Goldman Pump Fake Sachs
January 13th, 2010Captain Obvious swoops low, smiles and says, “Glad to be of service! Happy trading.”
Via: New York Times:
For years, Wall Street whispered that Goldman Sachs profited handsomely by trading ahead of — or even against — its own clients. On Tuesday, a Goldman executive made an unusual admission that, in some cases, the rumors were true, Andrew Ross Sorkin writes in The New York Times.
In an e-mail message to select clients, Thomas C. Mazarakis, the head of Goldman’s fundamental strategies group, acknowledged that his unit often provided investment ideas that the firm had already traded on. Sometimes Goldman has even taken the opposite approach, betting against particular instruments that the group has recommended.
“We may trade, and may have existing positions, based on trading ideas before we have discussed those trading ideas with you,” he wrote.
The statement comes as the firm faces growing criticism over its role in the financial crisis, and is a rare acknowledgment of Goldman’s conflicts with certain of its clients.
“The way that the business is evolving is that it is laden with conflicts of interest,” Anant K. Sundaram, a professor of finance at Dartmouth’s Tuck School of Business, said.
Last month, the Securities and Exchange Commission and Congress began investigating how Goldman and other firms had created bundles of mortgages known as collateralized debt obligations, or C.D.O.’s, that were sold to investors at the same time that the banks had privately bet against the instruments. Some of these C.D.O.’s later fell in value, creating losses for those clients who bought them — and profits for Goldman.
Goldman also prevailed upon ratings agencies to assign the C.D.O.’s high investment grades, even as it planned to short, or bet against, the securities.
The e-mail message is a blunt acknowledgment of what often appeared in the fine print of Goldman’s marketing materials. Lucas van Praag, a Goldman spokesman, said in a statement: “We have been providing this disclosure, which we think is best practice, for a number of years and there is nothing new in the disclosure you were sent.”
But Mr. Mazarakis’s letter also highlights the enormous clout wielded by Goldman’s army of traders, many of whom make enormous bets using the firm’s own capital and who provide the bulk of the firm’s immense profits. Goldman insists that its trading business is done on behalf of its clients.
