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Goldman Sachs: Heads I Win, Tails You Lose

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New private-equity fund exploits those who have no choice but to sell.

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Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial). It's being shared here for the benefit of the Minyanville community.


This morning, Bloomberg reported that Goldman Sachs (GS) is raising a $5.5 billion fund to purchase private-equity interests in the secondary market. From experience, the secondary market for private equity isn't a market you'd ever send your kids to shop in. As a trading buddy of mine would say, it's why we have nostrils - to make it easy to rip someone's face off.

And that's what Goldman and others are betting: That there are investors who have no choice but to sell (including college endowments and other long-term investors who followed the "glitz" of private equity and hedge funds, failing to accurately understand the consequences of long term commitments.)

So sell they will - and into Goldman's one-sided market. Yet another real-time example of the ugly flip side of financial staying power.

This morning's Wall Street Journal reveals another 2-sided coin - one exemplified by the current banking system. A front-page article criticizes TARP-recipient banks for raising fees on basic lending and deposit products, while a column in the third section reveals that those same fee increases are likely behind the improving earnings picture for the financial-services industry.

As the history of Fannie Mae (FNM) and Freddie Mac (FRE) reveals, you can't be the slave of 2 masters. And with the government now playing multiples roles within the banks -- regulator, owner, deposit guarantor, debt guarantor, toxic asset guarantor and creditor -- I would offer that the conflicts of interest are abundant.

But while others would suggest that the bottom is in, I would offer that, until the re-balancing of populism and capitalism is clear, all economic recovery bets are off. Calm, while better than crisis, is no guarantee of future performance. And from where I sit, it feels to me like we are just seeing the first shots of the Battle of Confusion Corner - that treacherous intersection of Wall Street, Main Street and Constitution Avenue.

Position in FAZ, JPM
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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