No one will ever convince me that a mutual fund

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Reed as the catalyst. No one will ever convince me that a mutual fund manager selling $2 billion in E-mini futures was responsible for what happened that May afternoon. When I was on Corey’s desk, I
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would routinely trade $3 billion of them myself. I never caused a flash crash. To an outsider, the mini-disaster may have looked reasonable: a big sale triggering a sell-off. To me, it simply looked scary—one more sign that the global capital markets were officially out of balance. Investors felt the same way. With the flash crash following hard on the heels of the SEC charges, clients were rattled. And being rattled, they stopped trading. They froze. Things turned dead quiet once more; the layoffs recommenced. The mood on the Goldman trading floor was dire. In July, Goldman Sachs agreed to a settlement of $550 million in the SEC suit: $300 million to go to the government and $250 million to investors. Fabrice Tourre was not included in the settlement, further reinforcing the impression that the firm had hung him out to dry. As to the SEC’s charges, Goldman neither admitted nor denied any wrongdoing. Many people found this very strange. What was a settlement of $550 million if not an implicit admission of wrongdoing? The spin doctors at the SEC crowed that it was a huge victory, the biggest settlement of all time. Skeptics on Wall Street said, “This is a huge victory for Goldman Sachs; they got away unscathed.” For anyone in America, $550 million was a mindboggling amount of money. But for a corporation whose Securities division was bringing in $5 billion a quarter, $550 million was a parking ticket. ——— After the settlement, a lot of people at Goldman felt relieved. Maybe , they thought, with all this out of the way, we can move on . Yet business didn’t get a lot better: the firm’s reputation had been damaged with some clients. A lot of clients were no longer comfortable taking counterparty risk with Goldman Sachs. They would be willing to trade only listed, transparent products that went through a clearinghouse. That way the clients’ money, and market exposure, would be safe, irrespective of what happened to the bank they were trading with. Not the case with OTC derivatives or structured products, with which you would be subject to the fate of the bank with whom you did the trade. As the pressure for revenues increased, so did bad behavior of various kinds inside Goldman Sachs. There was more pressure to steal a colleague’s client or to try to persuade unsuspecting clients to do things that weren’t in their best interest. People who had risen to leadership positions during the crisis, elevated for their ability to bring in cash rather than lead, now consolidated their power. Right and wrong had become a thing of the past; the new watchword was “GC or not GC?” Gross credits: they’re what people cared about, talked about, measured themselves by, and got paid for. More and more people in the firm carried this banner, and these people were now the managers setting an example to their teams.
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