Guest Post: The Biggest Conflict Of Interest In Finance?

Tyler Durden's picture


Submitted by John Aziz of Azizonomics

The Biggest Conflict Of Interest In Finance?

Maybe this is a naive question, but as Goldman clients get skinned again and again and again and again and again by Goldman’s failed calls — while Goldman itself continues to rack up prop trading profits — I keep wondering just why anyone would take investment advice from a trading firm?

And beyond that, why is it even legal for trading firms to advise clients? Isn’t this the biggest conflict of interest possible? We know firms including Goldman have advised clients to buy junk that the trading arm wants to get off its books.

A few months back former Goldmanite Greg Smith wrote:

What are three quick ways to become a leader at Goldman?


a) Persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit.


b) Get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them.


c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.


It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.

How is intentionally misleading clients to offload junk not illegal? Is this not a huge regulatory oversight? And why — when there is ample evidence that this has happened before and continues to happen — are so few people talking about making it illegal?

And beyond that is it not blazingly obvious that the supermarket megabank model that puts clients’ interests under a single roof with the banks own trading book breeds fraud? Should there not be a new Glass Steagall not only to separate retail from investment banking, but also to separate prop trading from flow trading?

Or are we going to leave the world to the vampire squid?

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Wed, 08/15/2012 - 18:49 | 2708558 vast-dom
vast-dom's picture

Aziz: this "How is intentionally misleading clients to offload junk not illegal?" has been covered to death. It IS just as illegal as money laundering is and yet the fines and penalties are less than negligible.

Wed, 08/15/2012 - 18:52 | 2708562 CH1
CH1's picture

When you employ the clowns who write the laws, you don't have to worry about "legal"

Wed, 08/15/2012 - 18:57 | 2708585 NotApplicable
NotApplicable's picture

Yeah, I bet Corzine is just shitting himself after reading the Sentinel ruling.

Wed, 08/15/2012 - 19:21 | 2708631 Tippoo Sultan
Tippoo Sultan's picture

Greg Smith's points a, b, and c are identical to those employed by the pump and dumpers at the ficticious firm "J.T. Marlin" in "Boiler Room."

Just doing God's work...

Wed, 08/15/2012 - 22:59 | 2709125 LMAOLORI
LMAOLORI's picture



"NotApplicable Yeah, I bet Corzine is just shitting himself after reading the Sentinel ruling"

Jamie Dimon too the Sentinel ruling gives new meaning to laughing all the way to the bank


Legality of MF Global Asset Transfer to JP Morgan Questioned



Is Freeh looking out for MF Global customers?


Wed, 08/15/2012 - 23:46 | 2709228 lineskis
lineskis's picture

How is intentionally misleading clients to offload junk not illegal?

They spend good bucks bribbing regulators for a reason...

Wed, 08/15/2012 - 19:01 | 2708593 Row Well Number 41
Row Well Number 41's picture

And provide the regulators for your "business".


Thu, 08/16/2012 - 07:09 | 2709539 Mentaliusanything
Mentaliusanything's picture

The shearing of the sheep continues only until there are no sheep to shear.

Goldman produce nothing, make nothing and are a waste of oxygen.

Even the Name is a lie 

Thu, 08/16/2012 - 08:05 | 2709602 midtowng
midtowng's picture

Eventually even the muppets will figure it out, and they'll stop sending their money to Wall Street.

Then Wall Street will go broke.

The problem is that a modern economy needs a financial system. So we are all screwed.

Wed, 08/15/2012 - 18:50 | 2708559 Neethgie
Neethgie's picture

I like what goldman does it provides a trading strategy for me, that is almost fool proof

Wed, 08/15/2012 - 18:58 | 2708577 NotApplicable
NotApplicable's picture

And you'll wake up one day and find out that "your account" really isn't yours, but rather, actually belongs to whoever took out your broker.

Sleep well! (You're gonna need a good night's sleep when that day comes)

Wed, 08/15/2012 - 19:08 | 2708613 Zero Govt
Zero Govt's picture

and don't forget if you deposit your money in a bank the 1st call on your money if the bank erupts are derivative fraudsters

it's magic it's Da Law ...all praise Govt and the Justice system

Wed, 08/15/2012 - 20:11 | 2708765 infinity8
infinity8's picture

There hasn't been a "justice" system for some time - it's just the legal system now, get with the program man.


*and a good lawyer will tell you so.

Thu, 08/16/2012 - 02:23 | 2709405 zhandax
zhandax's picture

He didn't say he did business with squiddly; he said they provided him a trading strategy.  He could just be fading Stolper.

Thu, 08/16/2012 - 06:49 | 2709521 StychoKiller
StychoKiller's picture

Even so, one must point out what happened to MFGlobal customers.

Wed, 08/15/2012 - 18:52 | 2708568 Bob
Bob's picture

How do we make sense of this? Goldman Sachs emails call their own investments “junk” and “crap,” and Goldman Sachs salespeople refer to clients as “muppets” and “elephants.”

Wed, 08/15/2012 - 18:53 | 2708571 NotApplicable
NotApplicable's picture

John, why are you engaging the facade as if it's reality?

There is no conflict of interest here that isn't imagined as a "should" or an "ought." Reality, meanwhile clearly displays a criminal cartel that has it's "tentacles" reaching into ALL facets of modern life.

Oh, and those "laws" you're going on about? Well, who made them, again?

Wed, 08/15/2012 - 19:53 | 2708734 Aziz
Aziz's picture

This is the conclusion I was pointing toward.


Wed, 08/15/2012 - 18:56 | 2708579 Big Corked Boots
Big Corked Boots's picture

Who stands to halt the control of the banks? Nobody.

Wed, 08/15/2012 - 19:13 | 2708619 Zero Govt
Zero Govt's picture

it's down to where it should be at anyways

...the individual

...i'm referring to that old fashioned system we've long forgotten since we handed (shirked?) all our responsibilities to 3rd parties (Govt) to look out for us and simply walking out this rotten monopoly money banking system with your lolly

Hell if we all did it guess what, 'Game Over' for the likes of Goldmans and JPM ...this shit goes on as long as we allow it

Wed, 08/15/2012 - 20:28 | 2708805 CH1
CH1's picture

this shit goes on as long as we allow it

Yes. So long as we obey them and stay inside their game, we are the Muppets.

Thu, 08/16/2012 - 12:11 | 2710887 BigJim
BigJim's picture

Unfortunately, even if we leave 'the game', we're still muppets through the mechanism of our beloved governments extracting value from us via either inflation or taxation, and handing it to over to the various squids.

Wed, 08/15/2012 - 22:09 | 2709033 James_Cole
James_Cole's picture

...i'm referring to that old fashioned system we've long forgotten since we handed (shirked?) all our responsibilities to 3rd parties (Govt)

Ah the olden days, back when people were free and individualism ruled all! 

Did this time period ever exist? No, but who cares. 



Wed, 08/15/2012 - 18:57 | 2708583 economicfreefall
economicfreefall's picture

Here's a more accurately portrayed GS creature (hope the link works): -portfolio tracker & analysis for gold and silver stocks

Wed, 08/15/2012 - 18:57 | 2708584 diogeneslaertius
diogeneslaertius's picture

master blaster runs barter town

Wed, 08/15/2012 - 19:00 | 2708590 magpie
magpie's picture

Since i have been uncovered by the puppet masters, here is my former trading system :

The week before the big treasury auction, short on Thursday or Friday, go long the next Wednesday. It was a gambling system borne out of the POMOs of yore. That is all.

Wed, 08/15/2012 - 19:01 | 2708594 Rainman
Wed, 08/15/2012 - 19:05 | 2708595 kato
kato's picture

"We know firms including Goldman have advised clients to buy junk that the trading arm wants to get off its books."


Get a clue before you write something as 'known fact': You have NO CLUE how a Goldman trading desk operates, particularly the FICC desks. Idiot writers. Go work on one of the deks and see how much freedom there is to trade. Not as much as you wish to think.

Wed, 08/15/2012 - 19:38 | 2708608 LetThemEatRand
LetThemEatRand's picture

If you work at Goldman, fuck you you fucking fuck.  If you don't work at Goldman, I am sorry for your incredibly pathetic nature for defending them.  Actually, in both cases I am sorry for your incredibly pathetic nature.   But still, fuck you.  

Wed, 08/15/2012 - 19:14 | 2708614 IToldYouSo
IToldYouSo's picture


would it be presumptuous to ask if you do know 


did you forget </sarc>

Wed, 08/15/2012 - 19:15 | 2708630 zorba THE GREEK
zorba THE GREEK's picture

They are all fucking thieves including Merril Lynch. 

People are getting wise to it, but usually after it's too late.

Wed, 08/15/2012 - 19:15 | 2708632 economicfreefall
economicfreefall's picture

Remember this article almost a year ago in the Telegraph:

"The new president of the European Central Bank, Mario Draghi, Italy’s new prime minister, Mario Monti, and the new Greek prime minister Lucas Papademos all reportedly have the US investment bank as a common denominator."

Just coincidence, right? lol. Just like that Mervin King and Bernanke used to share office back at MIT in the 80's. Just coincidence... -portfolio tracker & analysis of gold and silver stocks

Wed, 08/15/2012 - 19:16 | 2708636 Dareconomics
Dareconomics's picture

These conflicts of interest are permitted by regulation. Indeed, maintaining so-called "information barriers" in the firm and disclosing conflicts of interest in the fine print in the myriad documents that they make you sign to open an account absolves the firm of all responsibility, particularly with trading clients. As long as the firm's recommendations are suitable, your salesperson can recommend that you buy XYZ while the trading desk is busily dumping it to any and all comers.

Why do people continue to do business with these firms?

Wed, 08/15/2012 - 19:22 | 2708646 john milton
john milton's picture

Vampire Squids Act...yeah..recommendations what it should contain..??


only looting from another banker is legal---



Wed, 08/15/2012 - 19:25 | 2708655 colonial
colonial's picture


i don't get this post.  in 1985, I was indoctronated to the once famous 55 Water Street office of Lehman Brothers.  In one day, I figured out the conflict.  We pumped, we dumped, we flipped, we pounded.  Most of us were stock jocks back then, but hey, we were idiots!  About the same time Michael Lewis wrote Liars Poker openly discussing the conflict detailed in this post.  

The brokerage industry has always been willing to screw its clients AND ITS BROKERS while protecting the house.  And there is no difference between Goldman, Morgan Stanley or any other major house.  

Wed, 08/15/2012 - 19:36 | 2708697 vbone
vbone's picture

one time vbone has seen a goldman call do  well, but vbones have seen over 10 others do bad! not a good ratio

Wed, 08/15/2012 - 19:42 | 2708713 greenEagles
greenEagles's picture

The money being traded via Goldman doesn't belong to the people actually making the trades, so it's more akin to a circle jerk. In a way it's like public unions who throw money at a politician who then gets elected and increase benefits of said unions. Muppets and voters be damned!

Wed, 08/15/2012 - 20:00 | 2708749 theduke2421
theduke2421's picture

read liar's poker - is this news or editorial or either? 

or for first time viewers....


Thu, 08/16/2012 - 00:15 | 2709275 colonial
colonial's picture

exactly...i said the same thing above a few mintues before you...



Wed, 08/15/2012 - 20:02 | 2708751 XtraBullish
XtraBullish's picture

I am bullish on Amerika und zink dot yoo Yenkiies r goot peeble.

Wed, 08/15/2012 - 21:33 | 2708950 icanhasbailout
icanhasbailout's picture

Goldman's conflict of interest with respect to its clients is kindergarten stuff compared to central banks' conflicts of interest. Hell, a central bank is pretty much an institution of conflict of interest.

Wed, 08/15/2012 - 23:00 | 2709141 yogibear
yogibear's picture

Goldman always wins because they own Washington and the worldwide financial markets. It ousts leaders in countries to put in place it's own people. Look at Draghi, Hank Paulson, etc.

Goldman wanted more money so over the weekend a few years back it became a bank.

Wed, 08/15/2012 - 23:54 | 2709245 which way weste...
which way western man's picture

Kol Nidre - Judaism's License To Lie

Thu, 08/16/2012 - 09:02 | 2709700 Toolshed
Toolshed's picture

First, do your own research. The linked article is almost entirely bullshit. Besides.....who needs a license to lie anyway? Is there a Lie Patrol which issues citations for untruths that I am unaware of?

Thu, 08/16/2012 - 03:40 | 2709443 Bastiat009
Bastiat009's picture

Fool me once shame on you, fool me twice shame on me.

You don't smoke to be healthy. You don't eat to lose weight. You don't do business with Goldman to get rich.

Thu, 08/16/2012 - 03:53 | 2709453 torak
torak's picture

Fool me once, shame on you.

Fool me twice, shame on me...
Fool me three times, shame on me...
Fool me four times, shame on me...
Fool me five times, ok, I'm a fucking idiot!


Thu, 08/16/2012 - 06:27 | 2709504 phantom blot
phantom blot's picture

Do yanks understand why much of the rest of he world refer to them as SEPOs?

Thu, 08/16/2012 - 08:50 | 2709668 Toolshed
Toolshed's picture

No we don't. So ........ explain it to us will you?

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