Further to last night’s piece, it’s now pretty clear that Goldman Sachs have taken a seriously contrarian position on the Eurozone meltdown. What’s not entirely clear yet is why….but there are some compelling clues. First, a brief background.

Goldman’s top man on currencies is Jim O’Neill, a Mancunian Brit, red-hot Manyooo supporter and much of the money plus brains behind the Red Knight’s attempt to buy United back from the cryogenic failed family experiment, aka the Glazers.

The Glazers just happen to be a big Goldman client. Two months ago, the bank’s Loyd Blankfein (a man with rather more serious matters on his mind these days) told O’Neill to either support United or support the bank. Jim plumped for United….but he’s still at Sachs. Hmmm. What is it, we wonder, that makes Big Jim so indispensable?

When the ECB launched its $1 trillion dollar liquidity plan last week, O’Neill was almost the only commentator willing to support the move as likely to succeed, be followed by more tightening of procedures. He told the BBC:

“I think the package of measures announced at the weekend is one of the biggest and sharpest I can recall policymakers ever having done. As for moral hazard and debt sustainability, we are likely to see evidence of much tougher fiscal scrutiny of profligate countries and a stronger, tougher oversight by the EU, which should gradually assuage people.”

I love that phrase ‘moral hazard’ don’t you? For if nothing else, Goldmans are the Dukes of Hazard on that front.

Over last weekend, the ECB’s Jean-Claude Trichet went dizzy spinning bollocks about how successful the bailout and bond-buying would be. And curiously, there was contrarian Jim again saying everything was alright really. He told Bloomberg that rumours of a Euro demise were ‘ridiculous’ (there’s that word again), adding:

“The simple misconception is people trying to equate pure economic logic with social and political reality. The Germans and French are passionately committed to it whether the rest of us think it’s crazy or not.”

Last night, I couldn’t find much enthusiasm in the markets for that view – and no takers on a bet at any odds. This is unlike O’Neill, whose reasoning (while often brutal) is usually right on the button. But he is a heavy hitter, no doubt about that. And it may even be that he has enough influence among currency traders to have helped a small rally by the Euro yesterday – when for the first time, its descent even stopped for an hour or two.

Think this is far-fetched? Well, Goldman Sachs co-Head of Markets Dominic Wilson issued a release Sunday saying “Talk of EMU break-up is completely overblown”. Or put another way, he was suitably on-message. This is Goldman Sachs taking a position. And there’s always a good reason why the company does that.

Mr Wilson has been bullish about the Eurozone for some time. On 5th May he said:

“So long as we are right that the ECB remains friendly on collateral rules, some of the more dramatic stories of bank liquidity issues seem implausible.‪‪‪‪”

Well, clearly they weren’t, and the markets didn’t like that. So this week, in a note to clients, Wilson opined that ‘the latest sell-off has had a darker edge. Unlike many sell-offs in the past 18 months, the stresses induced and questions raised are likely to mean a slower ‘healing’ process than before, and the market may yet challenge the efficacy of the (EU) solutions put in place.”

So then – a slightly different tone: but not exactly ‘Head for the hills, sod the women and gimme that wagon, Junior’. Just ‘a slower healing process’.

What is going on?

I believe there is a chance that what we’re really seeing here is nothing to do with real markets, and everything to do with further criminal charges Goldman Sachs might face in Europe.

Things started going wrong for Goldman when they failed to spot (or be bothered about) the obvious conflict of interest once they became a public company selling stuff and giving advice – rather than just being advisers. This is the oldest story in the Bourse book: private partnership goes public and discovers that mad Wall St wants 25% gross profit, year in year out, with a nice steep growth curve. This, truly, was – and remains -the company’s moral hazard.

Its flagship business of giving investment banking advice is today just 10 percent of the firm’s revenues. In its place, Goldman has became a leviathan hedge fund, hard-selling products to their largely institutional clients of pension funds, endowments, banks and other first-rank institutions… and on the same day taking financial positions against the very same products.

For some weeks since the Federal case was brought against Goldman in the States, The Slog has been hearing rumours and getting discreet home-address emails about just how labyrinthine the company’s moral maze is in Europe. It seems quite possible that GS could find itself accused of conspiracy to defraud Brussels and the ECB; the Greek double-deal helping Athens to hide its mess from the central bank is already out there in the public domain. And the UK’s FSA watchdog is also investigating Goldman’s London operation.

The gist of the rumours and allegations is that Goldman Sachs is up to its neck in murky stuff involving almost all the EU’s PIIGS. The more outlandish of these also suggest that, in stopping a helter-skelter to earth in the eurozone, Goldman is at one and the same time doing the US Government a favour: the last thing Obama needs is a big market falling apart. (Witness the President’s frantic phone calls to European heads of State last week).

The following things are clear:

1. Goldman’s bullish message on the Eurozone has been stepped up since the Fed charged it with fraudulent dealing.
2. It is entirely in the company’s interests to talk up the Euro and thus stave off a complete crisis in several other PIIG states…during and after which, more dirt,if it exists, would rapidly come to light.
3. As the Goldman big-voice on currencies, O’Neill would be the obvious candidate to lead that charge.
4. He is out of step with almost everyone in taking his contrarian position. To quote the FT, ‘for the package to serve its purpose, sustained eurozone growth must return. Yet the fiscal adjustment required to meet its conditions may shut off the very growth it is designed to inspire.’

Whatever: all this remains conjecture for now. Let’s see if anyone picks up the ball on this. And in the meantime, we’re still on the case.