A provocative discussion of Goldman Sachs

1. Goldman invests gobs of money in MBS bonds
2. Goldman recognizes the MBS market is ripe for decline
3. Goldman cannot sell its MBS bonds because the market is not liquid enough
4. Goldman buys insurance ... er... CDSs from AIG
5. Goldman maintains AIG risk instead of mortgage risk
6. Sh** hits the fan
7. AIG gets $$$ from government
8. AIG gives $12 billion to Goldman for CDSs
9. Goldman has great profits

Anyone surprised? Hurray for Goldman for buying the CDSs. AIG, well, maybe someone there should read The Black Swan, living in Mediocristan.
 

alain

Older and Wiser
I would see it as the reassurance of Darwinism. The most fit survive. It's logically as simple as that.

This is not true either. MS and Goldman survived because the government intervened. If not, they would've gone the way of Lehman (for all terms and purposes Merrill was out of the picture at this point).
 
Not quite sure I see the connection.

On a related note: was your expatriation [from the venal USA] a purposeful act of "Shrugging"?

A naive belief in the efficiency and logic of markets, which supposedly reward the most innovative and hardest-working. A naive belief that the race goes to the swiftest. A naive belief that "greed is good."

Never was happy in the USA. Happier and less stressed now. Ich bin ein (cultural) European. Prefer Balzac and Mann to Rand.
 
CORRECTION: GS didn't make 2.2 B profit this quarter as predicted. They made 3.44B profit.
Goldman Sachs on Tuesday said it earned $3.44 billion in the second quarter, a much higher-than-expected figure that underscores how quickly the Wall Street firm has bounced back from last fall's financial crisis and starting churning out huge profits.

Just goes to show what can be done with a "can-do" philosophy, ambition, and aiming for the stars.

Alain has pointed out that the government intervened. It goes a bit beyond this: the financial cartel has control of the reins of state power. To me, private financial interests and the US state now look like one blur: I can't disentangle them and rubbing my eyes does no good. This is the reason financial interests have been bailed out while main street has been allowed to wither on the vine. It's a completely unsustainable situation, which politically must lead either to open rebellion or outright fascism (in my ever-so-humble opinion).

An article in today's Alternet. People will here say it says nothing new and they will be right. But I like the phrasing:

While the public sector (federal government) is being lavishly funded to maintain a global empire, and the banks are being bailed out to try to keep a dysfunctional and destructive financial system from collapsing, the private productive sector is being starved for credit. As a result, businesses are bankrupting, people are losing their jobs and their incomes, and lower levels of government are being squeezed because their tax revenues are shrinking.

There is also the matter of the real estate bubble that was created by the financial institutions as they loaded up the private sector with a debt burden that was way beyond its ability to bear. Now that burden is being shifted to the public sector as the government assumes those "toxic" loans. Unfortunately, it is not the poor suckers who were lured into the debt trap that are being relieved, but the predatory lenders who laid the traps. So mortgages are being foreclosed at an unprecedented scale, people are losing their equity as housing values plunge, and more Americans are being made homeless.

To reiterate: The financial cartel is using the power of the state -- which it largely controls -- to prop itself up in a system that is ostensibly "free market laissez-faire capitalism." There is nothing unique about this, and it has occurred in other places at other times. After some arbitrary threshold we simply call it 'fascism" -- where the power of the state has been hijacked by private interests, who use state coercion to keep everyone else in line, and use the state's power of extortion and finance to assist their own oligopolies and monopolies.
 
This is not true either. MS and Goldman survived because the government intervened. If not, they would've gone the way of Lehman (for all terms and purposes Merrill was out of the picture at this point).

It is very difficult to evaluate "what-if" statements. There was tremendous pressure after Lehmann collapsed, it is hard to say what could have happened. One thing is for certain: the investment bank model is working fine.

The core of the panic was around the idea that investment banks are inherently flawed. Short vs long term debt will lead to collapse.
 
Goldman Sachs on Tuesday said it earned $3.44 billion in the second quarter
Second-quarter gains were tempered by a one-time $426 million charge related to Goldman's repayment of $10 billion in loans from the U.S. Treasury's Troubled Asset Relief Program, known as TARP.

The company set aside $6.65 billion for compensation in the quarter. The Obama administration is focused on curbing compensation in the banking industry.
Where do I send my resume? ;)
 

alain

Older and Wiser
It is very difficult to evaluate "what-if" statements. There was tremendous pressure after Lehmann collapsed, it is hard to say what could have happened. One thing is for certain: the investment bank model is working fine.

The core of the panic was around the idea that investment banks are inherently flawed. Short vs long term debt will lead to collapse.

The investment bank model was not working fine at that time. 700 billion dollars later, everything is ok. I was for let the failing companies failed. That's the whole idea.

If tomorrow I create a company and it is going bankrupt, the gov won't come to save it, why should they go and save somebody else?
 
"Only" about half of the 700B has gone out to financial institutions (including AIG and the Federal Reserve). Not saying it's not a lot of money, just sayin'.

If the government didn't push this capital into the system, most believe the whole financial system as we knew it would be destroyed. Many or all of the bank/investment banks would have gone under in days. The government would have 'bailed out' depository accounts via FDIC (the ones under 100k anyway) which may or may not have been more expensive than our $350B. There isn't a lot of debate over how dramatic this would have been. The government basically stepped in to prop up the system, or at least cushion its fall.

But my question is whether this would have been better in the long run. Sure, it would have been really really rough for a few years, but eventually a system would be built/rebuilt.
 
The investment bank model was not working fine at that time. 700 billion dollars later, everything is ok. I was for let the failing companies failed. That's the whole idea.

If tomorrow I create a company and it is going bankrupt, the gov won't come to save it, why should they go and save somebody else?

I have a different opinion here. First of all there is no evidence that GS or MS would have gone bankrupt. The capital injection in both was not relevant by the amount, but by the government support. The question those days was about counter-party (systemic) risk and confidence.
Systemic risk was bolstered by ~350B credit. It was essential at that time and I agree that system had a high chance of collapse.
My comment was focused on the second one. In October, a lot of analysts claimed the model is not feasible, panic on the Street, lack of confidence. I don't think the statement had a strong foundation. For me, GS results in a moment of crisis are a clear sign that model is fine and has been working for decades.
 
everyone hates on GS because they're doing well when everyone is doing worse.

simply they have so many competitive advantages:

better talent, but mainly the ability to take on risks when others are scaling back
 
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