Tuesday, March 1, 2011

Why Does Goldman Sachs Hardly Ever Lose Money Trading and You Do?

I say it's time to find out.

Goldman Sachs lost money from trading on only 25 days during 2010. In 2009, they lost money on only 19 days, according to a new regulatory filing. This occurred despite no evidence that they are better economic or stock market forecasters than other Keynesians, who are usually way behind in detecting key trend changes. How do they do it?

Here's where most certainly some (maybe a lot) of the profit likely has come from.

Goldman is a Primary Dealer. This means they are one of a select group of trading firms that are allowed to trade directly with the Fed.

A research project, by some finance graduate student, that badly needs to be undertaken is for the trading results of Primary Dealers to be compared against securities dealers who are not Primary Dealers.

I have it on good authority that during periods of the recent financial crisis, Fed traders were told not to negotiate too hard when dealing with Primary Dealers. Translation: The Fed traders were told to shovel profits to the Primary Dealers. I think it's time we find out what kind of edge Goldman, and other Primary Dealers, get, or do not get, as a result of sweetheart trades with the Fed

Here are a few things that can be done to shed light on the activities of the Federal Reserve and its favored dealers.

Federal Reserve chairman Ben Bernanke, New York Fed President William Dudley, former-New York Fed President Timothy Geithner and New York Fed traders who deal with the primary dealers should all be asked under oath if at any time they were aware of any trades that were conducted, or orders given to not seek the best price for trades done by the Fed with Primary Dealers. (Note: The Fed conducts its trading activities through the New York Fed thus the emphasis on New York Fed trading).

Also questioned under oath should be traders at the Primary Dealers to determine if all trades they conducted appeared to be in line with market prices. The PD traders should also be asked if they were aware of any attempts by the Fed not to seek the best price, or if it appeared that Fed traders did not always seek the best prices for their side of the trade.

Congress should demand from the Federal Reserve, and all Primary Dealers, trading records of all trades done between Primary Dealers and the Fed. Congress should further demand that Primary Dealers break down precisely how much of their profits have come from trading with the Fed.

Congress should then make it law that all trades, and profit (or, huh, losses) from such trades, between the Fed and Primary Dealers, in the future, be disclosed by the respective Primary Dealers within 30 days of such trades being made.

Just because the Fed doesn't want to be audited, doesn't mean Congress can't piecemeal start monitoring key Fed activities.

Let's find out just what the Fed and it's crony Primary Dealers are really up to.

Audit the Fed, piecemeal, if we have to!


  1. I have some unanswered questions as well along these lines: http://english.economicpolicyjournal.com/2011/01/fil.html

  2. Are you aware that GS bought out Spear Leeds & Kellog in 2002 the largest specialist firm on the NYSE? That basically gave them the right to "front run" every single order sent to the NYSE floor. Mix that fact with the complete automation of the system and "HFT algos" and its easy to understand how they never lose trading. How can you lose when you have the system rigged? GS = criminal syndicate.