MonkeyBusinessBlog

"Wasn't There Anyone Else at Goldman Sachs?"

The scene: The Oval Office, today October 19.

Rahm Emanuel: "Welcome back Mr. President."

President Obama: "Thanks Rahm.  Hey, did you get the fund raising numbers from the Thursday gig in San Fran?"

Rahm: "Of course sir, $12 million."

President: "Man, that is sweet.  We are rolling.  First we get Olympia Snow on board for the big healthcare win and now this!  Check this out!  Look at the back of the Sunday New York Times!  Bono wrote me an Op-Ed!  "Rebranding America"  How about that??"

David Axelrod: "Damn straight sir.  Of course those crazy conservative hit-people, Frank Rich and Maureen Dowd attacked you again in the proceeding pages.  I took the liberty of cutting them out."

Rahm: "Those motherless....Say the word Mr. President and I will personally squash those dead-enders."

President: "It's okay Rahm.  We're all entitled to our opinions.  Now, I know there was something else we did before the fundraiser Thursday.  It's been such a whirlwind week.  What was it?"

Axelrod: "Oh, we stopped in New Orleans for a couple of hours.  We fulfilled our campaign promise to promise to rebuild the city."

President: "Ah, that's right. I really felt the love there.  Rahm, make a note to make sure we go back there same time next year."

White House Steward: "Excuse me Mr. President.  This gift basket came from a Mr. Blankfein."

President: "Oh, thank you Tom.  Just set it down right there."  Axe, can you read the card?"

Axelrod: "Yes sir.  "Dear Mr. President, thank you for the appointment.  From one world leader to another, you're the best!  Best regards, Lloyd."

President: "Hmm. That Lloyd sure is a nice guy.  What appointment? 

Axelrod: " Well, as you know we are bringing the SEC up to "First in Class" Status.  Nothing says first in class better than Goldman Sachs.  With that in mind, we hired a young fellow Adam Storch to be the SEC's COO."

President: "Ah, okay I see it here.  He HAS to be related to Larry Storch, Corporal Agarn from "F-Troop"!  Anyway, jeez......he's 29 years old and has 4 years of experience?  Couldn't we have found another guy from Goldman to take this job?"

Rahm: "Well sir, this is where my great trouble shooting skills come in.  All the other Goldman guys either we or the Bushies or Clintons brought to Washington were partners and multi-millionaires.  This guy Storch?  He's a Vice President working in the BACK OFFICE!  Those guys only make a few hundred grand a year.  I told Lloyd that we need a guy like that so we don't draw any heat.  Blankfein tells me they put this kid up for the SEC gig because he got second place in the firm's fantasy baseball league!"

President: "Ok, sounds like solid thinking.  But we better stop having crises because we're running out of Goldman guys!!"

{HUGE ROARS OF LAUGHTER!!!!!}

It's Official. We Have Become a Banana Republic.

I'm sure there are many other sign posts that mark the week or the day or the hour that the United States of America showed itself to be a nation whose government works to serve the narrow interests of the few and tells the rest of us to suck on it.  For me it is this announcement.  From Bloomberg News;

 The U.S. Securities and Exchange Commission hired Adam Storch, a 29-year-old former employee in Goldman Sachs Group Inc.’s business intelligence unit, as the enforcement division’s first chief operating officer, according to people familiar with the decision.

The COO, who started Oct. 13, has “a great deal of background” in technology and managing processes and the pace of work, Robert Khuzami, head of enforcement, said yesterday in Washington. Storch, who worked since 2004 in a unit at Goldman Sachs that reviewed contracts and transactions for signs of fraud, will be charged with making the unit more efficient. Storch, reached by telephone at the SEC, declined to comment.

Khuzami announced the position in August as part of the unit’s biggest overhaul in three decades. He is taking steps to add front-line investigators, speed inquiries and create specialized units after the agency was faulted for missing Bernard Madoff’s$65 billion fraud.

Storch holds degrees in accounting and finance from the State University of New York at Buffalo and studied at New York University’s Leonard N. Stern School of Business. He has certifications in accounting, fraud examination and auditing.

Prior to joining Goldman Sachs, Storch was a senior analyst at accounting firm Deloitte & Touche and an intern at Neuberger Berman LLC, a New York-based asset management firm.

Khuzami has created specialty units of investigators and is giving people more incentive to cooperate with investigations. The five groups will investigate cases in asset management, structured products, municipal securities and public pensions, foreign corrupt practices and market abuse, Khuzami said in an Aug. 5 a speech in New York.

Goldman: "Hate the Game Baby Not the Playah."

In the last few days, details of Goldman Sach's potential $1 billion CIT bonanza have been coming out.  Before we get into that I want to reminisce about a lesson I learned way back in the mid- 1990's.  Back then I worked at a very large, powerhouse financial shop.  I was just a little pisher (small fry, dweeb, pimple on a elephant's butt, etc..) at the time.  A more senior front-office player once told me the philosophy of the bank as it was once related to him by a very senior member of the firm.

"If you roll a guy and he's dumb enough to get up....knock him down and roll him again."

I think about this philosophy as I sit and read about Goldman Sachs and the "ailing" CIT.  The Financial Times has a nice summary; Goldman To Be Paid $1 Billion if CIT Fails

Goldman Sachs stands to receive a payment of $1bn – while US taxpayers would lose $2.3bn – if embattled commercial lender CIT files for Chapter 11 bankruptcy protection, people familiar with the matter said.

The payment stems from the structure of a $3bn rescue finance package that Goldman extended to CIT on June 6 2008, about five months before the Treasury bought $2.3bn in CIT preferred shares to prop it up at the height of the crisis. The potential loss for taxpayers would be the biggest to crystalise so far from the government’s capital injection plan for banks.

The agreement with Goldman states that if CIT defaults or goes bankrupt, it “would be required to pay a make-whole amount” that totals $1bn, the people familiar with the matter said

While Goldman is entitled to demand the full amount, it is likely to agree to postpone payment on a part of that sum, these people added. A CIT filing last week said that it was in negotiations with Goldman “ concerning an amendment to this facility”.

Goldman said: “This would not be a windfall payment. The make-whole payment is simply the present value of the spread to be earned over the life of the facility."

Hah!   Just the "present value of the spread over the life of the facility."  That is awesome!  Naturally, five months later, when Hank Paulson and Treasury allocate $2.3 billion of TARP funds to CIT, Treasury doesn't insist on putting themselves in front of Goldman's interest.  Considering Treasury had just bailed Goldman out (little stuff like rescuing AIG and giving Goldie a federal bank charter...even though they don't actually do anything that resembles a commercial bank), they may have had just a bit of leverage....if they wanted it of course.  But I guess they didn't.

Wait though because it even gets better.  Goldman also has a undisclosed amount of Credit Default Swaps (CDS) on CIT!  Why the hell not right?  After all, no matter who the counterparties on the CDS are, Uncle Hank or Uncle Timmy isn't going to let them go down so it's all good.  Therefore, if CIT declares bankruptcy, Goldman gets their money back plus a nice profit.  It's not often that you can lend money to a super high-risk counterparty and then end up rooting for them to declare bankruptcy!

Is this wrong?  Well, not if you go back to the adage I learned over a decade ago, 

"If you roll a guy and he's dumb enough to get up....knock him down and roll him again."

Goldman was/is just playing the game based on the rules as listed above.  They saw a way to make a high spread loan to a Fredo entity like CIT, wedge their way to the top of the capital structure in the event of default, collateralize the bejeezus on their position, lock in the spread and then create a win/win/win by buying CDS protection on CIT.  As Michael Corleone said, "It's nothing personal.  It's strictly business."

The question is, is this the business or the game we want our financial institutions to be playing?

As if There Was Any Doubt. Fed Appeals Order to Give Up Names On Emergency Loans.

From Bloomberg News;

The Federal Reserve is appealing a judge’s order requiring the central bank to identify the financial institutions that benefited from its emergency loans, according to a lawyer representing Bloomberg LP.

The central bank refused to divulge details about the companies participating in its 10 remaining lending programs, saying that doing so might set off a run by depositors. The Fed had until today to seek a reversal of the Aug. 24 decision by Manhattan Chief U.S. District Judge Loretta Preska, who ruled the Fed must release the identities, as well as disclose loan amounts and the assets put up as collateral.

Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, filed suit against the Fed on Nov. 7 on behalf of its Bloomberg News unit. Scott Rose, a lawyer with New York-based Willkie Farr & Gallagher LLP, who represents Bloomberg, said the appeal is being filed with the U.S. Court of Appeals in New York. The filing couldn’t be immediately confirmed in court records.

Silly Fed, worrying about a run on the bank by depositors.  Goldman doesn't have any depositors!

Goldman's Management Team, "Has Had a Lot of Interaction With Policy Makers in Washington."

They really just don't even give a crap about what they say anymore do they?  Goldman reminds me of the early 1980's Washington Redskins.  The team with John Riggins and the famous offensive line "The Hogs".  They would just line up and essentially tell the opposing defense, "We're running John right off the right-tackle, he's going to pick up at a minimum a first down and there's not a damn thing you can do about it."

From Bloomberg News;

Goldman Sachs Group Inc. executives said that new rules on trading over-the-counter derivatives may benefit the firm because of the company’s technological edge, according to Citigroup Inc. analyst Keith Horowitz.

Horowitz and his team raised their earnings-per-share estimates for New York-based Goldman Sachs, and said in a note to investors yesterday that they are “more optimistic” about the firm’s ability to cope with regulatory reform. The note followed meetings with Chief Financial Officer David Viniar, President Gary Cohn,Harvey Schwartz and David Heller, the co- heads of Goldman Sachs’s securities trading business, and David Solomon, co-head of the investment-banking division.

The Goldman Sachs officials “downplayed” the effect of changes to over-the-counter derivatives, commodity position limits and higher capital requirements, Horowitz wrote. The rules “may actually turn out to be a benefit for GS due to their strong technology position,” he wrote, referring to the company by its stock-ticker symbol.

According to the Citigroup analysts’ note, the Goldman Sachs management team said they’ve had “a lot of interaction” with policy makers in Washington and “they believe Washington is likely to be more balanced in the proposals than some market participants may have initially feared.”

Goldman Likes GE Because.......?

I was going to comment on this Goldman Advises Buying Industrial Shares. But Zero Hedge was already all over it. 

Why on earth would I want to buy a levered up the ying-yang consumer/industrial finance company who happens to make a host of products that are going to have a hard time with order follow-through once the stimulus spending has run out of gas?  Especially since it is up 121% from the March lows?

We know resume our regularly scheduled feel good programing.

Lloyd Blankfein May Have Just Had His O.J. "If I Had Done It" Moment!

From Bloomberg News Blankfein Says Lehman Rescue May Have Led to Bigger Failure.

Lloyd Blankfein, chief executive officer of Goldman Sachs Group Inc., said a government rescue of Lehman Brothers Holdings Inc. last year might have led to another, even bigger company being allowed to fail instead.

A bailout of Lehman Brothers might have provoked a public backlash, causing the government “to let the next institution fail” instead, Blankfein said today in response to a question- and- answer session after a speech in Frankfurt. “It might have been a much bigger one with much more dire consequences.”

Lehman Brothers’ Sept. 15 bankruptcy, the biggest in U.S. history, led to panic in credit markets that some Treasury Department officials have since said they didn’t anticipate. A day after Lehman’s collapse the Fed stepped in to rescue insurance company American International Group Inc., enabling companies including Goldman Sachs to receive money they were owed by AIG.

The consequences of the Lehman bankruptcy weren’t easy to see in advance, Blankfein said.

“The real reason why we know that was a bad decision -- not a bad decision, a bad consequence -- was because it happened,” Blankfein, 54, said at the conference in Germany. “Had it not happened, the criticism would have been, ‘Look what happened, look at the moral hazard here.’”

You think Lloyd said something like this to his old boss, Hank Paulson the day Hank decided to let Lehman go bye bye?  This is like O.J's "If I Had Done It" no?  

"Don't waste your last bullet on Lehman Hank because......I need it!"

John Crudele: "Americans Should Boycott The Stock Market."

Nice piece by the New York Post's John Crudele this morning.  

"AMERICANS should boycott the stock market.

No, I'm not kidding. And this isn't going to be one of those funny columns.

In fact, I'm deadly serious that investors shouldn't risk any more of their money until there are promises of a thorough investigation of Goldman Sachs."

Read on......  How Goldman Sachs' Problems Are Hurting You

Another "Crazy Goldman Sachs Conspiracy Theory".

You want to hear the latest nutty Goldman Sachs conspiracy theory?  Check it out;

• Goldman equity analysts put ratings out on individual stocks for investor consumption.  For example, they may rate stock XYZ "neutral".
• Then they have meetings with the firms traders, including the proprietary trading desk, where the analyst gives his or her opinion that runs counter to the published rating.  For instance, the analyst may tell their desk that XYZ is actually a buy.  However, so as not to appear untoward, the analyst will flag XYZ as "up" as opposed to buy. The same works for "sell".  That is called "down".
• Goldman then calls select clients, like gigantic hedge funds and also gives them the "up" recommendation. 
• While most of the investing public still thinks Goldman is neutral on XYZ, Goldman proprietary traders latch on to the select big hedge funds to take XYZ "Up".  Perhaps during this time, investors not privy to the select "Up" call, see the run up in a stock that Goldie is lukewarm at best on (after all, that is what the equity analyst reported) and sell into this "Up" move. 
• Then, after a few days, the Goldman equity analyst changes his official "neutral" rating to "buy". 

Pretty slimy isn't it.  Where did this crazy rumor come from?  Rabble rouser Matt Taibbi?  www.goldman666.com? The "Communist Daily Worker?  How about the Wall Street Journal!  Have a read.  Goldie may be in real big trouble here.  They may even get a whopping $50 million fine from the SEC!!  Here's the WSJ piece Goldman Trading Tips Reward Its Biggest Clients.  

Goldman Economist McKelvey Keeps the Laughs Coming.

This may be the most bizarre pronouncement I've ever seen.  U.S. Recession May Have Ended in June, Goldman's McKelvey Says.

Let's go through this together because I swear that it sounds like a man who got told to, "Get out there and tell them things are getting better!", when he really feels like things are really not getting  better. 

The worst U.S. recession since the 1930s may already be over, according to Edward McKelvey, a senior economist at Goldman Sachs Group Inc. in New York.

The gain in industrial production in July, the first in nine months, and the likelihood that output will continue to grow because of depleted inventories is “the best” signal that the contraction is over, McKelvey wrote in an e-mail to clients yesterday.

Ok, usual economist mumbo-jumbo.  Nothing out of the ordinary.

“The upturn in industrial production reported for July suggests that June could wind up being the NBER cycle low,” McKelvey wrote. The projection was “highly tentative” and “a lot has to happen before we can state this conclusion with conviction,” he said.

A gain in gross domestic product this quarter and sustained increases in total sales adjusted for inflation, together with further increases in production, would help cement the verdict, McKelvey said.

Hmmm, he just seemed to qualify about everything there no?  His projections of future industrial production are "tentative" and we need sustained increases in sales.  I really don't know anyone calling for that, including McKelvey!  Let's go on.

The job market, which is likely to deteriorate further, is the one component that may not confirm the contraction is over, McKelvey said.

For that reason, McKelvey said the task of predicting when recessions begin and end is “counterproductive” since most Americans will continue to feel glum as thejobless rate climbs and payrolls fall.

Ok, now he has called his "call" a waste of time and he believes Americans will still feel "glum" as more of us lose our jobs and benefits. Here's the capper;

“This is not to say that identifying recessions is pointless, but merely to suggest that a more natural criterion” for determining the length of contractions would be “a period during which unemployment rises significantly,” McKelvey said

Mr. McKelvey just concluded that based on a faulty criteria, MAYBE the recession is over.  However, when you change the criteria to a more sensible one like length and pace of unemployment growth, which he believes is nowhere near over, we are probably still in a recession and have a long way to go.

There, feel better?

Life Ain't The Movies. We're Never Going to Get Our "Carlo" Moment From Goldman.

Yesterday I received a ton of emails about the New York Times Paulson's Calls to Goldman Tested Ethics During Crisis. The Times did its job as investigative journalists, showing that Treasury Secretary Paulson was in frequent contact with Goldman Sachs during the meltdown of mid-September 2008, especially with regard to the bailout of AIG.  If you haven't read it, hit the link.  Hopefully, for people who thought that we were just a bunch of disgruntled conspiracy nuts last year when we first raised serious questions about Goldman and the AIG bailout (and this blog was way ahead of just about everyone on this subject) will now see the light.  Hopefully, investigative reporting that includes obtaining call logs and schedules of Mr. Paulson and other government and Federal reserve officials through the Freedom of Information Act will spur on a full fledged investigation and get to the truth of what went on last Summer and Fall.

For me however, this article is a turning point.  I realize that no matter what kind of evidence is unearthed that Goldman Sachs owes its very existence (and what a existence it is now with a bank charter and greatly reduced market making, investment banking, prime brokerage, futures and options brokerage etc. competition) to the Government and the People of The United States of America, they are NEVER going to admit it.  Similar to all the folks that lived to hear Richard Nixon say, "I did it.  I engineered the Watergate cover up from Day 1." and never got to hear it, this is all we are going to get from Goldman;

A spokesman for Goldman, Lucas van Praag, said: “Lloyd Blankfein, like the C.E.O.’s of other major financial institutions, received calls from, and made calls to, Treasury to provide a market perspective on conditions and events as they were unfolding. Given what was happening in the world, it would have been shocking if such conversations hadn’t taken place.”

Although federal officials were concerned that Goldman Sachs might collapse that week, Mr. van Praag said the only topics of discussion between Mr. Blankfein and Mr. Paulson at the time involved Lehman Brothers’ troubled London operations and “disarray in the money markets.” Mr. van Praag said Goldman was fully insulated from financial fallout related to a possible A.I.G. collapse in mid-September of last year. 

"Fully insulated".  That is all you are ever going to hear from Goldman no matter how ridiculous it sounds.  Remember the great scene in Godfather I where Mike confronts his brother-in-law Carlo and makes him confess to setting up Sonny?  Michael Corleone:

"Today I settle all family business Carlo so admit what you did.  Get him a drink. C'mon, don't be afraid Carlo.  You think I'm gonna make my sister a widow?  I'm Godfather to your son.  Go ahead drink.  No Carlo, you're out of the family business.  I'm putting you on a plane to Vegas (hands Carlo airline tickets).  I want you to stay there.  Only don't tell me your innocent.  It insults my intelligence.  It makes me very angry."

And then Carlo admits his crime.  Goldman and Lucas van Praag insult my intelligence and make me very angry.  However, they are not going to give any of us that moment Mike had with Carlo.  I will no longer wish for things that I know will not come true.  It is fruitless. I no longer care because enough people are starting to get angry and are starting to ask the right questions, not just about Goldman but the entire sick, incestuous relationship Washington has with New York.  The revolving door on both sides of the aisle.  The kind of revolving door where outgoing government officials park themselves at Wall Street firms for a couple of years and become "investment bankers." The kind of revolving door where Treasury Secretaries leave government and take down $ millions for their "service" while Wall Street CEOs leave to become Treasury Secretaries and help out their pals at the peoples expense.  The kind of system where the various financial lobbying groups have essentially bought and paid for key Congressmen on both sides of the aisle, allowing them to f**k up our vital system of finance for their own personal gain.  The kind of system that sees important Congressional aides float back and forth between the industry and Washington, the kind of sh*t that is just below the surface.  Actually, that's probably where most of the evil stuff gets done.

Let's not make the mistake that Goldman Sachs is the center of all evil, which I know I can sometimes do.  The system is rotten and Goldman is just one of the players.  Banking is vital to national security and there is plenty of money to go around without all the heinous bull-sh*t.  We have to clean it up. Here's Mike and Carlo.  

 

How to Live on $100 Million a Day.

There has been a lot of talk the last few days about Goldman Sachs $100 million per day trading gains.  In the second quarter of 2009 the firm made $100 million 46 times out of 65 trading days.  That's a batting average of .707.  Move over Ted Williams!  The question is, how do they make this kind of dough so consistently?  Are they just outwitting everybody?  Are they cheating?  My answer for the most part is;

• No and
• No 

In the current environment where there are a zillion Federal Reserve term funding facilities as well as a program from the FDIC to issue debt with the full faith and credit of the United States government standing behind you, funding costs are near zilch.  Goldman Sachs had a balance sheet of approximately $900 billion at the end of the second quarter.  I know this is simplistic but I bet it is not too far off.  For every 1% of Goldman's net interest margin ("NIM" or the net income made by the difference between what where Goldman funds versus what yield they get on their assets) Goldman makes nearly $25 million a day just by turning the lights on.  Not bad eh?  And you know what....that's fine with me.  This is how we have rebuilt the banking system in the past (like the early 1990's after the high yield loan, commercial real estate and lesser developed country lending debacles).  Because Goldman is gigantic and because they are taking full advantage of all the near free funding, the numbers thrown off are huge. 

Now lets think about Goldman's dominant position as a global dealer of government debt, agency debt, mortgage backed debt, corporate debt, commodities and currencies.  The flows are huge and the spreads are, for the first time in a long while, wide.  There's definitely risk to being a dealer.  You have to put capital at risk when someone hits you with $200 million Fannie 5's.  You can't always turn around and immediately hit a customer with the full $200 million for a 1/32 or two.  Still, spreads are wide enough to compensate for the risk AND there are fat programs going on like the Fed's mortgage backed security purchase program.  A big dealer has ample time to "set up" for those trades and make a nice score.  If we assume that Goldman runs $50 billion a day though all these global business lines (pulled that out of the modified anus model) and takes out 1/8, that's over $60 million a day.  Add in a few monster smart or lucky trades and that number can go up nicely.

So between carry and being a global dealer with large market share, making $100 million a day in this environment isn't a huge stretch in my opinion.  However, Goldman making this kind of money isn't what irks me.  What irks me, and what the issue should be is, these earning are being heavily subsidized by current government lending facilities AND by a playing field that was thinned dramatically in 2008 as government and timing picked the winners and the losers.  The winners need to be thankful and they need to know that things can not go back to business as usual.  Taxpayer and government "generosity  cannot be turned into monster compensation.  That is the issue for me.

They Just Don't Get It

I made the horrible mistake of turning on CNBC a short while ago and found Kudlow, Francis, Joe Weisenthal and Jonathan Koppell discussing, "Is Being Rich Out?".  What they were referring to was the NY Post headline we wrote about earlier Lloyd Blankfein to Employees: "You're Gonna Get Us All F**king Pinched!"

(You know, the one Fox Business lifted from me)

What I love about this CNBC conversation is, besides Mr. Koppell, Francis, Kudlow and Weisenthal are treating the story as a "They hate us for our success" saga, while we compared it to the famous Lufthansa Heist scene from "Goodfellas"!  The scene where Jimmy Conway tells the gang not to flash around their ill-gotten booty.  Have a gander.

Lloyd Blankfein to Employees: "You're Gonna Get us all F**king Pinched!"

Ah, this one is from the "too easy" category!  From the New York Post Goldman Princes Told to Spend Like Paupers

Goldman Sachs CEOLloydBlankfein has warned his employees to avoid making big-ticket, high-profile purchases as the gold-plated Wall Street firm hunkers down amid a firestorm of public and political anger over outsize bonus payments.

According to sources at the bank, Blankfein has Goldman in particular, should be toned down in light of the billions in bailout money that banks, including Goldman, have gotten from Uncle Sam.

A source within the bank said Blankfein first began calling for an end to the conspicuous consumption late last year, but has stepped up his campaign in recent weeks as the White House has sought to rein in compensation and as the firm has gotten dinged by a pair of high-profile magazine articles.

"This is a sensitive time for us, and [Blankfein] wants to make sure that we're not being seen living high on the hog," said one Goldman exec.

Our inside sources at Monkey Business have captured a video of the actual "incident" that brought out Lloyd's wrath!  It must have been the Halloween party because Lloyd is wearing his Robert DeNiro mask.

Ahh, You Mess With The Bull, You Get the Horns.....Sorry Heidi.

Well, this didn't take long!  Here's Matt Taibbi's response to Heidi Moore's Goldman piece.  The Best Goldman Apology Yet.

Here's how it starts;

And the winner of this month’s Most Retarded Horseshit Written In Defense of Goldman Sachs award goes to… Heidi Moore at Big Money! Come on down, Heidi!

"You Shut Up!" "No, YOU Shut Up!!"

Heidi Moore put a piece out yesterday titled Will Everyone Please Shut Up About Goldman Sachs? Since the title is in the form of a question then I will answer, "No, I will not shut up as long as people like Heidi Moore write things like this."   

The image of Goldman Sachs (GS) as a Borg-like hive mind that breeds a bald master-race of capitalists has picked up speed during the last month. Rabble-rouser Matt Taibbi in Rolling Stone memorably called Goldman "a vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." Joe Hagan in New York magazine devoted several pages to "Goldman's current public tarring." The controversy has even attracted the genius of Michael Lewis, who wrote a searingly funny column in the wounded voice of the firm, arguing that Goldman owns only one of the three branches of government outright and that the firm habitually rounds down any number under $50 billion directly to zero.

Needless to say, there is much to make Goldman's rivals suspicious. Super-powered trading programs? Politically prominent alums? Orcs and vampire squid? No wonder rivals can't imitate returns like the firm's $3.4 billion second-quarter profit. These guys are clearly running on a supernatural level, right?

Mission accomplished: The House of Representatives now wants to call Goldman—a firm that no longer owes anything to the government—on the carpet in what are sure to be disastrously populist hearings.

First of all, fabulous suck up to Michael Lewis.  

Secondly, calling Taibbi a rabble-rouser makes Ms. Moore sound like someone sitting on Senator Joe McCarthy's Committee on Un-American Activities.  

Thirdly, Ms. Moore's line, "Mission accomplished: The House of Representatives now wants to call Goldman—a firm that no longer owes anything to the government—on the carpet in what are sure to be disastrously populist hearings." sounds eerily like Jack Nicholson (Colonel Jessup) line to Tom Cruise (Lt. Kaffee) in "A Few Good Men" after Kaffee exposes Jessup as a liar, unfit for command. "Congratulations son, you've weakened the nation."  

Additionally, Moore asserts that Goldman has paid its debt to society with a quick and dismissive line, without addressing the legitimate question, "Would Goldman Sachs be alive today without government intervention?"  What kind of journalism is that?  You can't tell everyone to shut up and get back in line without answering that question, supported by facts.  This is exactly what Goldman has been doing since last year.  They have stated repeatedly, without any factual information, that the firm was never in any trouble and that the firm's exposure to AIG was "immaterial".  If Taibbi is a rabble-rouser then Moore is a shill.  

Anyway, the premise of Moore's article is that Goldman's superior culture is the reason for their consistent, out sized success.  Additionally, Moore illustrates what happens to a lot of Goldman people when they leave the mothership.  They become shockingly mediocre.  Having witnessed average people going to Goldman and becoming stars, and Goldman stars leaving Goldman and becoming average, I agree.  I also agree with Moore's take on the management of most top Wall Street firms.  It's horrible. Goldman on the other hand has a deserved reputation for being an outlier in this regard.  No doubt it is a very well run ship.  However, Goldman management, as brilliant and communal as they are, still managed to run the ship aground like everyone else in this decade.  I have gone through what I believe happened to Goldman many times on this blog so I am not going to do it again.  There's a nice big category "Goldman Sachs" if you want to have a read.

Goldman Sachs is a very well run firm with incestuous political connections that would have made J. Pierpont Morgan blush.  These connections not only saved them in 2008, but set them up to completely dominate the playing field going forward.  Between the firm's global political connections, its dominance in debt and equity raising, its ability to see massive amounts of non-public information as well as the trade flows of the world's largest institutional investors, Goldman has a distinct advantage over its weakened rivals.  When you know the answers to the test you tend to do very well.  This may go a long way in explaining the phenomenon of what happens to superstars leaving Goldman.  They no longer have the answers to the test.    

Goldman Sachs: New York Magazine Article "Garbled Nonsense".

From the best business section in the country, The New York Post Goldman Disputes Evil Tag

The article, written by Joe Hagan, is titled "Is Goldman Sachs Evil? Or Just Too Good," and attempts to take a fresh look at the firm. This week's cover story documents the negative shift in public sentiment Goldman's been facing since posting blockbuster profits in trading earlier this month.

Goldman spokesman Lucas Van Praag bristled at the article, referring to portions of it as "garbled nonsense" and "shoddy journalism" in a letter submitted to the editors.

"The mistakes are so egregious that one has to question Mr. Hagan's motives," Van Praag writes in the letter.

Which part is garbled Lucas?  What are the mistakes that are so "egregious"?  In very clear language, Hagan's Tenacious G  lays out what he believes went down during the AIG Bailout. Why can't Count Van Praag counter each of Hagan's points with supportable facts?  The Count of Praag can't because if he could he would have provided them a long time ago.  In fact, we wrote this LAST October, perhaps one of the first to take this view on the AIG/Goldman Sachs bailiout;

As you know, we have had a serious issue with what exactly went down with the Fed's saving of AIG and that company's involvement with Goldman Sachs.  Richie and I both wrote pieces shortly after the AIG rescue, where the Fed lent AIG $85 billion (now $122 billion).  AIG's largest trading partner was Goldman Sachs.  That is a fact.  We believe that Goldman had bought default protection on $ billions of AAA CDOs via Credit Default Swaps (CDS), from AIG.  AIG had an immediate need for $ billions of cash when they were downgraded by the rating companies in the second week of September.  They needed the cash, or cash-like equivalents to post as collateral with their CDS counterparties.  AIG had a notional CDS book of over $400 billion.  Goldman Sachs was their biggest counterparty.  When AIG was downgraded they had to come up with $20 billion in additional collateral to post with Goldman.  If they couldn't come up with the cash, which they couldn't, they faced certain bankruptcy.  Bankruptcy would mean Goldman getting on line with the rest of AIG's creditors to collect on their CDS.  Suddenly, Goldman would be holding CDOs that had marked down significantly, with the corresponding hedges (the CDS) held up in bankruptcy proceedings.  This could have crippled Goldman Sachs.  Hence, the Fed's bailout of AIG.

Could the system handle the downfall of Goldman Sachs?  Absolutely not.  Did saving AIG potentially save Goldman?  I think so.  Goldman however, denies that it was ever in trouble in the event AIG went down.  According to the NYT article, "Goldman has said repeatedly that its exposure to AIG was 'immaterial' and that the $20 billion was hedged so completely that it would have insulated the firm from significant losses."  Really?  I wonder how one hedges CDS exposure with a counterparty so "completely"?  Another $40 billion of CDS on AIG perhaps?  I wonder who the counterparties were on those?  If you read our "Goldman Superheroes" maybe they really did do a deal with the Martians!

The reason I believe Goldman is so "completely" hedged is because their counterparty has become Uncle Sam!  It is real easy way to find out if I'm wrong, right?  Nearly the entire $85 billion line the Fed gave AIG has been drawn down.  Is it unreasonable as taxpayers to ask where our money went?  If Goldman was completely hedged then there would have been no need for ANY significant money to have gone to Goldman.  Maybe Goldman did have $ billions of CDS protection on AIG.  Can't Goldman clear this up by giving us their positions and showing that these counterparties were so solid that they could have paid Goldman out if AIG went down?  I think we have a right to know the answers to these questions.  I am all for doing WHATEVER it takes to fix our financial system.  However, we cannot build anew on top of a bed of lies.  I want to be proven wrong.

Goldman still hasn't answered these relatively simple questions that were asked last year by "moronic bloggers" and this year by real investigative journalists like Hagan and Taibbi.  I think Goldman's dismissive, insulting and non-factual responses tell us all we need to know.  

Joe Hagan Writes a Great Goldman Piece

Just got done reading a very good article in New York Magazine from Joe Hagan.  Tenacious G  I highly recommend it.  I got scared at first when Joe started it out like this; 

The man Goldman has selected to come to its defense is John Rogers, the firm’s chief of staff. Rogers is typical of the Goldman elite—doubling as a Washington power broker and confidant to James Baker, Jon Corzine, and Hank Paulson. The atmosphere is airless as Rogers sits down, his steady eyes barely blinking: a silver-haired sphinx in a sky-blue shirt. “We don’t live in a vacuum, and we’re very aware of what the general public is thinking,” says Rogers calmly. “We work in a fiercely competitive global industry, but we can’t afford to be oblivious to public opinion.”

I figured, "Oh boy, here comes the puff piece.  Next thing Hagan is going to tell us is how early Rogers gets up in the morning to get a workout in, all the while reading important overnight communiques from the far reaches of the Goldman empire..etc...etc.."  But no!  It turned out to be a very well balanced piece that lets you decide for yourself if you think Goldman is either the "best and the brightest", or whether they are the kid in the class who gets the answers from the teacher before every test.

You be the judge.  

Goldman Sachs Buys Back Warrants!

Now here is some good news right?  I was out and a buddy shot me a note that Goldie paid us $1.1 billion for the warrants we the taxpayer were given for bailing GS out (Although we all know the didn't need any of our help...wink, wink).  I was just reading Zero Hedge , and as usual they pose a very good question;

What happened with the initial discussion to repurchase the warrants at $600-650 million, nearly half of what the final clearing price?

Now back in the day when I was in this business if a customer called you to bid on something that you sold him and you bid, say $625 million and the customer said; 

"Excuse me, I'm sorry.  Did you really just bid $625?  Did that number really come out of your mouth?  Are you sure you have the right trade up?"

At that point you would run around the desk and say something nice to the trader (actually, if you were good at your job you would have had the trade modeled too and have seen your traders were trying to take your clients pants down) like, "Are you guys out of your f**king minds!!"  Then you, your boss, the trader and his boss would go into a room and have a talk.  After the "talk" you would get on the phone and say something like;

 "Sammy, it was my bad. I'm really sorry.  I gave Makesh the wrong trade.  Really, there was no way he would have tried to do that to you.  His bid for your warrants is $1.1 billion.  Are we okay now??"

At that point your customer would say, "Yeah, that works......but tell those thieving bastards on your desk that if they ever try that sh*t again I will crucify them.....forever!"  Then he would tell you to send him a "F**king" term sheet and hang up.

I have a feeling that sort of thing happened in this transaction.  Maybe it happened over a two week period, but it happened.  Speaking of term-sheets, does anybody have one?  Not to be rude but unless I know the size, the strike, the term and the model, how the hell do we know $1.1 billion is the right price?

The Ayatollah And The C.E.O.

Over the weekend I found myself reading a lot about the current political situation in Iran.  It appears to me that the current supreme leader, Ayatollah Khamenei and his group of ruling clerics have dramatically misplayed their hand in the Ahmadinejad vs Moussavi affair.  By taking sides with Ahmadinejad, supporting a highly questionable election result and then brutally cutting off protest and dissent, the ruling clerics may have very well forfeited their legitimacy that just a few months prior, was not seriously questioned by the majority of Iranians.  When unelected rulers lose their legitimacy with the people, it is the beginning of of the end for them.  It may take years and very well take a lot of blood, but the road palooka-ville is certain.

What fascinates me about this situation is how often governments, leaders, companies, etc.. take the very strong hands they are dealt and manage to misplay them so badly.  Think about Ayatollah Khamenei's hand.  He and his band of brothers have full control over the military and they get to HAND PICK the people who can run for President and run the government.  The clerics get to pick who the people can chose from, AND they can, at any time, tell that elected official that they don't like what he is doing and reverse any policy they please.  Pretty good for them right?  So they have this election where they have one of their boys, Hussein Moussavi to run against another one of their boys, Mahmoud Ahmadinejad.  This Moussavi fellow ran the government during the bloody Iran-Iraq war (1980-1988).  He's not the kind of guy who was going to take over and turn Iran into party-town!  He's a tough, repressive cookie himself who answers straight to the clerics.  The majority of Iranian's probably voted for Moussavi because the current, Members Only jacket wearing president, Ahmadinejad, is an incompetent boob.  When you are in charge of a country that has some of the richest oil reserves in the world, and your people have to sit in endless gas lines, your a boob.

So they have the election and Ahmadinejad's boys rig the election results and steal it. The people are outraged and they take to the streets.  What does Khamenei do?  He gets his back up because the people would dare protest anything that he and his boys blessed, takes sides and orders a brutal crackdown.  This has nothing to do with Islamic law, it's all an old fashion, authoritarian power play.  Now the people have a serious questions about the legitimacy of their Islamic republic rulers.  The more they crack down, the more they look like......the Shah.  The only possible excuse could be that there has been an internal coup and the Revolutionary Guard are really running things now.  It doesn't matter though.  The leaders no longer have legitimacy.  Meet the new boss, same as the old boss.  The clerics have taken their full-house hand (Aces over Kings) and pitched it.  It may take 10 years, but they are done. 

Now, what the hell does this have to do with business?  Everything in my opinion.  I am using the Iranian situation as a current example of how a power structure can get so full of itself, that it finds it self infallible and untouchable.  When you go through life thinking you are always right and nobody can lay a hand on you, eventually you are going to make some sort of fatal decision.  This is how I feel about Goldman Sachs right now, regarding their latest earnings and how they played their hand.  A lot of people asked me over the weekend, "Eric, what did you expect these guys to do?  If someone was giving you free money, the ability to make a few once-in-a-lifetime scores, and even more power, wouldn't you use it to make as much as you possibly could?" I thought a lot about this and my answer is, "No, I wouldn't press it to the max, especially if there was more than a hint that I didn't really deserve the killer hand I was dealt.  I would certainly make a nice score, but I wouldn't go for the full monty and bring anymore negative attention to myself.  The kind of attention that may bring pitch-fork toting mobs to my door, which is where Goldman now finds itself!"

What could Goldman have done differently?  While they certainly are never going to come out and say that Uncle Sam bailed them out, they could have acted a bit like they knew that it wasn't their brilliance or divine providence that landed them into the cat-bird seat.  Paying back the TARP money probably would have been the last thing I would have done.  That was just an big, arrogant statement that they never needed the money in the first place AND they never received any other benefits from the U.S. Government.  If I ran Goldman I would have,

1. Recognized that the $28 billion of 3-year debt raised under the FDIC guarantee saved me at least 300 basis point, or 3% running.  That works out to about $2.25 billion present value dollars.  I would have announced that that subsidy would be paid back over a five year period of time, as credit conditions allowed.
2. I would disengage from all Federal Reserve Term Lending facilities over a one-year period of time, OR I would admit that this access to cheap funding was still needed due to the continued fragility of the non-government guaranteed term-lending markets.
3. I would do what Morgan Stanley did in the first quarter and REDUCE leverage, especially when the source of such leverage was funded from the previously mentioned Federal Reserve Term Lending Facilities.
4. I would have NEVER asked for a Value at Risk measurement exemption from my new regulator, The Federal Reserve.
5. I would have insisted that the LAST person to be considered for the President of the New York Federal Reserve be a Goldman partner like William Dudley!  With all that is going on, who needed that public relations nightmare?
6. Finally, I would have recognized that I was receiving a windfall in investment banking fees from banks needing to raise capital after the Federal Reserve stress test exercise.  The stress-test was a road-show in and of itself.  Raising that bank capital by an investment bank was not like bringing some start-up public.  Without having to say it, I would show that I recognize that my extraordinary market share was due to the fact that many of my competitors did NOT get bailed out, not because I was the best and the brightest.  A reduction in the usual 7% investment banking fee would have gone a long way to recognizing the sensitivity of the situation and allowed the issuing banks to keep more of the precious capital I was raising for them.

That's what I would have done.  Give back some of the windfall, make some humble, yet REAL gestures, and save some of my ultra-powerful hand for a time when the heat was off. 

Goldman Really Needs Our Help!

Richie and I have been talking to a lot of folks outside finance, a lot of smart folks who, thanks to guys like Matt Taibbi, have started to take notice of the behavior of Goldman Sachs.  The company's blow out earnings release earlier this week seems to have finally sent the mainstream media right over the edge.  We've laid this out before but we will do it again to show how a firm like Goldman could make $3.4 billion in a quarter while the nation scuttles between recession and depression.  This is what we wrote the day of the earnings release on Tuesday;

Ah, Goldie did it again.  A cool $3.4 billion in second quarter earnings.  Some might say that this good fortune Goldman is having might be due to;

1. Contributing mightily to the destruction of the nation's financial system
2. Getting bailed out by Uncle Sam while key competitors were left to die 
3. Obtaining a Federal Banking Charter that entitled them to billions of funding at the low, low rate of....zero 
4. Borrowing $28 billion in low cost, long term funding with the full backing of the FDIC 
5. Benefiting from the bailout's budget busting effect wherebye Uncle Sam auctions off about $200 billion of Treasury bills, notes and bonds a month....which is nice when you a primary dealer of Treasury debt. 
6. Being one of the few men left standing in investment banking and thus getting an inordinate share of underwriting business, especially from competing banks who, after the sham "stress test" process, came to market to raise billions of new capital.    

The question we have been getting from smart people is, "Don't these guys even see how blatantly unfair this is?  Aren't they worried that their actions are so blatantly self-serving and so anti-social that eventually they are going to get themselves taken down?"

I've thought about this a lot and I think the answer is a normal, functioning human being, or in this case a normal company, would say, "Boy, we better cool it.  It's gotten pretty hard to hide the fact that we have had one of our boys running just about everything financial for the past year.  It's also gotten real hard to keep the whole AIG situation in the closet.  There's enough smart people out there that are finally starting to run their mouths that we got bailed out just like everyone else in 2008 and now we're in the position of the proverbial fox in the chicken coop.  Maybe, we slow it down a little until the pressure is off."

Nope.  Instead, Goldman doubles down and uses every unfair advantage they obtained from the bailout to kill it and rub it in everybody's face.  If Goldman were a person would this description remind you of them?

1. Glibness/superficial charm
2. Grandiose sense of self-worth
3. Pathological lying
4. Cunning/manipulative
5. Lack of remorse or guilt
6. Emotionally shallow
7. Callous/lack of empathy
8. Failure to accept responsibility for own actions

Seems pretty dead on to me.  That is the clinical description of a sociopath!  Perhaps Goldman needs our help?  Let's have an intervention soon and get these guys back on the right track!

That's it for me this week regarding Goldman.  It's enough already.  Actually, it kind of pisses me off that we (I mean the collective "we") have to spend such an inordinate amount of time shedding light on their bullsh*t.  We have a lot of things to do in this country and these mooks are taking our eye off the ball.

However, I can't resist leaving you with this from The New Yorker Goldman Sachs Internal Memo

Good Thing We Got Rid of "Regulator Arbitrage"!

Remember all those stories about how firms like Countrywide and AIG essentially shopped for the easiest regulator the same way a prescription drug addict shops for doctors who will write him a script for Percs? 

Remember how all the "former" investment banks like Goldman and Morgan Stanley used their regulator, the SEC, like a poor junior high-school substitute teacher to get away with all kinds of mischief?

Well, it appears when it comes to risk taking in 2009, Goldman Sachs has managed to do both!  The boys and girls at Zero Hedge (Richie and I are starting to wonder if they are Goldman arch-enemy Deutsche Bank!) have done another fantastic job bringing to light Goldman's approved request to their NEW regulator as a bank holding company, The Fed, to use their OLD regulator, the SEC when it comes to Value at Risk models and limits! Why Does Goldman Need a Fed Exemption For VaR Calculations?

The clue may come from a February 5 letter by the Federal Reserve to Goldman CAO Sarah Smith. The letter had come in response to GS requests for "temporary exemptions from the application of certain aspects of the Board's Market Risk Rules for state member banks and bank holding companies and the Board's general risk-based capital rules for bank holding companies." Basically through the end of 2009 Goldman is basically using non-traditional. SEC approved VaR models as can be seen here:

GSGI has requested that (1) through December 31, 2009, GSGI and Bank be permitted to use certain Value-at-Risk ("VaR") models approved by the SEC... to determine their capital requirements for specific risk under the Market Risk Rules; (2) through December 31, 2009, GSGI and Bank be permitted to use methods approved by the SEC to determine their capital requirements under the Market Risk Rules for those trading assets, including distressed debt and restricted stock investments that the SEC did not require to be included in the VaR-based models of GSGI and Bank; and (3) GSGI be allowed to use methods approved by the SEC to calculate risk-based capital requirements for its nonfinancial equity investments that are subject to the Board's Credit Risk Capital Rules.

Lets translate this because it's real simple.  Goldman wants to be a bank holding company so they will never have to worry about pesky things like liquidity and funding rates ever again.  However, they would still like to be regulated by Mrs. Doubtfire....the SEC.  Splendid.  Like Zero Hedge says, "Mr. Van Praag, the floor is yours....again."

WSJ: "Goldie Mac"!!!

Good Lord.  In the last 24 hours we've seen CNBC's Charlie Gasparino, MSNBC's Dylan Rattigan, Fox News' Bill O'Reilly and now the Wall Street Journal call BULL-SH*T on Goldman Sachs!!  Richie and I can finally take off our tin-foil hats and stop moving our location every 12 hours!

We told you that Matt Taibbi's searing piece on Goldman Sachs would finally start the mainstream debate on Goldman's abuse of power and privilege, and it did just that.  Then yesterday's $3.4 billion Q2 earnings release replete with the old modest;

"Hey, we're just doing what we've always done.  It's the same business that twenty other guys do, I guess we are just a little luckier than the others.

This seems to have just set just about everyone over the edge.  Like Gasparino said yesterday, and we've been saying for a long time.  Goldman is a hedge fund with the full privileges of a Federal Bank Holding Company.  That hedge fund got clobbered last year, got bailed out, got all the term funding they needed at super low rates, levered and "risked" back up and now they are killing it.  It's like shooting fish in a barrel.  They are pissing down our collective legs and laughing at us.............LOUDLY.

Anyway, check out the WSJ today A Tale of Two Bailouts.  Here's my favorite part;

Goldman's traders profited in the second quarter from taking advantage of spreads left wide by the disappearance of some competitors (Lehman, Bear Stearns) and the risk aversion of others (Morgan Stanley). Meantime, Goldman's own credit spreads over Treasurys have narrowed as the market has priced in the likelihood that the government stands behind the risks it is taking in its proprietary trading books.

Goldman will surely deny that its risk-taking is subsidized by the taxpayer -- but then so did Fannie Mae and Freddie Mac, right up to the bitter end. An implicit government guarantee is only free until it's not, and when the bill comes due it tends to be huge. So for the moment, Goldman Sachs -- or should we say Goldie Mac? -- enjoys the best of both worlds: outsize profits for its traders and shareholders and a taxpayer backstop should anything go wrong.

We like profits as much as the next capitalist. But when those profits are supported by government guarantees or insured deposits, taxpayers have a special interest in how the companies conduct their business. Ideally we would shed those implicit guarantees altogether, along with the very notion of too big to fail. But that is all but impossible now and for the foreseeable future. Even if the Obama Administration and Fed were to declare with one voice that banks such as Goldman were on their own, no one would believe it.

 Beautiful.

Submitted Without Comment.....Only Song.

"We're proud of our alumni.  When they work in the public sector their presence is more of a negative than a positive for us in terms of winning business.  There is no mileage for them in giving Goldman Sachs the corporate equivalent of most-favored nation status." - Lucas Van Praag  Goldman Sachs spokeman.

Goldman's Earnings As Interpreted By The Soprano's Ralphie and Vito.

Ah, Goldie did it again.  A cool $3.4 billion in second quarter earnings.  Some might say that this good fortune Goldman is having might be due to;

1. Contributing mightily to the destruction of the nation's financial system
2. Getting bailed out by Uncle Sam while key competitors were left to die 
3. Obtaining a Federal Banking Charter that entitled them to billions of funding at the low, low rate of....zero 
4. Borrowing $28 billion in low cost, long term funding with the full backing of the FDIC 
5. Benefiting from the bailout's budget busting effect wherebye Uncle Sam auctions off about $200 billion of Treasury bills, notes and bonds a month....which is nice when you a primary dealer of Treasury debt. 
6. Being one of the few men left standing in investment banking and thus getting an inordinate share of underwriting business, especially from competing banks who, after the sham "stress test" process, came to market to raise billions of new capital.    

Some may say this.  As reported by Bloomberg News;

“Goldman’s got a sweet spot in here, they were the go-to players,” said Peter Sorrentino, a senior portfolio manager at Huntington Asset Advisors in Cincinnati, which oversees $13.8 billion including Goldman shares, before earnings were released. “For the time being, they’ve got kind of an open playing field all to themselves.”

Personally, I like to use visuals to express my feelings.  Here is a clip from the Sopranos.  Skinny Ralphie plays the part of Goldman Sachs.  Fat Vito plays the part of Goldman's competitors. 

   

Our Man Jon Weil And The Goldman "Doomsday Device"!!

Sorry I haven't gotten to this.  I made a round trip to today North Carolina to pick two of my sons up from sleepaway camp.  Neither wanted to come home!  I guess that's good...in a way.

Anyway, I am late posting this great video of our man Jon Weil on Bloomberg TV yesterday, speaking to the global manhunt to recapture Goldman Sachs rapid fire, market manipulating (in the wrong hands of course) program trading "thingee".  

Check out the tone of Jon's interviewer!  In the "Post-Taibbi Article" world everybody want's a piece of Goldman's ass.  Splendid!  Enjoy and have a nice weekend.

North Korean Cyber-Attack!! Hmmm.

Wow, did you see this in the Financial Times today Powerful Cyber-Attack Against US and South Korea Blamed on Pyongyang.

US officials publicly played down the attacks on the White House, state department, Treasury and other federal sites, noting that so-called denial-of-service attacks were a perpetual problem and an inconvenience rather than a threat to security. They refused to comment on any link to the Korean attacks or to identify suspects.

Officials acknowledged privately that the assaults, which began over the July 4 holiday in the US, were among the longest and most effective to date. The site of the Federal Trade Commission, which recently shut down a California service provider for internet criminals, recovered from the first attack but crashed yesterday under a new barrage, said monitoring firm Keynote Systems.

"For US government sites to go down so hard for so long is almost unprecedented," said an outside expert assisting federal investigator.

Come on now, this has to be an urban legend.  Next thing they are going to tell us is that a major Wall Street firm used top secret computer programs to get access codes to the New York Stock Exchange and acquire trade data that allowed them to step in front of trades micro seconds before NYSE trade commit time!  Crazy man, crazy. 

Did Goldman Provide the Smoking Gun?

I do not profess to be a rocket scientist, or even a scientist but I am pretty good at sniffing out scams, especially when the scam artist accidentally admits that they were running a scam!  I know many of you have been following the arrest of former Goldman Sachs employee Sergey Aleynikov.  From Bloomberg News;

Goldman May Lose Millions From Ex-Worker Code Theft 

Goldman Sachs Group Inc. may lose its investment in a proprietary trading code and millions of dollars from increased competition if software allegedly stolen by a former employee gets into the wrong hands, a prosecutor said.

Sergey Aleynikov, an ex-Goldman Sachs computer programmer, was arrested July 3 after arriving at Liberty International Airport in Newark, New Jersey, U.S. officials said. Aleynikov, 39, who has dual American and Russian citizenship, is charged in a criminal complaint with stealing the trading software. Teza Technologies LLC, a Chicago-based firm co-founded by a former Citadel Investment Group LLC trader, said it suspended Aleynikov, who started there on July 2.

Here's the bomb; 

“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,”

Umm, what were the boys at Goldie using the program for?  I'm sorry, but as far as I know, the only way a computer program is guaranteed to make you money is if it is front running large trades.  Front running means acting in advance of a large customer's trades.  If he is selling a million shares you jump in ahead and hit bids on say 50,000 shares.  Smart crooks know how to keep it relatively small so it's not blatantly obvious.

So there are no misunderstanding I think Goldman should give up the full code to the Feds and then let the Fed try to make money using the full program.  Something tells me that without the tip off to large trades coming in from behind, the program is useless.  Just a hunch.

Got to run!  www.foxnews.com "The Strategy Room"  9 to 10 

More Shameless Self Promotion: We Made Rolling Stone....AGAIN!

That's me in the middle, Richie is on the left.  

Seriously, at this point all of you have probably read Matt Taibbi's Goldman Sachs piece.  In case you haven't, here it is on-line The Great American Bubble Machine.  Matt was kind enough to put me in somewhere in the "Rigging The Bailout Bubble" section.  I'm a "market analyst". My ten year IRS audit should be in the works as we speak.

Check it out and pay very close attention to how awful Goldman has responded to the piece.  Taibbi has brought up the questions we, along with others, have been loudly asking.  Additionally, Taibbi brings up some other real scary sh*t I never really thought of.  I think that, due to this article, these questions are going to go mainstream media now. Goldman essentially gave Taibbi a dismissive hand wave, said he did not know what he was talking about.....and then completely avoided countering his claims with any evidence or story to the contrary. I've been telling people that if you are going to fight Taibbi you better bring all of your game to the party.  If you don't you are going to get your ass kicked in public. Some of you have given me the same reaction Goldman gave, "Who the hell cares what Rolling Stone has to say about Goldman Sachs? What do they know?"  The answer is Taibbi knows enough, he's a bulldog AND he can write in a way that ANYONE can understand.  Guys like us write about negative basis trades and Zero Hedge writes about Goldman's quant fund rigging equity trading volumes and guys like Jon Stewart go, "???"  Taibbi writes this piece and mainstream America actually screams, "WTF???!!!"

This long awaited party is just getting started.  I have to go now and check the brakes on my car and ask the kind gentlemen in the van parked across from my house the last 24 hours if they would like some coffee! 

Former Federal Reserve Bank President Bill Poole Aiming at Goldman Partnership!

I had to read this at least three times to make sure I wasn't hallucinating.  AIG Trading Partners Put Squeeze On Issuer Before Bailout The article is obvious. Of course AIG's counterparties put the squeeze on to get as much collateral as they could before, as Jim Morrison of The Doors would have said, "The whole sh*t-house goes up in flames!"  We all know that Goldman Sachs, being AIG's largest counterparty would have extracted a sizeable chunk pre-bailout.  Standard business practice.  However, as we know DURING the bailout which has gone on since last September, Uncle Sam has been making sure that Goldman, among others, has been getting theirs, by federalizing Goldman's counterparty risk to AIG as well as to Goldman's counterparty risk to entities that sold Goldman protection on AIG.

This story has been laid out in gruesome detail by this blog and others (Matt Taibbi is coming out with a Goldman piece in Rolling Stone this week that should put dah cappah on this sordid affair).  I'm not going to repeat it again.  However check out this quote from former Federal Reserve Bank President Bill Poole;

“Goldman is to be congratulated for seeing the problem ahead of others and protecting itself from the impending failure of AIG,” said William Poole, former president of the St. Louis Fed, in an interview last week. “It’s not the responsibility of any private firm to determine what the public interest is -- that’s why we have a government.”

"That's why we have a government."  Holy crap!!!  I bet even Lloyd Blankfein must have fallen out of his chair when he read that!  Talk about sticking us in the eye with a sharp stick!  This is just another example of how our regulators and guardians of the financial system failed us.  These guys are either too stupid or too "wanting" (as in "wanting" a nice corner office at a big Wall Street bank with a big fat paycheck with their responsibility being to show up at client conferences and "make a few phone calls".)

What a jackass.