Goldman Sachs Lies

From the Huffington Post

Wall Street giant Goldman Sachs generated at least 18 percent of its revenues last year through trading and investing for its own benefit, according to a regulatory filing made Tuesday detailing the first nine months, flatly contradicting the firm’s previous claims that such speculative activity made up a much smaller slice of its business.

In recent months, as Goldman has fended off widespread accusations that it has become the leading example of the gambling culture permeating Wall Street — placing bets for its own profit rather than engaging in old-fashioned banking services — the company has insisted that trading made up no more than one-tenth of its revenues.

During a conference call last year, the firm’s chief financial officer, David Viniar, described the company’s private trades as comprising “10-ish type of percent” of its total revenues.

But the company’s disclosures filed Tuesday with the Securities and Exchange Commission revealed that trading and investing comprises almost twice that percentage.

Maybe in the minds at Goldman Sachs, “tenish percent” can go up to 18 or 19 percent. It’s just a little white lie, unless of course, you’re one of the biggest financial trading houses on earth; unless you’re trying to reassure your investors that you don’t spend most of your time and their money by playing them for fools.

The temptation to make incredible sums of money by using the inside knowledge of your clients investments is difficult to overcome. The temptation to deliberately damage your clients’ interests by betting against their investments is also difficult to overcome. These temptations are why the proportion of proprietary trading is so important. The more proprietary trading, the harder it is to believe that the investors are not getting stiffed.

So, this lie is significant. It tells us a lot about an investment company and its standards.

I get the impression that the long term has only a certain amount of importance. The level of proprietary trading would be lower if the firm were maximizing its long term postion by reassuring investors of the security of their investments. The numbers indicate a drive toward short term, quarterly and yearly, profits.

Business ethics, how much are we looking at?

James Pilant