Goldman Sachs

I was twenty-eight years old before I had even heard of Goldman Sachs. In retrospect, I suppose that's a bit of surprise considering they are one of the largest and most influential companies in the world. On the other hand, I never had much interest in the financial markets when I was younger nor any sort of fascination with Wall Street.

Since the beginning of the height of the financial crisis last September, I have become much more aware of both the markets and Goldman Sachs. I've noted before on this site that Goldman Sachs has not only been the recipient of taxpayer largess via AIG but also has a network of former employees in influential government positions. The so-called mainstream media has been relatively quiet on these facts, but the chatter is beginning to pick up.

Glenn Beck of FoxNews and Matt Taibbi of Rolling Stone have recently begun to expose the tangled web of Goldman Sachs to mainstream audiences. This video of Max Keiser, linked via Taibbi's blog, has begun making the rounds in cyberspace. A follow-up can be viewed here. I'll grant you that Beck, Taibbi, Keiser and others who rant against Goldman Sachs may be considered to be peddlers of hyperbole, but the facts remain true.

Beyond the network of power wielded by former Goldman Sachs executives, there is the question of market manipulation. Taibbi's article places much of its focus on their ability to create and/or take advantage of economic bubbles. However, two other stories which I've been watching consider the potential for market manipulation today.

Goldman Sachs participates in what is called program trading. The New York Stock Exchange (NYSE) defines program trading as "a wide range of portfolio trading strategies involving the purchase or sale of 15 or more stocks having a total market value of $1 million or more." The NYSE publishes a weekly report summarizing the volume of program trading and providing data on the top fifteen most active firms. Goldman Sachs is usually number one on the list. In the most recent report, one can see that Goldman Sachs's program trading accounted for 7.7% of all volume on the NYSE. The report which covered activity for the week of June 22-26 was initially missing Goldman Sachs. An NYSE press release explained that the omission was due to "an NYSE system error" which seems a tad implausible to me. This is given that most of the data was correct in the first report (other than missing Goldman Sachs). That week, their program trading activity accounted for 16.9% of all NYSE volume.

The volume of program trading volume was brought to my attention by the blog Zero Hedge. These guys are animals when it comes to following the financial markets and I have learned a lot by reading their blog. I do not know enough about how the markets truly work to know whether or not these volumes of program trading should be a concern. However, another story, which I first read on Zero Hedge, indicates that Goldman Sachs and the FBI are concerned.

Sergey Aleynikov is a former Goldman Sachs employee. He was arrested on July 3 at Newark's Liberty International airport. Aleynikov is accused of stealing "proprietary, high-quantity, high-volume trading" software from Goldman Sachs. As this article from Bloomberg indicates, U.S. Attorney Joseph Facciponte told the court that "[t]he 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." (More details in this Bloomberg story.)

Now hold on just a second. If this software is in the wrong hands it could be used to manipulate the market? I suppose Goldman Sachs does not use this software to manipulate the market? How can that be determined? This is their own admission! This must be investigated!!

Meanwhile this week, Goldman Sachs reported record earnings of $3.4B in the second quarter of 2009. This is after receiving billions in TARP money, billions more in backdoor bailouts via AIG, massive trading profits from program trading operations using software which might be capable of manipulating the market, and a first quarter profit which was mysteriously missing a month full of writedowns.

Employee compensation at Goldman Sachs for 2009 has risen to record highs with the average employee earning $386,429.