Goldman Sachs… You’re a Liar!
Last week, Goldman Sachs released its earnings report for Q1 2009 and it looked good. The Wall Street bank reported earning $1.8 billion for the quarter… and most everyone’s had a slight spring in their step ever since. And, just so there’s no confusion about what I’m about to say, I’m sure the $1.8 billion number is completely legit… meaning that I’m sure that whatever the rules are, Goldman followed them.
But, Goldman Sachs… you’re a liar. A phony. A manipulator of the rules. A company willing to mislead, misinform and malign. You cannot be trusted. And during times like these, to act in such a manner is indicative of a company that has no honor.
You see, Goldman Sachs reported earnings for the first quarter of 2009, which would include January, February and March. But, their quarter-to-quarter comparisons left out this past December. Their 2008 fiscal year ended on November 30, 2008. What happened to December, you might rightfully ask? Maybe at Goldman they take December off?
Sorry, no. They report earnings for December all right. In fact, until this year, December was the start of Goldman’s Q1, with their fiscal year ending on November 30th. This past year, however, was a little different. The meltdown of Wall Street led to $700 billion in TARP funds just looking for a comfortable home, and Goldman Sachs has never been one to be left out of something like that, it should come as no surprise.
So, in order to qualify as a “commercial bank,” Goldman became one and in doing so changed its fiscal year to a calendar year… January 1 – December 31.
So, what happened to December 2008?
It’s a reasonable question, right? If Goldman Sachs did make $1.8 billion in Januray, February and March of this year, then how did they do in December of 2008, since their fiscal year ended on November 30, 2008? Well, not all that well, as it turns out.
Goldman filed December 2008 on a stand-alone basis, and if their numbers looked okay for December, then they would have done nothing wrong, and I would not be writing this. But that’s what they mean when they use the phrase “hoping against hope.”
Surprise, surprise… Goldman reported and filed separately a loss of $800 million in December of 2008, and they omitted that month’s loss in their disclosures to the public. They lied… legally, I am assuming, but they lied no matter how you want to describe it. They attempted to mislead. They omitted important details at a time when Americans have every reason not to trust them, along with so many others in their industry.
So, they made a profit of $1.8 billion for Q1 of 2009, which is $600 million a month. But here’s the other way to calculate their recent track record… we’ll call it the “to-tell-the-truth strategy” or T4-S, just to give it a wonky acronym:
December ‘08: – $800 million
Jan, Feb, Mar ’09: $1.8 billion
Net Outcome: $1.0 billion
Divided by 4 Months: $250 million a month
I’m not the right guy to ask, but I’m thinking that $250 million a month is lot different than $600 million a month, even if you’re Goldman Sachs.
Is that proper GAAP accounting? Of course not, but you’ve read this far and you know this article isn’t about proper GAAP accounting. It’s about something much more important in my mind than proper GAAP accounting. It’s about my country, and my country’s economy. It’s about people, millions of them, who have no choice but to trust that someone is watching out for them, someone will tell them the truth. It’s about attempting to gain an advantage over other struggling banks by being deceptive. About taking advantage… competing, when its cooperation that the people want.
It stinks, as far as I’m concerned. Absolutely stinks to high heaven. And everyone should know what they’ve done… appreciate it for what it truly is. Because it didn’t just happen. It was planned, calculated, discussed at length. It was someone’s “idea”. A strategy. Perhaps someone made a slide presentation. And at the end of the proverbial day, as they like to say in such situations, the people in charge liked the idea of hiding the truth. It’s a question of character. Something Goldman Sachs clearly lacks.
What was that? Did I just hear someone think to themselves: “Big deal. That’s what’s expected out of a Wall Street player, like Sachs.” Yeah, well maybe so, but it doesn’t have to be accepted just because it’s come to be expected.
We may not be able to do a damn thing about it. We may not be able to stop it from happening again, and again. But we still don’t have to accept it, shake our heads and laugh it off. We can at the very least make Goldman Sachs into the butt of our bad jokes about dishonesty and dishonor. If they are incapable of feeling shame, then we can feel ashamed for them, look away in disgust, imprint upon them with our collective gaze the scarlet letter of our times. We can do that.
Goldman Announces It Will Repay TARP Funds…
The next part of Goldman’s “Happy Days” reporting strategy this past week was to announce that they had successfully raised $5 billion in new common stock and were planning to use the funds to pay back the $10 billion in taxpayer dollars it received under the TARP, making it the first bank to do so.
Yea! Yea, Goldman! Yea! What a great bunch of guys we have there. True Americans… team players! Yea! Yea! We love Goldman Sachs!
You know what, Goldman Sachs… in the words immortalized by Jon Stewart on The Daily Show earlier this year when referring to Jim Cramer and the gang at CNBC… F#@k you.
Here’s what’s really going on, as reported by The New York Times just two days ago on April 14th:
The Times reported that a Mr. David Trone, an analyst with Fox-Pitt Kelton, whoever they are, “said he knew of a number of investors who planned to buy Goldman’s stock, once the bank returns the TARP funds.”
“We would view any institution that pays back TARP has having a material competitive advantage,” Mr. Trone said.
Really? How so? What kind of competitive advantage would that be exactly? Well, the TARP funds come with a few itsy-bitsy restrictions; most notably one that has to do with limiting the amounts of non-performance based executive compensation.
You remember, the thinking kind of went like this: Since you’re being supported by us taxpayers at the moment, we’re not interested in paying you what you used to pay yourselves. Seems simple, reasonable, and easy to avoid in the future. Just don’t f#@k up the entire world economy so that the U.S. taxpayers have to bail you out to stop you from flushing our way of life down the toilet. Considering that Goldman obviously has the ability to make $1.8 billion in just three months without screwing up, it would seem an eminently achievable task. No?
So, Goldman wants to pay back the TARP money as quickly as possible so it won’t have to bother with the pesky restrictions that now accompany those funds, but once again, just like The Case of the Missing Month previously disgust… that’s not the whole story.
You see, the $10 billion in TARP funds given to Goldman Sachs isn’t only a part of the total public support subsidy they received from our government. In addition to TARP funds, Goldman and the other qualifying banks have been allowed to issue their debt cheaply with the backing of the Federal Deposit Insurance Corporation, or FDIC. The Times reported that, to-date the total for all banks hovers around $300 billion, and that Goldman Sachs alone has helped themselves to just under ten percent of that amount, roughly $28 billion.
The interesting thing is, if by interesting you mean insidious and deceptive, that the money Goldman receives through the FDIC program DOES NOT come with any of those annoying restrictions on executive compensation, or with any restrictions at all, for that matter. And you can see why… the FDIC program doesn’t have a memorable acronym the media can banter back and forth until we’re ready to name children after it. Watch this hand, ladies and gents, not that hand… this hand.
According to the Times, the value of the FDIC subsidy is incalculable…
“I don’t know how you measure that subsidy,” said Mark Zandi, the chief economist at Moody’s Economy.com. “That’s why they say it’s invaluable. It’s an infinite subsidy. It’s their franchise value.”
I think the answer is simple: Goldman Sachs and everyone else on the government dole, you have two choices: Either we can place the same restrictions on the FDIC insured funds that we’ve placed on the TARP funds, or we can make it so you can’t repay the TARP funds until you no longer need the FDIC insured subsidy. Your choice. What could be more fair? Problem solved.
Wrapping it Up…
According to economist James Kwak:
“Goldman Sachs’ positive Q1 results were largely due to strong performance in fixed income, currencies, and commodities (FICC) trading, which reflects the fact that Q1 was a busy quarter – in part because of the massive unwind at AIG – and, as Goldman’s CFO politely said, “Many of our traditional competitors have retreated from the marketplace.”
When it comes to the value of its own investments, however, Goldman didn’t do nearly as well. In fact, in the “Other corporate and real estate gains and losses,” category, Goldman lost $1.4 billion in Q1 of 2009, on top of the $800 million the firm lost in December of ‘08. So, they offset these losses with the gains they made from trading, so what? Are we supposed to believe that Goldman’s trading gains in Q1 of 2009 somehow signal the end of the recession? I guess we are at that… but I’m not going to… how about you?
Here’s a little something to contrast Goldman’s happy-happy news against. In today’s New York Times, I just read a story about the Swiss banking giant whose name I find to be most representative of the industry as a whole…UBS, who lost $1.8 billion in Q1 of this year. Here’s what the Times story had to say about that:
To return to profit, UBS is focusing on its core operations of wealth management, investment banking and asset management. “We know where we have to set to work,” Mr. Grübel (UBS’ CEO) told shareholders at the annual general meeting in Switzerland. “It will be a long road back to success without any quick fixes. Rather, we will move forward step by step in a rigorous and disciplined manner.”
Now that’s a grown-up…. Am I wrong? I might even come to trust that guy. Mr. Grübel… in a world filled with liars and thieves spinning stories of deception… thank you for your candor… I salute you.
Want a cherry on top? The Financial Times reported that per-employee compensation at Goldman Sachs, in the first quarter of 2009, was much higher than it was in the same period last year.
And on that topic James Kwak had this to say:
“That actually doesn’t worry me, because I’m guessing those compensation expenses are bonus accruals – the better the quarter you have, the more money you have to set aside for year-end bonuses.”
Oh, isn’t that just delicious? Positively yummy. Please sir, can I have some more?