Exclusive: A Forensic Reconstruction Of Goldman's 2008 Prop Trading

Tyler Durden's picture

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BennyBoy's picture

Goldman will now make the ZH site go down in 3, 2, 1...

Maximilien Robespierre's picture

And much like a P2P file & music sharing site, it would rise again.

It's the validity of an idea with overwhelming evidence that builds concensus, and attracts participation behind it that breeds success.

It doesn't matter how that idea is communicated, as Dr. Ian Malcom says in Jurassic Park "Life Finds a way".

But... That won't happen though, ZH has better nerds, stronger nerds, faster nerds.

spades434's picture

Good job explaining that TD. It pretty much confirms what has been suspected all along, that being the fact that with virtually no competition, GS now has a monopoly on most fixed income trading. With the whole deck stacked in their favor, how could they possibly have had 3 losing days the past 2 qtrs? The fixed income guys must have been out sick for those 3 days.

knukles's picture

That's why they got preference with the N1A1 flu shots.  Betcha the Baxter stuff, too.

Mazarin's picture

As Mike Milken always says: "All profitable sustainable businesses are based on un-leveraged spreads." Looks like GS's spreads have become an anti-trust-bustable $100M/day top-shelf-poonany bone-anaza. PS: Tyler and ZH, this digging and analysis are exemplary and worthy of highest commendations. 

Anonymous's picture

...so when will we see an anti-trust case for monopoly practices filed against the squid by the US DOJ?

I'm thinking not in my lifetime....

theprofromdover's picture

Tyler, rrrrrrrrrrrrrrespect.

Lateral thinking par excellence.

Long may Golman Sach's smug be-suited rodents keep thinking they are the smartest kids on the block and fail to cover their tracks; their ultimate gory meltdown will taste all the more sweeter to those of us not managing to do God's work most of the time.

Stevm30's picture

Wow - great stuff... thanks.

Comrade de Chaos's picture

when a few major players (IB) have 60% of industry share, I think it's called an oligopoly. When one player clearly dominates and sets the game rules, it's a monopoly. However since the number of connections into the exchange floor servers is limited by a physical constrain, I am sure they'll call themselves a natural monopoly, hence they require a license to kill for the benefit of us all.. tech innovation, liquidity provision, you name it & only a natural monopoly can handle it.

 

Now can corresponding regulators handle the truth or at least their duties and obligations?

 

Daedal's picture

'Natural monopoly' my ass (I'm not directing the snide remark at you, but rather at such a claim, if one exists). There's nothing natural about GS even operating today -- much less dominating the market place.

Comrade de Chaos's picture

it was sarcasm; (cable , water & phone landlines are defined as natural monopolies, )

Anonymous's picture

GS might prefer the term "divinely-ordained monopoly"

Comrade de Chaos's picture

p.s.

 

Marla, there is a good theme for the next weekend:

http://www.youtube.com/watch?v=ErnksxcRRRU&feature=player_embedded

 

GS, take one look at yourself, realize ....cause it's getting closer...

 

Cognitive Dissonance's picture

I fully agree with the prevailing sentiment that GS needs to be taken down, or at least down to size. But this monster clearly has major support in high places, meaning from the powers that be. Which means "they" won't let GS fail unless and until it's in their best interest to do so.

IMHO this farce will probably run much longer than we would prefer. When the fall finally happens, it will most likely be less than satisfying.

tom a taxpayer's picture

TD, thank you for this monumental analysis and scholarship.

You are doing God's work...David bringing down Goliath.

Anonymous's picture

Doing God's work is very lucrative.

hbjork1's picture

Terrific analysis.

Winter is coming.  As analysis and publication continues, the  king is going to get very cold without his clothes.

 

buzzsaw99's picture

God helps them that helps themselves, and boy, do they help themselves.

The Lloyd is my Blankfein

I shall not want...

Anonymous's picture

ZH was cited in today's Business section re: the post on Rodgin Cohen, as the Man Behind the curtain.

The article spent 99% of the time relating stuff about how well connected and deeply loved he is.

It spent practically zero time talking about his involvement in creating the circumstances that resulted in last and this year's financial disasters.

Apparently the writer only talked to people who think the the world of the guy with a 'heart as big as Chicago' by none other than Paulson, the scourge of billions all over the planet. I wonder why?

g8lice's picture

EGGzellent THX.

Daedal's picture

Hey Cuomo, I see an antitrust lawsuit at 85 Broad in your future.

Great job TD!

 

spekulatn's picture

Well done, TD.

 

85 Bro is unstoppable.

Its a bummer, man.

 

F*** it, let's go bowl.

 

"MARK IT ZERO, HEDGE"  ;)

Anonymous's picture

What do you recommend happens to GS?

Anonymous's picture

GSF may be a money loser but it is a huge (I mean HUGE) leap to extrapolate this data 200x to actual trading by Goldman.

Thanks for the filings and the analysis. I was curious about them when NYT mentioned it.

. . .'s picture

 In fact, in 2008, the firm's prop trading was on par with some of the worst performers on Wall Street. Which begs the question: just how has Goldman managed to transform itself into a behemoth that over the past 6 months has had only three trading days of losses? . . .  Goldman can now rely almost exclusively on its monopolist agency position ....  Goldman can collect an arm and a leg in the form of wide spreads, child algos that get executed efficiently and, always, profitably, and a trading platform (REDI) which has become ubiquitous, and in which Goldman preaches the mantra of VWAP trading.

----------------

Daedal is right.  If Goldie's trading for itself is as bad as it was for its charity, and its profits are derived from a monopoly position, Cuomo ought to investigate them for antitrust violations.

Godspeed to anyone getting into competition with Goldie on the agency front to erode monopoly rents, if there are any.

Fibozachi's picture

Great work, TD, yet again. 

Eagerly anticipating your follow-up piece about VWAP and what appears to be the bane of 'professionals' within the "Stochastics Default Club" ...  click anywhere in this sentence and scroll 3/4 down for a quick technical profile of Goldman with only 1 simple daily chart of GS ... will try to put together a more complete snapshot during the morning.

Fantastic research, great work .. thank you for it TD / ZH.

Anonymous's picture

The Skynet Funding Bill is passed. The system goes on-line. Human decisions are removed from strategic defense. Skynet begins to learn at a geometric rate. It becomes self-aware. In a panic, they try to pull the plug.

Oh crap - that's just a movie right?

Fibozachi's picture

ha ha, hilariously apt!

Maximilien Robespierre's picture

There's a scene in Close Encounters where the computers take over the communications with the aliens because it's too fast for the laypeople to keep up on their keyboards.

Oh, HFT'ing and computers playing music to communicate.... Marla Marla Marla.

The possibilities are endless here folks, endless.

Watch this video, and at about 1:30 in you'll see what I mean.  That's Goldmans HFT computer, taking over the communication, while we all just stand there and watch in awe.

http://www.youtube.com/watch?v=tUcOaGawIW0

Fibozachi's picture

Thanks for the clip Maxi... as well as your Reign of Terror ... reminds me of the movie "Pi".

Anonymous's picture

"Pi" was an interesting flick, tho I despised the fact that the genius "disables" himself in order to get out of his predicament. Getting more stupid is not a solution, it's a weak-ass method of avoidance. God, that should be on a billboard for all proles to see and grock...

yy's picture

Great job TD, the conclusion is the crux of the story. It simply  is impossible to have the GS track record in 2009 unless the market has broken down, or put differently does not exist as a free market anymore. This is for all of us to ponder going forward.

The cause is NOT GS, GS is a gang of opportunists that are in a position to fleece the market, the main problem is the FED and to a lesser degree the incompetent congress and government.

 

Can't wait for tomorrow's follow up.

skippy's picture

YY said...The cause is NOT GS, GS is a gang of opportunists that are in a position to fleece the market, the main problem is the FED and to a lesser degree the incompetent congress and government.

Skippy here...please check my comment below.

 

yy's picture

thanks skippy, we are doomed are we not!

Careless Whisper's picture

Props to ZH

I think there are a lot of things that are disgraceful about GoldSach but the biggest disgrace is the lack of charitable giving. A few hundred million in the GS Foundation??? puhleeze that's two days of trading profits.

 

Anonymous's picture

And most of it goes to places like Harvard, Princeton, Duke etc. to get the next generation of "the best and brightest" ready for God's work.

Anonymous's picture

Actually, the offensive thing about GS is not the absence of charitable donation. The most offensive thing is that they have all forgotten that they are simply employees. The shareholders should make the call about what to do with the profits. Of course, that's not how the world works anymore apparently...

Thomas's picture

What is disgraceful is that these guys have lost sight of the fact that they are only employees. Ya think maybe the owners--the shareholders--maybe should decide what to do with the profits?

Careless Whisper's picture

ahh no. I think the taxpayers should decide. GS wouldn't be here if it weren't for the taxpayers and the Federal Reserve window. GS is really a hedge fund with taxpayer/Fed money. Don't try and pretend that they are here due to free market conditions.

Anonymous's picture

For an organization the size of GS the task of predicting market direction should be as easy as a bull elephant in a packed room predicting when the humans will flee for the exits. Certainly size creates liquidity problems but their trading egos clearly suffer from too many readings of their own press releases when doing nothing so soundly beats their trading results.

Anonymous's picture

Sincere compliments, TD, on another signal puncturing of the pompass ass known as Goldman Sachs. It is even clearer now that they would not have survived 2008 without stealing from the Treasury and conspiring to kill their competitors. Keep up the (real) "Lord's work" in ripping down the curtain behind which they hide. Sunlight is the best disinfectant and it is vitally important to disinfect these vultures into oblivion. Cap and trade would be a Goldman tax on the very air we breathe. The Beast of Broad Street must be taken down before it's too late.

ARJ's picture

Stealing what? Conspiring how?

lizzy36's picture

Wow, talk about Tyler finding neverland. 

I assume that the  Goldman Sachs Charitable Foundation (private grant-making foundation) partakes of the appropriate private charity tax breaks (which may not have mattered in 2007/2008 but will most definitely matter in 2009).  Further i assume that the individuals (employees of GS) also receive the appropriate beneficial tax breaks for donating to the Companies charitable foundation. 

I can imagine the critical decision making process an employee of GS makes at this time of year: " how much money does one doing gods work donate to The United Way & the Goldman Sachs Charitable Foundation". 

ZH has to one of the few places that always manges to simultaneously feed my internal cynicism and give me hope. I look forward to tomorrows piece. 

Anonymous's picture

Well said in your last sentence. It is a strange feeling.

Anonymous's picture

It is a strange feeling.