Goldman Sachs, the lords of time

Interesting (if somewhat technical) read on the company Matt Taibbi memorably described as " a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." (No, what follows is not the Taibbi article, which can be found here.)

"....Apparently, what Goldman's computers can do is incredibly sophisticated pattern recognition that can tell when somebody is trying to sneak in a big order. Not only that, they've apparently backward engineered the software to recognize what the market looks like before many types of big (within the context of about a few seconds to up to 15 minutes of trading) price moves.

Once you know that big orders are coming, and if you have Goldman's powerful big computers, making guaranteed easy money is a snap. While it may take a second or two for the multitude of smaller orders to hit the market, Goldman has already been in the market and gone, buying up most or all of the 10 million share order. When the buy order from the retail customer finally does hit the market, guess who's there to fill it? There's Goldman, selling the shares it just picked up maybe a second or two earlier at a lower price for a tidy little profit, the sum of which apparently went a long way towards making Goldman's $3.44 billion of earnings last quarter.

Many think that these trading mechanism's are inherently unfair, since, by their very nature, they disadvantage smaller traders in favor of the trading power financed by Goldman's wealth. Therefore, are the exchanges and ECNs working to stop Goldman and the others trading in this manner, so as to restore a level playing field?

Yeah, right. As the speakeasies said during Prohibition, may I take your hat and coat, Mr Capone?

More at source:
www.atimes.com...

And while we're on the topic, here's another one:

[Goldman] trading losses occurred on two days during the months of April, May and June, down from eight in the first quarter, the New York-based bank said today in a filing with the U.S. Securities and Exchange Commission. The company made at least $50 million on 58 of the 65 trading days during the quarter, or 89 percent of the time.

Just two days of losses in the entire quarter?

There are a lot of very good traders in the world, but nobody has that sort of record on any sort of consistent basis unless they've managed to rig the game.

You can be "the smartest guys in the room" but nearly-perfect records at the poker table are almost always an indication that someone has managed to figure out a way to peek at the other side's hole cards.

Oh, and they're gambling (or cheating?) with your money too - not their own:

Banks such as Goldman Sachs are benefiting from lower borrowing costs after the Federal Deposit Insurance Corp. in October started guaranteeing bank debt issues that mature within three years. Goldman Sachs said in today’s filing it had $25.1 billion of debt guaranteed by the FDIC under the agency’s Temporary Liquidity Guarantee Program. The bank sold about $30 billion of the FDIC-backed securities between November and March, according to company filings.

Is this an example of "heads we win, tails you lose, and we're peeking at your hole cards"?

Inquiring minds want to know.

More at source:
thecomingdepression.blogspot.com...

Max Kaiser was recently on Alex Jones explaining this new frequency computer, that Goldman Sachs use to siphon off money. They are also operating without any real competition., sucking up the bailout money and using it as capital. They really are the scum of the earth.

like kaiser said on the AJ show, the People at GS should be brought before the hague for crimes against the economey

You can rail against Goldman all you want. It does not make a difference. I do think that Goldman has too much influence in Washington. Just take a look at 4 of the last 5 CEOs of Goldman and see where they wound up. Treasury Secretary(3), US Senator then NJ Governor(1). That is a different matter

The issue with the technology is not a problem you can blame GS for. Trading in the financial markets is not NASCAR. Everyone does not have to play by the same playbook nor have the same infrastructure before the markets open. Everyone has access to the same data and information as Goldman. Nobody has the quantitative intellectual property or the computing horsepower to use that IP but Goldman.

Don't blame Goldman. They are acting legally within the regulatory constraints of the market place. You can blame the marketplace, you can blame the other firms who can't compete with Goldman therefore giving them a significant advantage. You can blame the regulatory bodys who have allowed this type of trading to take place. Blaming Goldman for making money legally is foolish. Making a comparrison between capitalism and morality is equallly foolish.

I don't like their influence. I don't find fault in their making money legally by exploiting the system. That is what they are supposed to do.

Here's the interview I was referring to.

reply to post by dolphinfan

. . . This is what happened. The ability to lend is tied to the stock of a bank. The more the value of a bank depreciate via common stock, the less the bank can lend – that’s the rule. Now when the credit froze and the market went south, the Fed applied the prime rate tool to unfreeze it and drove the rate to zero. But the depreciated value of the banking industry was another problem to be dealt with. So either you go through the lengthy process of changing temporarily the rule or you bypass it by “bailing out” pros like Goldman Sachs. That company was quietly asked to use the Fed funds to resuscitate the market with a special attention to the banking sector.

Fact or fiction?

reply to post by stander


A trick question. When the banking crisis hit, the feds decided to pump a ton of money into the sector to keep it afloat. That was the whole argument around "keep them afloat/let them fail". It was also the "why let Lehman fail, but bail out AIG". All of those arguments.

In order to create the notion that the entire banking sector was in need of federal assistance, so as to not drive depositors from troubled banks, making their situations worse, the feds FORCED healthy firms like Goldman and JP Morgan to accept funds. In that manner they could essentially cast a blanket of pall across the entire industry.

Now recall a few months ago. Morgan and Goldman wanted to pay back the government for money they did not need in the first place. At first the feds said "no, you can't pay us back because then you won't have to listen to us". The banks pushed and the feds "allowed" them to pay them back.

Now to the extent that the federal meddling in the banking system created a situation whereby well capitalized banks could exploit that environment and make a ton of cash is not the fault of the bank. It is the fault of the feds who neglected to thoroughly consider the ramifications of their hasty bank bailout package.

reply to post by dolphinfan


What they are doing may be "legal" but it crosses the line into "immoral" in a society that is falling apart, plus they are using BORROWED TAX MONEY to run their shenanagins, even if they pay it back.

When a certain level of inequality is reached in a society, I don't care what the law says but the fundamental "social contract" is breached. To acknowledge this is not "socialism" or "leftism." It is a simple fact of history.

We are entering French Revolution terratory with this garbage...you have this tiny uber-elite basically gaming the system while life is progressively getting worse for everyone else. If the law allows this state of affairs to continue, then the law needs to be changed. These people need to be reigned in or one day they may just find themselves swinging from lampposts or garotted with piano wire.

My main issue with what they are doing besides it being funded by tax payers who don't see any of the profits from the investment they were forced to make. Yes besides that minor issue, the other problem is they aren't actually producing anything or providing anyone with a service. In effect they are a burden on the economy as a whole and on the very people that allowed them to stay in business - tax payers.

The high frequency trading program is not new. This was being done for at least the last 10 years.

Goldman Sachs started a hardware computer company run by their CTO Vern Brownell in 2000 called Egenera to build a rack of computers specifically for high frequency trading.

The hardware was a rack of basic motherboards without the I/O section and the I/O section consolidated into a pair of I/O computers that connected the rack of computers to a network. The motherboards connected to I/O with multiple low latency buses (Infiniband, 10Gig Ethernet). A rack of 24 computer was $1M, and since all I/O of 24 computers passed through two I/O computers they had miserable performance as standard computers. But they were what Goldman Sachs needed for high frequency trading, to buy on the upticks and sell on the downticks and trade before humans could react. It was a money making machine.

[edit on 7-8-2009 by Dbriefed]

there is nothing to stop the goldman machine ....i would believe the reason they may have tried to up the capabilities on their trading software would be so that when hedge funds or large pools of capital were short selling certain banks and trying to start rumors ......that they didn't like the vulnerability this gave them so they came back to protect themselves and came back stronger.

someone needs to get the cajones in washington to do something to break the banks up into smaller than too big too fail corporations but in case nobody noticed that is not happening.

GS and JPM own the financial world in the USA.....i don't know what giant banks have such influence over in europe .....maybe none...HSBC is a powerhouse.....ICBC is the biggest in the world.....but the amount of dervivatives outstanding in the trillions by JPM and the amount of influence GS has puts them at the top of my list.

reply to post by silent thunder


it's not legal if it's what the guy at the start says... it's front running which is highly illegal... it'd shut the place down

Look, I consider myself a "capitalist" and usually come down on the conservative side of things. I've worked decades as a "capitalist" businessman and reaped some decent rewards. But this is where I put my foot down. This stuff is simply UNFAIR and ultimately IMMORAL, even if not strictly "illegal."

This is a sign that capitalism is failing because its primary purpose is to deliver wealth in a fair and equitable manner to those willing to work hard and within the rules. Once the fairness factor of capitalism is lost, it becomes a racket, not a viable economic system.

If you so much as criticisze the concept of capitalism people think you are some kind of Che-t-shirt-wearin' filthy hippie around these parts waving Mao's little read book. But now more than ever we've got to get rid of the fear of criticizing capitalism itself and reform the system, radically. This doesn't mean we have to go back to communism or socialism...these are all 19th century conceptions anyway. Its time for a thourough, ground-up reapprasial of the entire economic philosophical architecture that underpins society.

It will be a struggle to come up with a new and fair system, it will take time. There are no easy answers and like with anything else there will be winners and losers. But if this is where "capitalism" leads than its not "capitalism" anymore...its state-sponsored corporatism, which is how Mussolini defined fascism. We are crossing the line here.

Any viable system to replace the current one must reduce the obscene inequality, make it easier for the average person to live some semblance of a secure life, ensure continued innovation and progress, and provide incentives for hard work and fair play. Like I said, it won't be easy. But these jackels manning the green-felt table these days have proven that the system is broken because it is fundamentally manipulated and it has lost its FAIRNESS: something that hallowed saint of capitalism Adam Smith actually singled out as an essential value of the system.

Originally posted by silent thunder
But these jackels manning the green-felt table these days have proven that the system is broken because it is fundamentally manipulated and it has lost its FAIRNESS: something that hallowed saint of capitalism Adam Smith actually singled out as an essential value of the system.

The big business of finance had the chance to play capitalism in the nice settings of private mansions. Now the government considers a different setting for the gamblers to play the cards.
www.philadelphia-reflections.com...

Aah, the big brother is watching.
No, it's a casino security worker.
I give a free week in Bellagio to anyone who finds a blog complaining about security measures in Las Vegas casinos.

reply to post by silent thunder


There is no "fairness" or morality issues here. There is no fairness issue in the same way that they don't use handicaps in professional golf. Everyone has the same shot at winning. Were someone to win every tourny over a period of 10 years, would it be "fair" to pad his score by a few strokes?

What Goldman is doing can be done by any other firm who is clever enough to do it. They are not clever enough.

The issues here have nothing to do with morality either or inequality. Goldman is in the business of making money. If you don't like the way they make their money, OK. Don't buy their stock in the same way folks won't by Phillip Morris stock because they don't like the way they make money. If you don't think that the financial instruments that are being used and the methods in which they are used are not good for the markets or the financial system -- I happen to be on this side of the argument and believe that many of these synthetic instruments should be illegal due to the lack of transparency inherent in them. I also think that some of these algorythmic trading systems are not healthy for the market and that both the instruments and the trading methodologies removed from the market place. The way to do that is through regulation, yet one more thing the government has failed to do properly.

As far as Goldman using taxpayer's money, who cares? First, they did not want the taxpayer's money and paid it back. When you factor in the corporate income taxes that Goldman paid as a result of the earnings and the income taxes paid by the individuals who work at GS, the taxpayers got a pretty good return on their money.

The way to address this/these issues is through regulation and tax policy. I hate taxes but would not be adverse to a very high tax on this kind of activity to the extent that we continue to allow it to occur.

It is also not front running. As I mentioned above, everyone has access to the same data and information at the same time.

Originally posted by dolphinfan

The way to address this/these issues is through regulation and tax policy. I hate taxes but would not be adverse to a very high tax on this kind of activity to the extent that we continue to allow it to occur.

The subprime mortgage business sent lots of tax proceeds to the Treasury. Maybe that's why the government were so lethargic in curbing this business activity.

The hunger for tax revenues is the yardstick to measure the level of government corruption with.

reply to post by dolphinfan


Perhaps rather than appealing to "fairness" or "morality," it would be more effective to consider the situation in terms of "systemic stability." What they are doing is essentially undermining the achetectronic stability of global finance. Not necessarily with their clever little ECN games, but more generally as a buisness that simply has too much influence with institutions like the Fed and the Treasury. Hank Paulson, Timmy Geithner, Robert Reubin...when did our gov't become "all Goldman, all the time?" Why was Goldman CEO Blankfein the ONLY non-govt person invited to the meeting last fall when they decided to start the TARP program? Why did a bunch of Goldman alum in positions of political responsibilty push for allowing Goldman's competitor Lehman to go bust and then suddenly do a 180 and declare that now other firms were "too big to fail" ?

Using your golf analogy, it would be like one player who had a remote-controlled golfball that made a hole-in-one every time. Sure, there is nothing in the official tourney rules that "specifically forbids" it, but its going to create a situation where the game is no longer FAIR.
Even if you think they deserve their gains due to raw Darwinian prowess, when one player has all the poker chips the other players have nothing, the game is up.

That's why we have laws against insider trading. From a purely ruthless, Darwinian perspective, you could argue that those who don't have privilaged access to the inside information are simply "losers" who don't deserve to survive in the market. But somewhere along the line we reached a consensus that this sort of thing does tip the balance in a way that destabilizes the entire system (even if it can't ultimately be completely avoided), so we made it illegal. Goldmanand a few other big financial players are now overly entertwined with the govt and the regulatory groups who are supposed to be refereeing the game. It has its "blood funnels" jammed into so many money holes now that they have created a situation where the system itself will be in jeopardy.



[edit on 8/8/09 by silent thunder]

reply to post by dolphinfan


We can blame Goldman because whether or not what they are doing is legal makes no difference. What they are doing is knowingly stealing from the system(ie me and you) so they deserve our scorn. Just because it may be legal doesn't make it right.

reply to post by silent thunder

As long as the market keeps climbing, GS is not a bad boy to go after. The meltdown wiped out most of GS competitors who had the same tools and opportunity to spy on GS' sell/buy orders. If all investment banks were let to fall like domino, the stock market would crash, coz traditional investors bailed out of the game. The government got into the stock market propping via GS, the same way it got into auto making via GM. Once you see that a company name initials start with "G," think "Government."