It's Really Time That We Investigate Bankers At Goldman Sachs

Higher-ups from Goldman Sachs have jumped between their positions at the "too big to fail" bank and our government for awhile now, and the general public has always been encouraged to pay no attention...I think it's time for a change.

It's now widely accepted that Hank Paulson let Lehman Brothers fail while giving AIG billions to pay off Goldman, to which AIG owed $13 Billion. In a new article in Rolling Stone Magazine, journalist Matt Tabbi takes an in-depth look at the story behind AIG.

“The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d’état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.”

Matt published this article today:

Goldman Busted Again

More good news for Goldman Sachs, which now has the WSJ taking a bite out of its posterior. Here it is reported that Goldman was handing out tips to favored clients that one of its analysts was about to publish favorable ratings of a mutual fund, giving those clients the opportunity to buy in six days before the analyst’s rating was published.

This comes on the same day that the New York Times ran a big story on Sergey Aleynikov, the guy who stole Goldman’s high-frequency trading program. The story is about the use of technology that banks use to make trades in fractions of milliseconds, taking advantage of tiny price discrepancies in the market.

This is a practice that’s apparently been going on forever. You give an investment bank enough business, they will throw bon mots like this your way. Here’s Jim Cramer, formerly of Goldman and then of course a hedge fund manager in his own right, describing how his wife and partner Karen Backfisch taught him to butter up investment banks with commissions:

How she did it was by gaming Wall Street, trying to anticipate moves of analysts before they were made, and placing big bets on the direction that analysts were going to go. That way, she said, you always had an edge, you never owned anything idly, and you always had an exit strategy...

Karen explained to me that the analyst game was a game of sponsorship. Analysts like to get behind stocks and bull them. You have to get in on the ground floor when they start their sponsorship campaign. If Merrill is the sponsor of a stock, it could be good for 5 points. If Goldman sponsored something, it could be good for 10. You want to buy something and flip it—sell it immediately—into the sponsorship. That’s the only sure thing on Wall Street.

When I asked her how we could find out about all of these wonderful things when I was jut a little hedge fund manager, she said one word: ‘commish.’… Commissions, she explained, determined what you are told, what you will know, and how much you can find out. If you do a massive amount of commission business, analysts will return your calls, brokers will work for you, and you will get plenty of ideas to make money, on both a short- and long-term basis… Commissions greased everything.