Sergei Aleynikov is a former computer programmer and equity specialist at Goldman Sachs. He is alleged to have downloaded secret software at Goldman that is used to direct large volume, mega-quick trades through dark liquidity pools to exchanges and commodity markets.

At a bail hearing for Aleynikov, now in custody in New York, U.S. Assistant District Attorney Joseph Facciponti claimed Goldman Sachs stood to lose millions of dollars from its proprietary trading based on the stolen software. With an astonishing air of innocence, the assistant DA said that if others in the market obtained access to these trading secrets, “there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways”.

What – like Goldman Sachs maybe?

Quantitative trading is part of the insane share, commodity and currency markets of today. So much trading is now electronically based and sent to the exchange by computers, there is frequently no human being involved at all. In the first quarter of this year, it is estimated that over 25% of all New York Stock Exchange trades were computer generated. This is a massive share compared to trades sent in manually by individual investors.

A major criticism of these programmed trades is that they become self-fulfilling. The huge volume submitted by a firm like Goldman Sachs starts moving the market towards the direction desired by the firm. As such, it sends a signal to the market that a directional change is occurring, and this tends to attract others to the trade. This effectively fulfils Goldmans’ own prophecy. Neat, huh?

When these trades are public (they often aren’t) many small investors join in and create the momentum necessary for Goldman to make big gains.

Says the widely followed website Agonist:

“..firms like Goldman Sachs bully their way to profitability. Their volume is so huge that they become the 800 pound gorilla which dominates the market. There is nothing especially proprietary about their computer algorithm under such circumstances, if large volume can more often than not compel the market to move in a particular direction…”

From the opening paragraphs above, you can see that this is far from being a conspiratorial fantasy; rather, it is an everyday reality of the Goldman Sachs mindset. Sergei Aleynikov stole an algorhythmic Goldman proprietary tool designed to direct market sectors in the direction it desires – hence the term ‘directional trading’.

The Slog post of yesterday speculated (with a compelling degree of circumstantial evidence) that this is precisely what Goldman Sachs has just done to the value of the Euro.

What has this Slog series been about?

Goldman dominates financial markets in which over a quarter of all trades are unrelated to the buying and selling of stocks, commodities and currencies as investments based on real and solid performance. The firm has seen many of its traditional rivals such as Merrill Lynch, Lehman Brothers and Bear Stearns disappear – and many experts allege that they went under with help from Goldman Sachs.

Goldman Sachs executives, like some kind of masonic mafia, have consistently enjoyed high positions in the US Government. But that peaked in the Bush era; and for reasons that are various, the Obama administration is different

Goldman Sachs thrives by influencing and perhaps controlling financial markets that are supposed to be free. The SEC is now on the firm’s back. In its own small way, this Slog saga is about confirming that – whatever highly-paid lobbyist spin might say in the coming months -Goldman almost certainly deserves everything that is coming to it.