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REPORT: How A Secret Goldman Team Violates The Volcker Rule

UPDATE - Exclusive: Goldman finds new way to do buyouts in face of Volcker

Similar to JPMorgan's London Whale.

Neil Barofsky on Goldman's secret trading team.

(Bloomberg) -- Neil Barofsky, former special inspector for the U.S. Treasury's Troubled Asset Relief Program, talks about a secretive Goldman Sachs unit called Multi-Strategy Investing that wagers about $1 billion of the firm’s own funds on the stocks and bonds of companies.

Here's the story.  It's worth reading in full.


How Goldman Sachs Skirts The Volcker Rule


Sitting onstage in Washington’s Ronald Reagan Building in July, Lloyd C. Blankfein said Goldman Sachs Group Inc. (GS) had stopped using its own money to make bets on the bank’s behalf.

“We shut off that activity,” the chief executive officer told more than 400 people at a lunch organized by the Economic Club of Washington, D.C., slicing the air with his hand. The bank no longer had proprietary traders who “just put on risks that they wanted” and didn’t interact with clients, he said.

That may come as a surprise to people working in a secretive Goldman Sachs group called Multi-Strategy Investing, or MSI. It wagers about $1 billion of the New York-based firm’s own funds on the stocks and bonds of companies, including a mortgage servicer and a cement producer, according to interviews with more than 20 people who worked for and with the group, some as recently as last year. The unit, headed by two 1999 Princeton University classmates, has no clients, the people said.

The team’s survival shows how Goldman Sachs has worked around regulations curbing proprietary bets at banks. Former Federal Reserve Chairman Paul A. Volcker singled out the company in 2009, saying it shouldn’t get taxpayer support if it focuses on trading. A section of the 2010 Dodd-Frank Act known as the Volcker rule, drafted to prevent banks from taking on excessive risk, limits short-term investments made with firms’ capital.

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Reader Comments (6)


Exclusive: Goldman finds new way to do buyouts in face of Volcker

Mar 4, 2013 at 6:52 PM | Unregistered Commenterjohn
Thx john, good find.
Mar 4, 2013 at 9:16 PM | Registered CommenterDailyBail
Interesting video about the planet-sized chasm between perception and reality of wealth distribution in the U.S. based on a survey of 5000:


Not surprising, I suppose, when you figure that substantially less than a million people grasp the criminal fraud contributing so mightly to top "earners" in the financial sector.
Mar 5, 2013 at 12:13 AM | Registered CommenterCheyenne
I guess the question would be has there ever been a time when things were ever level at all? I mean did Edison and Ford have income rates that were more in line to the lowest wage earners that worked for them?
Mar 5, 2013 at 7:10 AM | Unregistered CommenterSKINFLINT
"has there ever been a time when things were ever level at all?"

No, of course, not even in the late show at Marx's XXX Theater (I checked). Fortunately that is NOT the question. Rather, two questions were posed to the 5000 people polled:

(1) Where do you think the line for each quintile of income ACTUALLY lies?
(2) Where do you think the line for each quintile of income SHOULD lie?

So the survey sought people's perceptions of income distribution that enabled TWO comparisons: reality vs. perceived reality AND reality vs. idealized distribution. As it turns out, reality is MILES AWAY from either perception. People VASTLY underestimate the income of the top quintile generally and of the top 1% and 0.1% in particular.

The average person's perception of the top 1/1000th of earners was so far off the mark that it brought to mind the Saturday Night Live announcer who struggled with crowd size. He'd be at a Van Halen concert saying stuff like, "there must be at least 20 people here." That's a fair approximation for Americans' estimate of income at the top.
Mar 5, 2013 at 11:46 AM | Registered CommenterCheyenne
Strictly a rhetorical question. Recently had a conversation with a gentleman who opined that robber barons of yesteryear were somehow more civilized towards those beneath their station until I bought up the complete and total anniliation of the American Indians. Most folks are still living in denial and I presently fear for my children.
This ain't gonna end well.
Mar 5, 2013 at 9:05 PM | Unregistered CommenterSKINFLINT

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