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The Goldman VaR Exemption Question Escalates
It seems only yesterday that Zero Hedge had some questions in regard to Goldman's VaR Fed exemption. No response was received from 85 Broad. Today it appears several Congressmen, lead by Alan Grayson, are willing to drive a sharp stick pretty deep into the hornets' nest, by sending a letter directly to Wall Street Don Ben Bernanke, demanding an explanation exactly to the question of Goldman's VaR Exemption.
Among the reasons provided as casue for potential alarm are the following:
1) In the letter granting a regulatory exemption to Goldman Sachs, you stated that the SEC-approved VaR models it is now using are sufficiently conservative for the transition period to bank holding company. Please justify this statement.
2) If Goldman Sachs were required to adhere to standard Market Risk Rules imposed by the Federal Reserve on ordinary bank holding companies, how would its capital requirements differ from the current regulatory regime?
3) What is the difference in exposure to the taxpayer between these two regulatory regimes?
4) What is the difference in total risk to the portfolio between these two regulatory regimes?
5) Goldman Sachs stated that “As of June 26, 2009, total capital was $254.05 billion, consisting of $62.81 billion in total shareholders’ equity (common shareholders’ equity of $55.86 billion and preferred stock of $6.96 billion) and $191.24 billion in unsecured long-term borrowings.” As a percentage of capital, that’s a lot of long-term unsecured debt. Is any of this coming from the Government? In this last quarter, how much capital has Goldman Sachs received from the Federal Reserve and other government facilities such as FDIC-guaranteed debt, either directly or indirectly?
6) Many risk-management experts, most notably best-selling author Nassim Taleb, note that VaR models can dramatically understate risk. What is your overall view of Taleb’s argument, and of the utility of Value-at-Risk models as regulatory tools?
Zero Hedge had a rather comparable battery of questions, and believes it would be in the general interest of whatever remains of the general investing public, the one that for some reason or another still has not lost all faith in a fair and efficient marketplace, compliments of several major monopolists who have usurped exchanges and ECN as their personal taxpayer and speculator funded piggy banks.
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Let's end the charade - GS is a giant hedge fund wrapped in a BHC shell.
Considering this request in the context of the current pressure on the Fed via HR1207 makes it doubly interesting. The Congressmen are almost daring Bernanke to say "none of your business."
it's sad to admit, but until there is bloodshed there will not be change in our corrupt system. these arseholes on WS are no different than the scumbag politicians that bailed them out. there are no penalties for anyone involved, of course these greedy whores will continue to steal with the consent of the "system". in china, they would just execute you.
Tyler, if, as conjectured, a high proportion of GS trading profits are comming from low risk high frequency trading strategies, is VAR a good measure of the actual risk at GS? In other words, if the gmae is rigged in GS favor, is it also fair to argue that they are taking excessive risk with taxpayer money?
You're right! Fuck it, lets all go home! Six-Packs and Letterman tonight at my house!
In the mean-time Bernanke is on a road-show to address the American people directly.
Looks like he's trying to circumvent Congress. He is supposed to report to Congress and not to bypass it and deliver his message directly to the people and whip up support to thwart Congressional efforts to get information from him.
Unconstitutional behavior, but who cares at this point.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aUYcp6zduGx0
there's and easy explanation why did Bendover go on a tour ... he feels the fire beneath his feet ... they know people are gradually waking up to all the shit the FED has done in the past 96 years, and they well know that they need some populist spin and propaganda tour to fool the masses one more time .... they're doing exactly the same thing Ron Paul is doing, but with wishing a different outcome ... don't be fooled in the usual talk that they are not afraid of the percentage of population which knows about all the shit FED has done, and they well know that the fire is spreading fast via mouth-to-mouth explanation of FED role in the US economy, and FED misdeeds ... they know that very well, and they know that the knowledge about FEDs unconstitutional nature is growing exponentially ..... so they HAVE to do something, because no army and no country has a chance against 200 million armed men and women ... they are afraid of populist backlash and they will do anything that is in their power to put down the fire that Ron Paul ignited ... and you know what ... their effort will be one of the greatest FAILS in human history ... all this looks like the FED is trembling out of fear of loosing everything ... just my 2 cents, but i think a valid ones ..
Bernie is on a dog and pony show. Can anyone please get a ticket to one of those town meetings and offer it up to Max Keiser????? PLEASE ---- I would buy a ticket on HBO pay per view for that.
I gotta hand it to Grayson, the guy is relentless. I would advise him not to take any flights that may accidentally cross into Russian airspace.
Larry McDonald
Dewd, Grayson was raised in the boogie down Bronx housing projects and ended up at Harvard Law School. Smart guy with Big Balls, nice combination.
What if China started diversifying out of Treasuries, but wanted to buy companies via hostile takeovers?
Could they?
Maybe Goldman is in charge of making sure that stock prices are inflated, as a defense.
Sad but can be very true.
you just blew my mind away, and i started thinking the following ... let's assume that this is true, that GS in collaboration with the US guvmint is keeping the prices inflated so they can form a defense line against chinese takeovers ... but lets consider something that has certain truth possibility ... consider the following .... we ran up our debt up to almost 60 trillion dollars, and china holds certain percentage of that debt .... and looking at the irrational nature of FEDs rampant printing of the Dollar, most people go WTF ... but it makes perfect sense if you look at all that printing from the following point of view ... FED knows that we're deep in a shit hole, and that china will keep buying our debt for a certain amount of time because they need to do so, so they can send their crap to consumers here .... and we have also witnessed the shift of manufacturing to china in the past 20 yrs ... so maybe the FED has a plan to devalue the dollar to the verge of collapse in order to devalue Chinas purchasing power, and the value of their dollar denominated holdings ... that would benefit the US companies tremendously in couple of ways ... 1) they could scoop up chinese manufacturing companies for pennies on the dollar, 2) they could shift the manufacturing power to china, 3) that would help the Obamba administration to push all the laws they want to 4) would weaken china's rapid growth 5) would put the power leverage back in the hands of the US government 6) China would HAVE to obey to all the changes this administration demands 7) would virtually secure global manufacturing monopoly for the US companies .... i want to say, it's not that this scenario is impossible ... think about all that is happening right now with the dollar, and the market, and then incorporate the points i made in this point into your line of thinking .. it fits perfectly, doesn't it ?
Sounds like a good novel, sure, but wouldn't that be just as likely as any other story one might concoct? I mean,you could make stuff up all kinds of ways like that... China seems like it's one of a few that make a list worthy of discussion in that respect, but without any evidence it's still just a dart thrown in the dark, even though there are only a few spots on the board, how would you know it's the bullseye?
i wasn't stating this as a fact, just played a little with possible hidden strategies FED might follow in this day and age ... you're right i was just throwing darts in a dark room i don't even know if it has a target somewhere on its walls ... time will tell ... but FED has one advantage over Chinese ... 96 yrs worth of practice ...
Cute, but, as the US govt and other govts around the world have shown in the past few years, if you want to block a foreigner from buying something, you call it an "issue of national security" and raise enough of a stink so that the talking heads get riled up, then you leave them to it.
Bernanke's response to Congress will be silence.
Why on earth should Bernanke pretend he owes anyone an answer -- especially Congress? This game has been won. The victory sealed. Congress has been castrated by their own hand.
Congress stupidly gave up the power-of-the-purse to the Executive branch, and as for the Federal Reserve -- they have never really been beholden to Congress anyway.
Our Congressional leaders seem to think they have some authority when they make statements or "call on" others to do their bidding. These poor ignorant sods don't seem to realize that they only had one power and it was the power to originate and control spending. Having given that up, they've been reduced to a room filled with whining children.
Bernanke (the winner) will not likely respond to Congress (the losers). The only thing Bernanke is worried about now is public perception, his legacy and maybe (maybe) whether or not he's reappointed. (I personally doubt he wants to be, as he knows the can has only been kicked down the road... and the crash is still coming)
His response won't be silence, but it might as well be. He'll say something meaningless and everyone will be "outraged" by his hollow statements. Then we'll post YouTube videos of his response to blogs like ZH and shake our fists from the privacy of our home-offices.
Land of the free, home of the brave!
He's not going to respond to this letter. He has claimed "banker's privilege" so many times my head would spin. Bernanke and the Federal Reserve do not owe anybody any sort of an explanation. Bernanke controls the money, thus he has the power. Now, Bernanke is going on a tour of the country shilling the Federal Reserve.
I would love to see GS feel the pinch like other ordinary American citizens. Why should they be superior to us? It is only a matter of time before they slip up and get caught with their pants down. They can't be that smart.
And then they'll be fined .01% of their earnings and promise to stop being such naughty boys.
Wonderful!
This Federal Reserve Inc bullshit has got to stop. The criminality of it all has been so "in your face" throughout this crisis they caused. The master bankers are the worst people on earth.
Gabriel Gray - too funny - let's hope he doesnt fly korean airlines. Good call
Seriously, it's like GS is run by the Duke brothers from Trading Places. The arrogance of GS is legendary. It won't be Dan Ackroyd or Eddie Murphy, but somebody is going to take these bastards down the hard way.
who, you?
Because it sure as hell isn't going to be Congress. And it sure as hell ain't going to be the SEC.
Maybe the gorilla?
No, it will be Spitzer aka the Steamroller. He's on a comeback.
it should be pretty clear that they are running very very large risks if you take the figures out of the 10Q and divide them by the VAR for a standard contract such as spy you can see that the implied positioning they can be running at any one time is massssssssive these are firmwide speculative overnight var measures imagine how many they take on intraday its like the squid is a mutated giant vampire squid... more like a moby dick sized squid sucking huge reserviors of money from the markets every day.... ramming its trawler net through the capital markets and hauling up all sorts tuna.. whale ... dolphin... the ultimate predator. you have to admire them and respect them... they are the apex predator of the markets... no natural enemies... well there were a few but paulson killed em... rock on.
KEEP UP THE PRESSURE. YOU DO NOT SEAL A COFFIN WITH ONLY ONE NAIL
If he doesn't respond, what happens? Who gets the next letter?
There is no where left to go.
Only 10 signatures.
We lose.
Congress? The Fed don't need no stinking congress!
what a shambles our country has become, a disgrace to the american people.
the simple fact of the matter is that Goldman Sachs runs the United States now.
Risk? What risk? GS doesn't have any stinking risk. Wake up, smell the coffee.
Exactly, all their risk was removed with taxpayers houses, jobs and blood.
I think if banks were baled out with TARP money and needed it, they should have been not allowed to do anything without full supervision as they were basically bust.
To have them now go on as if nothing happened is disgusting.
Internal Memorandum No. 8121b
ATTN: Employees of Goldman Sachs
We did it. Bottom of the ninth, down by three, bases loaded, and we
cranked another grand slam to the moon. They may have shot Lennon, but
nothing can kill the Beatles.
I admit things looked bleak for a minute there. We had to convert to a
bank holding company and were forced to accept a taxpayer bailout. It
felt un-American. Terribly unbanksmanly. But we accepted the money,
knowing that we could magically weave it into a much larger mountain
of money.
We had a few hard months there, didn't we? They regulated our
corporate jet so that we could no longer use it to fly from hole to
hole on the green. Dave had to drain his money pool to half capacity.
I stopped injecting gold into my blood. They don't call it a recession
for nothing. One day, we'll look back on the year we received only
five-figure bonuses and laugh.
Wanting to celebrate our renewed success is natural, but it's
important that we don't go crazy here. Remember, ten per cent of the
non-bank country is unemployed, and even those who are working have
"real" jobs, where payment is proportional to the creation of a
"product" or a "service." Those poor bastards. So I ask that, in
celebrating our raping of the stock market, we show restraint in the
following ways:
*Please limit high-fives and chest bumps to a dozen a day.
*Don't wear your crowns, except around the office.
*Stop paying for things in Monopoly money-I understand it is the
same as real money to us, but there have been some complaints.
*For now, let's take down the giant scoreboard that reads "Main
Street: zero. Wall Street: a billion gazillion bajillion."
*
Furthermore, to avoid drawing criticism from the press, this year the
bonuses, expected to be comically large, will be distributed in blood
diamonds, which can be easily concealed in a briefcase so it looks
like we're working.
I'd like to thank everyone who made this possible-for a second time.
Respect to President Obama for keeping us in the green. Thanks to the
big guy upstairs (me). And let's not forget all the ordinary
Americans, who, for some unfathomable reason, have refused to put us
behind bars. We are literally taking money out of their wallets.
Seriously, with these returns we are making Madoff look like a little
kid with his hand caught in the cookie jar. Amateur!
Yours in money,
Lloyd Blankfein, C.E.O., Goldman Sachs
in case you missed it.
http://nymag.com/news/business/58094/
Fantastic graph in the OCC report (here :graph 5a
http://www.occ.treas.gov/ftp/release/2009-72a.pdf
GS credit exposure to risk based capital is 1, 048%
Avg credit exposure to risk based capital for the other 4 of 5 largest US banks 236.8%
Since var is a variable in the capital requirement, this provides a nice graphic of one the benefits enjoyed by GS. Its a sweet deal to take 3X more risk than your competitors while enjoying a free gov't backstop for it. I say calculate the cost of the benefit (Cost of Capital X Capital shortfall relative to peers), reserve it from earnings, and deduct it from the bonus pool. At a minimum this should be retained as capital at the firm.
While you're waiting for a response from the Fed the 10Q provides some insight into item 2 in the exemption request you posted the other day
GSGI has requested that (1) through December 31, 2009, GSGI and Bank be permitted to use certain Value-at-Risk ("VaR") models approved by the SEC... to determine their capital requirements for specific risk under the Market Risk Rules; (2) through December 31, 2009, GSGI and Bank be permitted to use methods approved by the SEC to determine their capital requirements under the Market Risk Rules for those trading assets, including distressed debt and restricted stock investments that the SEC did not require to be included in the VaR-based models of GSGI and Bank; and (3) GSGI be allowed to use methods approved by the SEC to calculate risk-based capital requirements for its nonfinancial equity investments that are subject to the Board's Credit Risk Capital Rules
: P 124. 10Q
Market Risks NOT included in VAR
1.2 Billion (10% sensitivity- not sure what that means or how to make it comparable to Var)
REPORTED VAR IS ONLY 220 Million, which does NOT include this 1.2 BILLION risk exposure
1.2B = 524m Debt Risk+ 617M Equity Risk