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Goldman Responds To Zero Hedge Musings On The Segregation Of Cash And Derivative P&L
Yesterday, Zero Hedge summarized our thoughts on David Viniar's claim that it is impossible for Goldman to present derivative revenues on a standalone basis. Today, we provide Goldman the chance to "set the record straight" on the issue. Here is Goldman's side, courtesy of Lucas van Praag. We are surprised that Mr. van Praag focused on the more shallow issue of the daily P&L production which the firm provides for broad firm consumption: various Goldman groups under the FICC umbrella (and under the narrower "prop-trading" definition) have their own formats, and we are happy to present to our readers the non-mortgage daily P&Ls, if Goldman would be so kind as to provide it to us. Perhaps the delineation of derivative P&L is far more specific the CDS trading group (alas, we currently do not have access to that specific form P&L). Mr. van Praag, however, did not answer our inquiry as to whether the firm keeps track of cash and derivative P&Ls by strategy, which is a far more relevant issue. For the record, we are still 100% confident that a P&L track by strategy, and subsequent stripping of cash legs is a simple enough exercise, and one firm's self-respecting back office can complete such a task in minutes.
Dear Tyler Durden:
Your comment on the FCIC's questions about our derivatives activities is interesting but, as the saying goes, several sandwiches short of a picnic.
The email you reproduce is not a smoking gun. It is one of the nightly estimate emails sent from Controllers to senior management reflecting the days results broken out consistent with how we manage the business - integrating cash and derivative inventory.
As you can tell from the schedule, it does not differentiate cash from derivative inventory.
For example, the "Residential Credit" section speaks to ABX widening as the pnl driver which was hedges to the subprime and alt a loans held by that business.
The lines highlighted are:
Resi prime/Mortgage derivative - which consists of agency and non agency derivative bonds (not CDS) including IOs and Pos.
Property derivatives - which is trading in total return swaps or forward contracts on specific derivative products (Radar Logic's RPX and the main index - S&P/Case-Shiller Home Price Indices).
As David Viniar said during the FCIC hearing yesterday, we don't account for derivatives separately, we manage our combined cash and derivatives exposure because that represents our risk.
You know that risk is risk, no matter what form it comes in. The debate about discrete elements of it is a serious distraction from what should be the real focus.
Please be kind and set the record straight.
Thanks / Lucas
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I thought GS banned ZH?
In this case I think GS is probably a microcosm of the US (and most other nations): rules apply to the peons, not the upper curst.
(intentional misspelling)
Think it's a simple case of the lyrics to this song.
http://www.youtube.com/watch?v=7YFrPdTw_ik
Must be hard to have the feet being held to the fire rather than running over hot coals. Good to see you are getting under their skin Tyler! When are you going to fire up your sling shot?
No suprises here. Who would expect any other answers from NWO managment team
"You know that risk is risk, no matter what form it comes in."
I choose staypuff marshmellow man.
You mean this big guy? Kinda looks like....er.....never mind. :>)
Isn't it kind of strange that he would actually be what destroy's the world. Because they won't let the stock market unpuft.
little Lord in his sunday school duds?
@ bugs
"You know that risk is risk, no matter what form it comes in."
i guess it depends on what your definition of risk is. according to a report sponsored by pricewaterworks, goldman's auditor, the number 1 risk to the banking industry is "political interference". (see page 8). oh, and "competition" ---- dead last.
http://www.pwc.com/gx/en/banking-capital-markets/banana-skins/assets/ban...
I fucking hate bank documents. I'm going to destroy thier language.
Political Interference - Not being allowed to steal your way out of trouble.
Risk Management - Pin the tail on the sucker. This is fucknut bankcorp you owe us 20k on your credit card. Can you borrow the money from your mom, you uncle, your brother. Can you steal it. Can you do anything to make us whole while leaving a giant hole in everybody else. It's our idea of fair.
GOLDMAN BUSTERS:
http://williambanzai7.blogspot.com/2010/04/goldman-busters.html
Lucas, when is your prop desk preparing the next major short covering rally ?
Thanks, MrTrader
What is more important is that by writing to Tyler they acknowledge the relevance of ZH. Haven't seen that response in the MSM.
Way to go Tyler!
Bingo!
This is not the first time they have written to him. They are well aware of the influence of ZH/TD and have been for many months.
How popular is ZH now?
Are we in phase two of this bull news?
Not so popular that it is unavailable on the average ISP.
Yet.
+1
Squidshot.
Kicksave and a beauty by Tyler!
Could someone 'splain to me how to manage overall risk without knowing the discrete elements of the total risk package?
Why, by paying a ratings agency... LOL
Or by just saying so. If you're GS, and you speak to the masses...
though that play seems to nearing its end.
Egads! We're reading ZH and now the squid is in the equity algo control room!
http://upload.wikimedia.org/wikipedia/commons/9/95/20000_squid_Nautilus_...
Risk is risk but specific people are in charge of specific areas and are compensated accordingly. Come bonus time these things are all tied up with a bow in specific buckets that's for damn sure.
It is such BS that they can't provide the breakdown TD asked for. Their greedy traders are paid based on how much of that toxic schlock they sling every day. And you better believe those guys make sure they get what's owed them in terms of commissions and bonuses. If they can pay bonuses based on individual lines, why can't they aggregate that data?
They can.
Your article focused on how derivatives revenues and risk isn't separated and should be by GS. And now Lucas wants you to set the record straight how they 'dont differentiate cash from der inventory' ? He is simply backing up Viniar..
Its unthinkable for any major operation to not split up literally every single part of their business into distinct categories, to know, eg: where alpha is highest, where losses are over what they should be, etc.
The execs can probably look up at any given moment their minute by minute PnL for any category, and here they are feeding us BS.
"And now Lucas wants you to set the record straigh..."
Let Me Set the Record Straight
"as the saying goes, several sandwiches short of a picnic."
Noooo. The saying goes "several foreskins short of a penis."
If they are making all these profits they claim they make, why do they need $500 million of credit??? I guess those cooked books are starting to become fried.
Every large investment bank has a tool called Management Information system ( MIS ). All departments are feeding MIS with thier data. Risk matrics, P&L and every other risk aspect is at any given moment observable. Tricky Lucas is playing old Russian KGB deception tactics. But hey, its Lucas - what else do you expect ? :=))
Ah...the most corrupt entity on the planet is worried about "setting the record straight".
And please tell me Mr. van Praag what "risk" is Goldman worried about? There is no risk when you own and control the printing press (except perhaps failure of the currency...oops!).
GG, they are also worried about the russian kid stealing the "top secret" "codes" (and I thought that the governments did "TS", these would be "trade secrets")
http://blogs.reuters.com/commentaries/2009/07/05/a-goldman-trading-scandal/
They got him because it would give him an unfair advantage.
- Ned
monday will be the 1 year anniversary of the arrest of sergey. where is sergey???
maybe here =========>
http://static.howstuffworks.com/gif/witness-protection-1.jpg
i am waiting for the day when Ben Bernake sends a similar letter to ZH
Instead of "several sandwiches short of a picnic", Bennie'll probably take the analysis to a substantially more sophisticated level ofRisk Measurement and Management (or basic accounting 101) relating to "how many fries short of a Happy Meal" the initial margin (monetary value as a performance bond one posts with the clearing corp, or alternatively the amount of useless space along the side of a page of paper) is at any moment juxtaposed to the discontinuity of the place or speed at which reality does or does not exist at the specific moment of pause.
Verily, a Schordingerian delight for the long weekend.
I think Bernanke would be more inclined to use a phrase like "several trillions short of a full helicopter."
Hey you crazy Dutchman!
JPM's Michael Cembalest says derivatives total $1,600 Trillion globally. Maybe he can help you with these "discrete elements" you speak of?
Thanks for responding.
Dude of that 1.6Q 80% is PV IR swaps and PV FX swaps; really not that big of a problem; and the double counting for CDS makes the market seems bigger than it actually is.
If I buy from you 10M with the 200 spread the DTCC and ICE boys will count that as 20M volume/exposure when there really is 10M on the line [that is if the RE defaults and RR is 0]. Also if compressed I suspect the real risk volume is maybe 0.1% of that 1.6Q number.
+1
If the ones regulating don't specifically understand each aspect of whatever it is theyre trying to regulate, they really should have no say in those matters. "We want to reduce global risk" is about as vague of a statement you can make.
Firm-specific risk on the other hand, yes i agree with setting strict guidelines (aka enforceable) on firms who think their books can deal with $1T in exposure.
Ok so they dont break them out seperately, fair enough. They can combine in accordance with an fasb rule.
A better question would be "can" they break them out to answer the senators question even though standard practice is not to.
After all being asked a question under a "Tell the WHOLE truth" oath to congress isnt a routine accounting matter.
Congress needs to insist they break that key item down to the last penny and cough it up. If Goldman has nothing to hide, why all the stonewalling and obfuscation?
This coming from the people that helped Greece hide their debt problems from the EU....lol..wow..that is rich!....oh shit I needed a good laugh.
Did that guy just say, "Fix me a sammich, Tyler, you're late to the picnic!"?
Glad he don't come to our parties! Marla would tell him what's what!
Happy Picnic 4th! Let the Fireworks begin! (um, they cancelled Independence Day, didn't they, guyssssss...are you just kidding me?)
Unfortunately the whole debate is at such a low level that GS can obfuscate their way through this.
Simple question to start - if i have a CDS long to part-hedge a CDO short, is that CDS a derivative or a hedge? It's both, right. It makes a nonsense of the question.
The fact that congress even asked such a dumb question fills me with gloom. Dont worry about GS, worry about congress.
Enjoy the weekend.
Really. I mean the original proposition before the house was to what form the Wall Street Business Model was to be changed.
ADHD lobbyists.
.
“”Your comment on the FCIC's questions about our derivatives activities is interesting but, as the saying goes, several sandwiches short of a picnic””
Reply--- Lucas does not pay attention. Tyler is always a delight and Lucas was not invited to the picnic. I suggest he bring his own sandwich next time.---
““”The email you reproduce is not a smoking gun. It is one of the nightly estimate
You know that risk is risk, no matter what form it comes in. The debate about discrete elements of it is a serious distraction from what should be the real focus.
Please be kind and set the record straight.”””
Reply---- Hell no! Lucas, you set it straight. Bring it on, bring it Oooooooon.
I still don't get it. Integrating cash and derivatives for the pnl.
Isn't that like mixing the forks with the knives, the pickles with the apples.
Undoubtedly, the Squid has some super secret reasoning for this non-segregation. Hell, these guys would separate the corn from their stool if corn had a value.
The reason the system keeps limping along at all is precisely because barons like GS do NOT separate the corn. They let the peasantry do that. Saves the baron work and lets the peasants think they're getting ahead.
They do a pretty good job separating toxic liabilities from their balance sheets.
Corn from their stools?
Please.
Don't give them any new ideas.
If you have a derivative position - on let's say non-agency paper - you may hedge part of it with a cash position. The relevant pnl is then derivative + cash = total pnl for that position.
Otherwise known as gold + cash. With a giant wishful pony of becoming Carbon Credit + cash.
"You know that risk is risk, no matter what form it comes in. The debate about discrete elements of it is a serious distraction from what should be the real focus.
Please be kind and set the record straight."
What is the real focus, again? I missed the first part?
Nuke Goldman!
Bernie Madoff really is a class act compared to this squidshit.
UNCLE SCAM:
http://williambanzai7.blogspot.com/2010/07/uncle-scam-needs-you.html
PROVE IT:
http://williambanzai7.blogspot.com/2010/07/prove-it.html
"Risk is risk"? ROTFL....had been playing legally by the rules, they wouldn't be in existence right now...
As far as the "recording being straight" Mr. Lucas van Praag, it is straight. Your company has been exposed for the cheating fraud it is.
Lucas its POs, not Pos.
As a market maker in that security I would expect you to know the name of the product you "make markets" for.
Not trying to be a dick here; just saying.
POS is more like it.
He got the IOs part right so im guessing its just a case of 'financier spelling' which we all know is nothing short of 13yr old pre-teen txt-spelling:)
I used to manage the cash account and daily P&L for an investment bank/broker dealer.....on a DAILY basis these are just a yardstick measurements per groups (equity, muni bonds, etc).....if there is a problem/success you would drill down on the daily...if not you work out the details at a trader/broker level monthly. Daily details wouldn't really add value for exec management. It is the trading desk manager's job to watch his troops daily.
Of course GS is the big dog and may do it differently.
Updated DOW chart:
http://stockmarket618.wordpress.com
http://www.zerohedge.com/forum/latest-market-outlook-1
Certainly a lot of details like that to take into consideration. Thanks windows vps | cheap vps | cheap hosting | forex vps