Is this a 'Moral Hazard' in the making?

Will Goldman Sachs be a case study in 'Moral Hazards'? Goldman is increasing its risk-taking at a time when taxpayer dollars are still in its coffers.

Goldman Sachs Group Inc., unbowed by the securities industry’s worst year since the Great Depression, increased its trading bets at the fastest rate on Wall Street.

Interesting time to increase your risk. Here is some perspective on the amount of risk.

Goldman Sachs’s so-called value-at-risk, the amount the New York-based bank estimates it could lose from trading in a day, jumped 22 percent to $240 million in the first quarter, twice what Morgan Stanley stands to lose, company reports show. VaR climbed 2.8 percent in the same period at JPMorgan Chase & Co. and dropped 14 percent at Credit Suisse Group AG.

Keep in mind the measure that they use - value at risk (VaR) - has been criticized:

It isn’t designed to capture the risk of rare and extreme losses. For that reason, some critics such as Nassim Taleb, author of the “The Black Swan,” say the metric is inadequate.

If Goldman is still using VaR as a measure then that tells me that no lesson has been learned. But this quote from Goldman CEO Lloyd Blankfein is very insightful:

“Nothing that happened this year altered the core of what Goldman Sachs is,” Blankfein told investors at a Nov. 11 conference in New York. “We won’t stop doing the things that made us a leading investment bank.”

But would Blankfein being singing a different tune if they didn't receive some much help from Fed and Treasury. Let's count the ways: 1) AIG pass-thru to Goldman - $12.9 billion, 2) TARP money - $10 billion, 3) FDIC guarantee/subsidy of Goldman debt - $2 billion. That is over $24 billion in government assistance - a nice chunk of change.

But this is more troubling:

“Goldman is Goldman because they’ve done that,” he said. “If they can get paid to take a risk, they’ll take it. You don’t get paid for doing safe stuff....whereas Goldman just said, ‘No, we’re still playing the game we’ve always played,’”

That is right "playing the game we've always played." Do you blame them? They know that their downside is protected because of Fed's and Treasury's fear of "too big to fail." They know that they will be bailout so why not increase your risk taking. They've got nothing to lose and everything to gain. I am surprised other financial conglomerates haven't figured this out or maybe they have we just don't know it yet.

This could be a case study in the making for "moral hazard".

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VaR, value at risk

Risk Mismanagement goes into great detail on the problems with VaR.

That's just unbelievable. Goldman Sachs clearly is just walking all over America and making out like a bandit on this entire debacle.

So nice to have friends, obviously, such as government economic advisers, Treasury secretaries and well placed connections on the Federal Reserve.

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Bank Holding Company? Hah!

One of the reasons that Wall Street Investment Banks were so averse to assuming the status of a BHC in the past was that it entailed significantly more Federal regulation and a corresponding reduction in the amount of risk-taking allowed. But, when the proverbial sh*t hit the fan last fall, the remaining investment banks were quick to line up for Holding Company status, as it gave them access to the Federal Reserve discount window (free money) and a host of "temporary" Fed programs (more free money) and generous guarantees on their debt. So how can GS get away with this? They have 24 months to complete their conversion to BHC status. So when 24 months pass, I'm quite sure that either a)GS will reverse their decision to become a BHC (and the Treasury will have no problem with that) or b)they will be given additional time to comply...as in never. When you control the Federal Reserve, the Office of the President and the US Congress, rules don't apply.

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The man that will bring down the admistration

http://www.nytimes.com/2009/04/27/business/27geithner.html?_r=1&hp=&page...

I have no idea other than some insider cabal conspiratorial theory that Obama would have so badly needed/wanted Geithner.

There are and will be people that will never understand the Geithner connection but I think (IMHO) there is a great majority that will understand. Once the MSM starts investigating the connection, they may start having questions about political contributions.

Once this starts hitting the front pages, even the news releases of the flu will not help buffer all those involved from the hell they have coming their way.

The actions of the financial oligarchy bring fraud and theft comes to mind.

I only wonder who will be the red meat that is thrown to the lions? Who is going to take the fall and divert attention from those on the higher platform?

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