Tuesday, July 7, 2009

Goldman: Manipulator or Victim?

Sergey Aleynikov, an ex-Goldman Sachs computer programmer, was arrested July 3rd and charged with a criminal complaint with stealing trading software. Teza Techonologies, the Chicago-based firm co-founded by a former Citadel Investment Group trader, said it suspended Aleynikov, who started work there the day before his arrest. The folks over at Zerohedge have spent an inordinate amount of time speculating and outright accusing GS of manipulating markets. I've maintained my usual level of skepticism, despite the fact that I love a good conspiracy theory, particularly when it pertains to an investment bank that seems to always get a bone from the government when it needs a boost. But I must admit, I'm seriously considering jumping on the Goldman-market-manipulator bandwagon. The Assistant US Attorney told a federal judge that Aleynikov's alleged theft poses a risk to US markets. He goes on to say that the code, which is worth millions (more likely billions if it really can manipulate markets), was transferred to a server in Germany and others may have access to it. "The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways." the attorney asserted. Theoretically speaking, the folks over at GS know how to use this magical code better than anyone. They're admitting it is so potent that it can manipulate markets. But don't worry, they would never use it to that end. GS only uses its power for good, not evil. Furthermore, I'm sure that the totally innocent guys at Teza had no idea that their employee was trying to steal a top secret code from GS that holds the market's fate in its hands. No doubt this trial will be an interesting one.

In what is bound to be more disheartening news for the folks at Goldman, the CFTC is proposing sweeping trading limits on oil, natural gas, and possibly other commodities. The agency is in the process of altering how it presents information to the public by incorporating data from swap dealers, foreign contracts tied to US futures, and professionally managed market positions such as hedge funds. Commodities swaps are all done OTC and the market is huge, so a bit more clarity on the size of the market should be a real eye-opener and possibly eye-popper. Goldman is a huge player in the commodities markets and likes to do things like put out research papers declaring that the price of crude will spike to $200 right before commodities prices take off. The investment bank cleverly lumps its equities, commodities and fixed income p&l together when it reports earnings, which for some reason seems to only annoy me and not the bone-headed analysts who cover the stock, because it does disguise the true volatility of the company's trading profits. Nevertheless, stricter trading limits on commodities is bound to cut into the firm's trading profits, as well as the other dealers that trade in commodities.

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