Goldman pillages, Goldman steals, Goldman Sachs

3 min read

(As I mentioned in an earlier post, I’m looking for extra feedback on the ideas presented here, as they are currently under development and able to benefit greatly from your insights.)

I think we can all agree that the middle of last September was as strange a time as our financial markets have ever experienced.

In case you’ve forgotten, let me remind you with a simple timeline. As you read it, keep in mind that following the demise of Bear Stearns, the strictest interpretation of the so-called investment bank “Bulge Bracket” included just four entities: Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley.

  • September 9: The short attack on Lehman Brothers begins in earnest.
  • September 14: The New York Times reports Lehman will file bankruptcy.
  • September 15: Goldman Sachs share price begins to wilt. Merrill Lynch announces it will be sold to Bank of America.
  • September 17: Goldman Sachs’ share price continues to plummet. The SEC announces “new rules to protect investors against naked short selling abuses”.
  • September 18: Goldman Sachs’ share price continues to plummet.
  • September 19: The SEC “halts short selling of financial stocks to protect investors and markets”.  Goldman Sachs’ share price posts a strong gain.
  • September 22: Goldman Sachs and Morgan Stanley, the two remaining members of the “Bulge Bracket” announce their intentions to transition to bank holding companies, giving them access to lending facilities of the US Federal Reserve (an organization with which Goldman has an uncommonly tight relationship).

As I see it, the most interesting event to come of that most eventful period was the SEC’s September 19 ban on legitimate short selling. What makes it so enigmatic is the fact that not even the most vocal opponents of illegal naked short selling have ever even hinted at the need to restrict legitimate shorting. In fact, Patrick Byrne himself compared the ban to limiting motorists to making only right-hand turns.

However, I have a theory that might explain what was going on.

An examination of the volume of both naked and legitimate shorting of Goldman Sachs in September of 2008 reveals something very interesting: while there was an enormous amount of short selling taking place, there was essentially no naked shorting of Goldman shares. Indeed, short selling accounted for a third of total volume on September 15 and 16, while failed trades accounted for less than 0.07%, suggesting shortable Goldman shares were in abundant supply.

This conclusion is supported by an analysis of the stock loan rebate rate that prevailed for Goldman shares during the period in question: a very reliable indicator of the scarcity of shares available for short sellers to borrow, where a lower rebate rate indicates a more limited supply.

In the case of Goldman, from May through August 29 of 2008, the rebate rate averaged 1.80%. And, between September 1st and the September 19th short selling ban, Goldman’s average rebate rate remained exactly the same: 1.80%.

By way of comparison, the average rebate rates for Lehman Brothers shares over the same periods were 1.18% and 0.16% (bottoming out at -0.25% during Lehman’s last week), respectively.

By contrast, Goldman shares appear to have been easy to borrow right up to and in the midst of its stock price free-fall.

This scenario is consistent with the levels of naked short selling of Lehman and Goldman during the same period: extremely high in the case of Lehman, and almost non-existent in the case of Goldman; furthermore, this suggests that, given abusive naked shorting does not tend to occur until after short sellers have exhausted the supply of borrowable shares, it was legitimate shorting that pushed Goldman’s share price over the edge.

With that in mind, let’s revisit the above timeline, focusing on Goldman, with my interpretation appended.

  • September 15: Lehman declares bankruptcy. Goldman Sachs share price begins to fall. Following the destruction of Lehman Brothers at the hands of short selling hedge funds, the financial world is keenly aware of the capacity of naked shorting to decimate the share prices of financial firms. Furthermore, given the role Goldman undoubtedly played as broker in the criminal short selling hedge funds’ attack Lehman, the firm is justifiably concerned that the karma train is heading its way.
  • September 16: Goldman lobbies its extremely well-placed (and well-documented) federal government contacts for a temporary ban on naked short selling.
  • September 17: The SEC temporarily bans naked short selling.
  • September 18: Despite the ban on naked shorting, Goldman Sachs’ share price continues to fall, suggesting legitimate short selling, not illegal naked short selling, is the cause of Goldman’s problems. Goldman lobbies for the SEC to temporarily ban legitimate shorting.
  • September 19: The SEC temporarily bans legitimate shorting of all financial stocks. Goldman’s share price rises.

Might the SEC have been acting in the best interest of the market when it issued both emergency orders? I suppose that’s possible. But given the utter disinterest – even contempt – that organization has demonstrated toward investors and small public companies that have complained about the issue, I find it very difficult to believe.

Meanwhile, the SEC stood by and watched as naked short selling destroyed Bear Stearns and Lehman Brothers. Merrill Lynch then took itself out of the game, leaving a Bulge Bracket consisting of only Goldman Sachs and Morgan Stanley.

Of those two, which has uncommon influence over the federal government?

Goldman Sachs, of course.

And if this is true, does it leave any doubt as to the lengths the SEC might have gone to preserve a corrupt system when it benefited the company?

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19 Replies to “Goldman pillages, Goldman steals, Goldman Sachs”

    1. Nevermind the information age whizbangery, have you seen what these newfangled corn pickin' machines can do? Truly teogcolnhical wonders. Of course, farmers hope to operate at a profit so it won't be long before they too will be in the Obama Admin's sights.

    2. I be trippin daily from here on out. Gonna be great for the blog, ya know? hee hee@Mamaface Accolades? Moi? I'm off to hunt for these "alleged" accos! Ha! (Yep, this drug and I are gonna be GREAT friends!)

  1. I suppose, unfortunately, that the only remedy to purge the Goldmanites from the administration may have to wait until the next election, regardless of how Obama performs in the interim.

  2. I guess this begs the question of how much abusive and other shorting Goldman was using against Lehman and other competitors as well…

    When if ever will there be an accounting?

  3. Let’s not forget OL MS CEO John Mack was out in front of the cameras at the time and suggesting their would be blood on their hands if the agencies did not protect his firm from the short sellers. NOT his exact words but they can be found for the ambitious. The bottom line is the same thugs who were allowing their firms to be used as conduits to attack others (and that would include BSC/MER) realized as Judd presents that they were in the cross hairs and were begging for help. Now if one goes even deeper then one would notice that the market RALLIED substantially the Thursday before the expected TARP YES vote but a majority of clowns voted NO (hmmm most of them from the majority controlled side) and as result the Market sold off dramatically and by the time the YES vote was made many days later the credit markets had seized. As a result of that egregious vote we continue to dig ourselves out of the crap but with a few small details not often discussed. Smith Barney was stripped from C and given to MS.HMM isn’t that the same MS John Mack that the integrous Gary Acquire Sp? spoke up against? And Ol Goldman as discussed was made a holding company and allowed to help with the AIG’s difficulties. HMM the same AIG that had an apprx 2.4 TRILLION in losses that was providing TARP funds to ol GS from failing. Wonder if ol GS was a conduit for any of those losses? NOW as another would say. If only there was a pattern. Don’t expect too many perp walks. The majority have closed ranks as those that were allowed to die cry foul.

  4. Goldman Sachs Can Lie With Honor(?) and Dignity(?)

    by Larry Rubinoff | Tuesday, August 18, 2009 in | comments (0)

    I just could not resist this headline published in Goldman Sachs: We were never really in trouble

    Are you through laughing? Here are a few more comments by GS and good for a few more laughs.

    “Goldman president Gary D. Cohn told The New York Times that “We did not have a near-death experience,” and added that the government saved the financial industry as a whole but did not save Goldman Sachs.”

    (ha ha ha ha)

    The article quotes hedge fund manager Whitney Tilson who said

    “he isn’t buying it: “Goldman’s sure got a lot of cojones (emphasis not in article) saying that it was never in any danger. What a crock!(again, emphasis mine. LR) Had AIG not been bailed out, a global financial meltdown would have ensued that would have taken down Goldman in a matter of days …”

    ;”Goldman Sachs (NYSE: GS) received billions in bailout money from its former CEO turned Treasury Secretary — both directly and through the bailout of American International Group (NYSE: AIG).”

    You have to wonder why there was never more written on this fact and that more was never reported. Don’t inquiring minds want to know? Mine does and it sure didn’t look right to me from the beginning. By the way, the same could be said for the Sunday night funding of the Bear Stearns bailout by JP Morgan. Another move that included our buddy Paulson and the President of the N.Y. Federal Reserve Bank, yes, our current Secretary of the Treasury.

    “But in response to criticism, Goldman remains defiant, insisting that it never had a problem…”

    Yes, more laughs here.

    “And on the matter of whether Goldman exerted undue influence on government policy? Tilson also is skeptical of the denials: “So Paulson talks to Blankfein 24 times in 6 days at the height of the crisis, and plays an instrumental role in channeling $13 billion of taxpayer money to Goldman via the AIG bailout … yet Paulson is claiming no conflict of interest…”

    Read full article…click here I’m laughing so hard I can’t continue

  5. Goldman Sachs criticism

    In 1986, David Brown was convicted of passing inside information to Ivan Boesky on a takeover deal.[44] Robert Freeman, who was a senior Partner, the Head of Risk Arbitrage, and a protégé of Robert Rubin, was also convicted of insider trading, with his own account and with the firms.[45]

    On November 11, 2008, the Los Angeles Times reported that Goldman Sachs, which earned $25 M from underwriting California bonds, had advised other clients to “short” those bonds.[46] Shorting is essentially betting that the state will default on the bonds, which serves to drive up the cost of the issue to the state.

    In April 2009, Goldman’s former in house counsel John Squires who had moved to law firm Chadbourne & Parke sent a cease and desist letter to Michael Morgan founder of for trademark violation.[47] The site has published negative articles and conspiracy theories on the firm and their alleged involvement in the global financial crisis. [48] Morgan sued Goldman Sachs. Morgan settled his case with Goldman Sachs, on June 19, 2009. As part of the settlement, Morgan agreed to put a disclaimer on the website saying the site was not affiliated with or approved by Goldman.[49][50]

    During 2008 Goldman Sachs came under criticism for an apparent revolving-door relationship in which its employees and consultants have moved in and out of powerful US Government positions, where there may exist the potential for a conflict of interest. Former Treasury Secretary Hank Paulson was a former CEO of Goldman Sachs. The current chief economic adviser to President Obama, Lawrence Summers, was noted for receiving $5.2 million from hedge fund D.E. Shaw in 2008 and speaking fees (ranging from $45 thousand to $135 thousand per event) from banks including Goldman Sachs, JPMorgan Chase, Citigroup, Lehman Brothers and Merrill Lynch[51] at a time when he was expected to become the most influential financial official in the U.S. Government.[52] Former bank regulator William K. Black, appearing on Bill Moyers Journal on April 3, 2009, accused the financial industry of massive fraud, citing the role Tim Geithner played before being promoted to Treasury Secretary as well as the successful efforts of Alan Greenspan, former Goldman CEO Robert Rubin (Geithner’s mentor) and Larry Summers in the late 1990s to block regulation of the financial derivatives market.[53] According to Brooksley Born, former head of the Commodity Futures Trading Commission, Summers, Rubin and Greenspan blocked her efforts to regulate the derivatives market, on the grounds that the financial industry were objecting.[54] Born was then succeeded as head of the CFTC by former Goldman Sachs executive Gary Gensler, who stated that he “should have done more to rein in exotic financial instruments that have battered global markets”. [55] Additional controversy attended the selection of former Goldman Sachs lobbyist Mark Patterson as chief of staff to Treasury Secretary Geithner, despite President Barack Obama’s pledge to limit the influence of lobbyists in his administration.[56]

    In July 2009, Rolling Stone contributor Matt Taibbi published an article on Goldman Sachs titled, ‘The Great American Bubble Machine’,[57] where he condemns the company as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money,” and going on to assert that Goldman Sachs and similar companies have engineered and then profited off of every economic recession and bubble since The Great Depression. The piece generated much media attention and controversy, reportedly impelling Goldman Sachs to take expensive action to attempt to repair its public image.[58]

  6. So, I guess if we are to ever free ourselves of the GS squid,
    given the captured FDA, SEC, DTCC, then our sword will be the hedge funds.
    And a benign executive branch that let’s the dragon be slain.

  7. Bernanke had the gall to threaten Congress and the American people with economic destruction. Get this arrogance out of the Fed, … just for a start.

    The Kings of Wall Street have long coveted the absolute supremacy they now enjoy over the largest economy in the world. The debt is a problem, but vast change is necessary throughout the banking system. A radical change is needed on Wall Street.

    It starts with the taxpayer’s attitude adjustment.

    – – – Quit fearing Wall Street.

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At the time much of the content on was written, the Great Financial Crisis of 2008 was either on the verge of happening or had just occurred. In those days, emotions among this publication’s contributors were raw and, in an effort to get their warnings noticed and appropriate blame placed, occasionally hyperbolic language and shocking imagery were employed.

Were we to write these entries today, a different tone would most certainly prevail.

Yet, being a record of a pivotal time in our global economic history, we’ve decided to leave the rawness unedited, with the proviso that readers take the context of the creation of certain posts into account, and that those easily offended re-consider the decision to read them.