How Goldman Makes Money

[Master Shake]

Combine short squeezing with conflict of interest and add cheap government money.

http://www.bearishnews.com/post/349

Excerpt

The basic gameplan for a investment bank bank like Goldman might look something like this:

1. Borrow dirt-cheap money from the Fed
2. Loan that money to risky commercial real-estate companies by underwriting juicy offerings (10.35% for the Simon debt, equity was at $31.50, an ~8% discount to current price).
3. Collect fees from client(s), plus interest from the spread on the debt. If there’s not enough demand for the stock, keep it yourself, then proceed to steps 4 and 5.
4. Research dept adds stock to Conviction Buy List
5. If GS traders and Quant-funds were to brutally squeeze the stock higher, that would be icing on the cake for the whole deal, hypothetically. What’s to stand in the way? Dennis Gartman and a few dozen retail investors?

Sounds very profitable, and pretty foolproof to me. Unless, of course, the SEC gets involved and finds something wrong, like they did in 2003. That incident resulted in $110 million in fines for GS. Here are some excerpts:

The Complaint also alleges that Goldman Sachs published exaggerated or unwarranted research and failed to maintain appropriate supervision over its research and investment banking operations.
Goldman Sachs “aligned” its research, equities, and investment banking divisions to work collaboratively in order to fully leverage its limited research resources.
Goldman Sachs failed to establish and maintain adequate policies, systems, and procedures reasonably designed to ensure the objectivity of its published research.

At this point, I’d like to clarify that my suspicions are just that. I have no proof of any wrongdoing, and don’t claim to. But this looks suspicious.

[ax]

Re: How Goldman Makes Money

Doesn't it seem strange that we get a 30% rally when it's evident that accounting rules have been changed to boost profits and it's clear that profit results are bogus? Is there any way this could be accomplished without large institutional trades/manipulation? I doubt it. Thanks for the post, MS.

[KGW]

Re: How Goldman Makes Money

The Old-Fashioned Way. . .They Steal It! :p

[petertribo]

Re: How Goldman Makes Money

Combine short squeezing with conflict of interest and add cheap government money.

http://www.bearishnews.com/post/349

Taleb Roasts Goldman:

Goldman Sachs executives have decided to return the TARP money the company received, thinking they can be free and engage in their own risk-taking without involving taxpayers. Hence, they can pay themselves bonuses galore with their "private" money. Given the fungibility of funds and taxpayer support, this is a masquerade. So long as Goldman Sachs may need us again in the future, whatever bonus they are paying today is a bonus that may be covered by the taxpayer tomorrow. They need to vow to never accept taxpayer money and never take advantage of society's implicit stop-loss order if they want to continue paying themselves the way they did in the past. Otherwise, it should be made clear that every penny they pay their hotshots now is liable to be clawed back at the next round of bailouts.

http://www.huffingtonpost.com/nassim..._b_189237.html

He must not get invited to many High Class cocktail parties in Manhattan.

[Master Shake]

Re: How Goldman Makes Money

Taleb Roasts Goldman:

http://www.huffingtonpost.com/nassim..._b_189237.html

He must not get invited to many High Class cocktail parties in Manhattan.

NNT's one of the few who always speaks truth to power (and to pompous, self-important a-holes). It helps when you make your FU money early and don't care about what people think.

[GRG55]

Re: How Goldman Makes Money

$#* will love this...:p

Let's not forget that Goldman is now a "regulated" bank, with access to the full suite of Fed and Treasury [e.g. Taxpayer] sponsored cheap-access-to-capital and other bailout programs. Billions in bonuses if it works; not much personal downside if it doesn't.

Nice work if you can get it...

Goldman Sachs Boosts Risk-Taking at Fastest Pace on Wall Street

April 27 (Bloomberg) -- Goldman Sachs Group Inc., unbowed by the securities industry’s worst year since the Great Depression, increased its trading bets at the fastest rate on Wall Street.

Goldman Sachs’s so-called value-at-risk, the amount the New York-based bank estimates it could lose from trading in a day, jumped 22 percent to $240 million in the first quarter, twice what Morgan Stanley stands to lose, company reports show. VaR climbed 2.8 percent in the same period at JPMorgan Chase & Co. and dropped 14 percent at Credit Suisse Group AG...