Exposing The Story Behind Goldman's Record Profits

Tyler Durden's picture

You know the official version of how god's bank, aka Goldman, makes money: in the traditional, and not at all mysterious god's way, as a pureplay investment bank, which allocates capital, provides financing, advisory services, etc. Despite what Mr. Blankfein would want you to believe, that's only half the story. This two part PBS Series analyzes the other side of the equation. Who should know the truth better than former Goldmanite, Nomi Prins. "Classical investment banking function is a small portion of their revenues, I think it is about 10% or so. So if he is doing god's work, he is only doing it 10% capacity. The rest is prop trading." But wait, according to Goldman prop trading accounts for only 10% of revenue. Why the discrepancy? Simple - because that 80% "vacuum" is really just the client-facing prop/flow fixed income hybrid model, which after the disappearance of all big fixed income trading houses (Bear, Lehman and soon, RBS) Goldman has now monopolized. Being able to determine how big or small the bid/offer spreads on anything from cash bonds, to CDS to various non-CDS OTC derivatives should be, courtesy of having the largest fixed income inventory in the world at any one time, to which it can add or from which it can sell, makes Goldman not so much a pure play prop trader, as a market monopoly, which has to be dismembered as it now is the market (just like the Fed is the market in MBS and Agency paper) when it comes to all non-Fed dominated Fixed Income and OTC derivative products. This is, and always has been, an FTC issue: remember Ma Bell?

That Goldman can piggy back on its unparalleled "market facing" perspective and allow its prop traders to legally trade ahead of major clients (thank you 4 point font disclosure footnotes) is just the cherry on top. Volcker is on the right path. But the true solution of the problem is to finally get Christine Varney's DOJ troops on the matter and to formally declare Goldman Sachs a monopoly power which threatens and prevents the emergence of true competition in the flow/prop trading arena. For an indication of Goldman's unparalleled monopolist capacity, look no further than its ever greater record trading profits.

Part One of PBS Series below (Part Two follows tomorrow).

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trav7777's picture

They needed GS to make the market since March.  Otherwise, it was apocalypse time

Anonymous's picture

Delayed and exponentially expanded.

Ned Zeppelin's picture

Apocalypse created, then exploited

Cursive's picture

Anyone remember that, according to his official government calendar, Hank Paulson met withe Goldman Board in MOSCOW in August 2008 and they discussed what would happen if LEHMAN were to fail?  They are rubbing it in our faces and laughing.  LAUGHING!  Well, me thinks they will be hiding rather than laughing in the not-to-distant future.

Anonymous's picture

I love the smell of oligarchy in the morning.

(not really—it smells like Satan's been eating roadkill)

Mr Lennon Hendrix's picture

You know the end is near when "The News Hour" is reporting on the absolute corruption of the Majors.  At least they had some idiots on their to justify Sir Lord Blankcheck's sophisticated investing techniques.

"The scheme of things" is getting a little, well, how do i put this, schemey.  Proprietary trades are just one of many reasons why gold is  going sky high, btw.

Also, who are the people sitting behind the CEOs?  They all look the same?  And one of the suits looks like a hermaphrodite.  Usually this would be the punchline, except that I am serious...who the hell are the "men" sitting behind the bankers?  Once again, they all look the same. I first noticed them in a NYT article, where the "men" were also prominently featured in the main picture.

Eally Ucked's picture

Hermaphrodite? That was fucked up Angel after traffic accident. He clipped wings of another one on very high speed. Heavy traffic in "Gods Lair" 

chet's picture

When you can't identify a dude in a suit, 4-to-1 it's a lawyer.

Anonymous's picture

"White Shoe" Firms. They keep the FIRE economy burning.

buzzsaw99's picture

Anyone who does business with them deserves to get screwed. That they are a bunch of crooks is not exactly a secret.

msorense's picture

Crooks?  They are savvy businessmen according to Obozo.  Quite deserving of their bonuses after all.

Anonymous's picture

Spin alert! That's not what the President said.

Cistercian's picture

 You would have to be insane to do business with these people.Criminals, they are just thieves.

chet's picture

Tyler, you are at times an excellent writer, with exquisite turns of phrase.  At other times, you try to pass off this:

"Being able to determine how big or small the bid/offer spreads on anything from cash bonds, to CDS to various non-CDS OTC derivatives should be, courtesy of having the largest fixed income inventory in the world at any one time, to which it can add or from which it can sell, makes Goldman not so much a pure play prop trader, as a market monopoly, which has to be dismembered as it now is the market (just like the Fed is the market in MBS and Agency paper) when it comes to all non-Fed dominated Fixed Income and OTC derivative products."

Prof Gulliver's picture

Can I get a free Zero Hedge T-Shirt if I diagram that sentence?

VegasBD's picture

How bout a Dow 10,000 v3 hat?

tom a taxpayer's picture

 

Chet and Prof Gulliver -  It is Friday night. I think TD might get a a little chuckle out of my attempt to diagram his monumental sentence.

Subject: Gerund "Being able to determine how big or small the bid/offer spreads on anything from cash bonds, to CDS to various non-CDS OTC derivatives should be,"

Subordinate clause: "courtesy of having the largest fixed income inventory in the world at any one time,"

Subordinate clause: "to which it can add or from which it can sell," 

Verb:    "makes"

Direct Object: "Goldman not so much a pure play prop trader, as a market monopoly,"

Subordinate clause: "which has to be dismembered" 

Subordinate clause: "as it now is the market"

Non-restrictive appositive: "(just like the Fed is the market in MBS and Agency paper)"

Subordinate clause:  "when it comes to all non-Fed dominated Fixed Income and OTC derivative products."

TD is my favorite fountain of fast paced, invaluable, cutting-edge information. 

TD, I love your sentences, from simple declarative to compound-complex. Keep 'em coming.

 

David449420's picture

Nicely done. I'll bet you've had as much CR as I have. Or the equivalent of.

CR = Crown Royal

tom a taxpayer's picture

Yes, I had rocket fuel: spumante with a shot of sambuca.

David449420's picture

So, he was a bit verbose. I give the man great credit for being so high minded. He focused on a serious problem in the monetary world & suggested the logical & necessary fix.

My immediate response, some months back, when I initially realized what a company like Goldman Sax and the criminals who run it had done, (and the other equally criminal companies like his) was far less analytical and far more emotional. 

Punish the bastards that caused this and then fix the problems that they caused.

Unfortunately, I think we are too late.

I don't think what has been done can be fixed. It's too late.

What really irritates me is that all the criminals who run those companies have seen this too, that they know that they have lost control and cannot stop what is coming, and they are now stealing everything they can right up to the last moment that they can.

Everyone of them have already got a plan in place that will enable them (they think) to escape to wherever they think is a secure place when the crash occurs.

That PBS is starting to air things like this is good. They did not present the full picture of the criminal activities of GS, though. Its far too little, far too late. 

If we had a few years, it might be possible to achieve what TD is suggesting and what I would emotionally want.

We don't have a few years.

If you tell me you think you Know where this is going to end up, well my response to you is that you are guessing.

New Monetary system,  War,  Fascism & Tyranny,  Anarchy,  take your pick. 

Good luck to us all.

And there's another pipe dream.

Hephasteus's picture

"Unfortunately, I think we are too late."

Sympathize and then implant the suggestion that it's gone to far. We have to give up.

Fuck you. Fuck you hard.

David449420's picture

I think you took my comment way too much to heart.

There was no suggestion of giving up.

If my comment offends you, then just move on to the next one & ignore me. I have a tendency when I communicate to be a bit of an asshole & express myself rather forcefully.  I think a lot of us are guilty of such behavior at some time or another. 

If it is just that you don't want what I am saying to be factual, well Sorry, but that's YOUR problem. If I'm wrong (I would really, really like to be wrong) then it should be easy for you to dismiss it, & move on.

I find a lot of people who I communicate with are not willing to accept what I say or suggest, so usually I keep it to myself.

I found this forum overall to be rich in ideas and reasonably open minded to alternative opinions (even IF they are wrong). 

So, that's why you had my opinion, which you so venomously objected to.

I guess you would have to call this the follow up to the pipe dream.

 

 

 

 

 

Anonymous's picture

Wow. I think you need professional help.

David449420's picture

You guys are going to have to try harder than that.

Let me make a suggestion to you. 

Why don't you actually try to descredit me with facts and logic ?

That's OK. Take a while to think about it.

 

Hephasteus's picture

"You guys are going to have to try harder than that."

Na. It's too late. Maybe if we had started a couple years ago we could have fixed your stupid ass but I guess we just have to accept it now. We clearly see that you won't stop pretending you understand and then declaring it hopeless.

What kind of lame ass sympathetic magician are you?

Just turn one of your phrases inside out and you go from a total dick to a total asshole.

 

ETF-Trader's picture

chet,

Since you are more concerned with TD's grammar, rather than the contents he delivers (that keeps us all on the edge of our seats wanting more), I have written something especially for you:

FUCK OFF!

Anonymous's picture

chet:

Shortly after "W"'s first State of the Union speach, George Will, in Newsweek, editorialized on the average length of sentences in that Presidential addresses. The longest by was Washington's. The length had decreased through the decades with the shortest, by far, being "W"'s. Will's assumption was that the people listening to Washington's speech fully understood what he was saying; that his speech was suitable for his audience just as later Presidents had geared their speeches to their respective audiences.

Will's point was that the listeners of these earlier times were fully comfortable with retaining, to form the thought, in their mind, with the sentence content of the longer sentences.

Were they smarter than we are?

Yes, it could be divided and he used "which" instead of "that" in one place and I had to read it twice. But I would have wanted to read it twice anyway.

The writer had a lot to say and needed to do it in a hurry. If it gets too chopped up, it will put the readers to sleep.

Anonymous's picture

chet:

Shortly after "W"'s first State of the Union speach, George Will, in Newsweek, editorialized on the average length of sentences in that Presidential addresses. The longest by was Washington's. The length had decreased through the decades with the shortest, by far, being "W"'s. Will's assumption was that the people listening to Washington's speech fully understood what he was saying; that his speech was suitable for his audience just as later Presidents had geared their speeches to their respective audiences.

Will's point was that the listeners of these earlier times were fully comfortable with retaining, to form the thought, in their mind, with the sentence content of the longer sentences.

Were they smarter than we are?

Yes, it could be divided and he used "which" instead of "that" in one place and I had to read it twice. But I would have wanted to read it twice anyway.

The writer had a lot to say and needed to do it in a hurry. If it gets too chopped up, it will put the readers to sleep.

Miles Kendig's picture

Goldman along with a few other institutions are simply a product of the political, legal & financial systems that are in place.  The kicker is that if the FTC does not intervene, forcefully, then the beast that the aforementioned institutions are will consume themselves and if they can, the rest of us along with them. 

Anonymous's picture

whadyawant good grammer or good taste?

Euro Dude's picture

A bit over-the-top. GS is anything but a monopoly - it's certainly the dominant player but it's clearly not a monopoly: there are plenty of other people to trade with for example. Also, monopolies are not intrinsically illegal - only if the dominant player exhibits abusive behavior which is at least debatable.

The stuff about GS legally trading ahead of their clients seems pretty dubious too - based, as far as I can tell, on reading a couple of disclaimers on a GS Web site.

If GS really were thieves people wouldn't do business with them and they really aren't the only game in town and they presumably wouldn't win awards for giving institutional clients the best pricing: http://www.bloomberg.com/apps/news?pid=20601109&sid=aFtRXG2YEX30

 

 

 

 

 

Dixie Normous's picture

Hahahahahahaha.

Thanks for the Friday laugh.

Rainman's picture

Keep reading that Squid website, Dude. And Good Luck !

Anonymous's picture

LOL....No doubt we'll soon get the usual comments about GS shills etc but the Dude does have a point....crediting GS with superhuman/evil powers does seem a stretch.

Miles Kendig's picture

I want some of what Euro Dude is smoking.....  Remembering that chasing the dragon has never been a good pastime sounds like a far better idea.  I should know.

- Layne

Sqworl's picture

LOL...remember smoking causes garment burns...x

Miles Kendig's picture

Smoking jacket or house coat, the same results.  Good to see you.  Now, back to those green shoots Ben wants everyone to smoke... Peace pal.

Sqworl's picture

You remembered...sweet...xx

imsaul0968's picture

I totally agree. Im actually amazed by all the conspiracy theorists out there. Bottom line, GS people(and I know many) are smart, savy, strategic and very forward thinking. I only wish I had the info they have when dealing with client orders. Theyre job is to deliver products their clients want, then they reduce the risk they have as a firm to those positions and hopefully, leverage this knowledge into investments that will benefit the firms shareholders, employeee's, and clients.  All this anti-GS talk just wreaks of jealousy from people that don't have enough money to be a GS client. There I said it!

imsaul0968's picture

I totally agree. Im actually amazed by all the conspiracy theorists out there. Bottom line, GS people(and I know many) are smart, savy, strategic and very forward thinking. I only wish I had the info they have when dealing with client orders. Theyre job is to deliver products their clients want, then they reduce the risk they have as a firm to those positions and hopefully, leverage this knowledge into investments that will benefit the firms shareholders, employeee's, and clients.  All this anti-GS talk just wreaks of jealousy from people that don't have enough money to be a GS client. There I said it!

Anonymous's picture

Yeah, he's about as jealous of GS as he is Madoff Securities--they are running the SAME GAME---and it is only a matter of time--

Dixie Normous's picture

Have you been a GS customer?  I have, and I've been ripped off by them and forced to move my business elsewhere (we knew from the beginning it would happen and we planned for it).  That in itself is fine, however, it wasn't innovation, forward thinking, strategy or any other bullshit beyond plain fucking thievery.  We never let them into the office during trading hours and we never let them bring in "support techs" to see how they could help us further with executions or any other excuse they made to visit us because we knew they just wanted to see how we were doing things and how they could copy it.

As soon as we refused their insulting buyout offer, our relationship with them was doomed.  They started front running us or just slowing us down enough to make sure we lost just that much of an edge.  When we complained they just said so what, go somewhere else if you don't like it.

Their disclaimer should read "we work for you as long as it benefits us more than you, we will make every effort to ensure our success at your expense.  If you are kicking ass we will do everything we can to reverse engineer your trades until we can replicate your system, then copy it, and run it in front of you.  Oh yeah, there's not a fucking thing you can do about it."

Anonymous's picture

"Oh yeah, there's not a fucking thing you can do about it."

Well, not exactly. Can't you rent an AR 15?

Dr Hackenbush's picture

(( GS people(and I know many) are smart, savy, strategic and very forward thinking))

Pardon the squidious-interruptus, but I believe this hosts of geniuses you speak of are bringing down the planet

- just a little side note. 

chindit13's picture

You give them much more credit than they deserve.  I went to business school with a lot of folks who ended up at GS (I went to a competitor).  They were not the brightest lights in the room, though they were by no means stupid.  In my early days on WS they were not anywhere near as ruthless and mercenary as today.  They used to be kind of dull and nondescript, though they did make some good money.  They lacked the "character" status of, for example, the old Solly.

Somewhere along the line they changed.  Perhaps it was Blankfein who did it.  They started front running and abusing customers, and had this arrogant view of "we're so much better than our customers that they don't even know we're fucking them nine ways from Sunday".  Slowly the market is understanding what they are all about now, and other firms (MS, JPM) are benefitting from customer defections.

What GS had working for it---and it may now have changed---is a kind of critical mass.  Being the biggest and best connected had advantages so long as there was some degree of self control within the firm that limited the amount of abuse they inflict on their customers.  This has changed, and with it the future path of GS.  There's a reason why it's stock price has been faltering.  Arrogance eventually destroys.  A little more public awareness and GS will lose the only real advantage it has left, which is its control of a good portion of the government.  They think they're the "best", but put them up against someone with real talent (Tudor, Kovner, Drunkenmiller, Bacon) in a fair contest, and GS is just a bunch of weenies sucking on the taxpayer teat.

Stevm30's picture

"...and GS is just a bunch of weenies sucking on the taxpayer teat."

Shakespeare couldn't have said it better!

Hephasteus's picture

Wow well said. You should go into public relations.

Ned Zeppelin's picture

I figure there's some sort of rotating assignment sheet at GS, if you guess wrong, you get the job of monitoring any Goldman stuff at Zh and have to cheerlead.  It must be a pain in the ass, not sure why they bother.  It's not like anyone believes what they write.