Tarnished Goldman

By MICHAEL GRAY

Bipartisan House members including Ron Paul sent a letter to Ben Bernanke requesting the Fed chief to look into Goldman Sachs’ use of taxpaying bailout funds.

The members are questioning the bank’s ability to generate historic profits months after getting billions from the public coffers.

Goldman did payback Uncle Sam all the monies including settling on a high return to buy back the government warrants. However, the 95 cents on a dollar warrant settlement came just days before Goldman announced record earnings and the fact that the bank holding company was setting aside $773,000 bonus per employee.

The letter also requests information on why the Fed exempted Goldman from the TARP regulation requesting banks to ramp down on risk, which helped the bank record their blow out earnings.

Prior to the letter, late last week Sen. Chuck Schumer sought to curtail high-volume trading — a practice of flooding the market with computer generated sales — sometimes holding an equity stake for mere seconds before selling the position.

Although Goldman said it does not use high-volume trading per se, it did say, “Goldman Sachs believes high-frequency trading should have an accompanying obligation to provide liquidity, and be subject to appropriate regulatory oversight.”

So I read that as Goldman does do high-frequency trades since Goldman is a Supplemental Liquidity Provider for the NYSE. In this position as a SLP Goldman is picking up trade information before it is posted on the exchange.

Now one can see how a firm could use that proprietary information and front run it with another special program that if stolen could allow the user to “manipulate the market,” to record record profits for the quarter.

It could be a long hot August for Goldman, but probably not.

For more on Wall and Washington and the economy see: http://mgray12.wordpress.com

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