Let's Talk About How Goldman Makes Money; 1 in 6 in USA Unemployed or Underemployed

[fhl]

Quote from ByLoSellHi:

While South Korea, Japan, China and other nations spend on R&D on how to design and build the best 'stuff' in the world, we and the U.K. rot away while the self-interested design and build financial products that won't be wanted or needed very soon - a few profit immensely, short term, at the expense of the nation, long term.

The Joy of Sachs

By PAUL KRUGMAN
Published: July 16, 2009

http://www.nytimes.com/2009/07/17/opinion/17krugman.html

The American economy remains in dire straits, with one worker in six unemployed or underemployed. Yet Goldman Sachs just reported record quarterly profits — and it’s preparing to hand out huge bonuses, comparable to what it was paying before the crisis. What does this contrast tell us?

First, it tells us that Goldman is very good at what it does. Unfortunately, what it does is bad for America.

Second, it shows that Wall Street’s bad habits — above all, the system of compensation that helped cause the financial crisis — have not gone away.

Third, it shows that by rescuing the financial system without reforming it, Washington has done nothing to protect us from a new crisis, and, in fact, has made another crisis more likely.

Let’s start by talking about how Goldman makes money.

Over the past generation — ever since the banking deregulation of the Reagan years — the U.S. economy has been “financialized.” The business of moving money around, of slicing, dicing and repackaging financial claims, has soared in importance compared with the actual production of useful stuff. The sector officially labeled “securities, commodity contracts and investments” has grown especially fast, from only 0.3 percent of G.D.P. in the late 1970s to 1.7 percent of G.D.P. in 2007.

Such growth would be fine if financialization really delivered on its promises — if financial firms made money by directing capital to its most productive uses, by developing innovative ways to spread and reduce risk. But can anyone, at this point, make those claims with a straight face? Financial firms, we now know, directed vast quantities of capital into the construction of unsellable houses and empty shopping malls. They increased risk rather than reducing it, and concentrated risk rather than spreading it. In effect, the industry was selling dangerous patent medicine to gullible consumers.

Goldman’s role in the financialization of America was similar to that of other players, except for one thing: Goldman didn’t believe its own hype. Other banks invested heavily in the same toxic waste they were selling to the public at large. Goldman, famously, made a lot of money selling securities backed by subprime mortgages — then made a lot more money by selling mortgage-backed securities short, just before their value crashed. All of this was perfectly legal, but the net effect was that Goldman made profits by playing the rest of us for suckers.

And Wall Streeters have every incentive to keep playing that kind of game.

The huge bonuses Goldman will soon hand out show that financial-industry highfliers are still operating under a system of heads they win, tails other people lose. If you’re a banker, and you generate big short-term profits, you get lavishly rewarded — and you don’t have to give the money back if and when those profits turn out to have been a mirage. You have every reason, then, to steer investors into taking risks they don’t understand.

And the events of the past year have skewed those incentives even more, by putting taxpayers as well as investors on the hook if things go wrong.

I won’t try to parse the competing claims about how much direct benefit Goldman received from recent financial bailouts, especially the government’s assumption of A.I.G.’s liabilities. What’s clear is that Wall Street in general, Goldman very much included, benefited hugely from the government’s provision of a financial backstop — an assurance that it will rescue major financial players whenever things go wrong.

You can argue that such rescues are necessary if we’re to avoid a replay of the Great Depression. In fact, I agree. But the result is that the financial system’s liabilities are now backed by an implicit government guarantee.

Now the last time there was a comparable expansion of the financial safety net, the creation of federal deposit insurance in the 1930s, it was accompanied by much tighter regulation, to ensure that banks didn’t abuse their privileges. This time, new regulations are still in the drawing-board stage — and the finance lobby is already fighting against even the most basic protections for consumers.

If these lobbying efforts succeed, we’ll have set the stage for an even bigger financial disaster a few years down the road. The next crisis could look something like the savings-and-loan mess of the 1980s, in which deregulated banks gambled with, or in some cases stole, taxpayers’ money — except that it would involve the financial industry as a whole.

The bottom line is that Goldman’s blowout quarter is good news for Goldman and the people who work there. It’s good news for financial superstars in general, whose paychecks are rapidly climbing back to precrisis levels. But it’s bad news for almost everyone else.

This article just about takes the cake for stupidity.

1 What GS does is bad for America? Krug doesn't like the way they allocate capital? Of course he doesn't. He wants the gov't to allocate capital. And I mean you have to be dumber than a mud fence to think gov is gonna do it better.

2 Compensation for results is bad for America? Once again, that is just about the stupidest thing i've ever read. It's not going to take too long to find out just how stupid over the next several years when we see the results of Obama GM come in.

3 So krug wants barney and (friend of Angelo) chris to reform wall street, eh? Is he really too ignorant to notice what they did for the gse's, or that they are now, as i write, agitating for the gse's too AGAIN lower lending standards and get the money moving? It's almost too much to comprehend, this stupidity.


Krug can't stand GS "slicing and dicing " and moving money around. He says it serves no useful purpose. Of course, you have to remember that he wants the gov't to move the money around, you know, to 'green' projects and the like. Who's stupid enough to think that this is going to be the 'model of efficiency'?

And then he has to hint around at this idiotic reasoning that GS is private during the good times and socialist during the bad times. Did he not notice that GS and wall street give up half of their profits for decades while gov't shared in NONE of the losses? Only a freakin moron would go on about this capitalist during good times and socialist during the bad times. Hey, how about if you take away the bailouts, you also take away the confiscatory taxation of profits, too, krug. Anyone think he'll bite on that?

And when the mortgage market topped out, GS shorted it. Wow, now that's a reason to hate them. Congratulations for being a schmuck.

 

[Roman Candle]

Quote from asiaprop:

show me where GS acted illlegally and I openly admit I respected the wrong bunch of people. Or maybe GS should have donated all their net p&l to people like you? You seem to be heavily opposed to capitalism and are unwilling to accept the drawbacks that such system comes with. May I suggest ET is the wrong place for you then?

This is my last post in response to ANY of your past or future posts, you pump out posts that you are simply unable to argue. Its unfortunate you continue lowering the average quality of posts but go ahead if you really can't help it.

I want to here the good things Goldman does for this country. There must be something.

 

[Roman Candle]

Quote from asiaprop:

Another post full of negativity? You slowly but surely give out the impression that you are a little depressed boy sitting somewhere in the Midwest, having been burned by your subprime mortage, and you now feel you have to go on a crusade against WallStreet, China, and what is next?

The article you posted DOES NOT support the point that what Goldman does is bad for America. The p&l GS pumped out did not come in the slightest from structuring any derivatives. Nor did it come from any illegal activities. It came from sales and trading by some of the brightest. Dont get me wrong, GS is not my god. But a company that currently maintains a full oil tanker fleet to circumvent the technicalities of how oil futures currently trade
is something no other bank does (correct me if I am wrong). This among uncountable other examples is something I respect GS for. To be clear, I dont respect GS for its traders but for the foresight of its senior management, who guide senior traders to take risk when no other banks take risk and to reduce risk when everyone is as bullish as it gets. How can you or Krugman blame GS for the fact that they sold off their structured Mortgage derivatives while all other idiots did not get what was going on with a crumbling housing market.

GS did (almost) everything right yet everyone seems to hate GS, why? A simple answer: Envy!!! There are always winners and losers. The whole capitalist system is build on the premise to reward those who take risk and maximize gains within the legal framework. Since when is there anything wrong with that?

As a major player in the financial markets, they shorted America. As a major financial player you would think they have a duty to help the country in which they operate. That’s just common courtesy. When you put money ahead of human beings you’re bound to fail. Don’t get me wrong I see nothing wrong with making a profit you can’t exists with out one, but Goldman is all profit. They have a major public image problem.

 

[fhl]

Quote from Roman Candle:

I want to here the good things Goldman does for this country. There must be something.

They met market needs. That's what profits represent. Doesn't count much for most libs, though, does it.

The liberal version of doing something good is handing over major companies like GM to unions and making cars that liberals want, (customers sure don't want them), and drowning in red ink as a result. But I'm sure that liberals will all agree that GM is "doing something for the country".

It's hard to know whether to laugh or cry.

 

[Roman Candle]

Quote from Cygnus Atratus:

Naaah, l am in London, could not care less what happens in USA, just an observer. Also got no problems with Jews, as a black dude have even date 3 Jewish girls. In fact in my younger days even used RediPlus. I enjoy interacting with sharp people, but do not like Old Boys Club style capitalism, especially after what happened. Actually my favourite research is from Danske Bank and Goldman Sachs.

P.S. Question, do Bull Markets start with 100% rallies in Zombie Companies ?

Not one person said anything about conspiracy, you tactic is all to clear.

 

[Roman Candle]

Quote from asiaprop:

now its a government/gs mafia. Any other conspiracy theories? Lol, you also challenge that men landed on the moon?

GS is well connected and thats good for GS and less good for its competitors. If you feel ill represented in Washington D.C. why dont you make use of your right to vote for the right guy then? Maybe there will be an anti-GS party forming before the next elections. Dude, argue as long as you want but government is still elected through a democratic process. If you even challange this maybe its time for a revolution? Or could it all be that some of you are actually anti-semitic but dont want to look stupid so rather than blaming it on the Jews GS seems a much better target?

Not one person said anything about conspiracy, you tactic is all to clear.

 

[usedtowork]

Quote from Cygnus Atratus:

Goldman Sachs is a US Government sponsored and supported hedge fund. What most of you non trading twats fail to realise is how they are actually influencing "markets" daily. If you have Bloomberg look at their daily SLP participation, particularly for end of March, April, May and June, and their sudden drop off the list recently. Unfortunately most individuals are too naive to see/read in between the lines. If you have Capital IQ or some other decent data look at Goldman's changes in Tier III assets each Quarter from Q3 2007. In any case their latest results reveal everything, how do you match the VaR they published vs daily P&L they declared ?

For those of us without the data or the ability to read between the lines, can you explain what you mean?

Quote from asiaprop:

You love the benefits of a capitalist system yet you dont want to bear the fact that it weeds out the weak.

I don't see that, since GS went begging for government funds as its business blew up in its face.


It's disappointing to see the start of another earnings season where Wall Street analysts are lowballing Wall Street favorites like GS and JPM to pump up prices, I don't see how anyone who actually works in this system trusts virtually any of the players inside it. Saying "they're just like everyone else" doesn't make it right, especially when they're using my tax dollars as a risk management strategy.

 

[gastropod]

Quote from asiaprop:

lol, you dont even understand how they made their money yet you assert they acted illegally? Funny!!! Some of you guys are so obviously controlled my envy and outright reject facts.

What is wrong with GS being a whaler in program trading? If you trade NYSE stocks or the like why dont you file a law suit if you think GS wrongly took away from you? Otherwise I suggest you shut up and get your facts straight.

I NEVER said GS acted ethically. But this is not the point. If you start arguing about ethics then where do you stop?

I can see that you TOTALLY fail to understand capitalism. Capitalism exists BECAUSE of good ethics. Without GOOD ethics there is no version of capitalism that will work.

Mere laws on books will NEVER work for capitalism. That is part of the problem with MODERN capitalism. You have large companies that will go out and steal the smaller companies' patents - not because they think it is right...but, because they can get away with it LEGALLY - they can drag cases through the courts and the smaller company will never win the case, because they don't have the money to pay for extended court costs. Several banks just had to pay a fine for charging usurious interest rates on their credit cards. Had the case not been taken up by the "state" - the customers would have been completely screwed. Did the banks not know that usurious rates were illegal? No - they thought they could get away with breaking the law. Had the banks been "ethical" - they would not have pillaged their customers. This is just one example of "laws not working."

Let me guess - you think that Madoff's only crimes were to the "victims" who he ripped $65 Billion out of...you are wrong - he injured the "American" brand - all Americans lost! Americans (of which I am one) have lost, because there are people out there who will no longer trust American products - financial or otherwise. Mere breaking of laws affects the direct victims of the broken laws. Breaking ethics has a more profound impact on society.

-gastropod

 

[ivanbaj]

Quote from fhl:

This article just about takes the cake for stupidity.

1 What GS does is bad for America? Krug doesn't like the way they allocate capital? Of course he doesn't. He wants the gov't to allocate capital. And I mean you have to be dumber than a mud fence to think gov is gonna do it better.

2 Compensation for results is bad for America? Once again, that is just about the stupidest thing i've ever read. It's not going to take too long to find out just how stupid over the next several years when we see the results of Obama GM come in.

3 So krug wants barney and (friend of Angelo) chris to reform wall street, eh? Is he really too ignorant to notice what they did for the gse's, or that they are now, as i write, agitating for the gse's too AGAIN lower lending standards and get the money moving? It's almost too much to comprehend, this stupidity.


Krug can't stand GS "slicing and dicing " and moving money around. He says it serves no useful purpose. Of course, you have to remember that he wants the gov't to move the money around, you know, to 'green' projects and the like. Who's stupid enough to think that this is going to be the 'model of efficiency'?

And then he has to hint around at this idiotic reasoning that GS is private during the good times and socialist during the bad times. Did he not notice that GS and wall street give up half of their profits for decades while gov't shared in NONE of the losses? Only a freakin moron would go on about this capitalist during good times and socialist during the bad times. Hey, how about if you take away the bailouts, you also take away the confiscatory taxation of profits, too, krug. Anyone think he'll bite on that?

And when the mortgage market topped out, GS shorted it. Wow, now that's a reason to hate them. Congratulations for being a schmuck.

Good post!

I am scared shitless that this crisis can bring a situation where people expect that regulations can:

1. Remove the fluctuation out of the markets and bring a steady growth up
2. Punish capitalists who make too much and benefit from the market fluctuations
3. Put the government in charge of capital spending and planning
4. Increase people security for health care, pension, education, food supply, housing etc... Just make life secure.

If this happens in the USA (happened?). We are screwed. Unless there are other major economies that could continue with a free market capitalism. But who? Europe, Japan or China? It is damn scary.

Yes regulation could bring that but for a limited time and after that you will be royally screwed. What happened in the last few years will not even compare. Going to the grocery store and seeing people lined up for a mile to by the single item available for sale is what I am talking about.

Do not seek security from government regulations. Life is random and unsecure no one can fix that. Learn to deal with it and you will be happy.

 

[Martinghoul]

Quote from ivanbaj:


Do not seek security from government regulations. Life is random and unsecure no one can fix that. Learn to deal with it and you will be happy.

Life is random and unsecure, unless you happen to be a systemically important financial institution. If you have been anointed as one of the above, you can always count on a govt backstop, which would make your life orderly and very secure indeed.