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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

Wednesday, January 16, 2013

Goldman Sachs: Leverage? You Haven't Seen Anything Yet!

Regarding yesterday's post about Goldman Sachs (U.K.) trying to avoid paying taxes by delaying bonuses for its bankers, Goldman has retreated from that position.  Apparently, Goldman decided not to take advantage of the lower tax rate because of the backlash from newspapers and from the Governor of the Bank of England.  Goldman does need "goodwill" after all.

Accusations of greed have a depressing effect on the people when banks that caused the financial crisis again take advantage of their position of power to try to avoid their duty as "corporate citizens" to pay their taxes.  They deserve their shame.

Now Goldman is doing just fine.  It earned $2.9 billion in the last quarter of 2012; it earned a total of $7.2 billion for all of 2012; it earned $5.9 billion in revenue from trades with its own account.  These risky trades will may disappear if regulations getting rid of such risky trades are fully implemented in the future.  (Don't hold your breath while you are waiting!)

If you want to know what risks Goldman is taking, read the following article where you will find that Goldman Sachs has total assets of more than $114 billion but has a total exposure to Derivatives of more than $41 trillion which means the Goldman has exposure to derivatices 362 times greater than its total assets.  Now that's leverage for you!

Goldman Sachs And The Big Hedge Funds Are Pushing Leverage to Ridiculous Extremes
By Michael - The Economic Collapse

 As stocks have risen in recent years, the big hedge funds and the "too big to fail" banks have used borrowed money to make absolutely enormous profits.  But when you use debt to potentially multiply your profits, you also create the possibility that your losses will be multiplied if the markets turn against you.  When the next stock market crash happens, and the gigantic pyramid of risk, debt and leverage on Wall Street comes tumbling down, will highly leveraged banks such as Goldman Sachs ask the federal government to bail them out?  The use of leverage is one of the greatest threats to our financial system, and yet most Americans do not even really understand what it is. 

The following is a basic definition of leverage from Investopedia: "The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment."  Leverage allows firms to make much larger bets in the financial markets than they otherwise would be able to, and at this point Goldman Sachs and the big hedge funds are pushing leverage to ridiculous extremes.  When the financial markets go up and they win on those bets, they can win very big.  For example, revenues at Goldman Sachs increased by about 30 percent in 2012 and Goldman stock has soared by more than 40 percent over the past 12 months.  Those are eye-popping numbers.  But leverage is a double-edged sword.  When the markets turn, Goldman Sachs and many of these large hedge funds could be facing astronomical losses. (My paragraphing)

Read the rest of the article here


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