October 31, 2007 -- THE Securities & Exchange Commission is looking into whether Goldman Sachs cheated its way to enormous profits - even as the rest of the financial industry was suffering through a massive downturn. The central issue, as best I can determine, is whether Goldman had any insight that other firms didn't have during the May and June period when subprime mortgage securities were deteriorating in value. In June, brokerage firm Bear Stearns was one of the first firms to shock Wall Street when two of its hedge funds reported massive losses on risky mortgage loans. Since then a number of other investment firms have reported similarly dismal results. The bad news culminating in the last two weeks with a massive $8 billion write-off by Merrill Lynch that led to the ouster of its chairman, Stanley O'Neal. One person who discussed the matter with the SEC says the investigator seemed curious as to whether the investment banking side of Goldman's business could have tipped off the trading side of that brokerage firm to the extent of the problems that would soon be encountered by Bear and others. http://www.nypost.com/seven/10312007/business/sec_eyes_goldman_sachs_good_fo.htm
It was pretty obvious during may that the market was WAY oberbought. If I, a retail investor, could see it, why couldn't GS. They had a month to get out (but maybe not to short), but greed overcame the rest of them.
The area where SEC needs to investigate is all these Special Vehicles which are not marked to market but rather to GS own models. Merill had guts to mark them down. I remember originally they forecasted 5 bil loss, then they decided to mark it down 3 more yards. Too much âof balance sheetâ items these days. For GS and others sake letâs hope they will not be forced to mark them to market and thus report huge losses, which will lead to US bailing them out with our tax $.
There's no better conspiracy theory than Goldman/PPT/govt-tie-ins. Someday it'll wipe them out when the truth is revealed. Until then, avg salary should become $1m across the co.
I asked myself (and ETers in the know) something similar about 10 weeks ago, right after GS announced massive cash infusion to take the edge off losses in its hedge funds. This is what I posted on ET on August 13th: I wonder how much GS made these last few weeks on its proprietary trading, even as its customers were getting sheared in the GS hedge funds? Is it possible GS proprietary profited by being opposite the positions shared by many quant-model funds, GS's included? I realize that would seem too obvious to be true, but I wouldn't be surprised if it is true. The prompt multi-billion infusion might be a bit of medicine ahead of a disclosure of that type. Compare that to what the article cited by the OP, which was published today, says: "In its quarterly financial statement Goldman said 'significant losses in non-prime loans and securities were more than offset by gains on short mortgage positions.' In other words, Goldman made some very lucky trades to avoid the fate of the others."