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Why Does Goldman Need A Fed Exemption For VaR Calculations?

Tyler Durden's picture





 

Lately the topic of Goldman's VaR has taken on significant prominence, not least because as Zero Hedge disclosed yesterday, it hit a record high. The implications for this were large enough that even Bloomberg picked up on this story. Many readers raised questions of how is it even remotely possible for the company to have a VaR in the low-mid $200 MM ballpark, yet to post a record number of $100MM+ trading days in Q1; Zero Hedge is willing to wager that the upcoming 10-Q release will demonstrate another record number of $100MM+ days in the just closed quarter as well. How is that possible?

The clue may come from a February 5 letter by the Federal Reserve to Goldman CAO Sarah Smith. The letter had come in response to GS requests for "temporary exemptions from the application of certain aspects of the Board's Market Risk Rules for state member banks and bank holding companies and the Board's general risk-based capital rules for bank holding companies." Basically through the end of 2009 Goldman is basically using non-traditional, SEC approved VaR models as can be seen here:

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.

The letter goes into detail explaining why a bank needs to follow a MRR VaR methodology. Yet what is not made clear is i) why does Goldman need almost a full year of alternative VaR calculation and MRR exemption and ii) what is the protocol for the SEC to enforce VaR compliance when Goldman's ultimate regulator is the Federal Reserve. The exemption raises critical questions not only with regard to the validity of the company's indicate VaR, but also downstreaming capital requirement reports. Zero Hedge would be remiss to point out that a very close relationship between the most critical financial company in the world and the most discredited regulator (SEC) does not bode well for confidence in this critical risk indicator, which as many have pointed out, is clearly the main metric by which to measure not only the performance, but the risk capacity of the world's largest government-backstopped hedge fund. Mr. Canaday, Mr. Van Praag - the floor is, again, yours. In your absence, Zero Hedge will, and encourages it readers to, contact Mr. Homer Hill at the Federal Reserve Bank Of New York at (212) 720-2164 to provide additional clarity on the matter.

 

GS VaR Request -

 


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Wed, 07/15/2009 - 20:39 | Link to Comment Hondo
Hondo's picture

Because we are all be gamed by GS, the Fed and the Treasury.  Even Congress is clueless to the rape of America.

Wed, 07/15/2009 - 20:52 | Link to Comment Anonymous
Wed, 07/15/2009 - 21:02 | Link to Comment Anonymous
Wed, 07/15/2009 - 21:17 | Link to Comment Anonymous
Wed, 07/15/2009 - 21:24 | Link to Comment Anonymous
Wed, 07/15/2009 - 21:33 | Link to Comment FischerBlack
FischerBlack's picture

How anyone can see value in illuminating HFT and not see value in illuminating Goldman's preferential treatment at the hands of regulators boggles my mind. They aren't separate things. And there doesn't have to be a conspiracy for there to be an uneven playing field which advantages a few at the expense of many.

As it happens, the sinister Mucus Van Praag and his pals have somehow managed to convince otherwise intelligent people that any  reporting on Goldman's preferential treatment is like bringing up Roswell or the Grassy Knoll. How they have managed to do this is beyond me.

They must be smarter and/or better than me (and you).

 

Wed, 07/15/2009 - 21:39 | Link to Comment SloSquez
SloSquez's picture

Oligarchy in force.

Thu, 07/16/2009 - 04:35 | Link to Comment Project Mayhem
Project Mayhem's picture

Basically, yes.

 

Anyone who is too blind to see this deserves to be hit by the trainwreck in progress.

Thu, 07/16/2009 - 09:38 | Link to Comment Jim B
Jim B's picture

Affirmative!

Wed, 07/15/2009 - 21:53 | Link to Comment pinkboxtrader
pinkboxtrader's picture

Seems as if the site's commenting demographic is congealing like the Democratic party -- an uneasy alliance of anti-machine old school traders and anti-trader/gamer investors. Throw in some anarchists who want just to watch it all burn.

YES WE CAN

Wed, 07/15/2009 - 23:13 | Link to Comment FischerBlack
FischerBlack's picture

Don't forget the mid-thirties semi-pros with axes to grind fighting losing battles against a bullshit tape with no willpower to hang it up and take a vacation for fear of missing the key event of the summer.

 

Those guys are a key constituent.

Thu, 07/16/2009 - 01:28 | Link to Comment Anonymous
Thu, 07/16/2009 - 01:52 | Link to Comment FischerBlack
FischerBlack's picture

I was actually referring to myself. I self-deprecate constantly.

Wed, 07/15/2009 - 22:14 | Link to Comment MsCreant
MsCreant's picture

Nah, Golem Sachs is just another sweet little Mom and Pop bank. Friendly, would never use the rules to distort the facts of what they are really holding in their nasty little portfolios.

I wonder which one gets to wear the ring of power today?

My Preciousssss.....My Precioussssss ahhahahahahahah!

Wed, 07/15/2009 - 21:39 | Link to Comment brown_hornet
brown_hornet's picture

You almost can't call it a conspiracy.  Its done right out in the open, and we the sheeple stand for it.

Wed, 07/15/2009 - 21:41 | Link to Comment SloSquez
SloSquez's picture

Oligarchy in force v2

Wed, 07/15/2009 - 22:00 | Link to Comment Veteran
Veteran's picture

Very interesting.  By interesting I mean horseshit par for course.  Anyone have a picture of Lucas Von Prick or his other GS cohorts?  Not to say LB ain't handsome but a couple buddies and I would love to be able to match some other faces with the asshole company we love to learn about. (Don't worry JPM, you run an almost even second).  Know your enemy, as ol Sun Tzu said.  

Disclaimer:  Strictly curious.  Wouldn't want any pussy Blackwater I mean Xe I mean GS security to get the wrong idea.  Yes, I am paranoid

Wed, 07/15/2009 - 22:03 | Link to Comment Stuart
Stuart's picture

Janet Tavakoli rips Goldman a new one in this video from 5:00 EST today.

 

http://watch.bnn.ca/#clip193973

Wed, 07/15/2009 - 23:59 | Link to Comment dnarby
dnarby's picture

Pretty sad statement on the US that the best business news is coming out of Canada.

 

Oh, what the hell..

 

...O', CAAAAN-ADAAA! : D

Thu, 07/16/2009 - 09:50 | Link to Comment Jim B
Jim B's picture

This one is pretty good also....  Lets hope this SH#$ achieves critical mass (LOL).

http://www.youtube.com/watch?v=khGZ3a4zTNU

Is our government just a little corrupt?

 

Wed, 07/15/2009 - 22:25 | Link to Comment Comrade de Chaos
Comrade de Chaos's picture

Rules? Rules are for fools mate, we are THE GS.

Wed, 07/15/2009 - 22:27 | Link to Comment Anonymous
Wed, 07/15/2009 - 22:28 | Link to Comment Anonymous
Wed, 07/15/2009 - 22:31 | Link to Comment Bizzle
Bizzle's picture

AEP brings up a good point in his story from last week -- i.e., the last major and prolonged instance of job loss in the US was in the late '80's and early '90's (coincidentally, as Goldman alum Bob Rubin gutted our country's ability to actually *make* things).  It was this slump that led directly to the fringe movements of the early '90's... militia, David Koresh, etc.

 

Well here's the thing... GS better be careful or Tim McVeigh II might not be drawn to a federal building...

 

Can you imagine a dude somewhere in the Rust Belt -- a guy who's lost his job, his house, and his family -- waking up one day and reading that after being bailed out from the brink of death by his tax dollars, Goldman Sachs now plans on paying RECORD BONUSES??  I hope Jackoff Von Prick has this year's interns monitoring bulk fertilizer sales...

 

Thu, 07/16/2009 - 07:31 | Link to Comment Anonymous
Thu, 07/16/2009 - 08:54 | Link to Comment Anonymous
Wed, 07/15/2009 - 22:42 | Link to Comment Anonymous
Wed, 07/15/2009 - 22:48 | Link to Comment SloSquez
SloSquez's picture

LMAO.  That's funny.

Wed, 07/15/2009 - 23:19 | Link to Comment Anonymous
Wed, 07/15/2009 - 23:50 | Link to Comment Roy Batty
Roy Batty's picture

Another great get Tyler....I'm making popcorn and pulling up a chair, this should be good.

Thu, 07/16/2009 - 00:12 | Link to Comment Miles Kendig
Miles Kendig's picture

It find it noteworthy that GS no longer feels the need to operate entirely from the dark pools.  This level of confidence could only be attained if it were confident in the security of its position, regardless of whatever became known.

Thu, 07/16/2009 - 01:18 | Link to Comment Anonymous
Thu, 07/16/2009 - 04:37 | Link to Comment Project Mayhem
Project Mayhem's picture

haha

Thu, 07/16/2009 - 02:15 | Link to Comment Comrade de Chaos
Comrade de Chaos's picture

"AP - According to the SEC, five people illegally tipped off others or traded on private information ahead of Liberty Mutual Insurance Co.'s 2008 announcement that it would acquire Seattle-based insurance company Safeco Corp.


One of those five charged is Anthony Perez of Maitland, Fla., a former Goldman Sachs investment banker, who the SEC says illegally tipped off his brother, Ian C. Perez of Orlando, Fla.

Ian Perez bought Safeco call options one day ahead of the public announcement and later sold them for a profit of more than $152,000, the SEC said.

As part of a deal with the SEC, Anthony Perez will pay a penalty of $25,000 and Ian Perez will pay disgorgement and prejudgment interest totaling $152,992. Neither brother will admit or deny the charges, the SEC said."

 

That what happens when you operate w/t the GS cover. If this case does not illustrate that old habits die hard, I don't know what does. 

Thu, 07/16/2009 - 03:36 | Link to Comment Anonymous
Thu, 07/16/2009 - 06:46 | Link to Comment crazyjerrygarcialover (not verified)
Thu, 07/16/2009 - 07:08 | Link to Comment Anonymous
Thu, 07/16/2009 - 08:55 | Link to Comment dcsos
dcsos's picture

The 24 quadrillion number appeared here in New York in a B of A customer's checking account statement!

Then, on the local news they reported another "24 quad" event in a southern state. The Bank has  some kind of error here!

Thu, 07/16/2009 - 09:07 | Link to Comment Anonymous
Thu, 07/16/2009 - 09:10 | Link to Comment Anonymous
Thu, 07/16/2009 - 09:47 | Link to Comment Anonymous
Thu, 07/16/2009 - 09:51 | Link to Comment Anonymous
Thu, 07/16/2009 - 10:38 | Link to Comment Anonymous
Thu, 07/16/2009 - 11:09 | Link to Comment Anonymous
Mon, 07/27/2009 - 15:27 | Link to Comment Anonymous
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