Some Questions For Goldman's Lucas van Praag And David Viniar

Tyler Durden's picture

Earlier today the general public got one of its first public disclosures of what Goldman believes its prop trading operation contributes to the firm's top and bottom line. For those uninitiated with banker lingo, prop trading is basically the profit that Goldman makes by transacting exclusively as a hedge fund: this is not agency or facilitation revenue, but merely principal positions that represent balance sheet risk for the firm. Of course, with the Fed having made clear that America would fail before Goldman does, the definition of risk as it applies to Goldman is laughable. Yet considering that Goldman must disclose a trading VaR, or value at risk on a quarterly basis, which over the past year has averaged over $200 million, one can back into what the actual prop capital and revenue generated by prop strategies is (VaR is simply a statistical calculation of how much Goldman would stand to lose if a "one in twenty" event occurred. It is not the maximum loss risk that Goldman has exposure to - a good example of a terminal event, i.e., one which would leave the firm bankrupt overnight, or a VaR of infinity with a narrower confidence range, would be something like the recently notorious "what if" of an aborted AIG bankruptcy, courtesy of Tim Geithner). Goldman's head of PR claims the Goldman's prop trading accounts for only 12% of net revenue. Zero Hedge disagrees, and we would like to pose a question to Mr. van Praag which we hope Goldman will answer for us in order to refute our observation that Goldman may be disingenuous in its public statements. 

A month ago Zero Hedge presented a unique glance into Goldman's prop trading activities courtesy of the 2008 tax filing of the Goldman Sachs Foundation. Using some back of an envelope math, and some extrapolations based on portfolio allocation, we concluded that just in Russell 1000 futures in 2008 Goldman may have generated $1.2 billion in losses. Furthermore, this analysis excludes numerous other products in which Goldman has prop exposure including S&P 500 E-Mini, Dow Jones Mini, Russell 2000 Mini, 2 Year UST Futures, 5 Year UST Futures, 10 Year UST Futures, Treasury BD Futures, 10 Year Swap Notes Futures, Credit Default Swaps, Interest Rate Swaps and Futures, F/X Swaps and Futures, and many, many others. We are confident that merely extrapolating the P&L of the Russell 1000 prop exposure immediately invalidates van Praag's claims that prop trading accounts for 12% of net revenues (or, in this case losses).

Which brings us to our few simple questions for Mr. van Praag:

  1. Goldman disclosed that it had $352.2 billion in fair value of principal trading instruments at September 30, 2009. How much of this is considered allocated to prop if this is in fact a distinct strategy from principal?
  2. Does the firm's FICC revenue line have absolutely no prop trading embedded within it? Goldman made $20 billion in FICC year to date: is none of this $20 billion due to capital at risk, or is it all due to wide bid/ask spreads?
  3. What was the pro rata allocation to Goldman Sachs Foundation as a percentage of capital per each trading ticket in 2008? Does GSF have a dedicated trading silo within Goldman?
  4. Why did the Goldman Sachs Foundation not participate in Goldman's prop CDS trades?
  5. How much did Goldman's prop operations lose in 2008 trading Russell 1000 futures?
  6. How much did Goldman's prop operations lose trading all equity, credit and commodity products?
  7. When will Goldman clearly and distinctly segregate on its income statement the prop trading profit and losses, if these are in fact unique from "principal" trading as defined, and attach an MD&A to all relevant disclosure?
  8. Lastly, we are still hoping to get a seating chart of Goldman's trading floor (via legitimate channels) which clearly discloses flow and prop traders' seats in order to disclose to the general public that flow and prop traders do not share the same information flow, especially that emanating from core clients who tend to move markets the second they announce their trading axes to Goldman's flow traders.

Our intent with this line of questioning is to disclose Goldman is i) spuriously disaggregating revenue streams, or as the case may be, losses, and ii) Goldman is providing not nearly enough information in public filings to disclose what the true risk embedded in principal or prop trading strategies is. Because what Goldman is insinuating is that the firm's prop trading really carries virtually no risk. Really? Ignoring the example of AIG, where Goldman basically left all its eggs in one risk basket, we present some KPMG materials that seek to clarify how management teams attempt to confuse and fool an unsuspecting public of the firm's risk exposure, until such time as the pent up risk blows up in everyone's face. And while this particular case study is focused on hedging in the context of Natural Gas, the observations are more than relevant to the world's biggest hedge fund, Goldman Sachs. KPMG's take home questions, which we would also like to pose to Mr. Viniar, are as follows:

  1. How do you define market risk?
  2. Do you take fixed price positions?
  3. Are you exclusively a hedger or do you “optimize” your assets?
  4. Do you have a risk policy?
  5. How do you monitor trading/hedging limits?


Once we receive the responses by Mr. van Praag and Mr. Viniar, we will immediately notify our readers. If we are wrong, and it ends up that Goldman's prop/principal exposure is grossly overestimated, and as a result Goldman's entire net revenue is simply a function of Goldman's monopoly in the fixed income and interest rate markets courtesy of a now defunct Lehman, Bear and Merrill, we will promptly apologize for our wild specuations, even as we double our efforts to highlight Goldman's market monopoly to Christine Varney.

And one last question to Mr. David Viniar, who recently said that the firm doesn’t benefit from any implicit
government guarantee. Goldman, as presented here, benefits directly from $21 billion in FDIC (taxpayer)-insured bond issues. How does Mr. Viniar reconcile this particular fact with his spurious claim? And also, will Goldman withold paying $20+ billion in bonuses (either in stock or cash) until such time as Goldman calls all taxpayer-backed issues and recreates the capital shortfall by accessing the private markets (at a cost of several hundred basis points in interest expense)?

Goldman is fully aware how to contact us in order to satisfy these outstanding questions.


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tom a taxpayer's picture

TD - One of the greatest statements ever made on Zero Hedge.

"Of course, with the Fed having made clear that America would fail before Goldman does, the definition of risk as it applies to Goldman is laughable."

Reductio ad Absurdum's picture

America would fail before Goldman does

A brilliant laconic phrase.

JohnKing's picture

I'm hoping Goldman pays those bonuses in full and on time.

Anonymous's picture

Did Goldman Goose Oil?

Christopher Helman and Liz Moyer
Forbes Magazine
April 13, 2009

How Goldman Sachs was at the center of the oil trading fiasco that
bankrupted pipeline giant Semgroup.
Lloyd Blankfein's Goldman Sachs turned up everywhere (Jin Lee/Bloomberg News)

When oil prices spiked last summer to $147 a barrel, the biggest corporate casualty was oil pipeline giant Semgroup Holdings, a $14 billion (sales) private firm in Tulsa, Okla. It had racked up $2.4 billion in trading losses betting that oil prices would go down, including $290 million in accounts personally managed by then chief executive Thomas Kivisto. Its short positions amounted to the equivalent of 20% of the nation's crude oil inventories. With the credit crunch eliminating any hope of meeting a $500 million margin call, Semgroup filed for bankruptcy on July 22.

But now some of the people involved in cleaning up the financial mess are suggesting that Semgroup's collapse was more than just bad judgment and worse timing. There is evidence of a malevolent hand at work: oil price manipulation by traders orchestrating a short squeeze to push up the price of West Texas Intermediate crude to the point that it would generate fatal losses in Semgroup's accounts.

"What transpired at Semgroup was no less than a $500 billion fraud on the people of the world," says John Catsimatidis, the billionaire grocer turned oil refiner who is attempting to reorganize Semgroup in bankruptcy court. The $500 billion is how much the world would have overpaid for crude had a successful scam pushed up oil prices by $50 a barrel for 100 days.

What's the evidence of this? Much is circumstantial. Proving oil-trading manipulation is difficult. But numerous people familiar with the events insist that Citibank, Merrill Lynch and especially Goldman Sachs had knowledge about Semgroup's trading positions from their vetting of an ill-fated $1.5 billion private placement deal last spring. "Nothing's been proven, but if somebody has your book and knows every trade, it would not be difficult to bet against that book and put the company into a tremendous liquidity squeeze," says John Tucker, who is representing Kivisto.

What's known for sure is that Goldman Sachs, through J. Aron & Co., its commodities trading arm, was in prime position to use such data--and profited handsomely from Semgroup's fall. J. Aron was Semgroup's biggest counterparty, trading both physical oil flowing through pipelines and paper oil, in the form of options and futures.

When crude oil peaked in July, Semgroup ran out of cash to meet margin requirements on options contracts it had with Aron, contracts on which it had paper losses of $350 million. Desperate to survive, Semgroup asked Aron to pony up $430 million it owed on physical oil. Aron said no, declared Semgroup in default on its contracts and demanded immediate payment of losses.

Some answers may emerge in late March when former FBI director Louis Freeh releases a report on the trading surrounding Semgroup's demise. He was hired by Semgroup and given subpoena power by the bankruptcy court judge in Delaware. Meanwhile the Securities & Exchange Commission is investigating, and lawyers involved in the bankruptcy say that Manhattan District Attorney Robert Morgenthau's office is looking into the actions of New York firms in the collapse. His office declines to comment.

Rainman's picture

If correct, this smells like an Enron cornering of  electricity futures in 2001.

Energy futures manipulation comes courtesy of the Commodity Futures Modernization Act 2000. A Phil and Wendy Gramm-promoted fiasco that Clinton signed on his way out the WH door .

Nothing revealed the fix in speculative oil pricing more vividly than the $ 10/bbl run up the week before the Memorial Day Weekend in 2008. Without even looking at a chart or inventory update, it was just too damn obvious the fix was on before summer driving season. The whole world demand spike argument was as bogus as all the Climategate bullshit is today. 

Again, it is incompetent and/or corrupt Fed legislation that sold out the unsuspecting American and worldwide consumer. Expecting the perps will go to jail for financial fraud is optimistic ...... since the ability to manipulate was legalized by Uncle Santa's elves .



Anonymous's picture

McCain advisor Phil Gramm, July '08:

"We have sort of become a nation of whiners...You just hear this constant whining, complaining about a loss of competitiveness, America in decline"

"Misery sells newspapers ... thank God the economy is not as bad as you read in the newspaper every day."

"You've heard of mental depression; this is a mental recession...We may have a recession; we haven't had one yet."

moneymutt's picture

good point, whenever markets are not closely observed, forced to be transparent, insiders can run surprise that commodities are even more manipulated than stocks, and worse yet, derivatives traded in even darker alleys. Thing is GSacs likely used their insider knowledge to make more money than just by trading oil directly, or shorting this company, they probably made other plays based on this information with the client accounts, in derivatives etc.

Thing is such leveraged plays can make huge money and also bite you if a black swan happens or someone figures out your moves. Enron and GSacs did same things. Enron crashed and burned after making big money, GS had enough sense to get US govt to bail them out, Enron not so well connected.

In meantime, Cali got screwed on energy prices and market got false signals about need for electricty.

Corrupt insiders gain, regular people pay more for oil and electricty. Criminal.

Hephasteus's picture

Enron really fucked up California's electrical grid didn't they. Rolling brownouts galore. Imagine that whole cap and trade derivatives mess infesting every service of the people.

Anonymous's picture

I'm sure Goldman will get right on that....

monopoly's picture


You are simply amazing. Our safe port in this continuing storm of lies, deceit, spin and fantasy.

We thank you.


Anonymous's picture

Absolutely the best thing I have ever read on the web. This is what makes the web 1776 all over again.

Except this time, maybe, the movement will not be taken over by svelte pseudo-French aristocrats protecting slavery.

Anonymous's picture

From Bloomberg: Goldman Sachs has reaped more than 90 percent of its pretax earnings this year from trading and so-called principal investments, which include market bets on securities and stakes in companies. The other 10 percent came from advising clients on takeovers and capital-raising and from asset management, which includes managing hedge funds and buyout funds.

Josey Wales's picture

Are you suggesting that Bloomberg is just repeating what Goldman Sachs told them their earnings breakdown is or are you suggesting that Tyler and the ZeroHedge crew are off-base in their posting here?

zoonooz's picture

Off topic AND lifted from a post on calculatedriskblog - Stevie Wonder re-release for President Obama - classic song with a whole new meaning. Enjoy.

Edit: Maybe not so off topic - the lyrics still work IMO.

MinnesotaNice's picture

IMO the song is very reflective of our times:

We are amazed but not amused
By all the things you say that you'll do
Though much concerned but not involved
With decisions that are made by you

But we are sick and tired of hearing your song
Telling how you are gonna change right from wrong
'Cause if you really want to hear our views
"You haven't done nothing"!

It's not too cool to be ridiculed
But you brought this upon yourself
The world is tired of pacifiers
We want the truth and nothing else

Hopey McChange... the guy I voted for... You Haven't Done Nothin'... except facilitate the increasing disparity between the classes in America since you took office... and make sure Wall Street was humming again.   I think Taibbi would also appreciate the lyrics after his recent Rolling Stones article... "Obama's Big Sellout".

Anonymous's picture

Vin-liar talks notwithstanding,I think they should pay the bonuses and then some more. They achieved something unique(albeit,in an evil way),and that is what you mention in saying "Of course, with the Fed having made clear that America would fail before Goldman does, the definition of risk as it applies to Goldman is laughable."

Reductio ad Absurdum's picture

Roman tyrant Marcus Crassus had molten gold poured down his throat. Perhaps this is how the bonuses should be paid.

JohnKing's picture

I see the bonuses as the proverbial gun to the head, Goldman has their finger on the trigger, are they arrogant enough to squeeze?

Careless Whisper's picture

While your posing questions to GoldmanSachs could you please ask them how much money they funneled to the "hitler youth" groups that are protesting Global Warming?

How much money in grants did Goldman provide to the scientists for the fraudulent Global Warming reports?


FreddyInBangkok's picture

also the AlGore GIM-scam due mega-millions gov grants

GIM owns a 10% stake in the Chicago Climate Exchange (CCX), CCX in turn owns half of European Climate Exchange.


someone plse hit gore with a Woods-style crash-and-burn who-woulda-thunk slut-of-the-week pornstars-n-skanks flameout shockfest circus funhouse megaspectacle. thankyou

Assetman's picture

Great points all, Tyler... but why would they feel compelled to answer to you?

They do not seem to have to answer to anyone else...

Chopshop's picture

Assetman:  simply bc gsco will not allow a direct public gauntlet from TD himself to remain un-vanquished beyond Thursday's european open if not Tuesday mid-morning (10:40 est ish release); TD gave em more than enough lead time for a response to be vetted by legal by globex, today.

after two reads, about the only thing that goldie's legal ought not allow them to rather flippantly address will be the fact that natty (nat gas) plays bitch-boy bottom barbell hedge to wtic.  4.62x times long CL etc. versus 1x basic hedge on various nattie derivs. very simple by me, but in the absence of any actual reason provided (gsco legal won't any) it seems to my simple mind that such would be Occam's razor.

thanks again for the time / thought put into this excellent piece, TD.

Chopshop's picture

An outrageously good piece. just filthy really.

thank you, tyler.

actual 'journalism' which underscores the difference between detailing how to find a g-spot versus Ron Burgundy-esque "Discovered by the Germans in 1904, they named it San Diego, which of course in German means a whale's vagina ...." type bullshit. 

between you & marla, it must feel like an inverted / distorted version of omaha beach for ol goldilocks. like retaining all the lawyers with offices on the caymans so no one can ever sue you, 'they' know that they will win, eventually. but how more moons will it take? and will it just be some shallow figurative and self-declared victory of nothing but self-exoneration ... ?  anyhoo, great fjuc**** work, yet again. 

VegasBD's picture

Just got back home from the turtle racing bar in marina del rey, ca. (yes im drunk) I live right down the street. So the hot bartender used to work for morgan stanley aparently. She mentioned something about gov't sponsored IBs and i said "oh you mean the vampire squid?" she said oh so you know all about goldman sachs then huh?


I have her number in my pocket. thank you zero hedge.



VegasBD's picture

If anyone wants an update on whether or not I end up humping the broker-turned-turtle-bartender check my site. I should have a blog up there soon with my book info

Anonymous's picture

what is nice about the ZH comment system is that once someone replies to a post it can no longer be edited

Problem Is's picture

Are you SURE she is still going to be attractive when the vodka wears off? In the sunlight?

A quick cell phone pic for reference is always a prudent move in a bar when one is intoxicated and thinks the bartender is hot...

Tyler Durden's picture

don't point at the turtles

dark pools of soros's picture

and you think she has no clue about ZH???


she probably already has 30 old flames emailing a link to your boasts


try to get busted AFTER robbing the bank next time

VegasBD's picture

Was drunk and talkin shit last night. Actually got her info for somethin else.

I need to have a breathalizer on my internet connection as well as my text messages. ughhh... at least i didnt TP my own house again

CombustibleAssets's picture

Damn, You got to stay up late on Saturday nite to get the good stuff.

You don't suppose that Mr. Blankfein feels he's doing God's work because he's managing Ben's money?

Anonymous's picture

You know, I don't see why this reality of the situation isn't clear to more people. It's not that difficult to understand really?

Productive labor and wealth producing enterprise ->

-> Middlemen.

-> Fixed and discretionary income choices.

THE MIDDLEMAN, is a parasite. A filter on productivity and investment, and an agent for corruptive entropy.

THE KEY PROBLEM, lies in the fact that there is never enough money in the system to satisfy all demand. Which is to say the drain plug on the tub, is open.

A healthy, well managed, fiat/virtual currency system relies on the government as lender of last resort to create, distribute, and manage its own monetary interests. The need for taxation is erased in the national bank "loaning" enough money into the system to satisfy all demand, and "spends" into healthy growth initiatives the "interest" on the loans. Any more additional spending grows the economy and any less shrinks it. HEALTHY FIAT CURRENCY = CLOSED CIRCUIT. Our founding fathers understood this, and it is why our Constitution spells out in black and white, the necessity for currency creation powers be given to the Congress.

IF, a middleman, in the form of bankers and private interested parties, are allowed to regulate money supply then they destroy the steady state of the fiat currency circuit, and make it a draining pool. Since they regulate the currency's creation they refill the pool in a manner and rate as they see fit, and to their obvious f'ing benefit. (that's Goldman people)

The existence of such a middleman entitity destroys the equilibrium and healthy growth of a fiat/virtual currency system. The middleman opens the drain in the bathtub, and as long as they exist the drain remains open, no matter how and where or how much more water is put in. See? Taxation should only be a means to mop excess money flow, not a constant, and government funds should be derived solely from the managing of monetary policy. Investment should be from one interested party to the other, and in free open transparent markets managed by a government non profit. If I want to buy a stock or a bond, I don't need someone between me and the issuer, and the means to access should be free and open like a park.

This country cannot be a healthy Republic, and also have our monetary policy managed by private interested parties, whose motive for gain is at the expense of the citizens. This is how a citizen becomes a consumer. It is as simple as that. Until this is fixed, no substantive change can or will challenge the money masters who have captured our nation. Government capture is solvable ill, but there are only so many known remedies. I'm still pulling for a peaceful social movement that brings down the Fed, and breaks the back of this organism of private interest that has hijacked our monetary supply for what amounts to a protection racket.

No taxation without monetary emancipation.

moneymutt's picture

interesting...I want some links?...I find Ellen Browns stuff interesting too but would like to see more real world examples.

I do think it is interesting that the regular, upper-middle-class, middle-men must go in new guy that owned local grocery or hardware store being taken out by WalMart or Home Depot, and the managers at those box stores being low end middle class at best. Old, slow, fat ways of doing business must go. But the fattest, most economically wasteful middlemen persist regardless of changing economy, the money changers. New economy did not take out financial middle men but created a bunch of millionaires that got paid every step of the way in packaging crap mortgage securities and derivatives and selling disguised crap to investors.

Anonymous's picture

The Squid is going to put your wiener in a vice if you continue shining a spotlight into his backroom operations.

Anonymous's picture

The biggest question of all, of course, is: who is writing 2009's CDS? We all know that AIGFP's disgraceful example of Ponzi-to-the-power-of-infinity was well known around the traps.

So, who is writing all of this gambler's all-in insurance, vintage 09?

moneymutt's picture

who ever it is GSacs have a tentacle on them

FreddyInBangkok's picture

shit kickin off at FatAlGore's booksign - totale disruptions

FatAl flees before he gets thumped


Anonymous's picture

TD...Are you trying to get a job at GS ?

ie THEY pay you to stfu ?????

FreddyInBangkok's picture

FatAl wants youse air tax

AnonymousMonetarist's picture

The Goldie Rule : He who has Goldie rules... oh give me your wired, your rich, your huddled masters yearning to breathe fire.

Anonymous's picture

Talk about farting at a Christmas party.
You left a turd in the punchbowl.

Anonymous's picture

Is everyone concerned about GS by virtue of being a GS shareholder or because they have been given access to government capital?? If the former, vote out the directors and call their IR department. If the latter, I would suggest you focus your energy on imploring the government you voted for to not give GS any money.

Otherwise focus your attention on how you can make money and not be a drain on society.

Anonymous's picture


In early 2007 an ice field developed over southern Missouri 30 Mi deep and 150 Mi long.

In 2008 an ice field developed in OK, MO, KY approximately 50 deep and 300 miles long.

Nothing is going to stop this now; It is, however, a self limiting problem :)

You guys seem to have a problem dealing with reality.

deadhead's picture


Referring to the concluding portion of this post referencing Goldman Sachs' participation in the FDIC's TLGP, it deserves reiteration that this matter has been discussed several times by Zero Hedge, its community, as well as a number of other media outlets. It deserves further reiteration that Goldman Sachs continues to immerse itself in a policy of hypocrisy and, arguably, prevarication in regards to this taxpayer subsidized and backstopped source of cheap money.


Goldman Sachs is currently the beneficiary of approximately $20 billion in TLGP funds, which is a source of inexpensive funds (relative to capital market rates) due to the guarantee and backstopping provided by American citizens via the FDIC.


As reported by Bloomberg on December 12, 2009:


David Viniar, Goldman Sachs’s chief financial officer, said in October that the firm doesn’t benefit from any implicit government guarantee.

We operate as an independent financial institution that stands on our own two feet,” Viniar said in a conference call with reporters on Oct. "David Viniar15.”

For the life of me I cannot see how this statement is anything other than pure prevarication. If not, then how can any sane or competent individual make a statement such as the above in light of the fact that it is utilizing over $20 billion in government funds? Please answer this question Mr. Viniar.

On this same matter, Lloyd Blankfein has opined that he wishes the amount borrowed under the TLGP was “zero”, as reported in the Wall Street Journal. Citation enclosed in the linked ZH article: As previously noted, how can such a statement by Blankfein be considered anything but hypocritical? Arguably, this is a prevarication as well due to the fact that Goldman Sachs has at least $20 billion that is earmarked as bonus compensation to its employees, which could be used to pay off the bonds in question. Please answer this Mr. Blankfein: is this hypocrisy on your part or a lie? If something else, please contact Zero Hedge with a response, which I am confident will be printed.

Amongst many other matters, this hypocrisy and potential prevarication by Goldman Sachs is par for the course and Goldman's current status as the most despised company in the United States of America is well deserved. Goldman's action in this matter is a direct slap in the face to American citizens.

I encourage those that do business with Goldman to reassess your situation. I encourage and plead to those individuals who have knowledge of any potential wrongdoings to come forward and contact Zero Hedge at tips at zerohedge dot com.

moneymutt's picture

Even Timmy G says GS would no longer exist without AIG,TARP bailout

buzzsaw99's picture

Don't harsh the squid man, god's work and all...

Anonymous's picture