Take for example the case of Goldman Sachs, one of the largest investment banks on Wall Street and in the world. For months their financial analysts have been downgrading banks, investment houses and companies driving stock prices down while at the same time other Goldman analysts have been driving the price of oil futures through the roof as explained in a recent CPT article.
A little over a week ago an analyst from Deutsche Bank in Germany downgraded the rating and value of Goldman Sachs citing exposure of the banking giant to credit weakness. He was joined by another analyst from Oppenheimer & Company. The result was a 6% drop in the stock value of Goldman the same day from a previous high of $178.00 to $167.30.
In the next few days analysts from Ladenburg Thalmann and Thomson Financial joined the field downgrading Goldman who thought they had avoided public notice of their credit problems. By Wednesday, August 20 shares in Goldman went for $158.25, a loss of $20 a share in little over a week.
The next day Citi Investment Research projected additional asset problems for Goldman Sachs, Lehman Brothers and Morgan Stanley due to credit problems yet to be reported by the giant firms and the stock dropped to $156 a share, a loss of $22 per share and a bit too much for the Goldman gang to stomach.
The next morning Goldman declared the price of oil, which had dropped to $114 per barrel from $149, would spike back up to $149 before the end of the year in what could be considered a last desperate attempt to stop the downward spiral of their stock and drive it back up. Of course Goldman is one of the largest traders of energy and oil stocks in the world and a temporary oil price spike might help refill the coffers.
Oil did indeed spike the next day by an astonishing $6.00 a barrel, a huge daily profit for a firm that might have a few trillion dollars at play on oil futures, while the stock market was being driven down nearly 400 points in two days because of the credit crisis. Fortunately, after one day of temporary insanity on Wall Street a calm Warren Buffett was on television Friday morning telling the world a whole different story and the stock market shot up 200 points while the oil price had the largest one day loss in years, over $6.00 to completely wipe out the Goldman hike of the day earlier.
Goldman has made the following oil price forecasts this year. December 2007 oil projected to reach $105 in 2008. May 2008 oil projected to reach $141. June 2008 oil projected to reach $200 by year end. August 2008 oil projected to reach $149 in 2008. Oil did indeed reach a record high in 2008 being pushed to $149 a barrel and driving gas, diesel and heating oil right through the roof.
The huge houses like Goldmans might have made billions in profits on oil using a variety of strategies like ownership of the futures market, commissions off stock sales, and a host of alternative financing schemes outside the regulatory control of the government including institutional funds and swaps. For the first time this year Goldman did not get its way and drive up the price of oil for longer than a day. One can only hope they were in and out of the market fast enough to make a killing overnight or their own strategy might have backfired and cost them in futures contracts.
Now who really controls America? Did I mention that as of August 22 Goldman Sachs people have given $456,702 to the Barack Obama campaign and $174,820 to the McCain campaign. Before you think Obama receives twice as much money from financial institutions as McCain consider this. During the entire campaign people from the financial sector including Wall Street have given a total of $22.4 million to Obama and $21.6 million to McCain. I wonder how they classify that investment?
Here is how Goldmans rewarded employees last year and what they will be missing this year. The following appeared in a New York Post story by Paul Thorp, December 19, 2007.
Toiling at profit powerhouse Goldman Sachs is so lucrative that even a secretary's bonus can exceed Gov. Eliot Spitzer's whole $179,000 paycheck.
As the Wall Street giant yesterday celebrated its fourth-straight year of record profits - despite a general wipeout at most banks - Goldman Sachs was also jubilant over the record bonuses it's handing out in early 2008.
Overall, Goldman will pay employees a total $20.19 billion in pay and bonuses, or an average $661,490, up nearly 23 percent from $16.46 billion a year ago.
While the average is only a statistical snapshot, the real bonus packages - to be distributed in the first quarter of next year - are equally impressive, ranging from around $3,000 for a mailroom clerk to $20 million for top bosses.
"It's not unusual for an administrative assistant or a secretary of a very senior person to get more than $200,000," said Alan Sklover, a compensation lawyer who represents Wall Street executives.
"There's a great value for someone who gets you on the plane in the middle of the night and plans your daily life," he said.
"The higher up the boss, the bigger the bonus for his support staff, which at Goldman Sachs is often paid by their bosses of out of their own bonuses."
With Goldman the envy of Wall Street as the only bank awarding any big bonuses, the formula of how the $12.1 billion pot of bonuses alone is distributed is based on two principles: favoritism, and how much profit your department generated, experts said.
A junior trader who helped Goldman keep ahead of the rest of Wall Street rivals could expect to get a bonus of between $500,000 and $2.2 million - on top of their regular pay. A more senior trader would get up to $3 million or more.
CEO Lloyd Blankfein is expected to reap up to $70 million in pay, stock and bonuses.
"Its hard not to be a Goldman executive and walk away a multi-millionaire," said Sklover.