The Two Faces of Goldman

For years, the mantra at Goldman Sachs has been that the firm can manage conflicts.

Conflicts, so the thinking went, were not a necessarily bad thing, because it represented more business for the firm.

The latest reported conflict, however, is not something you want when government anger is increasingly being directed at Wall Street. Goldman advised some of its big clients this year to place bets against California bonds -- the same bonds the firm helped sell in exchange for millions of dollars in fees, the Los Angeles Times reports.

California officials, needless to say, are not happy about the trading strategy.

"It could exaggerate people's worries about our credit," Paul Rosenstiel, head of the public finance division of the treasurer's office, told the newspaper.

The report comes at a bad time for Goldman, whose stock price is sliding as analysts expect the firm to report a quarterly loss for the first since it became a public company nearly a decade ago. Shares of Goldman fell 8 percent on Monday and are down more than 65 percent this year.

Goldman told the Los Angeles Times that the firm is no longer giving the trading advice on the California bonds to its clients. And the firm is not counting on a surge in municipal bond business. The Bond Buyer reported on Monday that Goldman is making deep cuts in its muni finance business, cutting 30 executives last week.

The report in the Los Angeles Times, meanwhile, may be a sign of things to come. It was a joint effort between the paper and ProPublica, a New York-based nonprofit organization specializing in investigative reporting.