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The Beginning Of The End For Wall Street's Various Prop Trading Desks

Tyler Durden's picture


It appears that prop trading could soon be on its way out. Luckily, it only accounted for "just over" 10% of Goldman's revenue: it will therefore likely not be missed. Bloomberg writes: "President Barack Obama tomorrow will
offer new proposals on limiting the size and complexity of
proprietary trading systems as a way to reduce risk-taking, a
senior administration official said." While this is not yet the formal end of prop trading which may or may not be a legal way to take advantage of the commingling between flow and prop trading, thus scalping clients in a perfectly acceptable manner (define the word "acceptable"), it has all the makings of the beginning of the end. And, much more importantly, this marks the long-awaited beginning of Glass-Steagall's return.

So with a delay of about six months since Zero Hedge started pounding on the topic of prop trading as the last bastion of perfectly legal front-running, which co-opts clients into "efficient" flow execution with the few remaining monopolist entities left on Wall Street in exchange for assorted prop trading desks taking advantage of complete flow visibility (i.e., the hedge fund nature of all modern Wall Street bail out recipients) which is simply a way to run alongside (or in front of) whale orders, thus providing guaranteed and risk free returns, the administration has finally realized what we have claimed for many months: that prop trading is nothing but a quasi-illegal operation, which was made explicitly and perfectly permissible with the adoption of the disastrous Gramm-Leach-Bliley act. As long as prop trading exists, Goldman (which is reporting earnings tomorrow, and we expect will announce another quarter of 90%+ profitable trading days only thanks to it taking full advantage of a thorough visibility of the FICC and equity flow market and a commingled prop and flow order book) will have record earnings, until such time as the Minsky Moment in Goldman's balance sheet arises again and blows up the financial system one more time.

Let's recap some of the milestone in our analysis of prop trading:

We have claimed:

Goldman's head of PR claims the Goldman's prop trading accounts for
only 12% of net revenue. Zero Hedge disagrees, and we would like to
pose a question to Mr. van Praag which we hope Goldman will answer for
us in order to refute our observation that Goldman may be disingenuous
in its public statements...

  1. Goldman disclosed that it had $352.2 billion in fair
    value of principal trading instruments at September 30, 2009. How much
    of this is considered allocated to prop if this is in fact a distinct
    strategy from principal?
  2. Does the firm's FICC revenue line have
    absolutely no prop trading embedded within it? Goldman made $20 billion
    in FICC year to date: is none of this $20 billion due to capital at
    risk, or is it all due to wide bid/ask spreads?
  3. What was the
    pro rata allocation to Goldman Sachs Foundation as a percentage of
    capital per each trading ticket in 2008? Does GSF have a dedicated
    trading silo within Goldman?
  4. Why did the Goldman Sachs Foundation not participate in Goldman's prop CDS trades?
  5. How much did Goldman's prop operations lose in 2008 trading Russell 1000 futures?
  6. How much did Goldman's prop operations lose trading all equity, credit and commodity products?
  7. When
    will Goldman clearly and distinctly segregate on its income statement
    the prop trading profit and losses, if these are in fact unique from
    "principal" trading as defined, and attach an MD&A to all relevant
  8. Lastly, we are still hoping to get a seating chart of Goldman's trading floor (via legitimate channels) which
    clearly discloses flow and prop traders' seats in order to disclose to
    the general public that flow and prop traders do not share the same
    information flow, especially that emanating from core clients who tend
    to move markets the second they announce their trading axes to
    Goldman's flow traders.

Which prompted the following Goldman response:

We’ve said publicly that prop trading represents
approximately 10% of this year’s reported net revenue.  Some of that
revenue is reflected in the FICC line.

generate the vast majority of our revenue in FICC by facilitating
trading activity for our clients and nearly all our revenues in FICC
are “due to capital at risk” (your phrase).  In periods  when capital
withdraws from the market, bid-offer spreads tend to widen and we
benefit to the extent that we are willing to commit capital and do so
successfully. These activities necessarily involve risk taking.

Over the last 5 years, prop investing activities have represented about 12% of firmwide net revenues

We have delayed our counter-response, until just the upcoming Obama announcement, at which point we will share our resultant thoughts on Mr. van Praag's ruminations. Yet, as Goldman's managing director highlights, prop trading is merely 10% of Goldman's revenue stream - we anticipate the firm will therefore endorse any proposed prop trading curb initiative of President Obama in the matter wholeheartedly as it will not impact the firm materially.

For those readers, relatively new to the topic of prop trading, here is what former Fed Chairman Paul Volcker said of the practice:

or sponsorship of hedge funds and private equity funds should be among
those prohibited activities. So should in my view a heavy volume of
proprietary trading with its inherent risks.
Some trading, it
is reasonably argued, is necessary as part of a full service customer
relationship. The distinction between “proprietary” and
“customer-related” may be cloudy at the border. But surely by the
active use of capital requirements and the exercise of supervisory
authority, appropriate restraint can be maintained.

Zero Hedge first brought up the potential of prop trading abuse in the context of certain nebulous boilerplate disclosure by Goldman. From Section 4(f) of the Goldman Sachs and Spear, Leeds and Kellogg client agreements:

You acknowledge that we may monitor your use of the Services for our own purposes (and not for your benefit).
We may use the resulting information for internal business purposes or
in accordance with the rules of any applicable regulatory or
self-regulatory body and in compliance with applicable law and

Sure enough this prompted another response by Goldman, this time by Mr. Ed Canaday:

Your suggestion that we monitor our web site to facilitate front-running is untrue and offensive

Too bad Mr. Canaday did not address the language in Section 4(f). Also, as Marla pointed out:

I also notice that you do not specifically address our question:

"...has Goldman has ever actually used 360 submitted information in the
decision making process of its prop trading desk?" Could you give us a
response there? Perhaps you might augment that to include the decision
making process of any Goldman investment decisions rather than just the
prop desk and all information Goldman collects about 360 users.

Lest we are accused of being the only opponents to potential abuse by underregulated prop trading practices at Goldman, we recall the article in the WSJ discussing the phenomenon of the Goldman huddle, which at last check was being investigated by the SEC.

Goldman Sachs Group Inc. research analyst Marc Irizarry's published rating on mutual-fund manager Janus Capital Group
Inc. was a lackluster "neutral" in early April 2008. But at an internal
meeting that month, the analyst told dozens of Goldman's traders the
stock was likely to head higher, company documents show.

The next day, research-department employees at Goldman called about 50
favored clients of the big securities firm with the same tip, including
hedge-fund companies Citadel Investment Group and SAC Capital Advisors
the documents indicate. Readers of Mr. Irizarry's research didn't find
out he was bullish until his written report was issued six days later,
after Janus shares had jumped 5.8%.

Sure enough, after not addressing the topic of prop trading being a covert way to simply take advantage of its biggest clients, Goldman, at long last, issued the following mea culpa a week ago:

The Fundamental Strategies Group is a group of cross-capital structure desk analysts
employed by our Securities Divisions to assist our traders. They
develop Trading Ideas in conjunction with traders. We may trade, and may have existing positions, based on Trading Ideas before we have discussed those Trading Ideas with you. We
may continue to act on Trading Ideas, and may trade out of any
position, based on Trading Ideas, at any time after we have discussed
them with you. We will also discuss Trading Ideas with other clients, both before and after we have discussed them with you

And for those curious to see Goldman's prop trading in action, Zero Hedge performed a forensic reconstruction of Goldman trading as principal, courtesy of tax disclosure for the Goldman Sachs Foundation, which demonstrates the facility with which Goldman traded such products as E-Minis, Dow Jones Minis, Russell 1000 Futures, and many other products.

Lastly, if anyone believes in such things, a study performed last year, found evidence that prop trading is not just borderline illegal. In many cases, it is flagrantly illegal:

prior research finds that analyst activity garners attention for the
issuing firms more broadly, we document a dramatic effect on trading
activity for the issuing brokerage firms around both upgrades and
downgrades. Our paper is the first to document increased trading at the
recommending firm prior to the release of an analyst report, strongly
suggesting that one of the ways brokerage firms recover costs
is through enabling advanced trading, and that the advanced trading
comes to the market maker of the recommending firm.
effect has real and significant monetary implications for these firms,
as both trading commissions and execution fees from spreads are
generated from increased trading volume. While market making volume is
not a measure directly applicable to securities exchanges with other
structures, it is likely that proprietary trading, relationships with
institutional clients, and client reaction to analyst information
releases would be similar across exchanges. Our results are consistent
with analyst recommendations still having value to investors in a
postregulatory environment, though some investors appear to receive more valuable information than others...

do not find corresponding increases in affiliated sell volume on the
downgrade days themselves, though sell volume is significantly and
positively related to affiliated downgrades before the actual revision date. We
find evidence that a portion of the disproportionate sell volume prior
to the downgrade date is institutional volume, and at least some of the
volume comes from clients of the firm.
A provocative finding is the relation between the presence of proprietary trading and associated revenue measures with predowngrade sell volume, which is suggestive of Rule 2110-4 violations.

Indeed, for all those who claim all aspects of prop trading are perfectly legal, we suggest you refamiliarize yourselves with Rule 2110-4.

We eagerly look forward to President Obama's proposed limitations on prop trading, and the resultant response by Goldman Sachs. We are confident that Mr. Viniar will have ample opportunity to address this topic during tomorrow's Goldman Sachs earnings call.


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Thu, 01/21/2010 - 00:50 | 200364 MsCreant
MsCreant's picture

This looks like progress, but I keep wondering if it is merely throwing us scraps to make it look like something meaningful is happening, even as the boat is going over the falls.

I don't know about the rest of you, but I am maxed out. I want to track all these stories and it is beyond me officially, to do so. Could be I don't have the capacity to process it all but there is a burn out effect that has me innured.

ZH, my hat is off to you. I could know that what I was doing was saving the world for sure, and I may not have the capacity to stay with all this and keep working on the big picture. Hope you guys have good support systems, or you should be going a bit nuts, soon.

Take care, one and all.

Thu, 01/21/2010 - 01:13 | 200379 agrotera
agrotera's picture

Hi MsCreant!

Even with what looks like progress here, it is just not enough...Obama and Geithner came out in support of the continued Paulson/Bernake blackholebankheist of all time against the US citizens, and in response to questions about investigations and such, our new president said something like 'no, we have too much on our plates to worry about looking back, we have to move forward.'

I won't forget the William Black lecture that you kindly posted here on zerohedge, and in that lecture the listener learned that the crimes committed to get us to this point are so vast and so widespread that we just don't have the capacity to prosecute--but does that mean that our captured government should just overlook the crimes that will cost our children and grandchildren (and greatgrandchildren) dearly?

A year ago and without the work of zerohedge the populace did not know the crimes that were being everyone knows about AIG and the bankheist, but still we walk on and nothing is effectively changing--my answer is just like the one posted by someone here sometime ago (sorry i forgot who did this)

Here are Scotland's terms: Lower your flags and march straight back to England, stopping at every home you pass by to beg forgiveness for 100 years of theft, rape, and murder. Do that, and your men shall live. Do it not, and everyone of you will die today.

  --- William Wallace, BRAVEHEART

We the people have to vote out all the crooks, and keep a constant eye on the righteousness of the future civil servants or else there is no hope to every gain our freedom again in this country of ours that has become a gargantuan banana republic.

Thu, 01/21/2010 - 02:27 | 200428 Miles Kendig
Miles Kendig's picture

"...and in response to questions about investigations and such, our new president said something like 'no, we have too much on our plates to worry about looking back, we have to move forward.'"

This response is directly related to senior administration advisor and potential Supreme Court nominee, Cas Sunstein and the policy of judicial exclusion.  The money quote agrotera:

Prosecuting government officials risks a “cycle” of criminalizing public service, [Sunstein] argued, and Democrats should avoid replicating retributive efforts like the impeachment of President Clinton — or even the “slight appearance” of it.

This reflects the reasoning of both the current and previous administrations.  What has happened is that our government has pursued and implemented a policy that is premised upon the idea that if folks can go to jail for their decisions they would never make any nor would they volunteer to serve the public interest.  This policy has been expanded to cover the TBTF institutions as well since president Bush and now Obama have issued National Security Executive Orders relating to the perceived threat to our nation posed by these very institutions.


Thu, 01/21/2010 - 03:00 | 200441 agrotera
agrotera's picture


on the surface, the policy seems so important, yet, the captured legislative body that we thought was our own, has turned into a machine to officiate and legalize, and protect criminal activities ... how very tragic for our country.

Thu, 01/21/2010 - 01:24 | 200386 Anonymous
Anonymous's picture


I've gotten burnt out a few times over all this garbage going on the past couple years or so.

Every now and then, one just needs take a little break from it all. Including not even bothering to look at my stock portfolio & 401k during that time.

No harm in that. Gotta do whatever you can to preserve one's sanity.

Of course, I always come back to it all. Worse than nicotine, I tell ya. Or a nightmarish soap opera....

Thu, 01/21/2010 - 01:57 | 200411 i.knoknot
i.knoknot's picture

welcome back - for the moment...

feeling much the same as you, i was thinking maybe there's a correlation between trader sanity and the markets in general. not only are we getting shaken out of our stops, but perhaps out of our minds!

so... whenever mscreant comments, i should buy gold, and after a long absence, i should dump treasuries and go w/ CAD...

yeah, yeah, that's it. that'll make me a mint!


Thu, 01/21/2010 - 11:07 | 200646 Mrmojorisin515
Mrmojorisin515's picture

Empty factories to the east and all our waste
The shape of things that came shows on the broken workers face
To the west you'll find our silicon promised lands where
Machines replace our minds for systematic profit plans
The course of human progress staggers like a drunk
Its steps are quick and heavy and its mind is slow and blunt
I look for optimism but I just don't know
Its seeds are planted in a poison place where nothing grows

Its 1989 stand up and take a look around
Weathers bitter tension it seems is sinking down
Drunk with power and fighting one another
Every hour shows the winter getting harder
Theres a freeze up
(theres a freeze up coming)
Theres a freeze up
(freeze up coming)
Theres a freeze up
(theres a freeze up coming)
Theres a freeze up coming

One nation stands the tallest radiating blinding light
Plastic and fluorescent energy robbing us of sight
Set in our way content with our decay
We wave the flag of freedom as we conquer and invade
Ever ask yourself wheres my place in this hell
But no ones there to tell you cause they don't know that themselves
The well rehearsed lines from our elated politicians
No longer offer solace we can see the self destruction

Its 1989 stand up and take a look around
Weathers bitter tension it seems is sinking down
Drunk with power and fighting one another
Every hour shows the winter getting harder
Theres a freeze up
(theres a freeze up coming)
Theres a freeze up
(freeze up coming)
Theres a freeze up
(theres a freeze up coming)
Theres a freeze up coming

Just one political song
Just one political song to drop into the list that stretches years and years long
Just one political song
Just one political song to drop into the list that stretches years and years long
Static and division is increasing like a storm
We are sheltered
We are forewarned
Nothing can be changed except ourselves
Nothing can be changed except ourselves

Thu, 01/21/2010 - 00:55 | 200367 Anonymous
Anonymous's picture

This is AMAZING!!!! Brown's loss has had quite the effect!! O to meet Volcker before he announces changes !!!!!!!!!!!!!!!!!!!!!!!

Thu, 01/21/2010 - 01:22 | 200385 mattco
mattco's picture

Brown actually won. Either way, I have zero faith that the game will change, just new rules and Goldman is one step ahead.

Thu, 01/21/2010 - 01:28 | 200389 Anonymous
Anonymous's picture

thanks matt...for a minute I got carried away..Brown did win and yes will have to see if O is providing lip service!!!!!!!!!!!

Thu, 01/21/2010 - 01:02 | 200371 Anonymous
Anonymous's picture


Thu, 01/21/2010 - 12:42 | 200753 Ripped Chunk
Ripped Chunk's picture

Is a Trilateralist / Bildergerger   No help there.

Thu, 01/21/2010 - 01:15 | 200381 percolator
percolator's picture

I'm not holding my breath as surely this is just more lip service by our Chief Liar.

Thu, 01/21/2010 - 01:21 | 200384 Fritz
Fritz's picture

I'll believe it when I see it.

Empty rhetoric to push the Massachusetts election off the headlines.

Thu, 01/21/2010 - 01:49 | 200405 Anonymous
Anonymous's picture

Bingo. And now that fucker is going to be in daily headlines for "being tough" on banks.

Thu, 01/21/2010 - 01:31 | 200392 aus_punter
aus_punter's picture

If you think Obama is about to crimp the profit potential of some of his biggest campaign contributors then think again.


Thu, 01/21/2010 - 02:56 | 200438 Anonymous
Anonymous's picture

stupidest comment ever, the banks dont contribute that much. now lets talk about Goldman Sachs, i mean GS, i mean .......George Soros.

Thu, 01/21/2010 - 01:34 | 200395 Anonymous
Anonymous's picture

I would not get that excited - I don't doubt Goldman's ability to change its BHC status.

Thu, 01/21/2010 - 01:50 | 200401 Jefferson
Jefferson's picture

Things will change exactly in accordance with the globalists' plans.

Remember that Volcker's stated objective is to hand over US sovereignty to international financial regulatory bodies controlled by a global central bank administering a single global currency. 

What better way to advance their cause than to discredit national regulators and ferret out corrupt financial institutions? Create the problem then offer the only solution.

People seem to forget Volcker was the point person for moving the US into the pure fiat realm in the 70s. Now everybody wants to put Volcker on a pedestal as some sort of financial messiah that will rescue the system. But the reality Volcker is merely overseeing the salvage operation resulting from his prior handiwork.

Don't buy into the propoganda.


Thu, 01/21/2010 - 01:51 | 200406 jesus
jesus's picture

better to have a world reserve currency than a chinese reserve currency. which would you rather have? either is inevitable and one is better than the other. the shenanigans of the US government have finished the dollar as defacto world currency within the next 10-20 years.


Thu, 01/21/2010 - 02:02 | 200413 Jefferson
Jefferson's picture

This, of course, is a false choice.

Nevertheless, the PBoC is in complete agreement with the "world reserve" currency initiative. And apparently you are among those who applaud loudly for a centrally planned world economy dictated by gnomes in Brussels.

Others myself included would rather that control of money and economic decision-making be made at the local level.




Thu, 01/21/2010 - 02:04 | 200418 agrotera
agrotera's picture

Hear-Hear Jefferson!

Thu, 01/21/2010 - 07:04 | 200497 Anonymous
Anonymous's picture


Our friend ignores the fact that a unit of measure - or Value Standard - can and will be distinct from the units of currency, or 'money's worth' which are exchanged by reference to that Value Standard.

By way of example I point to barter systems such as the Swiss WIR and proprietary systems such as Bartercard.

In Switzerland billions of Swiss Francs' worth of goods and services change hands between SMEs each year on credit terms not IN EXCHANGE FOR 'fiat' Swiss Francs, but BY REFERENCE TO Swiss Francs as an abstract Valus Standard. The discipline of a framework of trust is provided by members through giving security over their property against defaults in settling debit balances. ie the WIR is property-backed.

So, wherever a barter system incorporates 'time to pay' or credit, the result demonstrably IS a monetary system.

Such Peer to Peer credit clearing points the way to a future networked and decentralised and dis-intermediated Clearing Union approach to local, regional and international trade, I believe.

The decisions as to what the Value Standard should be, and what units of currency will be commonly acceptable, will be those of the users.

Note that such P2P credit gives us only the credit and currency necessary for the circulation of goods and services and the creation of productive assets: P2P investment in productive assets over time is another story.

Thu, 01/21/2010 - 10:40 | 200612 MarketTruth
MarketTruth's picture

Thomas Jefferson warned of the damage that would be caused if the people assigned control of the money supply to the banking sector, "I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a money aristocracy that has set the government at defiance. This issuing power should be taken from the banks and restored to the people to whom it properly belongs. If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered. I hope we shall crush in its birth the aristocracy of the moneyed corporations which already dare to challenge our Government to a trial of strength and bid defiance to the laws of our country" Thomas Jefferson, 1791

Thu, 01/21/2010 - 04:09 | 200461 ToNYC
ToNYC's picture

Yeah, right. When the little people were important by dis-intermediating their savings into MM Funds as powerful source of supplying capital (It's Volcker time!) getting high interest rates like the UST 14s of 2011 rather than being irelevant with infinite credit supplied by FED Private Central Banker through its Members (Paulson-Summers-eithner-Bernanke time). Were your savings worth a ZIRP in 79-81? You there or making up this global conflation?

Thu, 01/21/2010 - 01:45 | 200403 Tic tock
Tic tock's picture

I'm confused. ..does this mean, for example, Goldman can be a Hedge fund but not a Banking instition, or vice versa

Thu, 01/21/2010 - 01:52 | 200408 jesus
jesus's picture

it means you can get blown or fuck someone, but no 69 or reach arounds.



Thu, 01/21/2010 - 02:23 | 200417 myshadow
myshadow's picture

barry got the message all right of the Mass election, it wasn't 'just health care'.   He had to put a few miles between himself and the banksters. This proposal could give the dems some populist cover if they craft a bill with teeth.  The key word is 'proposal', it will be cheap talk unless they pack some gold teeth in the legislation.

He is trotting out Volcker tomorrow to make the pitch.

From WSJ....

"Mr. Obama's proposal is expected to include new scale restrictions on the size of the country's largest financial institutions. The goal would be to deter banks from becoming so large they put the broader economy at risk and to also prevent banks from becoming so large they distort normal competitive forces. It couldn't be learned what precise limits the White House will endorse, or whether Mr. Obama will spell out the exact limits on Thursday.

Mr. Obama is also expected to endorse, for the first time publicly, measures pushed by former Federal Reserve Chairman Paul Volcker, which would place restrictions on the proprietary trading done by commercial banks, essentially limiting the way banks bet with their own capital. Administration officials say they want to place "firewalls" between different divisions of financial companies to ensure banks don't indirectly subsidize "speculative" trading through other subsidiaries that hold federally insured deposits. "

This also might give timmeh some cover next week when he comes before congress.  This might be enough red meat to deflect some questioning about AIG. 

He won't be the first to go, his father knew the President's mother and he grew up in the far east so barry has a soft spot for him.

 If anyone is tossed, I think larry will be the first to go, then maybe xtina romer.

Thu, 01/21/2010 - 02:11 | 200420 Bthewee
Bthewee's picture

"Tall Paul" has the nuts but he also has an eye on something else - 

"....From 1969 to 1974 Mr. Volcker served as under-secretary of the Treasury for international monetary affairs. He played an important role in the decisions surrounding the U.S. decision to suspend gold convertibility in 1971, which resulted in the collapse of the Bretton Woods system. In general he acted as a moderating influence on policy, advocating the pursuit of an international solution to monetary problems. After leaving the U.S. Treasury, he became president of the Federal Reserve Bank of New York from 1975 to 1979, leaving to take up the chairmanship of the Federal Reserve in August 1979."  - (Wiki report)

Paul will make damn sure the VIX does not drop.

However, WEE may not like the results 1-3 yrs. out. 

Thu, 01/21/2010 - 02:16 | 200423 Anonymous
Anonymous's picture

Glad to see the "firewall" coming back - that's in itself is not enough, but it's a good start.

The initiatives to limit size are more intriguing - both in terms of how they will be implemented and in terms of who they will apply to. I expect, of course, that Goldman will quickly stop being a BHC as soon as the firewall is put back in place - but that does will not stop them from posing a systemic risk (neither AIG nor Lehman were BHCs) nor will it stop them from being a giant vampire squid that they are. And, alas, there's little reason to be optimistic.

Thu, 01/21/2010 - 02:21 | 200426 Lungimaster
Lungimaster's picture

Basically, HFT and prop trading are doing the same thing on a different timescale.

Prop trading sniffs trends from clients (from normal trading) and takes positions which in time nullify the potential advantage to client. HFT sniffs trends from exchange and takes positions to nullify potential advantage to other participants.

Any company which undermines its customers runs a great risk. Customers give you revenues, they are more important than shareholders for your daily survival. You cannot rebuild your relationship as easily with customers because they are typically less rational than shareholders.

Thu, 01/21/2010 - 08:32 | 200513 Anonymous
Anonymous's picture

If you insert the word "predatory" in front of HFT in the first sentence, then I agree with you.

Most HFT is liquidity-providing electronic market-making, and everybody (including predatory elements) benefit.

Fri, 01/22/2010 - 02:03 | 201956 Lungimaster
Lungimaster's picture

Technically I agree that predatory should be inserted. But that is how a common person sees today - predatory as a synonym/repetition for banker.

However I fail to understand that when a predatory element benefits, how does the counterparty benefit at the same time. Is there evidence that amount of predatory transfer of wealth is less than the reduction in bid-ask spread?

Thu, 01/21/2010 - 02:32 | 200430 Anonymous
Anonymous's picture

Does it really matter if they're not gonna be able to front-run their clients when they have the explicit backing of the taxpayers (TBTF)? With their boys Geithner and Bernake in place, all they have to do is threaten to take the whole system down next time they want another big bonus... I'm not holding my breath on this.

Thu, 01/21/2010 - 02:35 | 200431 Anonymous
Anonymous's picture

It looks like Obama must have agreed to give the same banks a one-year window of opportunity in a govt-supported market to speculate and rake in billions with free money and near-zero risk.

Thu, 01/21/2010 - 02:52 | 200436 Handle with care
Handle with care's picture

Minor cosmetic changes is all we'll get.


With billions and billions of dollars at stake and a corrupt political process, there is zero possibility that Wall Street will simply acquiesce

Thu, 01/21/2010 - 03:00 | 200442 Anonymous
Anonymous's picture

Welcome to the Obama show.

Thu, 01/21/2010 - 03:05 | 200445 Anonymous
Anonymous's picture

Good luck with seeing some real reform. Our legislators are either totally clueless, utterly compromised, or just plain captives.

Look at your Senators and Congresspeople and take your pick. Mine? Susie Collins and Big O...? I'm betting Big O doesn't really "get" the details of banking, and Susie, well.....I think we all saw how she stonewalled any hearings on Halliburton's no its easy to see where she stands.

Thu, 01/21/2010 - 03:06 | 200447 Assetman
Assetman's picture

It's hard to tell what exactly will be proposed, but Obama's last 2 moves regarding economic policy were-- it appears to me-- minor populist proposals to appease the masses.

The banker tax issue is just silly.  Want to punish the bankers?  Raise the Fed fund rate to 1%.  That would be a figurative faceplant.

The key with the most current proposal on prop trading and "firewalls" is whether is actually changes the risk taking behavior of the banks.  I'd rather see a full spinoff of higher risk hedge fund operations than the silly firewall approach becuase I'm not conviced the latter can be enforced-- especially by the current Adminstration.

I think if Obama were, indeed, serious and did get the message from the electorate he would (1) pull the Ben Bernanke nomination; (2) fire Summers; (3) fire Geithner; (4) fire Shapiro; and (5) take away the bank charters from the major investment banks and tell them to "sink or swim".

All I see right now are token jestures to divert attention away from the real looting still taking place.  Sure wish I could sell my mini-MBS to the Fed...

Thu, 01/21/2010 - 07:01 | 200496 Anonymous
Anonymous's picture


Thu, 01/21/2010 - 07:05 | 200498 john_connor
john_connor's picture

The work around is already being planned:

"News of the announcement came shortly after Treasury Secretary Timothy Geithner had a private dinner Wednesday night with chief executives from some of the top Wall Street banks."

Thu, 01/21/2010 - 03:08 | 200448 Gubbmint Cheese
Gubbmint Cheese's picture


France was behind the 100 cent on the dollar pay out by the FED re: AIG..



Thu, 01/21/2010 - 04:18 | 200463 ToNYC
ToNYC's picture

A lot of hooey, indeed. Geithner grabbed his ankles and presented the rear ends of USTPs to SoGen and DBank (home of Himmler and the 9-11 AA and UA put buyers)

Thu, 01/21/2010 - 03:53 | 200457 MongNutter
MongNutter's picture

Not sure if this has been brought up yet (I may have missed it...)

And Mr. Pandit’s job of regaining Wall Street’s trust could become even harder. Bank officials revealed on Tuesday that they had previously overstated certain accounting adjustments, which rise and fall each quarter based on investors’ perception of the riskiness of bank-issued debt. The officials identified the problem when they changed certain accounting practices. Now those figures need to be readjusted — lowering 2009 earnings by $840 million. “We corrected a mechanical miscalculation,” Mr. Gerspach said on the conference call without elaborating.

I wonder if they are using the same spreadsheet the BLS is using?

Thu, 01/21/2010 - 05:00 | 200468 Quantum Noise
Quantum Noise's picture

Fuck, does this mean I'll be forced to get a Shitygroup credit card when this reform passes?

Thu, 01/21/2010 - 06:17 | 200484 Anonymous
Anonymous's picture

Ha! Obama is all bark no bite, and certainly no teeth!!

Screw the prop traders and front running that blatantly distorts the lying, cheating and stealing from every american. Shame on the Fraud Street/Congressional cartel!!

Down with corporate America, you've worn out your "value".

People are beyond livid and they are taking action because they expect absolutely nothing from their leaders but a thug-banker's bonanza!

The time for the masters of the universe to eat shit is fast approaching.

- Uncle Taxpayer

Thu, 01/21/2010 - 06:36 | 200489 Anonymous
Anonymous's picture

BBG TV reporting this AM that GS revenues 90% prop trading...

Thu, 01/21/2010 - 07:15 | 200499 Anonymous
Anonymous's picture

let's see am I insane yet

Thu, 01/21/2010 - 08:09 | 200505 Anonymous
Anonymous's picture

PERP trading is a better term.

Thu, 01/21/2010 - 08:37 | 200517 Anonymous
Anonymous's picture

TD....scores another TD !!!!!!!

GS has done FR for so long that it became its culture in that GS feels strongly it is entirely entitled to be above the law....or walk the ever so fine legal line....

Separate the banks from the securities business....They both serve different functions that must never be in conflict....

The FED should eliminate all conflictive business models....

ie Look at how anti trust and the Sherman Act are no longer valid....


Here is the opportunity that should satisfy all parties....

What is direly needed is a sustainable way out for the US.....

A sustainable way out means that valuations must be rebuilt from a properly levered base....

There is no better venue for this than the securities market....

After the securities market bans the conflictive models....this paves the way for a defragmented exchange that can slant toward RETAIL...not the BlackRock type venues....

A marketplace comprised of a Billion RETAIL accounts far surpases a marketplace dominiated by the likes of a few BlackRocks....

The PC has enabled this the BATS exchange model has proven its efficiency and the fact that the exchange is nothing but software that can be located anywhere in the world....

A revamped defragmented fully electronic direct access worldwide exchange whereby the RETAIL sector is made whole....favored....and empowered.....WILL REPLENTISH VALUATION COFFERS.....IN A SUSTAINABLE WAY....

Innovation will multiply many times over the old front-ran conflictive systems...

Securities information should be fact based boiler plate in wiki format in the language of completely replace rating agencies business models....

Now is the time....

The cumulative value of all securities valuations will dwrf those of the past and replace many times over what was lost in the recent real estate debacle....


To spur this new phase of sustainable wealth distribution and true creation....there should be no taxes of any kind on any securities class....

Thu, 01/21/2010 - 08:53 | 200520 quant-this
quant-this's picture

OK geniuses, so how are firms going to make proper markets without prop trading? Let's also get rid of crossing platforms as well. Has anyone here traded illiquid instruments in size for a fund? Again, an idiot crashes drunk driving while wearing a pink shirt and we make the pink shirt illegal and blame the car instead of making drunk driving illegal. Makes no sense. Why not just put Glass-Stegal back in place and make sure commercial banks dont create SIVs to get around the law. Why don't we enforce chinese wall illegalities by IBs as well as limit their gearing.

I was a prop trader for a long time and I do think that there is a lot of front running but at the end of the day you (unless you are GS) get smacked by large orders that take your previous profits away. How do you think that specialist used to stay alive. In the end, spreads will widen, banks will make more money, institutions will pay more, returns will either be lower or the costs will be pushed on to the final investor. 

But yeah, let's get rid of prop trading just to get at Goldman. Let's raise taxes on everyone that makes over 200k in order to get back at the 20 or so guys that make billions and only pay capital gains taxes. 

I'm as open minded as the next person so someone please give me an intelligent answer on why banning prop trading does anything. And let me add that I think the current administration is corrupt and inept; I also think that some of the actions of Wall Street and the rating agencies border on criminal so I'm not a fanboy. I just think that people need to loose the mob mentality and start thinking about real solutions instead of bitching at the problems. Eliminating prop trading is stupid. Removing leverage so that institutions become to big to fail and not bailing them out when they do is not. Eliminating HFT is stupid, eliminating dark pools (which adds transparency) and making the 3% who are performing MM strategies be real market makers and force them to post capital and make markets continuously it is not. Then you can front run all you want but one day you will get stuffed. The same happens on prop desks. The day you are not there to take a trade from a large fund client, is the day that your desk goes out of business.

Thu, 01/21/2010 - 09:22 | 200542 Anonymous
Anonymous's picture


Memo to Congress: Reinstate Glass-Steagall, or we're coming for you Nov 2nd.

Thu, 01/21/2010 - 09:03 | 200528 Anonymous
Anonymous's picture

If you have assets on the books, and your prop desk ramps up the value of those assets that is in effect profit. this is not included in their figures.

Thu, 01/21/2010 - 09:06 | 200531 deadhead
deadhead's picture

Very nice job Tyler and all!


Thu, 01/21/2010 - 09:21 | 200540 Anonymous
Anonymous's picture

Wall St. regulation must be an ongoing and aggressive process. In the unlikely event that Obama implements substantial regulation that closes all loopholes, Wall St. will develop new loopholes (innovation). Constant vigilance is necessary to contain infestation by vermin such as rodents, insects and Wall St.

Thu, 01/21/2010 - 10:16 | 200580 Anonymous
Anonymous's picture

Hmm...the banksters may now have to stand in the corner?
This is a tacit admission as to who's been gunning
the markets. Kills a few birds, too....the banksters, of
course, and Bernanke will have to worry less about the
bubble these jokers are in the process of creating.

Thu, 01/21/2010 - 12:00 | 200700 Silver Bullet
Silver Bullet's picture

On the off chance that this even gets through the various committees in congress, the republicans and blue dog democrats are gonna fillibuster this. I fairly sure that Goldman wouldn't apply to these proposed changes anyway.

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