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Goldman’s Perfect Quarter Indicates Game is Fixed

Posted by Larry Doyle on May 10, 2010 10:12 AM |

Those involved in fixing the scores of athletic events will intentionally lose every once in a while to give the appearance that the games themselves are on the up and up. For those betting on athletic contests, beating the point spread each and every time would be a strong indication that the games are fixed. Similarly, casinos are happy when players win so that other players will enter the game. If the house always wins, sooner or later fewer and fewer players will enter that casino.

The crowd at Goldman Sachs ,along with their cronies in Washington, may want to heed these lessons. Why do I write this?

Bloomberg reports this morning, Goldman Sachs Has First Perfect Quarter With Zero Trading Loss:

Goldman Sachs Group Inc.’s traders made money every single day of the first quarter, a feat the firm has never accomplished before.

Daily trading net revenue was $25 million or higher in all of the first quarter’s 63 trading days, New York-based Goldman Sachs reported in a filing with the U.S. Securities and Exchange Commission today. The firm reaped more than $100 million on 35 of the days, or more than half the time.

Goldman Sachs, which is facing a fraud lawsuit from the SEC related to the firm’s sale of a mortgage-linked security in 2007, generated $9.74 billion in trading revenue in the first quarter, exceeding all of its Wall Street competitors. Trading accounted for 76 percent of first-quarter revenue.

“This is the first time we have reported zero trading loss days in a quarter,” Samuel Robinson, a Goldman Sachs spokesman, said in an e-mail today. “We believe it shows the strength of our customer franchise and risk management.”

Is that what zero losses indicate? I will not denigrate the talent and expertise within Goldman’s operations; the firm has plenty of exceptionally talented people. But for Goldman to promote its risk management and franchise as seemingly the sole driving forces behind these results, well that is just another indication of dangerously blind arrogance.

The simple fact is the very structure of Wall Street has changed. I have indicated previously and will reiterate that Wall Street has become one massive oligopoly. As such, the ability for Goldman and the other large institutions to control, if not outright manipulate, prices is a simple reality. This price control is reflected in a variety of market segments, including electronically driven equity markets.

The house typically wins in Vegas, as well — but not every day. What happens when the house always wins? Customers stop playing there. While Goldman is fighting to restore its reputation and promote its customer franchise, the question lurks in many investors’ minds, “Can I trust these guys?” That question is not going away anytime soon and is the reason why Goldman’s stock has suffered, even while its daily operations are minting money.

The crowd at Goldman along with their friends in Washington may want to think hard about these structural questions. Without real change on the structural front, the Wall Street-Washington partners should not be surprised as more and more customers choose not to play a game that is inherently fixed for the benefit of the banks and dealers.

Even in Vegas the house will intentionally lose now and then for appearance sake.


Cartoon by Nick Anderson of the Houston Chronicle
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