Thursday, August 6, 2009

Goldman Sachs admits it's under government investigation

Investment bank Goldman Sachs made $100 million or more trading on the stock market on each of 46 trading days in the second quarter on 2009. In all, the company made at least that much money on 71 percent of the days it was doing business.

And the company revealed Wednesday that the US government is investigating its controversial compensation practices, and, perhaps more importantly, its trading in derivatives -- the financial instruments widely blamed for last year's financial collapse.

According to a report at Bloomberg news service, Goldman's profits are an all-time record -- beating the previous record, 34 days of $100-million profits, set by Goldman in the previous quarter.

Goldman, a major beneficiary of last fall's bank bailouts, by some accounts now controls half of all the program trading (computer-based automatic trading) done on Wall Street.

The company and some affiliates "have received inquiries from various governmental agencies and self-regulatory organizations regarding credit-derivative instruments," the firm said in a regulatory filing, as quoted by Bloomberg. "The firm is cooperating with the requests."

The company is also facing questions from shareholders about how it rewards salaries and bonuses, Reuters reported Wednesday.

According to the regulatory filing, Goldman's board has received several letters from shareholders about compensation. It said the letters have included demands that the board investigate compensation in recent years, begin recouping so-called excessive compensation, and consider reforming pay practices.

The board is considering the letters, the filing said.

But the company's massive profits highlight an increasingly divergent economy: While the Wall Street banks recover and make huge profits, Main Street continues to suffer. According to the Los Angeles Times, consumer bankruptcies in July were 34 percent higher than they were the same month a year ago.

A classic measure of Americans' financial distress: U.S. consumer bankruptcy filings totaled 126,434 in July, the highest for any month since Congress rewrote bankruptcy laws in October 2005.

So far this year 802,000 consumer bankruptcies have been recorded, up 36% from the 589,000 in the first seven months of last year, institute data shows.

Sam Gerdano, executive director of the [American Bankruptcy] Institute, predicts that total personal bankruptcy filings will reach 1.4 million for 2009.

Also, Forbes magazine reported Wednesday that the unemployment numbers for July, which will be officially released on Friday, will show the US economy lost another 371,000 jobs last month. That's considerably fewer job losses than the 700,000-a-month pace seen at the end of last year and the beginning of this year, but it is still a far cry from anything resembling a recovery in the job market.

In all the US has lost 6.5 million jobs since the recession began in December, 2007.