Goldman Sachs has a long history of being the most prestigious and versatile investment bank on Wall Street. It was one of the few firms that decided they should bet against the very mortgage trades they had sold to clients. An equivalent corporate action would be for cigarette companies to encourage smoking and then take out a life insurance policy on the client. Not only do clients pay for the cigarettes but the company will make a boat load of money when the client dies an early death.
Their negative bet on themselves effectively crippled AIG and the government had to step in to pay on AIG's behalf too none other than Goldman. What makes the situation even more ironic is that ex-CEO Hank Paulson, was in charge of the treasury department during the crash and he gave Goldman and other big firm's free money. This action just goes to prove that who you know can save a $500 million bonus during a crash.
Back on track, Goldman posted today a profit that was down 83 percent from last quarter which should not come as big surprise to real long-term investors. Goldman has been guilty of a carry trade with the free government money it acquires from the treasury and fed. This strategy makes cash hand over fist as long as the dollar stays weak compared to the currency that is being bought with borrowed federal money. Well last quarter the markets got all bent out of shape with a sudden crisis with Greece and world investors flooded to buy American dollars rather than the Euro. This killed Goldman's sweet little deal.
In addition, the SEC decided to act and stopped downloading massive amounts of porn just long enough slap Goldman with a half a billion dollar fine for betting against itself during the crisis. When the dust finally cleared Goldman Sachs' profit margin got hit. The sad irony is that Goldman still made a profit and I am confident they will find another backdoor way to rob money from the equity markets without adding any value. Hats off to the greatest con-team in history.