Commentaries

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A Goldman trading scandal?

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Did someone try to steal Goldman Sachs’ secret sauce?

While most in the US were celebrating the 4th of July, a Russian immigrant living in New Jersey was being held on federal charges of stealing top-secret computer trading codes from a major New York-based financial institution—that sources say is none other than Goldman Sachs.

The allegations, if true, are big news because the codes the accused man, Sergey Aleynikov, tried to steal is the secret code to unlocking Goldman’s automated stocks and commodities trading businesses. Federal authorities allege the computer codes and related-trading files that Aleynikov uploaded to a German-based website help this major “financial institution” generate millions of dollars in profits each year.

The platform is one of the things that apparently gives Goldman a leg-up over the competition when it comes to rapid-fire trading of stocks and commodities. Federal authorities say the platform quickly processes rapid developments in the markets and uses top secret mathematical formulas to allow the firm to make highly-profitable automated trades.

The criminal case has the potential to shed a light on the inner workings of an important profit center for Goldman and other Wall Street firms. The federal charges also raise serious questions about the safeguards Wall Street firms deploy to protect their proprietary trading systems.

Stop the Wall Street pay stories

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OK. I know it’s probably too hard for an editor to resist running out another story on excessive Wall Street pay–especially on the day when you know the US government is going to release another set of ugly jobs numbers.

So it doesn’t really surprise me to see a story in The Wall Street Journal about “big pay packages” at Goldman Sachs and Morgan Stanley. Populist outrage sells papers.

The AIG bailout was about Europe

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It makes for a much better storyline to say the federal government’s bailout of AIG was all about saving evil Goldman Sachs from collapse. But the reality is the bailout was driven more by a desire to keep scores of European banks from taking massive capital hits.

Don’t believe it? Well, look at the latest regulatory filing from American International Group about the derviatives mess caused by its AIG Financial Products group. In the late Monday filing, the defacto government-owned insurer talks about its potential exposure to “market valuation losses” in its $192 billion “regulatory capital credit default swap portfolio…written for financial institutions, principally in Europe.”

from Neil Collins:

Goldman shows a preference for Lloyds Banking

Too late to save Sir Victor Blank, Goldman Sachs has decided that the prospects for Lloyds banking Group are little short of glittering. Once the current crisis is past, says Goldman, the British banks will clean up.

Anyone trying to borrow right now would say they are cleaning up already. Loans carrying a small margin over Libor are a distant memory for most commercial borrowers, and woe betide any company that breaches a covenant, no matter how technical.

Derivatives league table

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Goldman Sachs is moving up the derivatives charts—with a bullet.

In the latest ranking of US banks with large derivatives exposure, Goldman moves up from fourth place to second, according a report from the Office of the Comptroller of the Currencey. The notional value of Goldman’s derivatives contracts at the end of the first quarter was $39.9 trillion, up from $30.2 trillion in the fourth quarter of 2008.

Goldman leapfrogged over Citigroup and Bank of America. The total value of derivatives contracts is down a bit at Citi and holding steady at BofA compared to the fourth quarter. That’s not too surprisingly, given that those two banks continuing problems with troubled assets on their balance sheets.

Deconstructing Goldman

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I’ve had some requests from readers about how to locate a complete list of Goldman Sachs’ subsidiaries, following my column about a little-known Goldman subsidiary called Archon Group. My aim is please so here’s a copy of a recent Commonwealth Annuity and Life Insurance filing that contains the entire Goldman treasure chest of subsidiaries. The hunt starts on page 257 and runs through page 310. Enjoy.

Goldman’s derivatives puzzle

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Earlier today I posted an item saying that Goldman Sachs is hard as ever to figure out, based on the kind of information (or lack thereof) that it publishes about its operations.  I focused on a little-known Goldman real estate management company called Archon Group.

And now comes derivatives guru Janet Tavakoli with a nice followup, noting that Goldman offers few details in regulatory filings about its derviatives business, despite having some big exposure to those often complex investment contracts.

Goldman still puzzles

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Matthew GoldsteinInvesting in Goldman Sachs still requires a leap of faith in the investment firm’s ability to out-trade, out-wit and out-muscle everyone else on Wall Street.

Sure, the bulls will say that with fewer competitors and with the Federal Reserve keeping bank borrowing costs near zero, Goldman’s traders should be able to print money. But here’s the thing: The post-federal bailout version of Goldman is as much of an investing riddle as the pre-crisis Goldman that many critics called a giant hedge fund or an inscrutable black box.

Beware the Tarp repayments

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Shares of Goldman Sachs and Morgan Stanley are trading like the financial crisis never happened. In fact, Goldman’ stock is trading at  price that’s right around where it was the Friday before Lehman Brothers filed for bankruptcy last September.

But it looks the rally may have gotten ahead of itself. Roger Freeman, a Barclays Capital analyst, is scaling back his second-quarter estimates for Goldman and Morgan–largely because of the cost to both firms of repaying money to the Troubled Asset Relief Program.

Short selling and the SEC

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The subject of short selling can always be counted on to generate a lot of heat. And a proposed Securities and Exchange Commission rule that would put limits on the ability to short a stock–especially in a severe market downturn–is no different.

In all, some 3,700 people submitted comments to the SEC, which officially stopped taking public input on the proposal on June 19. (The comments, however, are still coming in).

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