Comments on: Goldman’s small internal hedge fund A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: y2kurtus Wed, 09 Jan 2013 03:27:15 +0000 While I can’t comment on MSI directly having never laid eyes on the group before this blog post I can say that banks would serve society and their customers well if they could do some very risky things.

Dig back into the Citigroup “Philbro” issue… I might be spelling that wrong from memory. Basically some guy there saw a massive opportunity to buy literally boatloads of oil at spot rent and insure supertankers to hold it all and sell it forward earning Citi hundreds of millions of dollars. Some called it speculation of the worst kind, worst still because it was done by an FDIC insured bank.

Pretty valuable though… it sent a price signal to the market that the market could respond to. Refiners, airlines, trucking and train companies all got to lock in oil and get cost clarity. Tanker companies were happy to have their boats leased. Who got hurt? Since most of the trade was hedged the minute the oil was bought there really was not very much risk. There was an is an economic interest in smoothing out swings in oil prices.

I don’t see why big banks can’t play in that or any other space if they can be regulated and well capitalized. Totally different ballgame but look at Beal bank. They basically loan to own buying up everyone elses failed deals. It’s litterally a FDIC insured private equity fund… it works though and I think they are the best capitalized bank in the country (because the regulators demand it.)