Tuesday, December 18, 2007

Is the Goldman Sachs Game Fixed?

This is a good question. Is there a close, maybe even chummy, relationship between Washington DC and the large investment and commercial banks? Of course there is and there should be. If you are going to be the largest capitalistic country in the world the political powers are going to talk to the money powers. Better to have them talking to one another than at odds with one another. The problem is that the article below is too short to draw any conclusions other than some people are happy and some are not. Is this legitimate or just sour grapes? My guess is that it is far more complex than the article addresses. But if you think the most competitive sport in the world is professional football or basketball, you should visit Wall Street. Text in bold is my emphasis. From Market Watch:

Goldman Sachs Group Inc. might fare better if it followed the advice of the great poker players: Lose a hand every once in a while.

The white-shoe investment bank on Tuesday reported a record $3.22 billion in profit for the fourth quarter, a 2% increase above the same period last year. This while Wall Street as a whole is having its performance in six years.

Goldman's success amid the industry's decline hasn't gone unnoticed. Even before Tuesday, skeptics have argued that Goldman's far-ranging influence in Washington and in the markets have helped the firm succeed at the expense of rivals.

Ben Stein, the actor, game-show host and economist, accused Goldman economists of "selling fear" and then shorting mortgage-backed securities. That resulted in gains that offset write-downs in the third quarter.

Fortune's Allan Sloan suggested that Goldman was well-aware that it was selling doomed MBSs because it was shorting those same securities at the same time. Sen. Christopher Dodd, D-Conn., has called for Goldman alumnus and Treasury Secretary Hank Paulson to answer complaints made by Stein and Sloan.

Expect the criticism to continue. Goldman shares have risen 15% over the past three months, while rivals' stocks have fallen nearly 10%. Goldman posted gains in every division Tuesday. Though the firm did not detail how much those controversial short positions contributed to the bottom line, the lack of significant write-downs stood out in comparison with other players' results.

And Tuesday's results are doing little to quiet talk that the game is fixed.

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