April 7, 2008 – 6:02 pm


Even now as we approach the end of days of Ponzi finance, that outdated discredited system’s biggest winner Goldman Sachs clenches it in a white-knuckled fist that can’t be shaken. When ask to explain its insistence at the keeping of the ruinous relic, excessive leverage, the Ponzi king simply boasts:

Leverage isn’t as important as looking at the type of assets a company holds, Viniar told analysts last month. Instead, Goldman pays closer attention to capital ratios that assign risk-weightings to assets, said Viniar, 52, who joined the company in 1980 after graduating from Harvard Business School. He has been Goldman’s CFO since 1999, during which time he also served as co-head of credit risk management.

Well, maybe he means what he says. Or maybe he thinks that soon Goldman will be the single remaining broker on the Street. Maybe he means the banks will be bailed out. Or maybe he’s telling us that after all the insider trading, insider Treasury Secretary, and insider insider-ing, mighty Goldman Sachs is still dependent on debt:

Goldman alone is holding course, refusing to trim its leverage, a measure of how reliant a firm is on debt. The adjusted leverage ratio of assets to equity jumped to 18.6 at the end of February, from 17.5 at the end of November.

To be fair, Goldman Sachs isn’t the only investment firm to make heavy use of borrowed money. Morgan Stanley, Lehman Brothers Holdings and Merrill Lynch among others have been heavily addicted to easy money in prior times. In some cases, the amount of assets held by a firm is 30 times more than shareholder equity, or net worth.

But you must understand that there is a difference between a company who invests to the hilt with leveraged assets, risky as it is, and one who is leveraged to the eyeballs because it has to be. The former is a soon to be dead man, the latter is a dead man walking:

“This is Wall Street financial engineering at its worst,” said Lynn Turner, a former chief accountant at the Securities and Exchange Commission.

“If at the end of the day you have to pay it back, then it’s not permanent capital,” Mr. Turner added. “Even if you can change the timing of when you pay interest, you still have to pay it.”

With Goldman’s leverage ratios going up (17.5 at the end of November to 18.6 at the end of February) there will be a breaking point for it too — a point beyond which the financing is unsustainable, and the Ponzi cards must come tumbling down.


In our humble opinion, at least.

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