One day after the Goldman hearings, we were left with the warm and fuzzy impression that the whole Goldman farce was for nothing, and that everything the firm had been doing for the past 5 years was perfectly legitimate. The prop trading abuse, the discount window generosity, the endless abundance of flow and prop inventory commingling, the endless client rape...All these allegations must have been for naught. Which is why we were thoroughly disappointed when our sense of sudden enlightenment that we may have been wrong all along about Goldman, vanished promptly and without a trace once we had a chance to read the 2007 self-evaluation of Goldman Managing Director Michael Swenson. The line penned by Michael, who incidentally was the least like of the three Goldman SPG MDs testifying on Tuesday based on peer feedback, that broke our collective heart is the following: "Once the stress in the mortgage market started filtering into the cash market, I spent numerous hours on conference calls with clients discussing valuation methodologies for GS issued transactions in the subprime and second lien space [redacted] is prime example). I said "no" to clients who demanded that GS should "support the GSAMP" program as clients tried to gain leverage over us. Those were unpopular decisions but they saved the firm hundreds of millions of dollars." Alas, we find that all of Goldman's sincere hypocritical lies before the Senate committee were... precisely just that.

As a refresher, the GSAMP, that Goldman was expected to support after demands by clients, refers to the Goldman Sachs Alternative Mortgage Product, or structured products such as the GSAMP 2006-S3 pictured below, which were originated by the firm in 2006, and which were largely wiped out by early 2007. See chart below (from Forbes):

So this is the GSAMP (in principle) that clients were asking for Goldman to support, incidentally at a time when Goldman was actively betting against it, and whose request denials were subsequently seen by Swenson as a boasting bullet that should be included in his self evaluation when demanding tens if not hundreds of millions of dollars in 2007 bonus.

But lets re-read Swenson's words again:

Once the stress in the mortgage market started filtering into the cash market, I spent numerous hours on conference calls with clients discussing valuation methodologies for GS issued transactions in the subprime and second lien space. I said "no" to clients who demanded that GS should "support the GSAMP" program as clients tried to gain leverage over us. Those were unpopular decisions but they saved the firm hundreds of millions of dollars."

It is hilarious that Goldman would "spend countless hours" with clients to convince them of the Goldman trade only after the stops had been hit and Goldman was actively trying to cover shorts, i.e., when the stress in the mortgage market was plainly visible for all to see. Maybe Goldman should have spent just one hour with its clients when it itself decided to go short in the first place, instead of using its clients as spitoons for its toxic, HR Giger based saliva.

What is far more deplorable, is that Swenson admits that not only did the firm deny its client requests, but that these decisions lost the firm client credibility (although they saved Goldman "hundreds of millions").

And now you know why Lloyd Blankfein's statement that "the client always comes first" for Goldman is also merely anopther lie.

But we all knew that.

What deserves greater scrutiny is the question why Goldman thought it could get away with antagonizing clients in its pursuit for the almighty dollar? The answer is simple - Goldman knew then, just as it knows now, that it is a market monopoly, and that no matter how pissed off its clients get, they have no other options: Goldman has the biggest flow (which implicitly become prop) axes in the world, and the greatest "patzy" rolodex in the world. Well, after the implosion of every European bank, that rolodex was cut in half. But at least all the mutual and pension funds, not to mention momos, still remain, and are currently buying the market on the way up, just as Goldman keeps on hitting every new high bid. Yet the core premise remains: Goldman is a monopoly and the firm realizes this all too well.

But maybe not for long.

Very soon Zero Hedge will present our own proposal for regulatory reform, specifically as pertains to prop trading, which may hopefuilly make the lives of the incumbent market monopolist Goldman Sachs, for whom the client always comes last, just a tad more difficult.

Full peer-reviews of the 3 Goldman MD and Fab Tourre (Swenson is the second of the four).