About Those Vaunted Goldman Traders

While I certainly can understand the talent and dedication and technology that goes in with big banks like Goldman, when I read that there were other banks that had perfect quarters, it really reinforces that this nice run had less to do with talent and more to do with massaging the situation to their advantage.

But Bank of America , Citigroup, Goldman Sachs and JPMorgan Chase & Company produced the equivalent of four perfect games during the first quarter. Each one finished the period without losing money for even one day.

No seriously. I can certainly understand that Goldman and JP Morgan probably have more smarter people in their employ than I will ever even bump into on the T near Harvard. But am I really supposed to believe that both Bank of America and Citigroup also have that many geniuses on their trading desks?

And to find four different banks in the same quarter all made money each and every day and did not have a down say amongst them?

Puhlease, pull the other one, it’s got bells.

“This is not about hitting home runs,” said Jaidev Iyer, who runs his own risk management consulting firm, J-Risk Advisors. “This is just, as we call it, milking the market and your captive client base.”

And that’s about it. They used their own customers orders to make money for themselves at the expense of their customers. It is a zero sum game, after all? So if the big banks came out ahead, someone took the other side of that trade and most likely it was their own clients and customers.

I am so glad the S.E.C. and the Treasury and the Federal Reserve are all watching this and doing nothing. It helps to show that the game is rigged for and by the benefit of the big boys against anyone else, and the government is just along for the ride. Don’t ever forget that yes, they are out to take your money and you should do everything you can to not allow that to happen.

Don’t get me wrong, while I think that any one firm may have the best traders in the world, I find it highly suspicious that four of the largest firms are also the best in the world. To paraphrase, there can be only one, best in the world. Not four.

Look Honey, Short Sellers Aren’t Evil After All

In an article sure to not surprise the short sellers of the world, the NY Times shows the research that proves short sellers aren’t evil and actually know a thing or two about investing, which is how they make their money. And not “taking” down companies or manipulating the markets for the hell of it as people like Patrick Byrne want people to believe.

These concerns are largely unfounded, however, according to the new study, titled “How Are Shorts Informed? Short Sellers, News and Information Processing.” Its authors are Joseph E. Engelberg and Adam V. Reed, both finance professors at the University of North Carolina at Chapel Hill, and Matthew C. Ringgenberg, a Ph.D. student there. The study has been circulating since January as an academic working paper.

Their work suggests that the average short-seller has done well through astute research and analysis, not market manipulation.

The researchers analyzed a database containing all short sales involving stocks listed on the New York Stock Exchange from January 2005 to July 2007. The database showed the exact time and price at which each short sale was executed. That enabled the researchers to compare the timing of short sales with the publication of news articles about the companies whose stocks had been sold short.

It’s a good story. It shows that short sellers tend to, you know, actually research the companies that they short sell. They have a good idea of their targets and know what they’re doing.

Now that we have some proof that short selling isn’t evil, I won’t hold my breath waiting for the SEC to retract it’s short selling regulations. They get way too much cash from BOA and Goldman for that ever to happen.