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Jul. 2 2009 - 11:56 pm | 417 views | 5 recommendations | 38 comments

Goldman Sachs is reeling under public pressure

Goldamn Sachs Chairman and CEO Lloyd Blankfein attends a panel in Washington DC in November 2008 (Chip Somodevilla/Getty Images)

Goldamn Sachs Chairman and CEO Lloyd Blankfein attends a panel in Washington DC in November 2008 (Chip Somodevilla/Getty Images)

You acknowledge that we may monitor your use of the Services for our own purposes (and not for your benefit). We may use the resulting information for internal business purposes or in accordance with the rules of any applicable regulatory or self-regulatory body and in compliance with applicable law and regulation.via Is Goldman Legally Frontrunning Its Clients? | zero hedge.

After watching its thoroughly maladroit handling of several p.r. problems this week, I’m absolutely convinced that Goldman Sachs can be hurt if enough people keep piling on with the pressure. The latest evidence of this is its abject collapse in the face of questions from Zero Hedge about the possibility that it is using the data its takes from users of its website to front-run those same people.

Front-running takes place when a bank or broker-dealer– say, Goldman, Sachs — executes a trade for its own account before filling its customer’s order. Since a large enough trade (executed by institutional investors, for instance) can actually move the price of the security in question, front-running can be a very profitable activity. It’s sort of like fast-food insider trading. It is common knowledge that front-running on Wall Street is rampant, and I interviewed more than one person for my recent Rolling Stone story who accused Goldman of front-running its big clients in all sorts of arenas, from the internet IPO years to the commodities markets.

What caught Zero Hedge’s attention was a curious disclaimer uncovered on Goldman’s website, which includes a trading platform that visitors can use to execute trades. At one point the disclaimer read:

Monitoring by GS: Your use of the products and services on this Web site may be monitored by GS, and that the resultant information may be used by GS for its internal business purposes or in accordance with the rules of any applicable regulatory or self-regulatory organization.

Subsequently readers uncovered an even more sinister disclaimer that appears on other Goldman documents (see the quote at the top of this post with the key line “and not for your benefit”). So Tyler Durden over at Zero Hedge wrote to Goldman to ask if this meant what it quite obviously seems to mean, and got this response from the bank’s Senior Vice Scoundrel, Ed Canaday. Note the way he seems to be addressing Dick Durbin, which looks like a case of wish-fulfillment to me:

Dear Mr Durbin:
This is in response to your recent blog about our web site disclaimer. It is quite usual for websites to have disclaimers that refer to the monitoring of site usage. Most web sites, including yours we noticed, track usage by their visitors. This is primarily used for marketing and to help inform decision about enhancing content.
Your suggestion that we monitor our web site to facilitate front-running is untrue and offensive.
Ed Canaday
Vice President
Goldman, Sachs & Co.

In exactly the same manner that Goldman demonstrated with regard to my story, Canaday avoided any of the factual concerns that Zero Hedge presented about the curious disclaimer; in fact his letter, if anything, is such a classic non-denial denial that it really just confirms everyone’s worst suspicions. Most notably, he doesn’t specify what “internal business purposes” the company is talking about, and while he insists it is not front-running, it’s a very thin, curiously worded denial.

That a company as rich and powerful as Goldman would stoop to peering through the web version of a locker-room peephole to make a few extra pennies either front-running random trades or somehow using visitor data “not for their benefit” shows how completely and utterly morally absent this company is. There is not an ill-gotten dollar they will not chase, no matter how small or insignificant the sums might be.

Word should be spread about this and anyone who used the Goldman 360 portral for trading should seriously investigate this situation, as it is entirely possible you’ve been ripped off — legally, perhaps, although how much “legality” a disclaimer like that can confer is a serious question in my mind.

More to the point, the fact that Goldman is getting enough public pressure that it feels it has to respond to these queries shows that the company is reeling. And the fact that their public statements have been so hilariously transparent and clumsy shows that they’re rattled and don’t know how to handle this kind of heat, which they’re not used to getting. Kudos to Zero Hedge for applying the pressure; readers who want to see Marla Singer’s very funny response to Canaday should read here.


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  1. collapse expand

    Thanks for posting all of this. I think. (no, really, thank you). Man, it’s making my head hurt – great summer reading! GS is counting on those who prefer the ignorance is bliss mode. Canaday’s response to Durden is the equivalent to a big shrug, with a side-step for show. It’ll be interesting – and probably even more maddening – to see how this all pans out.

  2. collapse expand

    This is getting good.

    On a side note, I am seeing that Drudge has posted an article dealing with oil trading and speculators’ role in rising prices. I wonder if that has anything to do with your RS article?

    Thanks again for the hard work. Please keep it coming as people really need to be aware of this stuff!!

  3. collapse expand

    I think that if all this shit is true, and I believe it coming from you, as you didn’t fall into all that 9-11 truther shit, this piece (or at least the running story) is a really really big deal. I just need a few things clarified. Basically with the latest bubble Goldman chopped up the mortgages and other shitty credit deals into credit derivatives, and knowing it was shit bet against the debt it was selling by buying insurance against the investments from aig so that when the shit hit the fan it got all its money back, and then Paulson patted AIG on the back for covering their asses and bailed them out? goddammit i wish i understood the finacial basics to all this.

  4. collapse expand

    I come to understand that several of the domain name registrars automatically register names when a client looks it up but does not buy. That way, they can say the domain is “taken” and justify a higher price if you want to be on their “waiting list.” A great way to turn a $35 sale into a $75 sale using the clients own interest against him.

    I think they call this “monetizing” information, but people wouldn’t much like knowing that it’s going on.

  5. collapse expand

    Kudos to you for keeping a harsh spotlight on Goldman Sachs. It’s only through the application of public pressure that any change will come. Congress is starting to get the message. I wrote an article a few months ago highlighting some of the Congressional pressure being applied to GS titled “Goldman Sachs starting to feel the heat“. What we need now is some follow through.

    “Hank” Paulson is scheduled to testify before Congress on July 16. That will be an opportunity to raise awareness on this issue. There are some very good people on The House Committee on Oversight and Government Reform Committee that he will be going in front of, for example Rep. Elijah E. Cummings (D-MD) and Rep. Marcy Kaptur (D-OH). I’m looking forward to it.

    • collapse expand


      If Paulson is to appear before the Committee on Oversight….that you mentioned, wouldn’t it behoove us to contact each and every one of these members and request their aide print out Matt Taibbi’s articles The Big Takeover and The American Bubble Machine, and present it to the Congressional person they work for. I spent at least three hours today contacting my own rep and two senators from Florida plus Kucinich. I also contacted Bill Maher by email, who always has Taibbi on, Ed Schultz, Rachel Maddow and Keith Olbermann to research the article and have him on. There are so many, many more people to contact. What his article needs is transparency to as many Americans as possible. Mayber it is simplistic, but I cannot think of a better way. We need to also add when calling a congress member, demand investigation, and tell them no more money for bank bailout. Plus Goldman needs to be broken up.

      In response to another comment. See in context »
  6. collapse expand

    I just read a portion of your Rolling Stone piece and want to thank you. As someone who worked the internet bust with some MBA’s who keep feeding me lines straight out of the Sting whenever I asked about profit and as one who could never understand the rise in oil prices and profits despite listening to some expert on television linking price hikes to the weather or some conflict somewhere and not on supply and demand, your piece tears the curtain down on who is really pulling all the levers. This is a very important piece of journalism especially considering all the Goldman players that have advised the White House. Sinclair would be proud.

  7. collapse expand

    Maybe they aren’t as untouchable as we all thought. I’d still be shocked to see anything substantial happen to them. Soooo entrenched, and they have a lot of levers at their disposal.

  8. collapse expand

    Are you tempting the Wrath of Odin without getting backing by Ironman? You read Gretchen’s story about the Matrixx sueing commentors speculating and sharing things they apparently didn’t know or didn’t want anyone to know about their smelly, who knew, product? These guys are the top of the turd pile when it comes to protecting their own which they think smell fabulous. Be careful. Weilly.

  9. collapse expand

    ‘That a company as rich and powerful as Goldman would stoop to peering through the web version of a locker-room peephole to make a few extra pennies either front-running random trades or somehow using visitor data “not for their benefit” shows how completely and utterly morally absent this company is.’

    I thought GS was painfully aware of being a force for good?

  10. collapse expand

    Your Goldman Sachs article was spot on. A few months ago, I believe economics professor and T.V personality Ben Stein, coined similar remarks regarding Goldman Sachs. If possible, reach out to him. His position might count for something.

    There definitely is something here but unfortunately that’s how capitalism works. We’ve made our beds now we have to sleep in them….until we buy new ones (monopolistic company). Keep up the masterful work!

  11. collapse expand

    I have doomsday lotto puts on GS, hoping that they’re first against the wall when the revolution comes, so I enthusiastically support your recent coverage ;)

    Here’s hoping next week continues the meltdown…

  12. collapse expand

    I read the RS article early this morning…my whole day has since been consumed……I haven’t been in a ‘Tri-Lateral state of mind’ like this for 30+ years, and I want to thank you Matt for the return trip..only this time it’s tangible and a gazillion times nastier.

    What will the next American Revolution look like? I am feeling something bigger then another bubble blowing up….and it ain’t a good feeling..

    Did you just right the most important story of of my life time? (55 years)…

  13. collapse expand

    Thank you, Matt, for all the work you’ve done on this subject.

    I’m going to take every page you’ve written, roll them up, and mail them in a tube to the White House with instructions telling the person who opens it to grip the rolled up pages tightly and use them to BITCH-SLAP OBAMA!

  14. collapse expand

    A very compelling story.

    One question: is there a smoking gun linking former Goldmanites in the government to favors done for Goldman Sachs?

    I mean, yeah, there a lot of ex-Goldman people in the government, but do they still pull strings for their former employer?

    It is not that I disagree with you, but I feel it is the only weak point in the story.

    As a personal example, I worked for an accounting firm and also in the back office of an investment bank while I currently work in the public sector, and if either of these firms contacted me to get me to bend the rules in their favor, I would gleefully turn them in to any enforcement body that is even remotely relevant.

  15. collapse expand

    Matt, thanks for everything you investigate and write; I enjoy your writing and think it’s doing your readership and this country a big service. I just bought a copy of RS today to support your work even though I read your GS article online earlier this week.

    That being said, this latest post is pretty weak. To me, you haven’t made a case that this isn’t just more of the same vague, generic, ass-covering big-corporation legal boilerplate bullshit that is fed to us from every direction in our daily lives. Yeah, maybe it’s evidence they’re front-running, but it could also be evidence that they’re evaluating moving their customer support operation to India, or maybe their lawyers wrote this after using their glaucoma medication and were feeling a bit creative and it’s completely meaningless. Without anything more substantial, this is certainly meandering in the direction of conspiracy theory.

  16. collapse expand

    Front-running is equally scandalous as “pump-and-dumping”, yet much less risky because you don’t have to worry whether people will respond to the pump.

    Great journalism! The Info Age is starting to mature.

  17. collapse expand

    Frontrunning is illegal and it is very dubious that an investment bank would engage into an illegal activity, particularly one as well advised. However, frontrunning in collerated assets is not illegal. So if one knows someboby is buying asset A which is moving together with asset B, he could buy asset B before asset A is sold.

  18. collapse expand

    Your Rolling Stone story was written about extensively on DailyKos, Huffingtonpost, Marketwatch and additional blogs from Political to Investment with a little bit of CarAccidentWatchers.com thrown in. (slight snark there) .

    Seeing as how the media monitors the blogs 24/7 and even dedicates portions of their news shows to having their highly paid anchors reading from the blogs, I guess it’s not surprising that your best of the best wasn’t mentioned . It may have been in passing, but I missed it.

    That doesn’t mean that those who have aided and abetted GS are having an anxiety filled holiday week-end.

    You can count on the fact they were temporarily relieved by Palin’s resignation. Hey you don’t think…Nah…they wouldn’t do that….the Palin Bubble?


  19. collapse expand

    Only the brave few executing a covert mission will be able to pry the slimy, smarmy GS hands off the levers of finance. You must keep in mind, too, that by and large we’re apathetic savages more interested in who wins American Idol. Unless you mindfuck the masses and stir their emotions will a public outcry occur.

    I’m a big fan of what you do, Taibbi.

  20. collapse expand

    yesterday i heard on a german tv-channel, that at the end of the year the goldman-sachs managers will get a bonus of 750.000,-.
    so it seems, nothings changed, they still play their games – and ist’s really time to step on their toes…
    thanks for making one step :-)

  21. collapse expand

    Seems to me that anyone making a trade through this web site is either too small to make a difference to GS or too stupid to make a difference. I really don’t get how there could be much scale to this. Maybe GS monitors the trades but how much difference could it really make? Big trades are made through different vehicles.

  22. collapse expand

    Matt, I want to thank you for shedding light on some of the systemic frauds that are built into the industry. Well done. I spent twenty years inside (at the largest firm in Canada, now the 9th largest in the USA as well) and I can confirm an attitude of putting lipstick on any pig that can be found, and selling it of to a trusting, vulnerable and unsuspecting public. Assisted by a regulatory system that is “captured” by the industry itself, it became (and still is) the perfect environment to commit crime.

    I am trying to tell the story of what I learned at web.me.com/lelford and to educate the public in my country at investoradvocates.ca

    I thank you again for your insights. In my country there are several hundred thousand industry and regulatory persons to whom the truth is hard to look at. I can only imagine how big the lobby group is in the US, who would like to maintain the status quo, ie, keep allowing these perfect crimes.

  23. collapse expand

    Have followed comments and articles in Rolling Stone and Bill Maher’s HBO TV show. Sgt. Friday
    keeps saying to me, “The facts, ma’am, just the facts”. Matt T delivers.
    My question to all and Mr. Matt is this:
    The dumb downed U.S. citizen has not reached the
    threshold of voting the Congress out. Can I expect that ANY information will change all of this? ???
    Would Mr. Matt Taibbi care to comment on my role and responsibilities in this? What can we expect to accomplish? Give me a report card, Matt> Please. Sincerely >>>

  24. collapse expand

    Here is how this Government Bailout could have worked for the benefit of everyone!
    It is estimated that there is about 23.6 million households with negative equity in the country and if we use the median house price from the Census Bureau of $216 thousand per home, we get $5.098 trillion in mortgage losses for lenders.
    Proposal: The Government begins to provide mortgages to these 23.6 million homeowners at 4%, 30 year fixed rate. Conditions: Homeowner cannot sell the home in the first (5) years of the loan. After the (5th) year the loan can be assumed provided the buyer can qualify!
    This loan would bailout the 23.6 million households and would also include speculators (it is estimated that 20% of the 23.6 million homes are owned by speculators) This would have a Two pronged effect! (1) It would have stabilized the housing market, and (2) RID the BANKS of their TOXIC ASSETS!
    Example of a Homeowners Savings on a $216,000 Loan
    Current mortgage rate: 9.6% Estimated
    Current Payment: $1832.03
    Adjusted Payment: $1031.22
    Monthly Savings: $800.81
    Annual Savings to Homeowner: $9609.67
    X 5 years
    Savings over 5 years $48,048.33
    Housing Prices are now Stabilized! Why because they can’t be sold for 5 years! Homes have stopped being Foreclosed! Homeowner in example has an extra $48,048.33 to spend!
    Here is what the Government receives for their $216,000.00 loan
    Over 30 years:$371,239.20 is repaid this is an increase of $155,239.20 (Interest)
    Now multiply $155,239.20 X 23.6 million and you get $3,663,645,100,000!
    By the government Lending to the 23.6 million home owners, The Banks that now have the toxic loans, no longer have any toxic assets because their “LOANS” have been PAID and now [The Banks have $5.098 Trillion to lend out]! The downward spiral of home values has stopped, and home ownership has been stabilized and the economy has been restarted and will flourish! A big plus for Taxpayers! Because they are no longer on the Hook to pay for TRILLIONS OF DOLLARS OF WALL STREETS SCREW-UP!
    Over time the Government receives back the initial $5.098 trillion plus an additional
    [$3.633 TRILLION DOLLARS!]
    Instead what has happened the GOVERNMENT gave the money to the Banks, instead of getting rid of “THE TOXIC ASSETS”, THE TOXIC ASSETS ARE STILL ON THEIR BOOKS, and we the Taxpayers are now on the hook for more than $11 TRILLION and it keeps on INCREASING! THIS IS CALLED “WE KEEP GETTING SCREWED!!”

  25. collapse expand

    Your piece in Rolling Stone was fantastic Matt! I had to read it twice just to make sure I understood all the points you were making. Don’t let up on Goldman Sachs, they’re a group of greedy assholes who need to be stopped, or at the very least, curtailed. Try to force them to admit to their corruption and ethical wrongdoings. As long as we are being fucked by the banks, we should at least know what is going on.

  26. collapse expand

    This story just gets more and more sinister. It reminds me of the 20s/30s in Chicago when the mob ran everything, and the “government” was useless against it because the mob had infiltrated it so deeply.

    That’s what this feels like: G-S owns the gov’t and can have whatever investigation or rules it doesn’t like shut down, as we continue to pay the price as they drain our riches from the country into the hands of a select few.

    Keep up the good work, Matt! You deserve a Pulitzer for your reporting on them and your classic piece on the whole Wall St. meltdown.

  27. collapse expand

    Dear Mr. Matt,
    I read your article in Rolling Stone today. I’m really sad to admit that I had faith that this new, democratic administration could really make change. Your article threw my “half full” glass back in my face, and I thank you for it.
    I don’t know how a little girl such as myself can take down the fourth largest campaign contributor in the US. But I’m going to try. And I think if we all try hard enough to spread the word that it will make it’s way into the mainstream media, and hopefully then, cannot be ignored.
    I am doing my best now to get people to pay attention. And hopefully it will continue to snowball. But I was thinking that there is a sphere of influence that the general, uninformed american population pays attention to more than Barrack Obama.. Celebrities. There has to be a few that would care if they knew!? And I think they’re better at getting attention than me!
    If only rage against the machine were still around…. :/
    Anyway, you’re the rolling stone guy. You’ve probably already thought of that.
    I just wanted to let you know that I’ve got your back. And I’m going to start writing letters to politicians and newspapers and such.

  28. collapse expand

    Come, come all Goldman Sachs sycophants. I have been a trader for 25 years. I have no bias against investment banks other than the flagrant corruption which is generally known in the industry. No I won’t name names. I will simply tell you that, as a trader, by hedging their upgrades, shorting them immediately, (as THEY do) I have done quite well. They are astute manipulators, are directly responsible for the global economic carnage, and are proud of it. I’ll miss Goldman when they are dismantled because, God, I won’t know how to trade given their predicable brand of bait and switch. I will also miss the strategic charade of Abbey Joseph Cohen, master carnival vendor, and the nods and winks of Paulson, Grasso, Thain, and the other stellar sheiks of the Street.

    Congratulations on your article. Those in the pits know what of I speak. Others can keep defending Goldman’s sterling success at increasing oil prices artificially, impoverishing entire nations, and bringing the globe to the brink-all for Goldman’s obscene benefit.
    Bubble Benefit Bonanza is their mantra.

    “Those who believe absurdities are condemned to commit atrocities,”
    a para phrase of the Voltaire quote which is aimed squarely at the free
    market fundamentalists who insist Goldman is “pure as gold and innocent as a newborn lamb.”

    If you bury your head in the sand long enough, you will likely suffocate; a bit of air, however, might revive your faculties and elucidate your skewed view.

  29. collapse expand

    In regards to that letter response, being a non-denial denial, I don’t agree. When they say, “untrue”, that’s a denial denial. If they had just said, your allegations are offensive then yeah that’s a non-denial denial. Although I can’t rule out the possibility that they are playing some weaselly Dick Cheney wordgames here. Where it’s “We don’t do torture. How do we know? Because torture is illegal and our lawyers have told us this is not illegal and thus not torture.” Except in this case torture=front running.

    But in regards to the disclaimer, yeah, that could mean almost anything and definitely doesn’t sound like the usual we’ll use your data for marketing purposes Internet disclaimer. Normally a disclaimer, doesn’t mean jack, if the activity itself is illegal which frontrunning is. However, there might be a legal gray area in regards to the Internet. I don’t know (although that hasn’t stopped the Feds from confiscating winnings at Internet gambling sites, regardless of whether or not the site has any physical tie to the US).

    What might me better, is if someone could get Goldman on the record saying, “We wouldn’t do anything through information obtained on our Website that would be illegal if done at any actual physical location.”

    I’m also interested in a question that I’ve never seen really addressed anywhere in regards to the brokerage arm of these big investment banks. How much money do these folks make acting as a broker and processing transactions? We all know that these guys are not interested in merely collecting antes. If the money they make charging brokerage commissions is relatively small money, then it would same to raise obvious questions as whether or not their real game isn’t frontrunning. I also have to say that it would seem to me to that if this isn’t something that should be banned in the first place as being an inherent conflict of interest. Processing stock transactions as an allegedly neutral broker in a market in which different arms of your company are players in that very market would seem to be ludicrous on the face of it and invitation to corruption.

    • collapse expand

      Agreed. This is a clear denial from GS.

      I find the whole story that GS is front-running to be without much credibility. If GS really was front-running, their clients would certainly notice and take their business elsewhere.

      Similarly, the stories going round about GS front-running the entire market are equally implausible. Quite apart from the issue of how they might do this (no, colocation is nothing to do with it), if they were then people would certainly have noticed and you can be sure that JPM, MS etc would be complaining loudly.

      In response to another comment. See in context »
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    I'm a political reporter for Rolling Stone magazine, a sports columnist for Men's Journal, and I also write books for a Random House imprint called Spiegel and Grau.

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