Goldman Sachs reported earnings for the first quarter of 2009, which would include January, February and March. But, their quarter-to-quarter comparisons left out this past December. Their 2008 fiscal year ended on November 30, 2008. What happened to December, you might rightfully ask? Maybe at Goldman they take December off?
Sorry, no. They report earnings for December all right. In fact, until this year, December was the start of Goldman’s Q1, with their fiscal year ending on November 30th. This past year, however, was a little different. The meltdown of Wall Street led to $700 billion in TARP funds just looking for a comfortable home, and Goldman Sachs has never been one to be left out of something like that, it should come as no surprise.
So, in order to qualify as a “commercial bank,” Goldman became one and in doing so changed its fiscal year to a calendar year… January 1 – December 31.
So the question naturally presents itself: what happened in December? The question is discreet enough, but the way the bank answered it is something other than. Goldman took write-downs of $1 billion on junk assets and another $625 million on commercial real estate in its fixed-income, currencies, and commodities (FICC) unit according to page 10 of the earnings report. They also report losses of $1.3 billion before taxes, $800 million after the tax benefit, they deigned to pay, but those losses were deliberately hidden from investor plain view on the bank’s 8-K filing in which management announced its intention to raise cash.
… , Goldman Sachs is preparing to return $10 billion in taxpayer funds as fast as the ink can dry on the check. But the bank, and a number of others, is quietly holding on to other forms of public support that come with virtually no strings attached.
The program has allowed Goldman to issue $28 billion in debt over the last six months. The debt totals more than $40 billion each for Bank of America and JPMorgan Chase, and $23 billion for Morgan Stanley.Goldman was the first bank to take advantage of the debt program when it was introduced in November, when the financial crisis made it nearly impossible for companies to raise cash. Morgan Stanley and Citigroup were quick to follow. More than 119 debt deals have been issued with the F.D.I.C.’s backing, according to Dealogic. Larger banks are using the program more than smaller ones, because they have capital markets businesses that depend on financing in the public markets.
Banks have been benefiting from an indirect subsidy adopted by the federal government at the height of thefinancial crisis last fall that allows them to issue their debt cheaply with the backing of the Federal Deposit Insurance Corporation.
That debt — more than $300 billion for the banking industry so far — helped otherwise cash-strained banks to keep their businesses running even when it was virtually impossible for other companies to raise funds. The program will continue to bolster scores of banks through at least the middle of 2012.
The F.D.I.C. program does not come with the compensation and other regulatory conditions attached by Congress to the $700 billion bailout, but it charges the banks a small fee. Rather than relying on a direct infusion of taxpayer money, the agency is helping the banks raise debt from private investors by endowing them with the equivalent of an AAA rating. If any of the banks relying on the guarantees ran into trouble, the F.D.I.C. would make good on those bonds.
Bank executives are quick to acknowledge that the program was critical to their survival.“We would have had a real problem in the capital markets,” said David A. Viniar, the chief financial officer of Goldman. “The market shut down.”
Mr. Viniar said in an interview that Goldman had no indication that lawmakers intended to add rules to banks who issued the government-backed debt. And he said that the backing was not all that different from insurance that the F.D.I.C. provides on deposits in banks.
From his perspective, the rules surrounding TARP are related to its use of taxpayer money, Mr. Viniar said. As for the debt, he noted that Goldman and the other banks borrowed from private investors, not the government.
The F.D.I.C. is charging banks for its backing, and has already pulled in nearly $7 billion in fees intended to be used to cover defaults on any of the bank debt issued in the program, should a bank collapse.
But given the huge amounts of debt issued by Goldman, JPMorgan Chase and Morgan Stanley alone, any major collapse could breach the F.D.I.C.’s reserves. The agency has asked Congress for authority to borrow more money from the Treasury in case of an emergency.
That debt — politely phrased “legacy assets” (nice media coup on dispensing with the term “toxic waste”) which could breach the F.D.I.C.’s reserves in the case of any major collapse — is issued to the banks at a low interest rate, then dropped onto the workin’ taxpayin’ stiff, already burdened with financing the bailout at a vastly higher rate:
While the Fed cuts the banks slack, the bankers are busy turning the screws on their debtors by raising credit card rates and fees, and harassing distressed borrowers with all the zeal the Roman army displayed sacking Palestine. —which is exactly what has happened. The extra fees are just gravy.
Double standards are nothing new on Wall Street or K street:
It takes good banking skills to borrow at 3%, lend at 5%, and make a profit. It takes much less business acumen to borrow at 2%, lend at 5%, and make a profit
But at Goldman Sachs it is political acumen, not business acumen on which wealth is transferred and fortunes made, wealth from those with the least to the Goldman principals and partners and anointed ones with the most:
Many retirees depend on interest from certificates of deposit. Those rates are down dramatically and as CDs expire, retirees are compelled to reinvest their savings at lower rates and live on less income. They can take comfort that their sacrifices are helping pay off Wall Street’s losses from the lavish bonuses that were paid bankers—for example, the $70.3 million Goldman doled out to CEO Lloyd Blankfein in 2007.
They couldn’t be more shameless if they opened your grandmother’s mail box and stole her pension check, but don’t expect the siphoning to end soon, without it all Goldman Sachs would have left is its superior opinion of itself. And though Goldman’s superiority complex won’t pay for the yachts and private jets that would come as quite a news flash to the elite at Sachs.
We are talking a 6x increase in CMBS spreads that GS is rife with at a minimum of 14x leverage over a comparable time period (and a 30x increase all in all). This will just get worse as we get more of this:For those that attempt to argue that short sellers are bad for the market, I bring you GGP! and GGP has finally filed Bankruptcy, Proving My Analysis to be On Point Over the Course of 18 Months. With this GGP bankruptcy, spreads will blow out even wider as asset values drop farther. Then there are all of the other REITs who share similar problems, just on a lower scale (at least thus far). With the advent of the new FASB Fantasy Accounting Rules, it is possible that Goldman can hide these stresses and losses from average institutional and retail investors as well as the government. Well, they can’t hide it from BoomBustBlog subscribers. Bear Stearns and Lehman Brothers had very, very similar real estate exposure. Look at where they are now! As a matter of fact, there are charts comparing the exposure of Goldman, Lehman, Merrill Lynch and Morgan Stanley in the Stress Test that I am about to release. It is revealing and interesting indeed. Goldman is trading at nearly $130…
Despite its criminal business model, corrupting influence on society and wholesale fleecing of the entire nation, Goldman Sachs is the leader of the financial pack, and the financials (still) lead the stock market and overall economy. As any trader looking for hints of a turn around knows, the financials must turn first, meaning that like or not the road to any recovery runs straight through the board room of Goldman Sachs. So an economy in desperate search of good news and knowing that it can be only as healthy as Goldman looks to their Q1 for answers. Can it like what it finds there?
After orphaning and abandoning all the unwanted bastard children of losses past and future, then siphoning off of vast sums of poor taxpayer wealth, Goldman’s first quarter all comes to this: a one time big hit from the trading unit (FICC), then looming future losses hidden in plain sight, as far as the eye can see. Losses and credit exposure on a scale far greater that that which sent Bear Stearns and Lehman Brothers into bankruptcy, a credit exposure on a scale that could cause the collapse of Goldman’s sacks, ruin its investors, cripple the national economy already burdened by the massive dead weight of all the banks, and erase the hope of a White House that’s hoping against hope that the worst is past. Is it? Mandelman says it best:
When it comes to the value of its own investments, however, Goldman didn’t do nearly as well. In fact, in the “Other corporate and real estate gains and losses,” category, Goldman lost $1.4 billion in Q1 of 2009, on top of the $800 million the firm lost in December of ‘08. So, they offset these losses with the gains they made from trading, so what? Are we supposed to believe that Goldman’s trading gains in Q1 of 2009 somehow signal the end of the recession? I guess we are at that… but I’m not going to… how about you?
Well I’m not either, but will point out that Goldman did not mention loan loss reserves, since it presumably expects the taxpayer to pay for the bad loans anyway.