"The problem with your characterization is that there are precious few capitalists on Wall Street. Capitalists are people who put their own capital at risk and who succeed or fail as their ventures prosper or die. As evidenced by the compensations in financial services firms, this hardly applies to the executives in question, since they profited more than handsomely even as they ran their firms into the ground", my emphasis, Klaud Chavanne letter to the WSJ, 7 February 2009.
"If Sen. Claire McCaskill's proposal to limit the pay of workers at bailed-out companies serves to push the 'innovative' financial workers who drive the U.S. banking system off a cliff to work similar miracles somewhere else, it might be the most valuable piece of legislation passed in 2009", Ed Dennison letter to the WSJ, 7 February 2009.
"Much of the past year has been deeply humbling for our industry. People are understandably angry and our industry has to account for its role in what has transpired. Financial institutions have an obligation to the broader financial system. ... If events that were calculated to occur once in 20 years in fact occurred much more regularly, it does not take a mathematician to figure out that risk managment assumptions did not reflect the distribution of the actual outcomes. ... Rather than undertake their own analysis, [financial institutions] relied on the rating agencies to do the essential work of risk analysis for them. ... Fourth, many risk models incorrectly assumed that positions could be fully hedged. ... Fifth, risk models failed to capture the risk inherent in off-balance sheet activities, such as structured investment vehicles. ... Sixth, complexity got the better of us. ... Risk and control functions need to be completely independent from the business units. And clarity as to whom risk managers report to is crucial to maintaining that independence. ... We rationalised and justified the downward pricing of risk on the grounds that it was different. ... We should resist a response, however, that is solely designed around protecting us from the 100-year storm. Taking risk completely out of the system will be at the cost of economic growth", my emphasis, Lloyd Blankfein (LB) at the Financial Times, 9 February 2009.
Indeed.
Would we be so lucky. We should pay for these knowledge workers to learn Chinese. Within 24 months of their decamping to China, China will surrender.
This is rich. LB, Goldman Sachs (GSG) CEO admits GSG's 2008 10-K is wrong! GSG is mentioned in my 30 November 2008 post, link: http://skepticaltexascpa.blogspot.com/2008/11/more-good-news.html. GSG has 14 Business Principles. So? Hedged? Did these fools learn nothing from 1987's crash and portfolio insurance? Risks are not insurable to the system as a whole. Someone must bear them. LB wants GSG to transfer it to the public. SIVs? Like those Citigroup created? Will anyone go to prison over Citigroup's SIV accounting? If GSG's "risk and control functions" were not independent, did PWC, which got $56 million in 2008 scream about it? Page 130 of GSG's 2008 10-K has PWC's 22 January 2009 opinion. I saw nothing unusual in it. Page 129 has GSG's Managment Report on Internal Control. Nothing unusual there either. Why did LB and David Vinar sign the SEC certifications on 26 January 2009, exhibit 31.1 to GSG's 2008 10-K? Protecting who from the "100-year storm" LB? GSG or the public? If GSG internalized its risks and was adequately capitalized, with say 15% equity, would LB be begging? GSG's business principle 3, "Our goal is to provide superior returns to our shareholders. Profitability is critical to achieving superior returns, building our capital and attracting and keeping our best people. Significant employee stock ownership aligns the interests of our employees and our shareholders". Really? Or is GSG's goal to pay out every dime it can in compensation and have the public bear its losses? See also my 23 November 2008 post: http://skepticaltexascpa.blogspot.com/2008/11/bank-accounting.html.
5 comments:
IA... you want to know about CEO Blankfein's attestations... I agree... it's useful to have more clarity there...
But I'm very interested in the use of taxpayer dollars and how they flowed to Goldman Sachs in September... the New York Times put it like this...
"Two weeks ago, the nation’s most powerful regulators and bankers huddled in the Lower Manhattan fortress that is the Federal Reserve Bank of New York, desperately trying to stave off disaster.
As the group, led by Treasury Secretary Henry M. Paulson Jr., pondered the collapse of one of America’s oldest investment banks, Lehman Brothers, a more dangerous threat emerged: American International Group, the world’s largest insurer, was teetering. A.I.G. needed billions of dollars to right itself and had suddenly begged for help.
One of the Wall Street chief executives participating in the meeting was Lloyd C. Blankfein of Goldman Sachs, Mr. Paulson’s former firm. Mr. Blankfein had particular reason for concern.
Although it was not widely known, Goldman, a Wall Street stalwart that had seemed immune to its rivals’ woes, was A.I.G.’s largest trading partner, according to six people close to the insurer who requested anonymity because of confidentiality agreements. A collapse of the insurer threatened to leave a hole of as much as $20 billion in Goldman’s side, several of these people said.
Days later, federal officials, who had let Lehman die and initially balked at tossing a lifeline to A.I.G., ended up bailing out the insurer for $85 billion.
Their message was simple: Lehman was expendable. But if A.I.G. unspooled, so could some of the mightiest enterprises in the world.
Ho.. ho.. billions... billions... what is that? Stability fees to GS?
And now CEO Blankfein steps forward as the voice of restraint for broker-dealers... uh... excuse me... commercial banks... er... dealers? banks? can't keep them straight these days...
This is the nexus of Wall Street/Treasury/Federal Reserve command and control...
Hey Broad Street and Liberty Street boys... you danced around regulating the CDS rodeo and look where we are... a frozen credit system...a blown up global financial system... and that game is up but you'll make a new one... carbon trading? oil futures? toxic asset rolls?
Until the Fed disentangles itself from Wall Street this nonsense will repeat and repeat... 1998 ... 2007-2009...(?)
Well CEO Blankfein... you in deep to GE too? You got your Wall Street/Treasury/Federal Reserve nexus on that?
Anonymous:
I am aware of this. See my 21 November 2008 post, "Bust Outs and the Paulson Mob" for example.
"Bust Outs and the Paulson Mob"... one of your scariest posts...
"Paulson Mob"... no... Paulson is a widget cast from the Government Sachs mold... just like Stephen Friedman
Anonymous:
I have a series of posts titled, "The Bloodless Coup" you should read.
You know that if Lloyd Blankfein leaves GS, he'll end up at the Treasury in a few years right?
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