Goldman Sachs Insiders Dump $700 Million in Company Stock

Jul.15.09 | About: Goldman Sachs (GS)

What should we infer from a Financial Times article, reporting that Goldman Sachs (NYSE:GS) executives dumped $700 million of their own stock between September of 2008 and April of this year?

Supposedly, Goldman Sachs executives are smarter than their peers. This has always been the reasoning on why they have outperformed their rivals – as opposed to receiving exclusive, advance briefings on government policy (not to mention creating most government policy through the influence of their “alumni” in government).

Most of the selling took place during the worst of the crisis, when Goldman Sachs shares were at their lowest. The rumor reported by the Financial Times was that many of those executives faced margin-calls, with their GS stock being the only collateral they had to “cover” those calls.

Reinforcing that rumor was news that the company had bailed out the private investments of two of its executives. According to the company, the executives could have “easily” covered their losses – but the company was concerned such a stock sale would be “misconstrued by the market as indicating a lack of confidence in Goldman Sachs.”

Dumping $700 million in stock doesn't express a “lack of confidence”? Keep in mind that during a comparable period a year earlier (when the share price was much higher), these same executives sold only $400 million in stock.

Are we to believe that Goldman Sachs executives didn't know that their own company was going to be reporting huge profits just a few months down the road? Or, perhaps, the “earnings” reported by Goldman Sachs have much more to do with the new, fraudulent accounting rules in the U.S. (see “FASB strong-armed into mark-to-fantasy accounting”) than real profits?

The removal of “toxic assets” from bank balance sheets is still all talk and no action, as the Geithner-scam known as the PPIP still has yet to be launched. The “TARP” program was created to perform exactly that function, but by the time “Bazooka” Paulson actually laid his hands on that money, U.S. banks needed every dime he could scrounge injected directly into their coffers.

Thus, putting aside the rhetoric, we have a U.S. housing market where prices are still plummeting downward much faster than during the Great Depression, and with bank balance sheets still leveraged by much more than 10:1 (with respect to “on-balance sheet” assets only). By all reports, the “off-balance sheet assets” of U.S. banks remain mostly untouched – meaning they continue to be leveraged by an average of 30:1.

With 30:1 leverage, a 3% loss on the underlying assets takes the leveraged-bet to zero. However, even with 'only' 10:1 leverage, a 10% loss on underlying assets takes the leveraged bet to zero. U.S. homes are losing nearly double that amount each year.

It is therefore a certainty that all Wall Street banks are holding at least some worthless assets, and with most asset classes in the U.S. falling in value (commercial real estate has just started its collapse), and with all categories of U.S. debt at record levels of default, the real question which should be asked is: are any of these companies solvent?

What was demonstrated last year, when Wall Street's corporate pirates plundered more than $10 BILLION in “bonuses” from corporate coffers while mooching trillions to avoid bankruptcy is that none of these thieves is honouring their fiduciary duties to shareholders (i.e. putting shareholders' well-being ahead of personal profit).

Put another way, these bankster-oligarchs have shown that they would (literally) rather see their own companies go under rather than to forgo their enormous “bonuses”.

While the propaganda-machine is trumpeting the huge “profits” reported by Goldman Sachs for the second quarter, we should not forget Goldman's shady maneuver to create an “orphan month” - which was not included in any quarterly report – where the company hid billions in losses. None of these factors are supportive of the official posturing of company officials that Goldman Sachs has put the collapse of Wall Street's multi-trillion Ponzi-scheme behind it.

Clearly, like many of their bankster peers, Goldman Sachs' oligarchs are still betting (or perhaps simply hoping) that U.S. assets will stage some sort of improbable recovery in value – despite prices plummeting downward. What will be much more interesting is the next glimpse into their insider sales.

Will they still be dumping huge quantities of their own stock, even as they tell their shareholders that the company's operations are so strong that their executives are once again entitled to billions in “bonuses”?

Disclosure: I hold no position in Goldman Sachs.