WSJ: GOLDMAN CONTINUES TO PROFIT FROM DERIVATIVES

Editor’s Note: It’s important to remember that “derivatives” “derive” their value from something other than the paper it is written on. One must wonder how the real stuff is going down in value (mortgage bonds, mortgage loans and “real” collateralized debt obligations) while the fake stuff is producing profits. This is what I mean by the grand illusion. If we don’t address it, we can’t fix it.

GOLDMAN DERIVATIVES MADE UP 25% TO 35% OF 2009 REVENUES

By LIZ RAPPAPORT

Goldman Sachs Group Inc. told the Financial Crisis Inquiry Commission that 25% to 35% of its revenue comes from derivatives-based businesses, according to a person familiar with the situation.

The figures are part of Goldman’s response to a request by the panel to disclose information about its derivatives holdings and operations. Derivatives have been blamed for exacerbating the credit crisis, and Goldman has faced scrutiny from the FCIC for its derivative contracts with American International Group Inc., the insurer bailed out by the U.S. government.

A memo sent to the panel Thursday night by the New York company included an analysis of derivatives-based revenue at Goldman from 2006 through 2009, said the person familiar with the matter. Based on the percentages provided by Goldman, such businesses generated $11.3 billion to $15.9 billion of the company’s $45.17 billion in net revenue for 2009.

An FCIC spokesman wouldn’t immediately confirm that the panel has received the information from Goldman or any other firm. “We’ve asked for the same information from several banks,” the spokesman said. “They have all indicated they are working hard to provide that information to us. If we need additional information, we will ask for it.” The 10-person commission is required by Dec. 15 to issue a report on the causes of the financial crisis.

Goldman’s analysis reflects all derivatives products, ranging from credit to equity to interest rates, traded on and off exchanges, said the person familiar with the situation.

Goldman said it doesn’t conduct its businesses in a way that delineates revenue from derivatives transactions or other types of trading, this person said.

For example, Goldman cited credit-trading desks that are separated by industry group, adding that traders are indifferent to whether they are selling clients a bond or a credit derivative. As a result, separating the revenue among the two product lines is useless, Goldman told the FCIC. The firm also said its technology systems firm-wide don’t single out derivatives transactions.

The analysis was based on a “best guess” of the main type of trading on each Goldman trading desk at the firm, said the person familiar with the matter. The numbers vary widely, with the company’s fixed-income unit getting much more of its revenue from derivatives than investment banking, where no revenue is tied to derivatives.

Write to Liz Rappaport at liz.rappaport@wsj.com

9 Responses

  1. “The FBI began warning of an “epidemic” of mortgage fraud in its congressional testimony in September 2004. It also reports that 80% of mortgage fraud losses come when lender personnel are involved in the fraud. (The other 20% of the fraud would have been impossible had these fraudulent lenders not suborned their underwriting systems and their internal and external controls in order to maximize their growth of bad loans.)”

    Congressional testimony from 2004. Here is direct proof from the FBI that at least 80% of the fraud perpetrated wasn’t deadbeat homeowners or folks using their homes as ATMs.

    http://www.huffingtonpost.com/william-k-black/how-the-servant-became-a_b_318010.html

    It’s time to stand up to the bankers and Congress and say…no more. STOP PAYING YOUR MORTGAGE! NOW!

  2. Please folks, read this…..it’s at the heart of this mess…

    Prof William H. Black says:

    ” [Wall Street] misallocates capital by creating recurrent financial bubbles. Instead of flowing to the places where it will be most useful to the real economy, capital gets directed to the investments that create the greatest fraudulent accounting gains. The financial sector is particularly prone to providing exceptional amounts of funds to what I call accounting “control frauds”. Control frauds are seemingly-legitimate entities used by the people that control them as a fraud “weapons.” In the financial sector, accounting frauds are the weapons of choice. Accounting control frauds are so attractive to lenders and investors because they produce record, guaranteed short-term accounting “profits.” They optimize by growing rapidly like other Ponzi schemes, making loans to borrowers unlikely to be able to repay them (once the bubble bursts), and engaging in extreme leverage. Unless there is effective regulation and prosecution, this misallocation creates an epidemic of accounting control fraud that hyper-inflates financial bubbles. The FBI began warning of an “epidemic” of mortgage fraud in its congressional testimony in September 2004. It also reports that 80% of mortgage fraud losses come when lender personnel are involved in the fraud. (The other 20% of the fraud would have been impossible had these fraudulent lenders not suborned their underwriting systems and their internal and external controls in order to maximize their growth of bad loans.)”

    http://www.huffingtonpost.com/william-k-black/how-the-servant-became-a_b_318010.html

    Hey folks, it’s not us, it’s them. Let’s bring them down.

  3. Phil Graham loomed in the corners to line his pockets with the banksters money. Clinton says he was mis-advised while chasing skirts in the White House. Greenspan stated
    he did not understand. Bush was not smart enough to have a clue. Finally, Obama continues the cover up.

    Be a patriot, Stop your payment. Fight these bastards.

  4. Why is that a homeowner who makes a financially sound decision about their future is called “unethical” but a big corporation like the Mortgage Bankers of America are called “smart” for strategically defaulting.

    MBA did the exact same thin – they bought another building and then walked away from their current building because they were underwater. They were praised for their sound financial decision.

    Yet a homeowner is “unethical?” Please!!!!! Enough of the guilt trip – we did not create this mess, the greedy bankers and their Wall Street minions did.

    FBI – investigate them not us. They have lied, cheated, and stolen from us. It’s JAIL OUT time.

  5. Read the Article – Stephen Kodak spokesman for the FBI said they are investigating the homeowners but they will not investigate the banks !!!!!!!

    `Buy and Bail’ Homeowners Get Past Loan Restrictions

    http://www.bloomberg.com/news/2010-08-10/-buy-and-bail-homeowners-get-past-mortgage-hurdles-from-fannie-freddie.html

  6. THE AMERICAN HOLOCAUST
    Regarding loan modification and short sales.
    we are applying to the same companies that lied to us.

    NO WONDER IT IS NOT WORKING.

    NO WONDER THEY ARE LAUGHING AT OBAMA.

    NO WONDER THEY ARE LAUGHING AT US.

    I CAN NOT BLAME THE SO CALLED BANKS ANYMORE. OUR GOVERNMENT IS FOR SOME REASON LETTING THEM GET AWAY WITH IT. SO WHY SHOULDNT THEY.?

    NEVER AGAIN

  7. Credit doesn’t matter anymore, having good or bad. Just file bankruptcy, those lawyers seem to be able to get more done than normal lawyers.

    I have nothing in the bank that they could take, my 401k is non-existent, as i’m still young. So i could care less about my credit, my current neg-am loan hurts my credit anway, so no matter what, i’m damned.

    So screw them, i’m going to file chapter 13, and force a restructure/mod/or recission. What the hell do i care about my credit anyway. They are the only ones who care about it, not me.

    My family has done business with the same local bank for over 50 years, and i’ve never had a problem with me, they will always lend me money for a car or something else.

    Local banks are the way to go, stay away from any “national” banks.

  8. OH AND JUDGE THERE IS A SECURITIZATION POOL AND WE MAY NEVER KNOW WHO THE REAL LENDERS ARE. DO YOU THINK THEY WONT SHOW UP ONE DAY?

    IN THE MEAN TIME YOU ARE REWARDING THE CROOKS (JUST LOOK AT HOW MANY LAWSUITS COUNTRYWIDE AND BANK OF AMERICA ARE UNDER AND HAVE LOST)

    MY RECORD IS SQUEEKY CLEAN UNTIL I MET COUNTRYWIDE THE SO CALLED “LENDER” HOW MUCH BUSINESS DID THEY STEAL FROM REAL MORTGAGE BROKERS. IT IS INDUSTRY STANDARD TO TRUST BANKS MORE THAN BROKERS BECAUSE BANKS ARE SUPPOSED TO BE LENDERS AND HAVE AN INTEREST IN THE LOAN.

    NEVER AGAIN

  9. THE AMERICAN HOLOCAUST

    TO THE JUDGES
    ON MY LOAN DOCUMENT IT STATES THAT THE BANK IS THE LENDER.

    TO THE JUDGES
    EVEN THE BANK ADMITS THAT THE LOAN WAS TRANSFERED AT LOAN ORIGINATION. MAKING THE LENDER NOT A LENDER.

    JUDGES SAY
    SO WHAT?

    TO THE JUDGE
    I WOULD NEVER HAVE TAKEN THE MONEY FROM WHAT AMOUNTS TO BE A MORTGAGE BROKER OR A FORM OF BROKER

    JUDGE SAYS
    SO WHAT YOU TOOK THE MONEY

    TO THE JUDGE
    IF IT IS A SO WHAT? HOW COME THEY DID IT? WHY COULDNT THE BANK STATE THAT IT WAS NOT FUNDING THE LOAN? AND THAT IN EFFECT IT WAS A BROKER FOR ALL PRACTICAL REASONS.

    TO THE JUDGE
    THE AMOUNT OF FORECLOSURES IN THE UNITED STATES IS BECAUSE THE SO CALLED LENDERS HAD NOT INTEREST IN THE LOAN ONLY IN THE COMMISSIONS. THIS IS WHY I WOULD NEVER HAVE SIGNED THE DOTTED LINE AND THIS IS WHY WE HAVE THIS AMERICAN HOLOCAUST.

    THIS SHOULD BE THE END OF THE CASE. THIS IS AS EASY AS A PARKING TICKET BUT WHEN YOU HAVE AN ALLEGED CROOKED SYSTEM, IT COSTS MORE TO FIX THE PROBLEMS. THE JUDGES AND THEIR BOSSES THINK THAT THEY CAN SWEEP US UNDER THE RUG.

    WHAT HAPPENS IF YOU PURCHASE A CAR THAT HAS A DEFECTIVE TITLE AND THE REAL TITLE HOLDER THEN FINDS YOU. YOU HAVE TO GIVE BACK THE CAR.

    NEVER AGAIN

    CITY OF BELL CASE STUDY LATIMES + NEIL GARFIELD

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