Thursday, August 27, 2009

"Both investors and other firms on Wall Street need to know what's going on, or the financial markets will never be considered fair again."

How Goldman Sachs' problems are hurting you


August 27, 2009

John Crudele
The New York Post
Copyright 2009

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.

Over the past few years I've looked into the much-too-cozy relationship between Goldman and Washington.

I've suspected that this Wall Street firm has been acting, in essence, as an arm of the government. And I am also pretty sure that if Goldman and Washington have something secret going on, the investment firm isn't doing it for altruistic reasons. There's money to be made.

In 2007 I reported in this column that Treasury Secretary Hank Paulson let the cat out of the bag when he confessed on a cable TV show that it was "my job to talk regularly to market participants . . ."

Paulson had been the chairman of Goldman right before taking the job as head of Treasury.

So, if he felt it was his "job" to talk with people on Wall Street then who else would he speak with if not his old friends at Goldman?

The head of the US Treasury would, of course, know lots of secrets. In the olden days, this would be called "inside information."

And despite Paulson's contention it would be entirely inappropriate for him to discuss sensitive matters with people who could profit from the information. It is, in fact, illegal. And the penalty could be jail time.

What has been of particular interest to me is whether Paulson contacted his friends at Goldman after a lunch with Federal Reserve Chairman Ben Bernanke on Thurs., Aug. 16, 2007.

That day Wall Street seemed to get wind of the idea that the Fed was planning to do something big, and stock prices rallied strongly at the very end of that trading session.

The very next morning Bernanke cut interest rates, the first of many such moves.

This was the start of the Goldman suspicions.

Lately, a media posse has been in hot pursuit of the firm. Finally!

A comprehensive, though somewhat antiquated, article ran in Rolling Stone magazine last month that laid out Goldman's manipulation of various markets.

Then The New York Times got hold of Paulson's phone records for Sept. 2008, which detailed loads of calls between him and Goldman right before the government's decision to bail out AIG, a huge insurance company.

AIG had taken large trading risks including many with Goldman on the other side of the transaction.

The Treasury said there was nothing wrong with the phone calls.

Next the Wall Street Journal reported two things.

First, the paper said that Goldman has a habit of tipping off its big clients like hedge funds to market-moving calls that its analysts were about to make public.

The Securities and Exchange Commission and the Financial Regulatory Authority are looking into that. And regulators in Massachusetts are supposedly now investigating that.

And, in an interview with the Journal, Tim Geithner claimed the government never did anything to benefit Goldman.

But then he also admitted that Washington had been "forced to do extraordinary things and, frankly, offensive things to help save the economy."

Nobody bothered to ask about those "offensive" things and whether they had anything to do with Goldman.

The most intriguing recent mention of Goldman occurred back in July when a former employee of that company named Sergey Aleynikov was arrested for stealing proprietary computer codes.

The Justice Department snapped right to it, saying in court: "The bank (Goldman) has raised the possibility that there is a dan ger that somebody who knew how to use this pro gram could use it to manipulate the market in unfair ways."

Is that what Goldman was doing with the program? Was it manipulating the market in unfair ways? Why else would it have had such abilities?

Goldman briefly converted itself into a commercial bank last year so it could get taxpayer bailout money.

Yet even as it had our money in its pocket, Goldman continued high-risk trading that earned it a huge profit.

Even Goldman customers, I'm told, are annoyed about so-called "high velocity trading," in which Goldman's computers allow the firm to jump in front of trades coming from inside its own system.


Both investors and other firms on Wall Street need to know what's going on, or the financial markets will never be considered fair again.

Some ambitious politician like Andrew Cuomo, New York State's Attorney General, might be up to giving Goldman a full investigation.

But this is really a job that Washington should do.

Either the Congressional Oversight Committee or the Justice Department should start doing their job. And if any investigator gets grief from the Treasury, then we will automatically know that there has been wrongdoing.

Meanwhile, investors should know they could be walking into the third act of a major drama.

And with the stock market in a mini-bubble since March, even without justification in economic fundamentals, be prepared if the curtain suddenly drops.

© 2009 New York Post:

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