcia Fudge and Alan Grayson) introduced to little fanfare last week.

From the New York Times via Bloomberg:

Goldman Executive Named as Obama Adviser

By BLOOMBERG NEWS
Published: July 18, 2009

They're doubling down again. And why shouldn't they? Ever Goldman Sachs took over the Treasury Department for the Obama administration, they can't lose! They get to bail themselves out! With taxpayer money! Yay! Reuters:

Goldman this week notched up its largest ever profit as a public company - $3.44 billion for the second quarter - but did it while taking on considerably more risk by a key measure.

[Welcome, Naked Capitalist readers! -- lambert]

Part 2:

Cross posted from The Economic Populist.

Suggestions to solve the financial crises by basically shutting down most of Wall Street are always shouted down by howls of "How are companies going to raise money?" or "How are people going to invest in companies?"

Well, take a good, long look at this graph, which shows the percentage of capital expenditures by U.S. non-financial companies that was raised in U.S. financial markets from 1952 to 2006.

Wonky PDF. Here's one of the effects:

High frequency trading strategies have become a stealth tax on retail and institutional investors. While stock prices will probably go where they would have gone anyway, toxic trading takes money from real investors and gives it to the high frequency trader who has the best computer. The exchanges, ECNs and high frequency traders are slowly bleeding investors, causing their transaction costs to rise, and the investors don’t even know it.

Bloomberg asks the obvious question:

This brings us to the strange tale of Goldman Sachs Group Inc. and Sergey Aleynikov.

Aleynikov, 39, is the former Goldman computer programmer who was arrested on theft charges July 3 as he stepped off a flight at Liberty International Airport in Newark, New Jersey. That was two days after Goldman told the government he had stolen its secret, rapid-fire, stock- and commodities-trading software in early June during his last week as a Goldman employee. Prosecutors say Aleynikov uploaded the program code to an unidentified Web site server in Germany.

It wasn’t just Goldman that faced imminent harm if Aleynikov were to be released, Assistant U.S. Attorney Joseph Facciponti told a federal magistrate judge at his July 4 bail hearing in New York. The 34-year-old prosecutor also dropped this bombshell: “The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways.”

How could somebody do this? The precise answer isn’t obvious -- we’re talking about a black-box trading system here. And Facciponti didn’t elaborate. You don’t need a Goldman Sachs doomsday machine to manipulate markets, of course. A false rumor expertly planted using an ordinary telephone often will do just fine. In any event, the judge rejected Facciponti’s argument that Aleynikov posed a danger to the community, and ruled he could go free on $750,000 bail. He was released July 6.

All this leaves us to wonder: Did Goldman really tell the government its high-speed, high-volume, algorithmic-trading program can be used to manipulate markets in unfair ways, as Facciponti said? And shouldn’t Goldman’s bosses be worried this revelation may cause lots of people to start hypothesizing aloud about whether Goldman itself might misuse this program?

Good question.

Massive takedown:

I’ve been shocked by how many grown adult people seem to have swallowed this argument, that the argument against Goldman’s behavior during the bubbles of recent decades is invalid because “everyone was doing it” — and other banks, like for instance Morgan Stanley, were “just as bad” as Goldman was.

[Sorry for the mother of all paste-os, readers. I pasted the whole post in, instead of a YouTube. Fixed now. Multi-tasking... --lambert]

See Reuters and especially the comments at Zero Hedge for this incredibly Byzantine story on Goldman Sachs (who, in addition to running financial policy for the administration at Treasury and the Fed, are also members of the Plunge Protection Team (q.v.)).

Shorter: Sergey Aleynikov, VP of equity strategy of Goldman Sachs, was arrested at Newark airport Saturday, July 4 by the FBI. Aleynikov is alleged to have encrypted, compressed, and uploaded 32 megs of ultra top-secret Goldman Sachs quant trading proprietary code to a website in Germany, where it's been available for over a month to... Well, anybody that Aleynikov wanted to make it available to.

Even shorter: Somebody put the Goldman Sachs family jewels in a jar and sold the jar on eBay.

Yikes. Of course, if you want to put on the tinfoil hat -- and when the going gets tough, the tough get foily -- you might start wondering why the July 4 arrest: That's even better than 5:00 on a Friday. Or you might wonder whether Aleynikov was a mole of some sort, as opposed to just being a thief. Or you might wonder whether Goldman knew about the theft all along, but hadn't let the thieves know that they knew, and were manipulating the manipulators on that basis -- maybe by feeding false information through channels embedded in the software (and 32 megs of compressed source code is a lot of code; hard to imagine what couldn't be buried in there). Which would make Aleynikov not a mole, or a thief, but a double agent... So, you see. Complicated. Obfuscated*. Maybe -- from the perspective of one or two now extremely rich or richer people, not a FAIL but SUCCESS? Who knows?

For peasants like us, though, there are two main issues, which Durden raises:

Via (Zero Hedge (Matt Taibbi (the great Avedon))) this intriguing little nugget:

Everyone who is anyone on Wall Street has at some point used the Goldman 360 portal whether for research, news, keeping a track of prime brokerage portfolio or, disturbingly, for trading, via the REDI Plus 9.0 platform (now loaded with enhanced algo trading features to make life for you, dear soon to be frontran Goldman client, so much easier). A second widely accepted Wall Street concept is that a disclaimer is the last thing that anyone reads, if ever. Yet after taking a close look at the Goldman disclaimer for the 360 portal, which is an umbrella waiver or all downstream websites, including REDI, one discovers the following gem:

Monitoring by GS: Your use of the products and services on this Web site may be monitored by GS, and that the resulant information may be used by GS for its internal business purposes or in accordance with the rules of any applicable regulatory or self-regulatory organization.

One second: by using Goldman 360 a client voluntarily allows Goldman to provide keystroke by keystroke data of everything the client does, even if that includes launching trades via REDI, to Goldman for the internal business purposes? The third thing everyone on Wall Street agrees on is that "internal business purposes" usually (and in Goldman's case, almost exclusively) means proprietary trading.
Are Goldman 360 clients (in)voluntarily signing off a release to be front ran by Goldman on any portal-based trade?

Online WSJ:

Business is back on Wall Street. If the good times continue to roll [!!!], lofty pay packages may be set for a comeback as well.

Based on analysts' earnings forecasts for 2009, Goldman Sachs Group Inc. is on track to pay out as much as $20 billion this year, or about $700,000 per employee. That would be nearly double the firm's $363,000 average last year, and slightly higher than the $661,000 for the average Goldman employee in fiscal 2007, according to analyst estimates reviewed by The Wall Street Journal.

Yay!

Yves calls the Taibbi piece -- lambert blushes modestly -- the must-read of the day; do read the whole thing. Felix Salmon over at Reuters quotes the "head flak" at GS:

Taibbi’s article is a compilation of just about every conspiracy theory ever dreamed up about Goldman Sachs, but what real substance is there to support the theories?

[Goldman Sachs fans might also like today's post on how 32 megs of Goldman Sachs proprietary trade code got uploaded to a German server. Researchers should also note the links at the bottom of this post, which lead to a table of contents that organizes all our contemporaneous posts on The Big FAIL (the current financial crisis) as it unfolded, going back to pre-TARP days. Note also the Goldman Sachs tag above. --lambert]

Here's the Matt Taibbi's article on how Goldman-Sachs helped bring about and profit from our current financial crisis, "The Big FAIL", found at Something Awful (via LOLfed). Despite the weapons-grade snark in the first paragraph, which I underlined, it's a Big Picture post, very analytical, and has a hypothesis of what is to come that we can test for. So I recommend you read the whole thing, even though it is quite long.

THE GREAT AMERICAN BUBBLE MACHINE

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

By MATT TAIBBI

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.

The Guardian:

[Goldman Sachs] firm predicted that President Barack Obama's government could issue $3.25tn of debt before September, almost four times last year's sum. Goldman, a prime broker of US government bonds, is expected to make hundreds of millions of dollars in profits from selling and dealing in the bonds.

Can anybody say "conflict of interest?" Can anybody say "crony capitalism"? Can anybody say "banana Republic"? It really couldn't be more clear, could it? Goldman Sachs alumni in the government bail out Goldman Sachs in the "private" sector, bill the taxpayers, and then Goldman Sachs collects a commission on the transaction! And collect their bonuses. Always the bonuses.

Option Armageddon:

Research firm KBW says Wells Fargo may need to raise $50 billion in order to pay back $25 billion of TARP capital and to cover expected loan losses as the economic slump deepens.  (Bloomberg)

KBW expects $120 billion of “stress” losses at Wells Fargo, assuming the recession continues through the first quarter of 2010 and unemployment reaches 12 percent….

KBW is also questioning the quality of Wells’ Q1 earnings figure released last Thursday:

Pfizer Reveals More Details of $68 Billion Deal

Mood of sobriety and self-recrimination at Davos

In recent years, Goldman Sachs has been renowned for hosting one of the hottest parties during the World Economic Forum’s glittering annual meeting in Davos. No longer.

This year, in a nod to the new mood of sobriety and self-recrimination, the US broker has quietly cancelled its party and sharply reduced its delegation to the event, which starts on Wednesday.

I guess class warfare isn't a sustainable economic model. Who knew?

Reuters:

After allocating $20 billion to a Federal Reserve consumer lending facility announced on Tuesday, the Treasury has just $20 billion to spend before it must return to Congress for permission to access a second $350 billion in the program.

So, maybe it's time for a midcourse correction. Let's review. They're using our money, taxpayer money. How have things worked out so far? Any lessons learned?