by Gayle Plato
Financial blogs jumped on this: Reuters’ Matthew Goldstein broke the story of a Russian immigrant living in New Jersey with all of the keys to the Goldman Sachs kingdom. Simply, one clever programmer seems to be the ‘lone gunman’ of IT Espionage, and the code to crack computerized trading is out. This is a Willie Wonka Golden Ticket in the hands of the bratty Varuca Salt screaming ‘I want more’.
“The allegations, if true, are big news because the codes the accused man, Sergey Aleynikov, tried to steal is the secret code to unlocking Goldman’s automated stocks and commodities trading businesses. Federal authorities allege the computer codes and related-trading files that Aleynikov uploaded to a German-based website help this major “financial institution” generate millions of dollars in profits each year.” (http://blogs.reuters.com/commentaries/2009/07/05/a-goldman-trading-scandal/)
But then, is he more than a patsy loner? Always look behind the screen for the wizards of Goldman-Sachs(GS) .
How GS does what it does and gets away with it all is the least transparent shell game on the face of the planet. It’s a mystery wrapped in a riddle inside an enigma. Even the players don’t know who’s in charge of what.
When the government makes credit available to try to stimulate the market, they make it available to big investment banks, but the investment companies also trade and are first in line to get the money. They get cheap money and borrow it all of the time and put that money to work. They fund other companies and to grease the financial machine. The Federal Reserve is the ‘bank of last resort; its purpose is to insure liquidity for the United States. The reason is that if you borrow short term and lend out long term, inherently you’ve a risk. In the short run, even if safely invested, there is a possibility of a run.
How investment banks like Morgan Stanley, JP Morgan, the now dead Bear Stearns, Merrill Lynch ( now part of Bank of America), and Goldman Sachs factor in this: GS and the others trade Treasury bonds for the United States. All the trades of most US stocks, bonds go through the DTCC, the Depository Trust and Clearing Corporation. Computerized trading is managed by truly just a few investment houses; GS handles an immense amount of volume and last week everything went kooky.
While financial reporters look at the crime and tell you it’s a rogue trader looking to make a buck, think about the story a few weeks back. Counterfeit Treasury bonds worth 141 billion came over the Swiss-Italian border. A few crazy guys fake bonds-so no big deal? But to fake these, to look as good as they did, one needs to be in the presence of them. These bonds were said to be quite old, and likely in the bank drawer of some country.
What happens when some rogue gets the notion that he can sell the secrets of Goldman Sachs? Our market of computerized, milli-seconds quick, minute amounts traded in a super-conductor flux-capacitor manner makes for dangerous conditions. As speculated at www.zerohedge.blogspot.com, what do we do when one hacker holds the world hostage over a trading code that can blow up the dollar? I take it a step further, and say that maybe it is not just a rogue or a hacker, but a planned attack. Either way, the technology wins when we allow a few cloaked nerds to hold the keys.
The World Trade Center took months, heck years to build, and one small group of crazy zealots with a simple and evil desire, brought it all down in minutes, forever changing us. The next big boom won’t necessarily be as obvious as a plane flying into your office window; it might just be a byte at the virtual back door.