giandujakiss: (Default)
[personal profile] giandujakiss
So, there's this thing going on with Goldman - and it's all very fuzzy at the moment but it raises red flags.

About a week ago, one of Goldman's programmers stole the code Goldman uses for rapid-fire trading. This is very proprietary software that is apparently worth quite a bit of money because it generates huge profits for Goldman. Apparently, seconds after Goldman noticed the theft, the Justice Department had arrested the guy just as he was about to leave the country. And all of this hoopla has raised a couple of very interesting questions.

First of all, it raises the spectre of how Goldman was able to get the Justice Department to act so quickly. As commenters at Bloomberg put it:
"And Goldman got on the phone to the Justice Department and got them so fast to nail this guy, it’s almost - you wonder if they have a red line to the government.”

“It is amazing within one day of Goldman calling they had FBI agents at his driveway doing surveillance. The next day they arrested him…”

“It’s interesting that the prosecutor from the testimony that I’ve read, it almost sounds as if he’s working at Goldman Sachs.”
This is hardly surprising - as you may recall, Goldman Sachs pretty much runs the Treasury Department and the Federal Reserve.

But the other aspect of this that is raising red flags is that Goldman apparently told prosecutors - and prosecutors told the court - that the reason this software is so valuable, and the theft so urgent, is that it could be used to "manipulate markets in unfair ways."

How powerful is this software? This powerful:
A tiny minority of a new breed of electronic trading firm is driving almost three quarters of all US equities trading volume and generating $21bn in annual profits doing so, Tabb Group, a consultancy, said on Friday.

The disclosure is one of the first attempts to quantify the impact of so-called “high frequency” trading firms that have quietly grabbed a huge slice of trading in the world’s equity markets.

[S]uch firms ... represent about 2 per cent of the 20,000 or so trading firms operating in the US markets. But they accounted for 73 per cent of all US equity trading volume.
So, the world's most powerful financial firm has this unbelievably powerful software that can be used to manipulate the market, does it? What do you think, Jonathan Weil?
All this leaves us to wonder: Did Goldman really tell the government its high-speed, high-volume, algorithmic-trading program can be used to manipulate markets in unfair ways, as Facciponti said? And shouldn’t Goldman’s bosses be worried this revelation may cause lots of people to start hypothesizing aloud about whether Goldman itself might misuse this program?

Goldman isn’t commenting publicly about any of this, though it seems the bank’s bosses want us to believe there’s no need to worry. On July 6, Dow Jones Newswires quoted a “person familiar with the matter” saying this: “The theft has had no impact on our clients and no impact on our business.”

By comparison, last Saturday, while most Americans were enjoying the Fourth of July holiday, Facciponti was in court warning of looming threats to Goldman and the financial markets.

“The copy in Germany is still out there,” the prosecutor said, according to an audio recording of the hearing. “And we at this time do not know who else has access to it and what’s going to happen to that software.”

Meantime, it would be nice to see someone at Goldman go on the record to explain what’s stopping the world’s most powerful investment bank from using its trading program in unfair ways, too. Oh yes, and could the bank be a bit more careful about safeguarding its trading programs from now on? Hopefully the government is asking the same questions already.
Yes, I'll hold my breath on that one.

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