Lucas Van Praag
Remember the look on one's face when one hears there is no Santa Claus, or tooth fairy? That, more or less, is what the visage on everyone's favorite CNBC anchors Becky Quick, Joe Kernen and Andrew Ross Sorkin was, when Chris Whalen matter of fact (because it is a fact) let a rare glimpse of reality on the NBC Universal distraction and entertainment show, when he said "There is no Chinese Wall. Please. Come on. This is Wall Street." Awkward silence follows. And why not: if the banks officially call frontrunning an "Asymmetric Information Initiative" to mask the simple illegality from the idiot regulators, why not call a spade a spade, and expose one more aspect of the lies and crime that is shoved down investors' throats every single day.
Opus Dei to you douche bag!
Last week, an article by Fred Kaufman in Foreign Policy magazine ripped off a gangrenous scab: the topic of Goldman manipulating markets, a theme extensively dissected over the past two years, only in this case a rather sensitive one: that of food prices. Since the topic of Goldman being involved in market manipulation is nothing new to Zero Hedge, which first exposed the firm's prop trading shenanigans in 2009, a trope that was merely validated when Lucas van Praag responded to our allegations, to be promptly followed by Volcker making prop trading by banks semi-illegal, we were not surprised to read this piece. What did surprises is that Goldman once again exhibited horrendous PR sense by issuing yet another Lucas van Praag response, literally minutes ago, in the same venue. While van Praag does touch upon some valid points, the overall response is beyond weak and along the lines of the traditional excuse: "we generously provide liquidity/markets/capital, etc." which merely exacerbates the overarching theme: Goldman's relentless condescension, and assumption that it always is dealing with idiots who have no idea how the firm operates. As Goldman is about to find out, this will do nothing but generate a firestorm of angry responses by the "non-faceless" crowd which will now have a scapegoat to blame, since by taking he defensive, Goldman once again validates the allegation. What happens next to Goldman, and the GSCI, is unclear but will likely not be favorable in light of Obama's recent witchhunt against "speculators." Yet at the end of the day what can one expect from a firm that will always have to live with the following classical example of shooting itself in the foot: "When asked about these emails, Mr. Swenson also denied that Goldman had attempted to squeeze the CDS short market. He claimed that the cost of single name CDS shorts had gone too high, and the purpose behind Goldman’s actions was to restore balance to the market. Mr. Swenson could not explain, however, why in an effort to restore balance to the market, he used the phrases “cause maximum pain,” and “this will have people totally demoralized".”
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 aVaR 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.
"We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance of being a force for good."