Goldman goes off-message

By Felix Salmon
August 6, 2009
this to the NYT's Jenny Anderson?

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Goldman Sachs bankers are generally smooth, urbane, and on-message. But these days they’re clearly flustered. Why else would Goldman president Gary Cohn say something as arrogant and tone-deaf as this to the NYT’s Jenny Anderson?

“Our risk appetite continues to grow year on year, quarter on quarter, as our balance sheet and liquidity continue to grow,” Mr. Cohn said.

This perfectly fits the Michael Kinsley definition of a gaffe — when a politician accidentally tells the truth. What Cohn should have said is exemplified by his colleague, CFO David Viniar, five paragraphs later:

“There are a few business units that are taking a little more risk. Most are taking less,” Mr. Viniar said.

But the cat’s out of the bag at this point — and even if Cohn hadn’t said it in as many words, Goldman’s soaring profits and VaR tell the story.

Goldman is a bank holding company now; it shouldn’t be able to thumb its nose at its new regulators in this manner. But it will clearly continue to do so unless and until one of those regulators takes a deep breath and cracks down on all this risk-taking and increased leverage. So, who wants to be the regulator who went up against Goldman?

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Comments
5 comments so far

This may be a stupid question but isn’t a rising VaR these days normal? Since VaR calculations are short sighted, isn’t the increase partially due to the fact that the two or five year history (whichever is used) now involves quite a lot of the “irregular” market behaviour witnessed recently?

Posted by Gerter | Report as abusive

Goldman Sachs will drop its bank holding status at the hint of any regulator trying to crack down on, what you feel is excessive risk taking.

Posted by Terry | Report as abusive

There is nothing arrogant about that quote. He just said that risk appetite increases as liquidity increases. There’s nothing inherently arrogant about that. In fact, it might just be good management. And then, you talk about VaR, which is known to actually be an inaccurate measure of risk.

Furthermore, 2nd quarter prop trading accounted for only 10% of total profits, which was cited in the article you’re selectively pulling from here. A big bet from this portion of profits came from betting that volatility would be down–again, nothing unethical/arrogant here.

Also, the article clearly states Goldman’s leverage decreased in the 2nd quarter (opposite of the claim you make in the 2nd to last sentence).

I have a feeling you’re just jumping on the trails of ZeroHedge/Taibbi/etc. here, rather than writing responsibly.

Posted by Guest | Report as abusive

they are welcome to take on all the risk they want as long as they dump the BHC status, pay off the fdic supported bonds, and state that they are not TBTF and refuse to accept any government assistance whatsoever going forward.

Posted by deadhead | Report as abusive

How are these executives at Goldman Sachs different than any gambling addict addicted to high risk schemes?

What’s worse, these addicts aren’t gambling with their own money, they are using Investor money, and when they lost, they profited because they hedged their bets with AIG, then got Billions in Bailout from the Government, while amazingly their two largest competitors did not receive Bailout funds and went bankrupt.

And Tres. Sec. Henry Paulson was an Ex-Goldman Executive? And saved his old company? And let competitors fail? So much for a free market.
Business backed by Government is Fascism,
and the “White Voter Party” the GOP,
the blonde hair, blue eye party was in power.
See any people of Color in Goldman’s upper management?

Posted by C.D. Walker | Report as abusive
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