Most of Wall Street, and America, is still waiting for an economic recovery. Then there is Goldman Sachs.
Up and down Wall Street, analysts and traders are buzzing that Goldman, which only recently paid back its government bailout money, will report blowout profits from trading on Tuesday.
Analysts predict the bank earned a profit of more than $2 billion in the March-June period, because of its trading prowess across world markets. If they are right, the bank’s rivals will once again be left to wonder exactly how Goldman, long the envy of Wall Street, could have rebounded so drastically only months after the nation’s financial industry was shaken to its foundations.
Oh, come on now. Nobody will be wondering how Goldman did it-- that story broke last week. Turns out Goldman has computer equipment on the floor of the stock exchange, and this equipment, along with its proprietary software, is much faster than everyone else's equipment. What Goldman does is "sniff" the traffic, detect trades that someone is in the process of executing, and jump in ahead of them. According to Daily Kos diarists:
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.
Market makers get paid for executing trades. Something like a quarter of a penny per trade, which doesn't sound like much, except that Goldman Sachs could execute millions of trades per minute. It could buy and sell at the same price, and not move the price at all, but meanwhile get its little quarter penny. Anyone who recalls the plot of Office Space will be familiar with how a fraction of a penny here and a fraction of a penny there can add up, and with astonishing speed.
This all came to light because a Goldman employee stole the program code and uploaded it to a server in Germany. In arguing that this employee should be denied bail, Goldman complained that if the code got into the "wrong hands" it could be used to manipulate markets. Right, which Goldman Sachs would never ever do itself-- promise!
And yet, as I understand it, the government has been essentially paying Goldman Sachs to do precisely that-- to support US markets. We had a heck of a bear market rally these past few months. Historically speaking, it was stunning. Wonder how that happened?
It's not much different than Reagan coming up with the President's Working Group on Financial Markets, generally known as the Plunge Protection Team, after the 1987 crash. Except that this time, the government was paying banks to support the markets. Or-- not banks, plural... just one bank. The one we get our Treasury guys from.
The slavish New York Times goes on to say:
In essence, Goldman has managed to do again what it has always done so well: embrace risks that its rivals feared to take and, for the most part, manage those risks better than its rivals dreamed possible.
Helps to have a man in the Treasury, it would seem.
As Jim Kunstler put it in today's post, "This is a company playing with the fire of world history."
[Addendum: See Glenn Greenwald's story on how Goldman Sachs garnered its astounding profits, courtesy the US government.]
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