As investors remained confused this morning about why Beleaguered financial institution Goldman Sachs is talking up the eurozone, the currency fell further, adding to yesterday’s sharp drop late on Tuesday. Asian traders marked the euro down further to its lowest level since April 2006, and at 11 am BST it was down a further 0.1 per cent at $1.21.

Yesterday’s Slog piece speculated as to whether Goldman ‘recommendations’ and bullish advice are always based on market realities – or other deeper concerns within the company. We also posed a question a question everyone from the Fed to the Wall St Journal has been asking: can you be an advisor and a trader without conflicts of interest…or even deliberate fraud?

Senior Goldman staffer Kahn’s email to Loyd Blankfein was what got Geithner on their case in the first instance:

‘institutional clients, occasionally make comments like ur good at making money for urself but not us.’

Well, here’s some evidence suggesting the clients are right: the company piled up very healthy trading profits for itself every day last quarter. But clients who took the firm’s investment advice fared far worse. As Bloomberg notes today:

‘Seven of the investment bank’s nine “recommended top trades for 2010” have been money losers for investors who adopted the New York-based firm’s advice, according to data compiled by Bloomberg from a Goldman Sachs research note sent yesterday. Clients who used the tips lost 14 percent buying the Polish zloty versus the Japanese yen, 9.4 percent buying Chinese stocks in Hong Kong and 9.8 percent trading the British pound against the New Zealand dollar.

Last week, Goldman’s President and COO Gary Cohn sought to rubbish the correlation suggested by these data. He told a news conference on May 11th that

“….proprietary trading isn’t a main driver of earnings…”

Proprietary trading describes a firm trading for direct gain instead of commission dollars – that is, deciding to profit from the market rather than from commissions by processing client trades. The impression given by Cohn in this statement was that Goldman’s health is thus driven while being in line with client gains – by earning mainly client-derived commissions . The polite way of describing this imputation would be to call it minimalist verite: Goldman will earn commission on client trades whether they win or not. And the fact is – as the Slog confirmed yesterday – client advice is now only 10% of Goldman Sachs’ profit.

In fact, Cohn’s firm makes more money from trading than any other Wall Street operation. In the first quarter, the bank’s income from fixed-income trades alone was $7.39 billion.

Now if you’re running a company where market trading is 90% of the bottom line, and client advice is 10%, how do you imagine the firm’s senior minds might be concentrated?

But Gary Cohn has form when it comes to being economical about what’s really at stake.

Headline media stories around the world only last February described the role that Cohn played in the Greek government’s attempts to conceal and defer debt in order to meet criteria for eurozone inclusion. Goldman Sachs as a whole has become the object of close scrutiny by Euroregulators for allegedly packaging and selling products used by Greece to obfuscate the existence of billions in Athenian debt. This (so they now claim) misled budget overseers at both the ECB in Frankfurt, and at EU HQ in Brussels.

This effort to shoehorn Greece into the eurozone dates back to shortly after Cohn was serving as the global head of Goldman Sachs’s global securities units. He headed up the delegation from Goldman Sachs in late 2009 which pitched proposals to the Athens government: viz, the scam whereby debt-due dates were placed so far into the future, Greece could remain a eurozone member.

Other familiar names from yesterday’s piece keep turning up – notably Dominic Wilson, the man who backed Jim O’Neill’s contrarian eurozone bullishness in his last weekly client advice note.

Last April 1, Goldman Sachs added a ninth “top” trade, telling clients to buy Chinese stocks listed in Hong Kong, and predicting that the Hang Seng’s composite index would leap 20% to 15,000. In fact, the Shanghai Composite index has entered a bear market…losing 20% this year to date.

The Chinese stock recommendation was made by a group led by Dominic Wilson, Goldman’s boss of client economist advice. The contrary view was expressed by top Wall Street Hedgie James Chanos last January, who dubbed China a bubble waiting to burst. This got the approval of Omnis boss James Richards who said at a March 15 conference in Hong Kong that “China is riding on the biggest bubble in history….it’s just waiting to burst”.

In turn, Harvard University economics professor and former chief economist of the International Monetary Fund Kenneth Rogoff warned in January that China is at the risk of economic catastrophe due to an “economic bubble caused by excessive lending”.

But guess what? Up pops Jim O’Neill again, taking the lone contrarian view. In his client note of March 3 last, Jim alone said the bubble-talk was baloney. Just the same as last weekend, he made a point of saying the eurozone collapse-mongering was bollocks.

So, the bottom line is that Goldman Sachs is having a bad run on client advice….and a profits bonanza. Hmmm.

On May 5th last, Bloomberg noted that Foreign investors were short selling China’s stocks through a yuan-denominated exchange-traded fund at the highest rate in more than two years. The ratio of short selling to total turnover, said the respected financial website, was running at 40%.

On May 6th, almost without being asked, Goldman Sachs agreed to pay US$450,000 to settle regulators’ allegations that it violated a rule related to short-selling of stocks. This was seen by many insiders (including a Slog source) as a huge let-off for Goldman, involving as it did some very dodgy short-selling around the grisly demise of Lehman Brothers. As the source alleged in a phone conversation at the time, “Knackering your competitor at a cost of 45o grand is cheap at ten times the price”.

Perhaps it’s time to look at Goldman Sachs short-selling activities in the EU and China in recent months.

Stand by for an Update soon on why (this pm London time) the Euro has made a small recovery. This plot is thickening all the time….