Goldman’s (GS) Brilliant Bet Nets $4 Billion, But Does Little For Customers

The bankers at Goldman Sachs (GS) must be selected from Mensa. When Wall St. bets the wrong way, Goldman takes the other side of the trade and makes billion. The firm is the only one of its peer set with shares that are up this year. Its CEO made $70 million.

Now, word is out that a tiny group of managers at the investment house guessed that mortgage-backed securities would fall. They made the company $4 billion. According to The Wall Street Journal "Goldman’s trading home run was blasted from an obscure corner of the firm’s mortgage department — the structured-products trading group, which now numbers about 16 traders."

The bank not only hires that smartest people in the world. It lets them risk the firm’s capital and their jobs.

The story has a very troubling aspect. In other departments at Goldman, big thinkers were creating the financial instruments that put together pools of mortgages. And, the GS institutional sales department was marketing those products to other financial firms and pension funds.

Someone in Goldman had a very strong feeling that the mortgage securities market was going to be hammered. Someone fairly high up had to approve the bold move. But, word that Goldman was willing to take a gamble against the market sentiment was never passed along to customers.

And, that is troubling.

Douglas A. McIntyre