You'd be forgiven for skipping part of a long New York Times
story today about Goldman Sachs clients' increasing concerns: it's
long, it's dry, and it doesn't yield its secrets easily to the lay
reader. A few bloggers, though, have done the job for you. Buried within the countless stories of clients worried about Goldman's conflicted positions and borderline shady deals lies important insight, they think. Some bloggers argue that in the end, the story gives "devastating" documentation of Goldman's compromised relationships with clients.
- Piece 'Devastating,' declares Columbia Journalism Review's Ryan Chittum.
He thinks it shows that "what once was an investment-banking culture
that at least had a legitimate claim to putting its clients first, now
is a trading culture." Furthermore, he highlights a section in which
New York Times reporters Gretchen Morgenson and Louise Story summarize
a Goldman training manual, which explains "how Goldman uses information
harvested from clients who discuss the market, indicate interest in
securities or leave orders consisting of 'pretrade information.'"
Responds Chittum: "Can anyone tell me why this is not insider trading
- Expert Here: This Stuff Is Pretty Damning Yves Smith,
finance blogger and former Goldman employee, translates the Times story for the general audience: it "chronicles how some of the firm's corporate clients are increasingly uncomfortable
with how Goldman will use the information the firm gains from its
business dealings (meaning its corporate finance relationships and
underwritings, where the banker is expected to treat its customers as a
relationship, not a trade) for its own profit, particularly to bet
against the client. This would have been completely unthinkable when I
was briefly at Goldman." She also says the examples of "less than savory" conduct here aren't the only ones she's heard of. Her conclusion:
While Goldman is a sufficiently
embattled firm these days it is well nigh impossible for outsiders to
get candid answers, the firm's conduct in the Senate hearings and some
of Lloyd Blankfein’s star turns give the impression that the firm’s
moral compass is so badly broken that its leadership and many of its
employees genuinely thinks there is nothing questionable about this
type of conduct. And if that is true, the firm is beyond redemption.
- How Is This Legal? It's clear from this piece, writes business journalist Claudia Deutsch
at True/Slant, that Goldman "knows whether WaMu ... holds too many
mortgages in danger of going sour, it knows whether AIG is on the hook
for too many CDOs and such, etc., etc." So she has almost the exact
same question as Chittum: "someone explain to me why Goldman is not
trading on insider information when it bets either with or against
those clients' stocks or bonds or esoteric financial instruments?"
- You Should Read Goldman's Response, says Choire Sicha at The Awl. The firm publishes
the questions the Times asked Goldman employees and the answers given,
highlighting the highly selective snipping of answers. Sicha clearly
feels that the Times piece and the Goldman response are odd, but
says "there's at least one really great point made" in the Goldman
response: Goldman tells the Times that shorting investments you've also
gone long on is standard, sound risk management, and says "many
institutions" that have "long exposure to Goldman Sachs" would be wise
and not at all out of line to short Goldman as well.
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