The Times looks at the conflicted relationship GS has between its own prop trading and the interests of its clients:
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Source:
Clients Worried About Goldman’s Dueling Goals
GRETCHEN MORGENSON and LOUISE
NYT, May 18, 2010
http://www.nytimes.com/2010/05/19/business/19client.html
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
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Knowing that the vote over the weekend in Greece was really a referendum on Euro membership, a majority of the Greek Parliament said yes to staying. European Finance Ministers meet again on Wednesday to solidify the 2nd bailout package for Greece at the same time hopefully a deal is consummated between Greece and its creditors this week. The Greek 14.5b euro bond that matures on March 20th is up by 2 pts. The optimism that all will be completed and contained AGAIN to Greece has yields lower in Portugal, Spain and Italy. The iTraxx Financial Index is also narrower by...
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May 19th, 2010 at 3:02 pm
I’m sure many are asking themselves the same very question.
May 19th, 2010 at 3:21 pm
no one has to be a client – that’s EXACTLY the point – you don’t need legislation, you just need people to do what they see fit. If you don’t trust GS – don’t trade with them. simple.
as for these 4 examples, 3 of them are pretty poor reasons for clients to be upsett:
1) Bear’s internal hedge fund bought Timberwolf because they were greedy for yield. What GS’s trading desks were doing with BSC stock is irrelevant to the performance of the Timberwolf deal – BSC did not lose money on Timberwolf because their stock was being shorted by GS or anyone else – they lost money on Timberwolf because Timberwolf referenced a bunch of products that ended up sucking – and BSC failed to recognize that.
2) GS’s recommendation against NJ’s bonds is COMPLETELY irrelevant. Was NJ not happy that they raised the money ($345MM) via the bond sale? did they want to give that money back? of course not.
3) this one is a good example of a reason not to be a client
4) the Thornburg mortgage complaint is ludicrous – GS marked the Thornburg assets correctly – way ahead of anyone else. We’re going to complain that their marks were timely and accurate? really? weak.
May 19th, 2010 at 3:50 pm
Unfortunately I’m with Kid.
GS (and their ilk) have been a very negative influence in the market and economy in recent years. I hate that they got bailed out and I am incensed by their after-the-fact smugness about their skills at navigating the current environment / markets which to me are ‘merely’ skills at bending rules, playing a corrupt political establishment, and pillaging public coffers.
But looking at these examples I have to ask “is that all there is?”
GS seems to bend the rules into pretzels or pay to get them changed. Teflon.
May 19th, 2010 at 4:18 pm
They should run over to JPM and DB. They’ll be MUCH safer over there. LOL
May 19th, 2010 at 4:29 pm
but wait, there is more!
http://www.bloomberg.com/apps/news?pid=20601087&sid=aF5tV7uvY0FU&pos=4
and the full discussion here: http://www.zerohedge.com/article/how-goldmans-recommended-top-trades-cost-clients-billions-and-contributed-goldmans-perfect-r
May 19th, 2010 at 4:42 pm
Kiddynamite has a point regarding TMA (Thornburg)
GS is not to blame for their demise. TMA marketed themselves as the premier lender to high net worth individuals but that was not the case (or at least that was my experience). They funded way too many Tenant in Common purchases/refinances in CA, (especially in the San Francisco area) that have (or will) fallen apart.
May 19th, 2010 at 5:25 pm
Being a client of GS makes sense if you think they are gaming things _for_ you. Not so much sense if you think they are gaming _you_.
What clients are getting is not so different in principle from what they got from Bernie Madoff. Although GS does do a much better job on its own behalf than Madoff did.
May 19th, 2010 at 5:36 pm
It seems to me it’s likely that GS has no problem gaming it’s lower revenue generating “customers” (401k’s, municipalities, etc.) by throwing them to the wolves, meaning throwing them as fodder to their higher revenue generating clients. Quite a business. The mafia is likely jealous as hell. Soon nobody will trust anyone after the top 1% has everything in firmly in its greasy mitts, and commerce will grind to a screeching halt.
May 19th, 2010 at 7:54 pm
Considering how shareholders are treated vs. officers and employees, why would anyone buy the stock?
May 19th, 2010 at 8:00 pm
The phrase “Do as I say and not as I do” comes to mind when reading about how GS advises their clients.
Of course one must wonder if the best of breed clients actually trade with or against the advice?
Perhaps the advice is a red herring for the NON-Clients.
May 19th, 2010 at 8:05 pm
But if I’m a U.S. taxpayer, I’m a client of GS even if I don’t want to be a client. I make sure AIG pays them all of the money “owed” and I make all GS trades risk-free with my government guarantee.
And what do I get in return? Explain it to me. I DYING to know.
May 19th, 2010 at 8:20 pm
(Disclosure: Bought GS at $155. Have )
Kid Dynamite said it best.
#1 Bear Stearns bet the house (on housing) and blew it. Tough shit for them. They got lit up and swallowed by JPM. Two (failed) criminal prosecutions against BSC too. Score one or the way capitalism/justice should work (with the exception of synthetic CDOs, which should be banned altogether).
#2 Oh, poor state government living beyond its means and refusing to own up to financial responsibility. Goldman did the same thing to California and everyone was pissed, but they were correct in doing the analysis that lead them to state “short these bonds, this state is bankrupt.” Why is it a conflict if they raise the money for NJ/CA but say they are financially defunct? We are on perpetual bankrutpcy here. NJ/CA politicians at fault for a cover up. Not GS for funding it and telling everyone to look out down the road.
#3 Goldman properly fired. Better question is why were they not in any way penalized for making a market until it didn’t suit them and then turning them away? This one has merit that I would like to see discussed further. They weren’t the only firm in the ARS scandal.
#4 The next time I shed a tear for mortgage companies will be the first. Another rightful casualty of the housing boom. Goldman lent them money for a risk they assumed. They couldn’t pay up. Next time, don’t buy into a bubble.
I think the criticism of GS needs to stop being the empty “oh man look at this bad deal” type analysis. It’s not a secret to anyone what GS does and what roles they play and how divisions of their company can do opposite ends of investments without that being a conflict of interest. Find some real fraud and then you will have my attention. The best I’ve seen so far is #3 above and a few bad emails from Fab.
I actually now believe that all the negative press was devised by GS so they can do share buybacks at a discount. They did huge buybacks in Q1. In their earnings call they stated their plan was to continue to do buybacks.
May 19th, 2010 at 8:21 pm
chomen -you’re not a client, you’re an investor. take it up with The Fed, the Treasury, and Congress
May 19th, 2010 at 8:26 pm
Does GS even have “clients” anymore in the sense of the IB model? Or are they all just trading counter-parties? Maybe the background of the guy in charge is a hint.
May 19th, 2010 at 8:30 pm
Agree with KD and mbelardes here.
The NYTimes uses some pretty lame examples. The only one of them that should be upset is #3….
Even in that regard, though, there were plenty of banks that were telling people to stick with the ARS crapola….
May 19th, 2010 at 8:32 pm
BR,
Any reason why the RSS feed went from 142k to 24k? Have you figured that one out yet?
May 19th, 2010 at 8:40 pm
If Goldie wants to piss on any number of large bodies and think that there will be no blowback they are more stupid than most.
But then Goldie itself is being pillaged by the current set of officers. If you could walk away with 20+ mil would give a rats ass as to the good name of Goldman Sach’s?
May 19th, 2010 at 8:45 pm
BTW, Newsweek May 3, cover story is a defense of Goldie by Farred Zakaria. Proves that he should stick to politics.
But does provide a good window on how the elites (some of them) view Wall Street. They have no idea.
May 19th, 2010 at 8:45 pm
@tarkus: What a spectacular clue! DUH.
Need we know more. FYB and bank it. The NY way.
May 19th, 2010 at 8:47 pm
The way I see it, everyone was piling on a bubble willingly in 2007.
Goldman’s Management evaluated their own losses early and recognized a need to hedge.
Once they realized that the Titanic was going down, they started pushing the women and children out of their way as they ran for the life rafts. “BSC, sure, take this mortgage crap at that price … AIG hook us up with some protection … Y’all, can we get some puts on financials?”
Now we have to crucify them? This is trending towards ridiculous considering the fact that had every major financial firm done the exact same thing in 2007 much of the carnage might have been avoided. Ask shareholders of BSC, AIG, C, LEH, ML, BAC, etc (I forget all the bond insurers and smaller firms).
It’s not Goldman that blew up the economy, it’s their now defunct or zombie competitors. I’m not saying GS didn’t do things they should probably be held accountable for. I’m merely saying GS has now become the default scapegoat and is absorbing the hate we all have for the defunct/zombies.
PS: Still no criminal indictment on Lehman’s blatant Repo105 fraud…
May 19th, 2010 at 8:59 pm
It really don’t matter what we think, or what you think, or what I think.
What matters is this: The New York Times.
It has been this way for a long time. Probably too long. But it don’t really matter anymore.
There are two words that should come to mind.
Those two words are: PHILIP MORRIS.
If you remember what happened there, then you can see where this more than likely goes.
See you at the finish line.
.
May 19th, 2010 at 10:24 pm
mbelardes,
in regard to: “Why is it a conflict if they raise the money for NJ/CA but say they are financially defunct?”, and: “Once they realized that the Titanic was going down, they started pushing the women and children out of their way as they ran for the life rafts.”
allow, if you would, to me, aditional license- RUFKM?
do you, even, understand what “Underwriting” is? how it became to be known, as such?
and, to crib from another intelligent -smith, down South*, “O RLY?” — you mean GS was granted, near immediate, Bank Holding Co.-status, so that they could line up at the FedRes’ begging Window?
as a simple subset..
but, succinctly, “Try blowing that up someone else’s Skirts”. seriously, with Smoke like that, we’re lucky that the FAA is grounding Flights on this side of the Atlantic..
*= http://incakolanews.blogspot.com/
May 19th, 2010 at 10:45 pm
Mark E Hoffer – there is actually a POTENTIAL conflict in that NJ/CA situation, but it has nothing to do with the State of NJ getting the raw end of any deal. In fact, they are the beneficiaries.
If the Times knew wtf they were talking about, they might point out that the potential victim of the conflict; when another GS division said they didn’t like NJ’s debt, is the BUYERS of the bonds – not NJ, who is the SELLER of the bonds. Instead, the Times goes the populist confusion route, talking about “speculators in derivatives markets betting against NJ’s debt.” oooh.. sounds scary, doesn’t it? evil speculators again.
this comment from Mr. Schaer, the head of NJ’s FIIC is completely nonsensical and BACKWARDS:
““New Jersey taxpayers cannot be expected to pay tens of millions of dollars in investment banking fees while another department of the very same firm — albeit one clearly and strategically walled off — actively or aggressively advocates the sale of the very same or similar bonds in the aftermath,””
on the contrary, Mr. Schaer – you should pay EXTRA, since GS did such a great job selling your craptastic debt, raising money for your state! The NJ Taxpayers should be ECSTATIC! the ones who should be complaining are the GS clients who BOUGHT the debt. Of course, if the firm has adequate Chinese walls, this isn’t even nefarious at all.
good night, all.
May 19th, 2010 at 10:54 pm
the ones who should be complaining are the GS clients who BOUGHT the debt…
yes, GS’ clients, the ones that GS “Underwrote” the Deal to..
EZ, no? Yes, of course of it is~
but, one of their infractions
May 19th, 2010 at 11:18 pm
All of that sounds good, MARK E HOFFER.
Philip Morris sold (and still does sell) a perfectly legal product. And the firm — and industry — provided $billions to state governments in taxes.
They went down.
All of what you say is correct, right, accurate. You want to know something else that is correct, right, and accurate? Tobacco use is no more addictive than chewing gum.
The medical definition of “addiction” never included tobacco use until AFTER the 1998 master settlement agreement. You can look it up.
Social mood and the trajectory of public opinion is Goldman’s enemy now. And they will lose. They are so far behind the curve now, that it don’t really matter anymore. They need to move the goal to 12 – 18 months from now and begin defining the world they can live with.
Game over.
.
May 19th, 2010 at 11:37 pm
hammer -
I agree, the shit WILL hit the fan in the not too distant future. The people are going to demand a scapegoat, looking in a mirror will be too painful so GS will be made to pay.
May 20th, 2010 at 12:29 am
Though I didn’t find the NYT’s examples compelling, it doesn’t make me fell one iota of sympathy for GS. I can’t applaud them for playing both sides of so many situations nor for taking advantage / helping to create the corrupt political culture we’re stuck with nor for plundering the public treasury no matter how skillful they were at doing it.
I agree with the notion that the very concept of being an “underwriter” has been shredded. Recently Buffet likened the role of GS and others to something more like carnival barkers. That sounds right.
Why should we crucify GS? Not because they acted with intelligence in 2007, but because after that as they were brought to their knees by the chaos they in no small part helped to create, they used the threat of that chaos and more to seek and secure every sweet indulgence they could from a terrified public and a naive, cowed, paid for, and compliant government then turned around and instead of operating with some notion of the public good in mind paid themselves extraodinary bonuses for doing it and told us all that anyway they didn’t need the help anyway so “up yours, America”.
The lack of decency, inegrity, honor is astounding and frankly, shameful though I am sure it gives them a good chuckle on the beaches in the Hamptons and on the slopes of Vail. Their defense seems to be that those antique concepts have nothing to do with their mandate to make as much as possible as fast as possible by any means possible that they can’t be convicted of when defended by armies of the world’s highest paid legal professionals.
In retrospect their actions since the bailouts make it clear that America should’ve been the one to say ‘up yours’ to them first.
To be a scapegoat one must be innocent. That’s not GS or their peers, in my opinion. But none of them asked for it as much as GS seems to have.
May 20th, 2010 at 12:47 am
“If you don’t trust GS – don’t trade with them. simple.”
Actually, it’s not that simple. To the extent that any major financial player breeds distrust in the financial ystem, that distrust is not limited to that player, and historically it never has been. Our financial system only works because we trust that it does. When major financial institutions act in a manner that results in distrust of the system, bank runs happen, and they’re not limited to the bad actor. That’s how depressions come about.
And who will you trade with instead? All of the other TBTF institutions currently under SEC investigation for similar actions? Answer: you shouldn’t trade with anybody; you should keep your money on the sidelines.
Given the relative unimportance of lawyers and accountants to the well-being of our economy, it is shocking that banksters are free to rip off their customers (just move on to a different trader after you get ripped off, loser) while lawyers and accountants must avoid even the appearance of impropriety.
The unique combination of stupidity, shortsightedness and hubris of the banksters and their apologists is truly something to behold.
May 20th, 2010 at 7:41 am
AJB said it best. The rest is idle nitpicking.
May 20th, 2010 at 12:38 pm
I owned the UPMC auction rates and currently own their muni bonds for self and clients. I can see why it didnt work out well for UPMC, but they were good for the holders. I recall the auction rates spiking from a 4% equivalent yield to double digit for a couple months. They were then called at full par value. Again, fair for the bond holder. It only cost UPMC a few months at the higher interest level. I would guess they rolled that debt into fixed maturity date muni bonds. They are still good munis. Judging by how the publicly traded hospital firms like HMA performed through financial reform, I would say that UPMC should be on solid footing going forward as well. The caveat is that they did lever up to provide for capexes like the new Children’s Hospital.
I’m not a defender of GS. It sounds like UPMC exercised their right to terminate GS and was justified in do so….
May 20th, 2010 at 7:09 pm
@MEH
“Chinese Fire Walls” separate analysts and I-bankers so analysts can comment on the firms they underwrite (yes, I know what underwriting is). This is by law, I believe, so any violation of that could and should be punished.
So, from what you are saying, I-Banks should not only underwrite shitty assets, they should lie about them for the benefit of their underwriting clients to continue to bid up the price? Now that doesn’t make a lick of sense. They brought a product to market for a state and then their analysts assessed it fairly.
Investors are still buying into risks for rewards. I have no idea why people still buy California municipal bonds but they do, despite perpetual bankruptcy mode here.