Monday, August 24, 2009

Goldman rejects huddled masses in favor of huddled elite

This is really just another "well, duh" story, about how the big players play together, and the rest of us suck air.

Goldman's Trading Tips Reward Its Biggest Clients (WSJ)
Every week, Goldman analysts offer stock tips at a gathering the firm calls a "trading huddle." But few of the thousands of clients who receive Goldman's written research reports ever hear about the recommendations.

Securities laws require firms like Goldman to engage in "fair dealing with customers," and prohibit analysts from issuing opinions that are at odds with their true beliefs about a stock. Steven Strongin, Goldman's stock research chief, says no one gains an unfair advantage from its trading huddles, and that the short-term-trading ideas are not contrary to the longer-term stock forecasts in its written research.

Goldman spokesman Edward Canaday says the tips are "market color" and "always consistent with the fundamental analysis" in published research reports.

The tips usually go to top clients who have expressed interest in having the information and have short-term investment horizons, he says. Goldman doesn't want to overload other clients with information that isn't relevant to them, he says. "We are not in the business of serving thousands of retail customers," he says.

The huddles began in earnest around the time Goldman's research department got a new boss, Mr. Strongin. He came to the firm in 1994 from the Federal Reserve Bank of Chicago.... One idea that took hold was giving certain customers and traders more access to stock tips.

Last year, the Financial Industry Regulatory Authority, the industry's self-regulatory body, proposed new rules meant to clarify existing disclosure obligations under the rule requiring "fair dealing" with all clients. Firms could issue contradictory ratings as long as clients were told that such inconsistencies were possible.

That can only be a helpful disclosure if it says, in big, bold type:
Dear Client: It is our intent to f*@k you royally, but don't take it personally. We'll front run you with hyperspeed trading and we'll decide who gets the real goodies first. Look, you're only a retail client; your goals of making money are simply not big league and don't fit that time horizon (milli-seconds). Hey, you get to brag to your friends that you have a Goldman connection. What more do you want? Get real.

Are these the guys everyone (at least, Matt Taibbi) was talking about when it was suggested that some big firms were packaging and selling toxic debt instruments at the same time they were shorting them because they totally knew the instruments would blow up?

PS: Just came across this Matt Taibbi blog...
Goldman Busted Again


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