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According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia

Thursday, January 13, 2011

Goldman Sachs: We Love Our TBTF Size

While we are seeing Goldman Sachs putting its house in order but, mind you, not replacing the old with the new, just putting things in a different location, we also see GS up to its usual practices--breaking the rules, having conflict of interest issues, covering itself on both the up- and down-sides with fees and fudging the numbers.

We have warning signals coming from observers such as Charles Krakoff at Benzinga, RC Whalen at ZeroHedge, Charles Gasparinto at The Huffington Post, and Simon Johnson from The Baseline Scenario.

An excerpt from Simon Johnson is below:

Goldman Sachs: “We Consider Our Size An Asset That We Try Hard To Preserve”

By Simon Johnson - The Baseline Scenario (also on Economix, The New York Times)

To great fanfare, this week Goldman Sachs unveiled the report of its Business Standards Committee, which makes recommendations regarding changes for the internal structure of what is currently the 5th largest bank holding company in the United States. Some of the recommended changes are long overdue – particularly as they address perceived conflicts of interest between Goldman and its clients.

What is most notable about the report, however, is what it does not say. There is, in fact, no mention of any issues that are of first order importance regarding how Goldman (and other banks of its size and with its leverage) can have big negative effects on the overall economy. The entire 67 page report reads like an exercise in misdirection.

Goldman Sachs is ignoring the main point of the debate made by – among others – Mervyn King, governor of the Bank of England, regarding why big banks need to be much more financed by equity (and therefore have much less leverage, meaning lower debt relative to equity). On p.10 of his Bagehot Lecture in October 2010, for example, King was quite blunt:

“Modern financiers are now invoking other dubious claims to resist reforms that might limit the public subsidies they have enjoyed in the past. No one should blame them for that – indeed, we should not expect anything else. They are responding to incentives. Some claim that reducing leverage and holding more equity capital would be expensive. But, as economists, such as my colleague David Miles (2010) and Anat Admati and her colleagues (Admati et. al., 2010), have argued, the cost of capital overall is much less sensitive to changes in the amount of debt in a bank’s balance sheet than many bankers claim.”

This King/Miles/Admati critique appears to be gaining a great deal of mainstream traction (see this link for more on the Miles’ view). At the American Finance Association (AFA) meeting last weekend in Denver, there was much agreement around the main points made by Professor Admati and the leading group of finance thinkers that recently wrote with her to the Financial Times on this issue. Professor Admati’s slides from Saturday are on the Stanford website (she presented in a Society of Economic Dynamics session, running parallel to the AFA). The Admati, DeMarzo, Hellwig, and Pfleiderer paper examines in-depth, critically, and in the context of current public policy, the mantra that “equity is expensive” for banks; this is available online – on the same page you’ll also find related pieces of varying length. Reviewing any of these materials is an easy way to get up to speed on why Goldman Sachs’ internal reorganization is little more than irrelevant.

Or perhaps it is a thin smokescreen. The Goldman report does have one revealing statement (on page 1, under their “Business Principles”): “We consider our size an asset that we try hard to preserve.”

As John Cochrane, a University of Chicago professor and frequent contributor to the Wall Street Journal puts it, “The incentive for the banks is to be as big, as systemically dangerous as possible.”

This is how big banks ensure they will be bailed out.

Read the full article here and here


Anonymous said...


JR said...

I like those visuals, Anonymous #1!!

Anonymous said...

Maybe someone could forward this guys stuff to the SEC!

Goldman reveals fresh crisis losses and Goldman’s republished results present a new picture

Goldman Sachs has revealed details of about $5bn in investment losses suffered during the crisis for the first time this week, in a move that will deepen the debate over companies’ financial disclosures. The figures, issued as part of internal reforms aimed at silencing Goldman’s critics, show that the bank suffered $13.5bn in losses from “investing and lending” with its own funds in 2008. But Goldman’s regulatory filings and its executives’ comments to investors at the time pointed to about $8.5bn of losses arising from its investments in debt and equity, as markets were rocked by the turmoil.

Contrary to popular belief, it does not appear that Goldman is a superior risk manager as compared to the rest of the Street. They may
the same mistakes and had to accept the same bailouts. They are apparently well connected though, because they have one of the riskiest
balance sheet compositions around yet managed to get themselves insured and protected by the FDIC like a real bank. This bank’s portfolio looked quite scary at the height of the bubble.’s-stance-goldman-sachs-–-once-again

Indian T.v Serials said...

Fantastic post. This has been building for some time, and, not unlike the time of the great depression, it is tearing the American social fabric to tatters. We had a great cause in WWII which served to reunite the republic and demand unity. Happily, we are not on the brink of global conflict (or so it would seem — fingers crossed), but sadly, there is nothing now available to reunite all of us, rich and poor alike to a common cause. Ergo, collapse of the republic is in the wind. Not a day goes by when I don’t think of our position and what a Russian pundit said a couple of years ago — within five years, America will become four separate countries (look at what Illinios has just announced, an increase in state income tax by an unbelievable 67% — other states will follow — sadly, Tucson may not be an aberration before too long as more and more citizens at the middle and bottom are driven to and beyond the brink). Plutach still holds, and G&S still doesn’t get it.

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