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David Viniar Walks A Thin Line Between Truth And Perjury At Today's FCIC Hearing

Tyler Durden's picture




 

Today, during the FCIC's second day of hearings, Goldman CFO David Viniar was forced to provide additional data about the firm's AIG CDS trades. Luckily the firm kept a record of all entry and exit points, and thus will be able to confirm just what the P&L of the associated trades is (and if not, we are happy to teach Goldman's risk department how to use the Bloomberg CDSD function in conjunction with RMGR run scraping to build a real time CDS portfolio tracker)... Which is ironic, because when asked by Brooksley Born why the firm has not yet provided a break down of its derivative revenue Mr. Viniar by all accounts perjured himself. As Bloomberg reported: “We don’t have a separate derivatives business,” Viniar
told the panel. “It’s integrated into the rest of our
business.

Uh... what?

Every evening, a firm's back office (and that most certainly includes Goldman) takes the EOD CDS and cash marks from every single prop trader, be they equity, fixed income, mortgage, FX, etc. and using its own integrated pricing system or an outsourced one, compiles a daily P&L which is immediately sent to the head of the risk division, the head of trading, and other various listserv participants. And most certainly the traders, who have every interest of knowing just how they did in any given day as they prepare their bonus speech at the end of the fiscal year. Traders, who combine cash and CDS trading simply look at a consolidated P&L on the basis of DV01 exposure, which makes the form of product used completely irrelevant, and is a process whereby every change in 1 basis point in interest rates is equivalent to a profit or loss. Every single derivative is presented in Goldman's daily risk summary on a DV01 basis to show not only maximum possible loss, but what the daily profit or loss may have been. This makes the tracing of both revenue from derivatives and cash products seamless.

Obviously even the FCIC panel was fully aware of this:

When you tell us that you don’t know how much you make in
your derivatives business, nobody here really believes it,

[Commissioner Byron] Georgiou told Viniar. “Nobody here believes that you don’t know
how much money you’re making on the various aspects of your
business, it doesn’t make any sense.”

And Goldman's very own documents confirm that the firm, as part of its daily P&L summary, tracks the revenue by every product line, most certainly including derivatives, as can be seen from the email by Ki-Jun Bin from July 20, 2007, obtained as part of the Abacus discovery process:

As for Goldman's claim that due to possible commingling of strategies between cash and synthetic legs, any P&L report will be distorted, you will pardon our French, but this is a pile of crap. Every time a trade ticket is punched, it is the responsibility of the trader and/or their supervisor to allocate a trade to a given strategy. In other words, in the P&L of a given group, the 20MM notional of XYZ CDS would be paired with the 5MM in cash bonds of the firm whose CDS are being referenced, and then the combined EOD P&L would be derived based on the change in DV01. But leave it to Moody's to not be aware of this most fundamental principle of how banks organize their risk by various strategies:

“Reporting a revenue number, just the profit on
derivatives without looking at cash positions associated with
hedging those, is going to be a highly imprecise exercise,”
Yavorsky said in an interview today.

Fine, so look at the cash positions which can all be reconciled. As for commingled legs, it is again the trader's responsibility to allocate portions of any given trade to various strategies on a pro rata basis. At the end of the day, it is the "view by strat" of any portfolio, and every single back office can do this, that provides precisely this data. And out of this view, the cash legs, if any even exist, can immediately be removed. Of course, Goldman knows this all too well.

Yet all of this is very much irrelevant. As the Abacus discovery taught us, Goldman rarely if ever actually hedges: recall that the firm's Mortgage group was almost exclusively short in trading daily derivatives (look at the P&L above and note how many various portiona have the same sign) in order to hedge existing legacy cash product balance sheet exposure. In other words a forensic analysis of all Goldman positions in a given period will indicate that the prop trades were mostly unidirectional and unhedged, making all of Viniar's and Moody's concerns moot. Typically traders put on one position via either cash or CDS, and on 10%, a combination of both, and wait for it to hit stops on either side. In other words, 90% of trades will be completely unhedged, with not confusion about what is attributable to derivatives and what to cash.

We were gratified to hear that Brooksley Born left Viniar with the obligation to provide a P&L split. The second this document is public we will assist the FCIC in decoding it: we are certain that for Goldman, which derives the bulk of its profits by being the monopolist in wide bid/ask-spread OTC products, most notably CDS, about 80% of trading revenue will come precisely from unregulated derivatives trading. Which, of course, is the real reason why David Viniar is stalling so hard and doing everything in his power to avoid disclosing that not only would derivative regulation massively impair the firm's profitability, but that the ongoing lie about Goldman generating just 10% from prop trading is blatantly false, and in reality the real number is the inverse. Which also explains why by the time the Fin Reg bill finally passes, the Volcker Plan will be gutted beyond all comprehension and Wall Street will be back to doing everything it used to do before, but this time with the Frank-Dodd stamp of approval.Until the next inevitable crash.

 

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Fri, 07/02/2010 - 01:00 | 448491 mikjall
mikjall's picture

Right. So where are the handcuffs?

Fri, 07/02/2010 - 03:31 | 448584 Popo
Popo's picture

Why stop at handcuffs?  I think Viniar is ready to experience whips, nipple clamps and the strap-on.

 

 

Fri, 07/02/2010 - 05:47 | 448621 Cheeky Bastard
Cheeky Bastard's picture

Handcuffs for what? Nothing illegal was done here. 80%+ of derivatives trades are settled within a week of trade commencing. Thats the way it is; you rarely buy and "hold-until-CE" since that is utmost absurd strategy for trading CDS due to probability of multiple defaults either in single names, indexes, baskets whatever is so small it would be idiotic to exponentially be increasing the probability of your CDS expiring by employing buy-and-hold until CE.

You either trade the spread or you are arbing CDS with some other part of capital structure [thats what Tyler was writing about the other day; but that is actually done on a much smaller percenatge basis then just going long or short unhedged]. Some even enter and exit a CDS trade in the same day; locking in just a few bps of profit/loss [whatever].

The only thing odd to me is the lack of sophistication within GS trading division. But thats neither here nor there.

The only thing Goldman could be accused of is artificially widening the bid/ask spread in components for which it acts as a market maker; but GS does that for every asset class for which they are MMs.

Im the last one defending them; but the only thing they can be accused of here is cost cutting by not hedging positions.

Fri, 07/02/2010 - 07:38 | 448658 resipsaloquacious
resipsaloquacious's picture

I believe the "handcuffs" comment was in response to Viniar's possible perjury, assuming he was under oath, which I do not know if he was. 

Fri, 07/02/2010 - 07:45 | 448664 Cheeky Bastard
Cheeky Bastard's picture

Good point; I wasnt watching all the hearings so I have no idea was he under oath or not. Someone smarter than me should be able to answer that question.

Fri, 07/02/2010 - 09:11 | 448820 bonddude
bonddude's picture

Wouldn't one reason to hold to the end or 

near be if you were intending to short

(perhaps naked) the underlying stock into

the dust?

 

Fri, 07/02/2010 - 09:17 | 448841 Cheeky Bastard
Cheeky Bastard's picture

You are not shorting stocks; but debt.

Fri, 07/02/2010 - 01:02 | 448495 Nolsgrad
Nolsgrad's picture

time to DCA into GS. If you liked it at 150 you'll love it at 2

Fri, 07/02/2010 - 01:03 | 448497 RossInvestor
RossInvestor's picture

Tyler, great analysis.  Look forward to seeing your decoding of GS's response to the FCIC.

Fri, 07/02/2010 - 01:36 | 448524 Careless Whisper
Careless Whisper's picture

I doubt goldie will even respond without a subpoena. She should just subpoena pricewatersports. Ya know, I'm gettin kinda tired of how these scum just disrespect Brooksly like that.

Fri, 07/02/2010 - 01:10 | 448505 Dburn
Dburn's picture

Where are the fucking cops? Everyday I see stories like this but the one story missing since the start of this massive clusterfuck of biblical porportions is

"Four Executives from Goldman Sachs was indicted today for securities fraud, wire fraud, perjury and generally being all around assholes.This is the 931st indictment in 6 days from Goldman Sachs. Other Bankers are anxiously wondering why Goldman Sachs and not them. Law Enforcement officials only citied proximity and lay-off issues.

The asshole charge is sperated as it usually means four non-stop hours of various asskickings in a teacher type setting with various experts displaying their talents in asskicking with feet, hands and various tools including, but not limited to the now famous "Don't Tase Me Man" Tasers built by a pump and dump and distributed to the nations law enforcement offices with stimulus funds. Then a quick four months of recovery in a real doghouse filled with snakes. That's right:  "Motherfucking snakes" biting motherfucking snakes. A specific legal remedy by none other than Samuel Jackson himself to be used in cases were an excess amount of assholery along with douchebaggery is displayed with obvious contempt for others who live under the rule of law.

 

If they survive they will then have their normal court dates set and televised.

 

Fri, 07/02/2010 - 01:28 | 448519 Dr. Sandi
Dr. Sandi's picture

Damn, I hope you're writing movie scripts on the side.

 

Fri, 07/02/2010 - 01:30 | 448521 brushfire
brushfire's picture

finreg doesnt even matter anymore. laws will not fix the problem until the problem breaks the system. the massive direct bidder takedown ZH has long noted will be the undoing of the US banking system - when the UST market breaks, and it will, the major US banks will go with it. all those treasuries will be worth far less than they paid for them (in real terms) and there willl be no one left to take this next round of worthless junk off the bank balance sheets.

Fri, 07/02/2010 - 07:42 | 448661 SWRichmond
SWRichmond's picture

+ yes absolutely.  QE 2.0, the snake eats its tail, and then we get to start again.

Fri, 07/02/2010 - 01:31 | 448522 Privatus
Privatus's picture

Viniar sounds like a fucking Philadelphia lawyer.

Fri, 07/02/2010 - 02:32 | 448554 RedwoodTree
RedwoodTree's picture

Hey now, I was born in fuckin' Philly!

 

I am not Chumba Bumba Numba Rotumba or anyone else...

Fri, 07/02/2010 - 01:53 | 448533 dark pools of soros
dark pools of soros's picture

but he isn't lying... he said they do not have a seperate business!! it is ALL intergrated!!  even the whole fucking USA GDP!!!

Thu, 07/29/2010 - 23:57 | 448541 Ura Bonehead
Ura Bonehead's picture

Great line.  I think I'll use this the next time I get an IRS audit.  “Sir, I'm sorry.  I would love to be able to generate an income number but that information is integrated into all the other numbers.”

Just go ahead and do what always happens in cases like this (e.g., not maintaining e-mail, trade blotters...) where FINRA or the SEC fines the firm a couple million and everyone goes on with generating profit from rape and pillage.  Rooms filled with banker boxes of production, hundreds of boxes, and not one shred of paper contained anything requested through discovery. 

And my personal favorite?  “Apologies, but everything was destroyed in ‘9/11’.“  Reply?  “But your office is a block and a-half away?”

This is an old game.

Fri, 07/02/2010 - 02:09 | 448543 Tic tock
Tic tock's picture

It's real easy to rip the New York Fed and Southern District court, but how does the sillliness get removed while retaining New York cark as a financial hub? 

Fri, 07/02/2010 - 02:17 | 448545 mikjall
mikjall's picture

Reg, shmeg. It doesn't matter what regulations you have if you don't enforce them. This will ultimately be dealt with pitchforks. I've got dibs on Blankfein.

Fri, 07/02/2010 - 02:58 | 448566 percolator
percolator's picture

I've got dibs on that a$$h0le Dimon.

Fri, 07/02/2010 - 05:49 | 448622 mikjall
mikjall's picture

OK, I am not greedy. Let's go halfsies on both of them.

Fri, 07/02/2010 - 07:15 | 448653 BoeingSpaceliner797
BoeingSpaceliner797's picture

mikjall and percolator,

thank you for your magnanimity in leaving me a choice between Bernanke and Geithner.

Fri, 07/02/2010 - 02:53 | 448560 williambanzai7
williambanzai7's picture

This is really obstruction of justice. Even if we assume they don't collate the information (which is absurd to even consider) you know that the Squids have the systems to spit it out every which way in any form imaginable. This is all consistent with their document dumping tactics.

Their behavior just confirms the obvious conclusion, as usual.

Someone should just nail their asses on this.

 

I'm not a crook...

Richard Nixon

Fri, 07/02/2010 - 07:43 | 448663 SWRichmond
SWRichmond's picture

Justice?  What the fuck is that?

Fri, 07/02/2010 - 02:55 | 448564 RedwoodTree
RedwoodTree's picture

OT, but this is absolutely unforgivable...

http://www.npr.org/templates/story/story.php?storyId=128078864&sc=emaf

We talk about Socialism, Fascism, Nazi'ism, Communism, etc....well, wake up US. it's been here already for years, just run by attorneys...

Mark my words, this will come to a head (HOA crapola)...

I am not Chumba Bumba Numba Rotumba or anyone else...

Fri, 07/02/2010 - 02:56 | 448565 Barmaher
Barmaher's picture

I love the Internet.  Thanks Zero Hedge!

Fri, 07/02/2010 - 03:05 | 448570 RedwoodTree
RedwoodTree's picture

while OT, stay there ROFL

 

Here is the first evidence of Goldman Sacs about thousands years ago (multiples). Evolution must have occurred properly.

 

http://www.npr.org/templates/story/story.php?storyId=128213707&ps=cprs

 

I am not Chumba Bumba Numba Rotumba or anyone else....

Fri, 07/02/2010 - 03:25 | 448581 JR
JR's picture

Wall Street will be back to doing everything it used to do before, but this time with the Frank-Dodd stamp of approval—mainly because life support on government bailout will be kept within the country’s financial oligarchy by those who run Wall Street—namely for those Wall Street bankers who have estates in the affluent enclave of North Salem north of New York City--courtesy of its leading member, Larry Fink of BlackRock.

Here is how in 2009 thesmartasset.com described “the Rescue Racket”: How do we repair the flattened hen house that used to be our economy? By hiring a fox — not just to guard it but to tell us how to rebuild it, carry out the actual repairs and then receive a welcome inside to feed off the newly fattened hens…

“BlackRock's role blares conflict of interest all over the place — it advises the government on how to fix the economy, gets huge federal contracts (some of them no-bid contracts) to fix the economy, and produces big profits for its investors on the changes in the economy. (BlackRock manages $1.3 trillion of assets.)”

Thus began its article, ‘Crony capitalism’: BlackRock’s profitable conflict of interests in Obama’s rescue plans—sorry it’s called ‘symbiotic.’ 

I also liked this take by Dwight Baker posted yesterday on Ambrose Evans-Pritchard’s website regarding the man Vanity Fair’s Suzanna Andrews said “may be the most powerful man in the post-bailout economy” in her April magnum opus, Larry Fink’s $12 Trillion Shadow.  Wrote Baker:

”MY TAKE ---- What is the shadow about those facts? Larry Fink, created mortgage backed securities; now the USA has hired his firm to get to the bottom of all the corruption in Fannie Mae and Freddie Mac. The wolf is in charge of our hen house. Try to figure that one out!!!”

There also are many BlackRock gems in Suzanna’s highly laudatory and informative Vanity Fair article on the enormous power given by the government to Larry Fink, “the Wall Street Wise Man.”  Here are a few:

“If Larry Fink is currently ‘at the hub of the wheel of American capitalism,’ as his friend Ken Langone, the co-founder of Home Depot and a former director of the New York Stock Exchange, puts it, he has achieved this position largely in the shadows.”  (I liked that bit about capitalism.)

Or this take on Fink from former investment banker and author of House of Cards, William D. Cohan, as quoted by Suzanna: “He’s like the Wizard of Oz. The man behind the curtain.”

But best of all: “During the next decade (the 80s), Fink would become something of a legend on Wall Street.  Along with Lew Ranieri, of Salomon Brothers, he would be credited with developing the multi-trillion-dollar debt-securitization market that transformed the face of finance.  By 2008 this market—of mortgages, and car and credit-card loans, purchased from banks, sliced into pieces, repackaged, and sold to thousands of investors—would help bring the economy to its knees.  But long before it spiraled out of control, it was considered an incredible innovation.”

And, now, amidst a whirlwind of potential conflicts of interests and  through an array of government contracts, “BlackRock has effectively become the leading manager of Washington’s bailout of Wall Street”-- in charge of cleaning up all the Street's created messes, including some of its own, for the Fed, the Treasury, the government, and the TBTFs such as Goldman--with government taxpayer guarantees. BlackRock was selected specifically and noncompetively, as NYFed/US Treasurer Geithner put it, because  “the interest of the American taxpayer would be best served.”

Andrews ends her probe of Fink‘s “role in the crisis” and his “unique risk-assessment system”with these words: [If}there is indeed an American oligarchy today, it does seem as if Larry Fink wants to be the good oligarch.”

The quadrillion dollar question is:  Good for whom?

Read More http://www.vanityfair.com/business/features/2010/04/fink-201004?printable=true&currentPage=2#ixzz0sUd11xDU

Fri, 07/02/2010 - 04:13 | 448594 theadr
theadr's picture

I just read from the FRBNY website that the counterparties to AIG not only got paid at par, but also got to keep ALL OF THE COLLATERAL that AIG posted:  http://www.newyorkfed.org/markets/st100119.html

How can this be?  We want the collateral...with interest!

 

Fri, 07/02/2010 - 04:33 | 448597 JR
JR's picture

A government founded upon anything except liberty and justice cannot stand.  All the wrecks of the great cities, and all the nations that have passed away—all are a warning that no nation founded upon injustice can stand.  From the sand-enshrouded Egypt, from the marble wilderness of Athens, and from every fallen, crumbling stone of the once mighty Rome, comes a wail as it were, the cry that no nation founded upon injustice can permanently stand. —Robert G. Ingersoll

 

Clemency for Wall Street Criminals, Prison for the Powerless by William Norman Grigg today on LewRockwellcom (excerpt):

Johnny Gaskins of Raleigh, North Carolina faces a 30-year prison term – an effective life sentence – for the supposed crime of depositing $450,000 in his own bank account. The corporate leaders of Wachovia Bank, a criminal syndicate once headquartered in the same state, won't face prosecution despite admissions that they laundered hundreds of billions of dollars on behalf of Mexican narcotics cartels.

Wachovia was deemed "too big to fail," and thus too important to prosecute. In our system, mercy is reserved exclusively for the powerful and corrupt, and Johnny Gaskins – a criminal defense attorney – was neither.

Gaskins had earned his money legitimately. As a dutiful tax victim, he reported his income to the criminal predators running the IRS. His purported offense was to make numerous deposits in amounts just under the $10,000 threshold at which banks are required to report to the IRS under the Bank Secrecy Act of 1970.

Displaying the proprietary blend of depraved creativity and utter dishonesty that typify their caste, federal prosecutors insisted that these innocuous acts constituted the alleged crime of "money structuring."

Dr. William Anderson, an economics professor at Maryland's Frostburg State University, notes that "money structuring" was defined as "an `ancillary crime' to give prosecutors leverage in cases where people had amassed huge amounts of cash via drug sales or other illegal activities and were trying to avoid detection as well as avoid paying taxes on their money."

 In Gaskins's case, there was no predicate offense. The money was honestly earned and duly reported. Yet according to Pecksniffian federal prosecutor Randall Galyon, "The point of the law is to make sure we don't have people trying to fool the bank. The fact that he was trying is against the law."

Gaskins was trying to "fool" the bank about innocent conduct. His violations of technical statutes constituted an offense of a severity comparable to ripping the tag from a mattress.

Yet the sacred majesty of the law requires that Gaskins suffer exemplary, conspicuous punishment.

Read the rest of the story: As Grigg says: That population will soon include Johnnie Gaskins, a principled but powerless man who committed no crime. The majesty of the law requires nothing less. None of the criminals in Wachovia's corporate leadership will be joining him behind bars, of course, since clemency is a gift the Regime bestows exclusively on its valued accomplices in official crime.

http://www.lewrockwell.com/grigg/grigg-w155.html

Fri, 07/02/2010 - 05:09 | 448610 jeff montanye
jeff montanye's picture

sounds a lot like the whistle blowers obama is willing to chase to the ends of the earth to keep the crimes of the bush administration (and his own) from being revealed.  he's more than willing to "look backward not forward" when it protects the powerful criminals from being caught, tried and punished.    

Fri, 07/02/2010 - 07:48 | 448667 SWRichmond
SWRichmond's picture

OT (or is it?):

National Training Week.

http://www.gunlaws.com/NationalTrainingWeek.htm

Celebrate the Fourth of July
with Fireworks, Firearms and Freedom

Good Americans Are Good Marksmen—
include some range time in your Independence Day plans!

 

Fri, 07/02/2010 - 04:51 | 448602 Apocalypse Now
Apocalypse Now's picture

Nice.  There may be an even bigger question here with regard to GS being primarily un-hedged.

If we assume this line forms the majority of profit, and GS has not had a losing trading day for quarters on end, and they are not hedged...structurally speaking they do not need to hedge for one reason - this might indicate that they are the market.

Why hedge when the general direction is known - it's very telling.  This has major market structure implications.  If any group corners the market/exchange/pricing mechanism for an asset class (and other quasi classes like derivatives) they can manipulate price in any direction they want.  In fact the profit on moving the underlying assets (which are owned in sufficient quantity to be able to direct price - dump or bid up through round tripping) could far exceed any other "opportunities".  An example of this is options writing - many of the options magically expire worthless and all the option premiums can be pocketed by manipulating the price of the underlying.

Fri, 07/02/2010 - 05:35 | 448618 Ted K
Ted K's picture

Great stuff Tyler.

Fri, 07/02/2010 - 08:49 | 448755 Pike Bishop
Pike Bishop's picture

It was flat out perjury.

I have always contended that the SEC's best shot at discovery for gaming and outright ballistic risk is to follow individual compensation stats. When somebody or a business group starts pumping big comp numbers, something is going on.

And Viniar is going to tell us that a moneymaker is going to to accept comp which is a best guess by GS? And GS so loves and trusts their traders that a successful one who leaves to go to JPM is going to then thank GS by telling them exactly what he was doing?

Everybody knows, everybody would fuck them for nickle. Comp is massively and precisely fit to the business, and GS wants to be able to review the movement of every penny.

Instead of watching comp, (and the relatively small number of transactions of one trader) the SEC would rather wait until something is a mega-macro mess, and then confess there is too much data for them to figure it out in less than 6 months.

The problem with the SEC, besides their passive and aggressive incompetence, is that they are always 6 months to year behind the WS curve, until they can figure something out.

By then, WS has morphed it into something more "innovative".

 

Fri, 07/02/2010 - 08:52 | 448767 egdehorez
egdehorez's picture

if a market maker buys a equity call option (derivative), he hedges by selling the delta adjusted amount of stock (cash). Basic risk management that serves an important and desireable liquidity provision function. the individual PNL of the derivative is irrelevant as is the PNL of the cash position. the combined pnl of the two positions is what matters. If a client sells a market maker a stock (cash) and the market maker sells a future (derivative) to hedge this its the combined position that matters. The individual pnls are irrelevant. If this activity is not permitted, markets might crash from the evaporation in liquidity, capital formation might slow and global economies might plunge.

Fri, 07/02/2010 - 09:18 | 448844 stoverny
stoverny's picture

Viniar might be the all-time master of obfuscation.  I remember his conference call about the AIG payments, by the time he was done I don't think the analysts on the call knew what day it was. 

It is a rather rare talent, one perfectly suited for his position.

Sat, 08/21/2010 - 11:04 | 534678 herry
herry's picture

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