Lately Goldman Sachs moves more and more in the spotlights. Record earnings… sure.
But at whose expense?
A transfer from the average American into the pockets of the thiefs of Wall Street?
Less and less people are buying this success.
It is Felix Salmon, the blogicon of Reuters, reminding us of the promises of GS back in September.
It had become increasingly clear to Fed officials in recent days that the investment-banking model couldn’t function in these markets…
Goldman — and to a lesser extent, Morgan Stanley — has maneuvered through the credit crisis better than other investment banks. But its business model, which relies on short-term funding, is under attack. Some stockholders worry that its strategy of making big investments with borrowed money will go wrong someday, which would make it more difficult for the firm to get favorable borrowing terms…
The most fundamental problem is how to generate profit growth in a world that no longer tolerates high leverage.
Since Goldman has to report as a commercial bank to the FED concerning their derivatives positions, we learn that the leverage is 1000 times their capitalbase.
In term of VaR (value at risk) this enormous leverage is showing up as follows:
But at whose expense?
A transfer from the average American into the pockets of the thiefs of Wall Street?
Less and less people are buying this success.
It is Felix Salmon, the blogicon of Reuters, reminding us of the promises of GS back in September.
It had become increasingly clear to Fed officials in recent days that the investment-banking model couldn’t function in these markets…
Goldman — and to a lesser extent, Morgan Stanley — has maneuvered through the credit crisis better than other investment banks. But its business model, which relies on short-term funding, is under attack. Some stockholders worry that its strategy of making big investments with borrowed money will go wrong someday, which would make it more difficult for the firm to get favorable borrowing terms…
The most fundamental problem is how to generate profit growth in a world that no longer tolerates high leverage.
Since Goldman has to report as a commercial bank to the FED concerning their derivatives positions, we learn that the leverage is 1000 times their capitalbase.
In term of VaR (value at risk) this enormous leverage is showing up as follows:
Now, it’s too easy to blame Goldman for this and their bonuses. The first to blame in this story is the American Government. They took the risk that money would be used by healthy firms to make more money. They bailed out AIG without restrictions and/or control. In return, the feds did approve that AIG bailed out GS almost instantly.
The same FED granted GS an exception on the common VaR model applied by all other commercial banks.
How come?
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