Goldman Sachs always gets its way
The clue may come from a February 5 letter by the Federal Reserve to Goldman CAO Sarah Smith. The letter had come in response to GS requests for “temporary exemptions from the application of certain aspects of the Board’s Market Risk Rules for state member banks and bank holding companies and the Board’s general risk-based capital rules for bank holding companies.” Basically through the end of 2009 Goldman is basically using non-traditional. SEC approved VaR models as can be seen here:
via Why Does Goldman Need A Fed Exemption For VaR Calculations? | zero hedge.
Meant to post this yesterday, ended up not having time. Thanks again to Tyler for the heads-up.
A lot of people have remarked upon Goldman’s extraordinary VaR levels during this whole year, and in particular recently — the bank actually set a record the other day when its VaR rose to $245 million. VaR measures the amount of money the firm could lose in a day’s trading, and is the standard measure of a company’s risk appetite. Goldman’s is and has been extremely high, in particular lately, suggesting one of several possibilities. One, it is emboldened by its vast array of state safety nets to take bigger chances in the equity markets. Two, it isn’t really taking chances, and I think I’ll leave the explanation of that possibility basically at that.
The story of Goldman’s risk-taking behavior was irritating enough even before some untoward news came out yesterday; it suggested that the Wall Street leader had emerged from the bailout period having learned no lessons at all, not only not being more careful than before (when its riskiness was a factor leading to all of us having to bail the banks out) but actually increasing its risk-taking behavior. Now we hear even more startling news. It seems Goldman wrote to the SEC earlier this year and asked for some sort of exemption to the standard VaR calculation. As it always does, Goldman got its exemption, one that’s valid through the New Year. Unfortunately no one knows what the new methodology is yet, but one can be sure that whatever it is, it is actually underselling how much risk Goldman is taking.
As Tyler over at Zero Hedge points out, this is doubly odd because the SEC would not seem to have the authority to grant Goldman such an exemption — that should be the Fed’s purview. In any case the whole thing stinks. I would be furious if I were a Goldman shareholder; for the state to give the bank’s management license to underreport its liability, without my knowledge, would be the kind of thing that would drive me right into a class-action litigator’s office.
Anyway Tyler has the exemption letter in question posted on his site. Check it out if you want to lose your appetite for lunch.
In one final note, I received a few letters asking me if I was aware when I wrote my Goldman piece that there actually is such an animal as a vampire squid, and if perhaps I’m not sorry now to have defamed this beautiful animal. The answer is yes (I’d seen documentaries) and yes. Apologies to Vampyroteuthis infernalis (literally, the vampire squid from hell):
Post Your Comment
You must be logged in to post a comment
T/S Members
Log in with your True/Slant account.
Hi, Matt.
Thanks for keeping this stuff coming. You and a few other journalists, notably one or two at the NYT, are the shining exceptions in a club that for the most part reprints, what, PR Newswire releases?
If you get a chance, please listen to my daughter’s song ‘Mr. Moneymaker’ at myspace.com/newtonwhite
It’s a pop song, so it doesn’t mention VaR, credit derivatives, CDO’s or 90 to 1 leverage, but the political, populist spirit is there. This is a homegrown composition and was recorded in our home studio.
BTW, I registered the word ‘Tarpetbaggers’ at urbandictionary.com, but the real problem is that the original carpetbaggers came from a different geographic location, whereas GS and their ilk are very familiar with terrain that entails screwing America.
Thanks
Ms. Ross,
I’m not sure Taibbi even comprehend music. This one time I saw him stab a guy for humming. In fact, if you knew more about him, you wouldn’t want him even aware of your daughter.
Speaking of daughters, yours is very attractive, which means I’m inclined to like her music. Congratulations.
In response to another comment. See in context »I used to date a vampyroteuthis infernalis.
Now might be an opportune time for a replay of Paulson’s recriminations re: moral hazard against his rival’s firm, right before he put them out of business.
Clearly he was on topic for a reason.
Why not bet the House when you’ve got the full faith and credit of the US Government behind you?
When will GoBama ever get his head out of the sand on this one?
Just when I thought that this stuff couldn’t seem more ridiculous, something like this comes out. The worst thing about all of this is that there is really nothing that we can do about it when they have the support of government agencies that are supposed to be protecting us from this kind of abuse. At this point nothing surprises me.
Damnit Matt, my head is spinning like a top again. I’m gonna have ask my students who are actuarial science majors to start walking me through this mire.
If Clinton could decide to “crush” big tobacco, who donated a fair amount of money to his campaign (I know, not nearly the $ G$ gave Obama), can’t Obama do a little crushing of his own?
The protest suggested in the other thread should take place in NYC, Wall Street, baby.
As for the vampire squid from hell, you sir need to go down big deep and apologize. Still, I can see where the comparisons were made: lots of ways to duck and cover and confuse those who may be on to you. ‘Cept the squid in the video swam away rather than laying waste to those caught in the maelstrom.
Matt,
i can only say you F**king Rock.. and hope you never stop writing. The World needs Fleets of reporters like you but alas… [vomits demon into paper bag]
Andy,
What do you do with your demons-in-a-bag? I’d love to buy them from you and will gladly pay for shipping. I need them for a compost heap out back that I regularly season with farts ironed out of church pews. Every full moon I go outside and whisper the names of my enemies into it. Eventually, I’m going to have enough to ring someone’s house with it!
In response to another comment. See in context »Goldman is part of the oligarchy that runs the U S and its government. As for a class action law suit the courts would probably throw it out by saying the plaintiffs don’t have any standing to sue. Actually stockholders would have standing since this increases the risk without them being properly notified. But it’s worth a shot if you can find a cheap way to do it.
How many hell-squids can I buy for $23.7 Tril?
Or, to put it another way, how many hell-squids, stacked one on top of another, would it take to reach the moon?
These are serious questions. I’m trying to wrap my mind around how much money $23.7 Trillion is, and am also trying to understand the size of the hell-squid.
With apologies to PETA … how much would it cost me to have someone locate a hell-squid, kill it, and stuff it with $20 bills? I’m serious, because that seems like a better investment than TARP, TALF, BARF (did they get to BARF yet?), etc.
Has everyone seen Goodfellas? I ask because Treasury, the Fed, and the Banksters seem to be stealing whatever they can before they turn on each other (or they are physically restrained from stealing). End Game? Mars, baby! The Fed (Goldman) is underwriting an IPO for a company that has the inside track to potable water on Mars! And I can get you some warrants! Sorry Congress .. none for you. And, no room on the space ship, either. Love ya though! Best Regards! Good luck down here fending off the Proles! (Maybe you should get a gun; the Proles all have ‘em … Thanks to you)
I would sleep better knowing that the Goldmaniacs, as well as Gramm, Fuld, Thain, O’Neal, Mozilo, (OK, I can’t name ‘em all) are in Gitmo with the Rove/GWB/Rummy Cheneyacs, and that they are all being cuddled by 400 pound men named Tiny.
Ah well, if not in this world, perhaps in the next one. The aforementioned sociopaths often refer to themselves as G-d fearing. It’s not my job to judge, but I suspect they ought to start fearing now, because eternity is a LONG TIME to be sittin’ on a hot spike.
To be completely serious, I know that readers vent on these forums and some (reasonably) point out that venting is ok, but we need to discuss solutions. The solution is to let the incompetent fail, prosecute the criminals, and ALLOW for entrepreneurs who will be happy to make a very nice living providing products and services of actual value. And, of course, we have to stop the Imperialistic Overreach of the Military-Industrial complex, so we can concentrate on sustainable energy, not corrupting the environment, education, healthcare, etc.
I tweeted a few links to some T/S articles reproaching Goldman Sachs and now, oddly enough, I have GS as one of my followers. I’m tempted to write @GoldmanSachsHQ, suck one – still debating.
Nice squid video. Now there’s something you don’t see everyday.
Matt,
I listened to you for the first time on PBS On Point, WBUR Radio Boston. I am totally a layman and not an expert. But the research you demonstrated was extremely eye opening and should be know to more people. There was a Chairman of the Stock Exchange, named Phelan, who wanted to have the Bonuses Executive made drawn along with the Profit line in the Prospectus of the Company. I do not know this is done, but you shed the truth, of the danger our economy is in with the false notion the bailout money is being used, policies that give unfair practices license to steal, and the warning of the same thing happening at the end of this year. I will pray for you that you continue to tell the truth, being a warrior for the country’s survival, and light for others to see the truth, that will bring about change of policies and laws, that will destroy this nation. A bought politician is an enemy of the country. Blessed are those who do good for the country at any expense, for the good of the people. God bless America. Thank you Matt Taibbi.
^ Don’t you mean “God bless the world”?
In response to another comment. See in context »Reading this shit kills me. There are absolutely no answers for any of this. I’m reading Matt’s article in the Rolling Stone issue with the Jonas Bros…the young one is just oh so cute…and I have to put it down every so often and come back to it because it’s so fucking frustrating. At least when Bush was the enemy we could just plan on voting for the other guy or what have you…there’s nothing to do about this shit and it’s a ridiculously impotent feeling.
You are doing something. It’s not sustainable what is going on. Your knowing and understanding and passing it along is the slow process to resolution. The whole messed up system will all crumble eventually. History is on our side on this one. Your frustration is just impatience. Unfortunately we can’t predict when this will happen but rest assured it will but maybe not in our life time. So sit tight and keep informing everyone you know.
In response to another comment. See in context »Goldman gets away with it YET AGAIN. This report (http://blog.littlesis.org/2009/07/21/new-pai-report-on-obama-nominees-ties-to-sudan) released yesterday says that an Obama State Dept nominee and decades-long GS banker helped fun the genocide in Darfur. Sickening.
Hi Matt, we translated your Rolling Stones Article about Goldman into German. I wanted to write you an Email to ask what to do with it, but I can’t find your Email anywhere…
Please write me to b.d.s@web.de or contact me via True/Slant if that is possible!?
(pls delete this comment once you’ve read it and sorry for posting it twice)
Thanks for all the reporting! I find it a lot brighter than ripping off people and calling it being clever.
Jon
This is an important blog and it deserves better tech support. Text appears on top of other text and it takes forever for posts to be viewed.
Anyhow, we appreciate the hard work that went into the GS story. It’s award-winning stuff.
works fine for me on all the computers i’ve viewed it on. perhaps you need to update your browser.
In response to another comment. See in context »[...] Shared Goldman Sachs always gets its way [...]
Matt, you’re just wrong here. I’m no GS apologist, and I applaud you for calling them out in Rolling Stone, but this is really much ado about nothing. Every Fed regulated bank is allowed to calculate their Specific Market Risk (SMR) using EITHER a) standard SMR charges or b) an internal VaR based model. Option B results in lower capital charges, but also requires prior Fed approval. That’s all GS is doing here, and I guarantee that every other Fed bank has done the same thing. Given their history it’s fair to examine GS’s interaction with gov’t regulators, but in this case I think you’ve unfairly painted an every day interaction between a bank and its regulators as something far more sinister, and it’s misleading to readers.
[...] Wouldn’t it be awesome if you could always get your way like Goldman Sachs? [Matt Taibbi] [...]
[...] Goldman Sachs always gets its way, 21 July 2009 — Excerpt: A lot of people have remarked upon Goldman’s extraordinary VaR levels during this whole year, and in particular recently — the bank actually set a record the other day when its VaR rose to $245 million. VaR measures the amount of money the firm could lose in a day’s trading, and is the standard measure of a company’s risk appetite. Goldman’s is and has been extremely high, in particular lately, suggesting one of several possibilities. One, it is emboldened by its vast array of state safety nets to take bigger chances in the equity markets. Two, it isn’t really taking chances, and I think I’ll leave the explanation of that possibility basically at that. [...]