Sunday, September 6, 2009

Goldman Speaks

"Lloyd Blankfein [LAB], the 54-year-old chairman and CEO of Goldman Sachs [GSG], is powerfully perplexed. In the past six months, his investment-banking and securities-trading firm has roared ahead in profitability by taking risks--that other firms would not--for itself and its clients in an edgy market. ... For this, the level of resentment and ire directed at [GSG]--from Congress, from competitors, from the media, from the public--has never been higher. ... A recent story in Rolling Stone, of all places, in which the author described [GSG] as a 'great vampire squid wrapped around the face of humanity,' has been particularly troubling to him. ... 'I was shocked that others saw it as being supporting evidence that [GSG] had burned down the Reichstag, shot the Archduke Ferdinand and fired on Fort Sumpter.' ... It's a odd contradiction: an excelling company being reviled in a country that embraces the profit motive. And without question, [GSG] under Blankfein has recalibrated, in very large numbers, its place as Wall Street's most astute, most opaque and most influential firm. In the first and second quarters of 2009, the company earned $5.3 billion in net income, the most profitable six-month stretch in [GSG's] history. [GSG's] stock has more than tripled since its low last November, to more than $160 per share. ... The confounding thing, of course, is that after the bailout of AIG, [GSG] got $12.9 billion from AIG in the form of collateral that [GSG] already had in its posession and a cash settlement of ongoing margin disputes. 'The fact of the matter is, we already had the collateral,' Blankfein says. 'If AIG had defaulted, guess what--we would have kept the collateral from AIG and from the banks we'd bought protection from. The government's decision to bail out AIG was about risks to the system. It wasn't about [GSG].' ... 'If AIG would have gone bankrupt, it would have affected every institution in the world, because it would have had a big effect on the entire financial system,' explains David Viniar, [GSG's] CFO. ... 'Something that was a virtue now looks like a vice,' [LAB] says. 'I don't think we're going too far in this country if we make it a bad thing for people to migrate from business into other activities like writing or philanthropy or public service.' ... Taxpayer's annualized return on their nine-month investment in [GSG]? A cool 23%. ... [LAB] 'takes it very personally when people act against the firm or show disloyalty,' says a former [GSG] executive. ... [LAB] is convinced that [GSG] is good for its clients, for the world's capital markets--and yes, for America as well. 'I would like for us to be thought of as always doing the right thing and for people at the firm to be confident that they are doing the right thing,' he says", my emphasis, William Cohan (WC) at Time, 31 August 2009, link:,9171,1917727,00.html.

I'm not sure if WC intended this as a GSG puff piece, but that's how it struck me. WC even included scenes from LAB's early life in Brooklyn, going to Thomas Jefferson High School, a school in the "community". Wow, LAB and I are "homies". We grew up about two miles apart. LAB is New York's Abe Lincoln! I am as charitable to GSG as Matt Taibbi at Rolling Stone. AIG gave GSG $12.9 billion and we are to believe GSG had no net AIG exposure. Hahahahahaha. GSG's stock more than tripled since 21 November 2008, when it was $47.41. GS is now $163.41, a 244.7% increase and Uncle Sam got a "cool 23%". Huh? GSG's last proxy statement shows LAB beneficially owned 3,354,836 shares now worth $548 million. LAB made $389 million in the last nine months. Nice. LAB, do "the right thing". 23% annualized is 1.74% per month. LAB, show us you feel us peasants pain, we who bailed out your risky, overleveraged, leaking ship. Uncle Sam's nine month return was 16.8%. So LAB, take the $47.41; multiply it by 1.168, giving $55.37 per share. Now subtract $55.37 from $163.41 giving $108.04; multiply by 3,354,836 giving $362 million. Take the $362 million and donate it to Uncle Sam. Or just give Unc 2,215,000 GSG shares. Then "explain" to each GSG employee who made over $1 million last year, all 953, he should make a similar calculation, lest you accuse him of "disloyalty" to GSG. Well LAB? Where's ours? Tell us LAB, what happens to "disloyal" GSGers? Do you send to Afghanistan to be stoned to death for apostasy? You do, don't you?


Anonymous said...

The one I get confused about is Maiden Lane III... GS got $5.6B. Only SocGen got more. $27.1 billion paid to all counterparties. (Note JPM didn't participate in bailout)

From the Fed -- "On November 25, 2008, the Federal Reserve Bank of New York (FRBNY) began extending credit to Maiden Lane III LLC under the authority of section 13(3) of the Federal Reserve Act. This limited liability company was formed to purchase multi-sector collateralized debt obligations (CDOs) on which the Financial Products group of American International Group, Inc. (AIG) has written credit default swap (CDS) contracts. In connection
with the purchase of CDOs, the CDS counterparties will concurrently unwind the related CDS transactions."

Were these done at 100 cents on the dollar? Fed was paying full retail?

The comp was the trade Merrill did before the Lehman Brothers meltdown unglued the markets.

On July 28, 2008, Merrill Lynch agreed to sell $30.6 billion gross notional amount of U.S. super senior ABS CDOs to an affiliate of Lone Star Funds for a purchase price of $6.7 billion. At the end of the second quarter of 2008, these CDOs were carried at $11.1 billion, and in connection with this sale Merrill Lynch will record a write-down of $4.4 billion pretax in the third quarter of 2008."

I hope Bloomberg gets disclosure on this bailout too.

Are they trading the assets of Maiden Lane III?

"May 6, 2009, The Federal Reserve's net portfolio holding of Maiden Lane III LLC is 26.4 billion dollars"

Sept. 3, 2009, Net portfolio holdings of Maiden Lane III LLC $20.8 billion dollars.

Big drop. What gives?

Blankfein "giveback"? Sure... very good idea.

rightsaidfred said...

I'm probably too naive to comment on this, but does GS really add that much value to the economy? Don't they have some exclusive agreement to move some Fed paper? Are they drawing commissions on some simple pass through transactions that could be done much cheaper?