Comments on: Annals of Goldman Sachs client relations, Michael Lewis edition A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: ruckandmaul Fri, 05 Mar 2010 03:44:34 +0000 For a long tme I had to get “marks” for month end pricing on bonds. These were simply corp bonds for month end pricing. I would call to a couple of dealers and ask for a price on XYZ bonds, “89 by 89.50″. No, I’m not looking to sell just give a price for month end, I always called the shops where we were a big client, “oh, for pricing, 93 by 93.75.” Thanks, remember us the next time you make a trade! How the “marks” were done for CDS nonsense and other esoteric offerings, I can only shudder at the thought. They will always make enough people money to be considered worthy but the crews on the street are gansters pure and simple. Bear got on the wrong side of the trade and they were simply blown up in a few short months. They believed they actually had risk controls in place. Begleiter, of WSOP fame, was the head of “Strategy”. Good grief.

By: randolfduke Thu, 04 Mar 2010 14:54:35 +0000 two points.

otc quotes are rarely two way. exchange rules often require a market maker to make a two way quote but that doesn’t happen upstairs.

also, the salesperson and most bank employees would presume the office phones might be recorded. a ‘paranoid’ culture is encouraged

By: Noddy Wed, 03 Mar 2010 14:04:15 +0000 Excerpt from Risk Magazine article (Jan 2008), including comments from Goldman’s main market risk manager at time (Berry) – final few paras are most pertinent:

…On philosophical grounds, Goldman does not tend to put on enterprise-level macro hedges. “We think it’s very important that individual groups and traders are responsible for the businesses they run,” says Berry. “So, we don’t put on the short somewhere else – on another book. This kind of insurance trade tends to dilute individual responsibility in risk taking.”

Also, unlike many dealers, Goldman Sachs prefers to set risk limits at levels that it expects individual traders and businesses to bump up against during the course of a year. “We don’t want this to happen every day, but when it does, because of large customer trades or a change in market volatilities, for instance, it reinforces the need for dialogue and decision-making,” remarks Berry. In contrast to Goldman, many other firms set limits at relatively high levels that are very unlikely to be reached, except in the most extreme circumstances – by which time an unwieldy loss may have accumulated.

The quid pro quo here is that the risk management group has to be flexible in adapting those limits when opportunities arise or volatility regimes shift. In risk management, says Berry, there’s certainly an art to striking the right balance between assessing what’s likely and what’s merely plausible, and getting desks to react to this in the way they limit exposures or seek to build businesses.

“Perhaps a more important and difficult discipline surrounds what happens when potential warning signs emerge,” he explains. “We put a lot of effort into ensuring that our marks and risk measures are highly responsive, and that changes in these are quickly, cleanly and crisply communicated throughout the organisation.”

Towards the end of 2006, a sense of unease started to grow as the firm’s activities were, in effect, making it longer and longer US mortgage risk. It was around this time, other dealers tell Risk, that some savvy hedge funds and bank proprietary trading desks were starting to pile on short positions. “We could sense the firm getting longer US mortgage risk just as we perceived the risk in these positions was increasing,” Berry says. “That caused us to go through all our positions line by line to work out whether we were truly comfortable with this amount of long risk.”

It ran deep analysis of the firm-wide mortgage exposure, and the answer the firm’s risk management function, together with the relevant business heads and senior executives, came to was: no, it was not comfortable. Still, the opportunity for Goldman Sachs to drastically change its exposure before the turning of the mortgage market seemed limited, causing the firm to mark down the value of these assets early and recognise losses. These were immediately communicated to senior management.

“It appears that we were perhaps much quicker than others to recognise losses when the market moved,” explains Berry. It also started to increase the hedges on its mortgage exposures. “We realised we needed to take steps to hedge that risk in various derivative forms. This, of course, entails basis risk, so there was also a general effort to reduce our positions too,” he adds.

Other dealers say that during the first quarter of 2007, Goldman’s mortgage group had bought an extremely large amount of protection via the various sub-indexes of the ABX, which reference credit default swaps on US home equity loan asset-backed securities. One trader says that on an occasion near the end of the first quarter, Goldman appeared to trim this hedge by closing out a significant proportion of the ABX protection it had bought. The move, he hypothesises, was likely due to the firm’s risk limits being enforced rigidly in the face of severe spread volatility.

By: justanotherjoe Wed, 03 Mar 2010 04:03:25 +0000 The fed’s played their part in this charade as well. Paulson convinced Bush to bail out AIG knowing full well that billions of those dollars would end up at his old company, Goldman Sachs. Goldman essentially got the TARP dollars free and clear. While Bush and Paulson let one of Goldman’s main rivals, Lehman Bros go down the tubes. It’s great to have the Treasury Secretary doing your bidding.

By: Bludde Tue, 02 Mar 2010 22:54:51 +0000 Should come as no surprise to you Felix. Market Makers out to lunch was standard during the April 1994 Brazil crisis and big time during both the Asian crisis in 1997 and the Russian meltdown Aug-Sep 1998. In fact LTCM collapsed because of a domino which began when the entire 5-bank Spanish Treasury M-M refused to answer calls for 2 days.. prompting Meriwether to request the Italian CB to intervene and call his counterpart in Spain…As for GS, when we were allocated domestic US corporate bonds which they underwrote between 1996 and 2005, they took 3 to 4 weeks to deliver because their MO was to over-allocate 15% (short) and then buy from the secondary markets at a discount to deliver to small institutions.. they are masters at front running their clients…and when a crisis hits its damn the clients, save GS.. The cabal of HF that participated in their short of VW shares in Germany, and suffered billions in losses, surely know what I mean..

By: bigkirb1 Tue, 02 Mar 2010 22:19:34 +0000 This is a pure Goldman Sachs public relations fluff piece.

Everyone now knows the extent to which Goldman Sachs and its alumnus will go to for profit and power.

The AIG scandal, backdoor deals with the Treasury and Fed, frontrunning, currency swaps, derivatives, auction fraud, nondisclosure, misdirection, country distabilizing, rumor leaking, naked short selling, ad infinitum…

The only pity is that they get the most of the publicity while the partner in crime, JP Morgan Chase works in the shadows.

Until the Federal Reserve is audited and the FBI building is fumigated for corruption we will not know everything they have been up to.

Like why is the federal reserve allowed to pay these banks interest on the backs of taxpayers for doing nothing?

Why did the secretary of the treasury, past and present, call them so often during the crisis?

Why was GS and JPM given preferential treatment at the expense of taxpayers in almost every single bailout since the fall of 2007?

Why do GS and JPM, who commit fraud and crimes all over the world never get prosecuted?

Why are GS and JPM allowed to be leveraged to the point where they can bankrupt the entire United States ten times over?

Why does SEC and CFTC continue grant GS and JPM position limit exemptions in trading stocks and commodities?

Why does CFTC, LME and CME allow them to satisfy trade and margin requirements with questionable collateral?

I could go on all day. The point is that Goldman Sachs and JP Morgan Chase have become a serious threat to the United States of America and they must be broken up immediately if the republic is to survive!

By: fred5407 Tue, 02 Mar 2010 21:31:35 +0000 Instability is what was lacking in the system and still is. The systems are still unstable and will continue to be until controls put some dampening into the system. Then we might see a clearer picture of what really is there. There will continue to be problems with this rickety system until the investors demand accountability.

By: vgalis Tue, 02 Mar 2010 18:32:40 +0000 As an intern at Lehman Brothers in the IT portion of the CDS group, I can attest that we did have at least one massive system failure, which as far as I can tell was caused by trading volumes our systems could not handle. I seem to remember it being a bout of panic selling following the collapse of those two hedge funds, but I also remember it happening later in the summer near the end of my internship.

Being just the intern, I was not directly involved in dealing with the associated technical problems, but most of the team I was working with was.

Of course none of this means that any of the other investment banks’ infrastructure was as rickety as ours. In fact, I would sincerely hope not. I’m just saying it’s possible.

By: zoomaster Tue, 02 Mar 2010 13:07:15 +0000 Greed is what Greed does and further fascination with these yahoos is unwarranted. Wall Street does little for society except line the pockets of CEOs. The mergers it creates sack jobs and security and I don’t think anybody would be crying a tear if Goldman went away. I work for and the mess that lands on our doorstep is crazy bad. We have the most read foreclosure story on the web as well as several job hunting stories.

By: Greycap Tue, 02 Mar 2010 00:38:32 +0000 “His saleswoman, Veronica Grinstein, called him on her cell phone instead of from the office phone. (Wall Street firms now recorded all calls made from their trading desks.)”

That actually seems fairly explicit to me. It also seems correct. Yes, no doubt Grinstein had access to an unrecorded phone in the office, but so what? If the point were to protect Goldman – from accusations of selling unsuitable products, for example – I’m sure she would have used her regular phone on the desk.

“…all traders have a tendency to give out marks in such a manner as to make their own books look good — especially at or near the end of the month.”

That is true, and the main victim of the trader is his or her own bank, which is why a competent bank would be working against this natural tendency. A pattern of rising marks at end-of-month is not very subtle; I thought Goldman were supposed to be the smart guys?