Rivals Say Goldman Customers Are Taking a Back Seat
Policy + Politics

Rivals Say Goldman Customers Are Taking a Back Seat

One former hedge fund manager said that when he read the headline about Goldman Sachs being charged with fraud he thought, "It's about time." But when he read the details of the case, he said he thought, "That's it?"

THE WASHINGTON POST

Among many financial executives, there is little love lost for the powerful Goldman Sachs, which has been at the center of controversy over such things as bundling subprime mortgages, trading oil futures, and engineering Greek currency transactions. Although the positions taken by Goldman's own trading desk aren't public, many rival traders and fund managers say Goldman frequently bets against the very securities it is promoting to customers.

That might be perfectly legal -- as well as common in the financial-services business -- given the multi-faceted nature of investment banks, which underwrite and market securities, analyze them and trade on their own accounts. But it makes some money managers uncomfortable, though few of them wanted to be quoted by name given Goldman's powerful position in marketing and trading securities.

"Whether or not it's a criminal case, this underscores the problem with modern investment banks," said one fund manager and frequent short seller. "They have become giant hedge funds, and the interests of their clients are secondary."

That wasn't what happened in the deal that prompted the Securities and Exchange Commission to file civil fraud charges against the firm. In that deal, Goldman acted as an intermediary between big, sophisticated customers who had opposite views of where the housing market was going at a time when it wasn't obvious to many investors.

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