The observations above are troubling: Goldman's trading is by no stretch of the imagination better than average. In fact, in 2008, the firm's prop trading was on par with some of the worst performers on Wall Street. Which begs the question: just how has Goldman managed to transform itself into a behemoth that over the past 6 months has had only three trading days of losses? The answer is simple: with no Lehman and no Bear to curb its tentacular dominance of all aspects of the Fixed Income market, Goldman can now rely almost exclusively on its monopolist agency position vis-a-vis mutual, pension, and hedge funds who are desperate to maintain a good relationship and an open dialog with the firm which rewards its best clients with market moving information ahead of all others peasants.Exclusive: A Forensic Reconstruction Of Goldman's 2008 Prop Trading | zero hedge
Tyler Durden over at Zero Hedge has done a very interesting analysis of Goldman's charitable fund, which has lost money over the last two years. He claims that the fund's performance is based on percentages of all of Goldman's proprietary trading, and through his analysis of the fund's trading records, he's made some conclusions about the performance of Goldman's prop trading overall during that period.
He concludes that contrary to popular belief, those boatloads of money Lloyd "God's Work" Blankfein (I'm officially calling for the systematic insertion of that nickname into any reference to Blankfein from now on) and his crew have made this year have not come from the bank's ingenious trading decisions. They've come from two basic sources: one, government subsidy, and two, depleted competition, which allows the bank to charge outrageous rates to clients for services they used to have to price against competition from Lehman and Bear.
I don't know enough about the specifics of Goldman's charitable fund to know whether or not Tyler's analysis of Goldman's trading performance is warranted or not. I do know that it squares with everything I've been told by people in the business.
Specifically, I've heard more than once from traders who tell me that Goldman makes all its money gouging its clients, who either don't know any better or are reluctant to get on the wrong side of the bank, for obvious reasons. Also, the fact that not only Goldman but all the banks have made mountains of money this year by borrowing cheap from the government and lending dear to the rest of the world is also manifestly obvious (credit card interest rates went up more than 20 percent in the first six months of the year, despite vastly reduced borrowing costs for the banks issuing that credit).
All of which puts the whole "God's work" business in perspective. There are a lot of people who think Goldman's p.r. department must have spent the last three weeks doing bong hits and pounding big bags of Funnyuns, given that they let one spokesdork cite Jesus in a defense of greed and bonuses in a speech at St. Paul's cathedral in London and then let "God's Work" Blankfein spout his now-infamous bromide to a Sunday Times reporter a week later.
It got even worse when Goldman spokesman Lucas van Praag tried to defend Blankfein by saying his comments were jokesy aside or a "throwaway response," like, "I'm living the dream."
I mean, shit, talk about throwing gasoline on the fire! You are living the dream ? at our expense! That's the problem, you morons! I half-expected the Van Praag story to read as follows:
Blankfein didn't mean to be taken seriously when he said the bank was doing "God's work," said the bank's spokesman, Lucas van Praag.
It was "obviously ironic, a throwaway response," said van Pragg. "Sort of like saying, 'Life fucking rocks from up here, so suck on my yacht,' when someone asks how you're doing. Or stepping right on a homeless person's crotch instead of stepping over or around him on your way to work."
Van Pragg added that Blankfein's comments were also "like pouring battery acid on a sleeping harbor seal, or using an Indian slum child's eyes for martini olives," or like "getting the mortgage department to do the wave during a foreclosure" and "cheering and chest-bumping while two shivering AIDS patients are hauled out of their homes in blankets by sheriff's deputies. Just an aside, you know, something you do."
Van Pragg said the Sunday Times knew this when it published Blankfein's comments, but instead of providing proper context, decided "to 'spin' it in a cynical attempt to generate more interest in their story and, presumably, to see if their interpretation could be used to generate a reaction that could be used to 'create' news." The more I think about it, though, the more I think that this must be some sort of clever p.r. strategy. I'm actually almost desperate to believe that this is a conscious strategy on Goldman's part because if this really is what it looks like ? if these people really are that blind and stupid ? then that makes their exalted, entrenched position as mega-oligarchs endlessly lording over us truly horrifying, in a the-universe-is-random, black-comedy sort of way. It's like making it all the way to the end of The Wizard of Oz and finding out that the Wizard is a hospital patient on a Haldol drip pushing a mop down the corridor of a cranial injury ward.
That's just too hard for me to accept, for the moment anyway. So I'm choosing to believe they're doing this on purpose, for the following reasons:
1) At the very least, these asinine statements allow Goldman to put the press in a reactive position ? they're reacting to Goldman and Blankfein, as opposed to forcing Goldman and Blankfein to respond to this or that allegation.
2) Even as the media bashes him for the insensitivity and the bad optics of the "God's work" comment, it's still accepting the core premise Blankfein is putting forward ? the notion that all Goldman is guilty of is being really good at making a lot of money.
The thing is, if it were true that these guys were just investment whizzes and had earned those bonuses, Blankfein's statments might be crass, but they wouldn't be criminal. If the reporters who jump on Goldman for their pseudo-religious self-congratulations don't point out that the bonuses they're paying themselves got sucked straight from the wallet of the taxpayer, they're actually going to end up pushing the line that Goldman's only "crime" is that they made a lot of money. Oh, and they happen to be insensitive, too.
I imagine Goldman can live with that, so long as no one looks too hard at how that money got made. Maybe that's what this is all about. Or maybe they really are that dumb. How scary would that be!