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PBS's "NewsHour" with Jim Lehrer program last Thursday evening aired a piece with some sensational allegations about Goldman Sachs (NYSE:GS). The segment, by NewsHour's veteran economics reporter Paul Solman, was funded by the Alfred P. Sloan Foundation. Here's a highlight, with Mr. Solman interviewing David Stockman, identified in the piece as "President Reagan's budget director" and a "longtime Wall Street insider." They are discussing how Goldman Sachs makes its money.

PAUL SOLMAN: But isn't this front-running, trading ahead of your clients to profit from the price changes that will come from the clients' trades, but for your own firm's benefit? And isn't that, strictly speaking, illegal?

DAVID STOCKMAN: The long and ancient secret of Wall Street is, they have always been front-running their clients. In other words, when you're in the customer trading business, and then you're in the proprietary business, which trade are you making first? I don't know. And, if it's in milliseconds, how's anybody going to figure it out?

So, I don't know if you ought to get all exercised on that or not, but the fact they make all this money in proprietary trading is clearly part and parcel of being a massive player, dealer, in the markets for both customer trades and house trades.

PAUL SOLMAN: So, Goldman might insist that, technically, it isn't front-running, or that the charge could never be proved.

Mr. Stockman had his own run-in with the S.E.C. recently, which NewsHour doesn't disclose. He's been making the rounds in the press lately and reportedly has a book coming out with the title "Crony Capitalism." Here he is talking about the AIG takeover in another NewsHour/Sloan Foundation/Paul Solman piece:

It's part of the capitalist system. You know, if an investment bank gets in trouble, it ought to fail. If a hedge fund gets in trouble, it ought to fail.

The idea that our system is so fragile that the failure of Lehman Brothers or even Goldman Sachs, which could have happened, allegedly, in the next few days, would have brought the whole system down, I think, is baloney. I think it's an urban legend that was created by Wall Street.

He goes on to say Republicans should raise taxes.

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Source: Unraveling the Profit Puzzle at Goldman Sachs