Tuesday, July 14, 2009

Government Sachs - Earnings and Market Manipulation

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Goldman Sachs posted earnings today and it made $3.4 billion, or $4.93 a share, in the second quarter, up from $4.58 a share a year earlier. Wall Street's expectation were for $3.54. Excluding TARP expenses, the company would have had a profit of $5.71 a share. Revenue came in at $13.8 billion, way beyond the consensus estimates of $10.7 billion. The stock has been rallying big time the last few days. Certainly it couldn't have been because Wall Street insiders got the good news before it was publicly released. Even if they did and admitted in on a neon sign in Times Square, the SEC still wouldn't investigate.

In case you are wondering how Goldman makes all that money, there are two exposes available that can help clarify it for you. The first is "Inside the Great American Bubble Machine" by Matt Taibbi in Rolling Stone Magazine, which details how Goldman has helped create and profit from every major bubble since the Great Depression. While I consider Taibbi's grasp of economics and market forces to be extremely weak and his article too much in a naive 'the speculator did it' genre, there are things that Goldman has done that are indeed questionable. Taibbi should have concentrated on them. For those who don't recall, it has previously been reported that Goldman shorted subprime bonds while advising its clients to buy them. It made money from client fees on one side and gains from trading against its clients on the other. What must it have been up to last quarter that made it so much money? It may not have been something so benign.

In a truly fascinating story that has gotten almost no media coverage (I wonder why), a former Goldman employee was accused of stealing proprietary software from the company that, according to prosecutors, could be used to manipulate the market in unfair ways if it 'fell into the wrong hands'. This description is from court proceedings. See the You Tube video before it gets censored: http://www.youtube.com/watch?v=lrlQSMCx-aE

The accused former Goldman employee went to work for a group of former Citadel employees who set up their own company, Teza Technologies. Interestingly, Citadel is suing this new company for industrial espionage and this is related to the alleged theft of software from Goldman! “Defendants’ activities, particularly Teza’s decision to hire [xxxxxx], an accused software thief, create a substantial risk that they have stolen, or may be planning to steal, Citadel’s proprietary code,” the hedge fund firm said in court papers. Citadel, like a handful of other big Wall Street firms and hedge funds, also has a long history of making extremely high profits like Goldman Sachs and uses similar sophisticated software involved in the Goldman case. Thank god this software that could be used to 'manipulate the market in unfair ways' is in the hands of these fine upstanding corporate citizens - and we can be assured that the authorities plan on keeping it that way.

NEXT: So Much for No Inflation

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

No comments: