“Greed changed Goldman Sachs”
– A former Goldman Sachs’ partner
Sightings from The Catbird Seat
~ o ~
From Webster’s New World Dictionary of the American Language, College Edition:
greed - n. excessive desire for acquiring or having; desire for more than one needs or deserves . . .
$ $ $
From wikipedia:
History
Goldman Sachs was founded in 1869 by German Jewish immigrant Marcus Goldman. The company made a name for itself pioneering the use of commercial paper for entrepreneurs and was invited to join the New York Stock Exchange in 1896. It was during this time that Goldman's son-in-law Samuel Sachs joined the firm which prompted the name change to Goldman Sachs.
In the early 20th century, Goldman was a major player in establishing the initial public offering market. It managed one of the largest IPOs to date, that of Sears, Roebuck and Company in 1906. It also became one of the first companies to heavily recruit those with MBA degrees from leading business schools, a practice that still continues today.
In 1929, it launched the Goldman Sachs Trading Corp., a closed-end fund with characteristics similar to that of a Ponzi scheme. The fund failed as a result of the Stock Market Crash of 1929, hurting the firm's reputation for several years afterward.
In 1930, Sidney Weinberg assumed the role of senior partner and shifted Goldman's focus away from trading and towards investment banking. It was Weinberg's actions that helped to restore some of Goldman's tarnished reputation. On the back of Weinberg, Goldman was lead advisor on the Ford Motor Company's IPO in 1956, which at the time was a major coup on Wall Street. Under Weinberg's reign the firm also started an investment research division and a municipal bond department. It also was at this time that the firm became an early innovator in risk arbitrage.
Gus Levy joined the firm in the 1950s as a well known securities trader, which started a trend at Goldman where there would be two powers generally vying for supremacy, one from investment banking and one from securities trading. For most of the 1950s and 1960's, this would be Weinberg and Levy. Levy was a pioneer in block trading and the firm established this trend under his guidance. Due to Weinberg's heavy influence at the firm, it formed an investment banking division in 1956 in an attempt to spread around influence and not focus it all on Weinberg.
In 1969, Levy took over as Senior Partner from Weinberg, and built Goldman's trading franchise once again. It is Levy who is credited with Goldman's famous philosophy of being "long term greedy," which implies that as long as money is made over the long term, trading losses in the short term are not to be worried about. That same year, Weinberg retired from the firm.
Another financial crisis for the firm occurred in 1970, when the Penn Central Railroad Company went bankrupt with over $80 million in commercial paper outstanding, most of it issued by Goldman Sachs. The bankruptcy was large, and the resulting lawsuits threatened the partnership capital and life of the firm. It was this bankruptcy that resulted in credit ratings being created for every issuer of commercial paper today by several credit rating services.
During the 1970s, the firm also expanded in several ways. Under the direction of Senior Partner Stanley R. Miller, it opened its first international office in London in 1970, and created a private wealth division along with a fixed income division in 1972. It also pioneered the "white knight" strategy in 1974 during its attempts to defend Electric Storage Battery against a hostile takeover bid from International Nickel and Goldman's rival Morgan Stanley. This action would boost the firm's reputation as an investment advisor because it pledged to no longer participate in hostile takeovers.
John Weinberg (the son of Sidney Weinberg), and John C. Whitehead assumed roles of co-senior partners in 1976, once again emphasizing the co-leadership at the firm. One of their most famous initiatives was the establishment of the 14 business principles that are still used to this day.
In the 1980s, the firm made a major move by acquiring J. Aron & Company, a commodities trading firm which merged with the Fixed Income division to become known as Fixed Income, Currencies, and Commodities. J. Aron was a major player in the coffee and gold markets, and the current CEO of Goldman, Lloyd Blankfein, joined the firm as a result of this merger. In 1985 it underwrote the public offering of the Real Estate Investment Trust that owned Rockefeller Center, then the largest REIT offering in history. In accordance with the beginning of the collapse of the Soviet Union, the firm also became largely involved in facilitating the global privatization movement by advising companies that were spinning off from their parent governments.
In 1986, the firm formed Goldman Sachs Asset Management, which manages the majority of its mutual funds and hedge funds today. In the same year, the firm also underwrote the IPO of Microsoft, advised General Electric on its acquisition of RCA and joined the London and Tokyo stock exchanges. 1986 also was the year when Goldman became the first United States bank to rank in the top 10 of mergers and acquisitions in the United Kingdom. During the 1980s the firm became the first bank to distribute its investment research electronically and created the first public offering of original issue deep-discount bond.
Robert Rubin and Stephen Friedman assumed the Co-Senior Partnership in 1990 and pledged to focus on globalization of the firm and strengthening the Merger & Acquisition and Trading business lines. During their reign, the firm introduced paperless trading to the New York Stock exchange and lead-managed the first-ever global debt offering by a U.S. corporation. It also launched the Goldman Sachs Commodity Index (GSCI) and opened a Beijing office in 1994. It was this same year that Jon Corzine assumed leadership of the firm following the departure of Rubin and Friedman. The firm joined David Rockefeller and partners in a 50-50 join ownership of Rockefeller Center during 1994, but later sold the shares to Tishman Speyer in 2000. In 1996, Goldman was lead underwriter of the Yahoo! IPO and in 1998 it was global coordinator of the NTT DoCoMo IPO. In 1999, Henry Paulson took over as Senior Partner.
One of the largest events in the firm's history was its own IPO in 1999. The decision to go public was one that the partners debated for decades. In the end, Goldman decided to offer only a small portion of the company to the public, with some 48% still held by the partnership pool. 22% of the company is held by non-partner employees, and 18% is held by retired Goldman partners and two longtime investors, Sumitomo Bank Ltd. and Hawaii's Kamehameha Activities Assn (the investing arm of Kamehameha Schools). This leaves approximately 12% of the company as being held by the public. With the firm's 1999 IPO, Henry Paulson became Chairman and Chief Executive Officer of the firm.
In 1999 Goldman acquired Hull Trading Company, one of the world's premier market-making firms, for $531 million. More recently, the firm has been busy both in investment banking and in trading activities. It purchased Spear, Leeds, & Kellogg, one of the largest specialist firms on the New York Stock Exchange, for $6.3 billion in September 2000. It also advised on a debt offering for the Government of China and the first electronic offering for the World Bank. It merged with JBWere, the Australian investment bank and opened a full-service broker-dealer in Brazil. It expanded its investments in companies to include Burger King, McJunkin Corporation, and in January 2007, Alliance Atlantis alongside CanWest Global Communications to own sole broadcast rights to the CSI franchise. The firm is also heavily involved in energy trading, including the oil speculation market, on both a principal and agent basis.
Its sizable profits made during the 2007 Subprime mortgage financial crisis led the New York Times to proclaim that Goldman Sachs is without peer in the world of finance. The firm's viability was later called into question as the crisis intensified in September 2008.
In May 2006, Henry Paulson left the firm to serve as U.S. Treasury Secretary, and Lloyd Blankfein was promoted to Chairman and Chief Executive Officer. Former Goldman employees head the New York Stock Exchange, the World Bank, the U.S. Treasury Department, the White House staff, and firms such as Citigroup and Merrill Lynch.
On September 21st, 2008, Goldman Sachs received Federal Reserve approval to transition from an investment bank to a bank holding company.
On 22nd September 2008, The last two major investment banks in the United States, Morgan Stanley and Goldman Sachs, will become traditional bank holding companies, bringing an end to the era of investment banking on Wall Street.
The Federal Reserve's approval of their bid to become banks ends the ascendancy of the securities firms, 75 years after Congress separated them from deposit-taking lenders, and caps weeks of chaos that sent Lehman Brothers Holdings Inc. into bankruptcy and led to the rushed sale of Merrill Lynch & Co. to Bank of America Corp.
Corporate Affairs
As of 2006, Goldman Sachs employed 26,467 people worldwide. It reported earnings of US$9.34 billion and record earnings per share of $19.69. It was reported that the average total compensation per employee in 2006 was US$622,000... The current Chief Executive Officer is Lloyd C. Blankfein.
The company ranks #1 in Annual Net Income when compared with 86 peers in the Investment Services sector. Blankfein earned a $67.9 million bonus in his first year. He chose to receive "some" cash unlike present United States Secretary of the Treasury Henry Paulson, his predecessor who chose to take his bonus entirely in company stock.
Recently Goldman Sachs has been increasingly involved in both advising and brokering deals to privatize major highways by selling them off to foreign investors. In addition to advising Indiana on the Toll Road deal, Goldman Sachs has worked with Texas governor Rick Perry's administration on privatization projects, and according to John Schmidt, the former adviser to the Chicago mayor's office, it was a Goldman Sachs representative who first pitched the city on the idea of leasing out the Skyway. Goldman Sachs has played a major role in advising states on how to structure privatization deals—even while positioning itself to invest in the toll road market. Conflicts of interest in such transactions are difficult to quantify.
Notable alumni
Joshua Bolten - current White House Chief of Staff
Erin Burnett - CNBC Host
Jon Corzine - Governor of the State of New Jersey.
Michael Cohrs - Head of Global Banking at Deutsche Bank
Emanuel Derman - Author of My Life as a Quant and co-developer of the Black-Derman-Toy model.
Jim Cramer - founder of TheStreet.com, best selling author, and host of Mad Money on CNBC
Henry H. Fowler - 58th United States Secretary of the Treasury (1965-1969)
Edward Lampert - Hedge Fund Manager of ESL Investments. Brought K-Mart out of Bankruptcy in 2003.
Ashwin Navin - President and co-founder of BitTorrent, Inc.
Abby Joseph Cohen - Perma-bull market forecaster formerly of Drexel Burnham Lambert
Sacha Baron Cohen - Despite reports by several independent media sources that this well-known comedian is indeed a Goldman alumnus, there has been some controversy over the original source of these claims, with speculation that the supposedly independent sources had themselves used Wikipedia as their own source. Goldman Sachs has never publicly denied having employed Cohen.
Ocado - 3 Founders of first UK online supermarket were all former Fixed Income Traders at Goldman Sachs London
George Herbert Walker IV - member of the Bush family and current managing director at Lehman Brothers
Robert Zoellick - United States Trade Representative (2001-2005), Deputy Secretary of State (2005-2006), World Bank President.
Mark Carney - Current Governor of the Bank of Canada
Henry Paulson - Current United States Treasury Secretary.
Robert Rubin - Former United States Treasury Secretary, ex-Chairman of Citigroup.
Charlie Haas - Wrestler, who is working for World Wrestling Entertainment.
Malcolm Turnbull - Australian politician, currently the federal leader of the Liberal Party of Australia. Former managing director and later a partner of Goldman Sachs in Australia.
John Thain - Chairman and CEO, Merrill Lynch, and former chairman of the NYSE.
Robert Steel - Chairman and President, Wachovia.
Criticism and controversy
On August 28, 2007, a former Goldman Sachs associate accused of being the mastermind behind an insider trading scheme, one that pocketed $6.7 million, pleaded guilty in Federal District Court in Manhattan.
The FBI reported on July 6, 2007, that they were investigating letters sent to newspapers nationwide that said "Goldman Sachs. Hundreds will die. We are inside. You cannot stop us." The letters were post-marked in late June from Queens, New York and were handwritten in red ink on loose leaf paper, signed by "A.Q.U.S.A.". A subsequent letter to New York Daily News claimed that the original threat was a hoax "conceived by three misguided teenagers", and pleaded for the investigation to be halted.
In 2005, the firm advised both the New York Stock Exchange and Archipelago, which owns an electronic trading platform, in merger talks. Controversy surrounded the deal as John Thain, who at that time headed the New York Stock Exchange, was a former Goldman Sachs Executive.
Also in 2005, Goldman Sachs received criticism from civic groups and New York City politicians when they received approximately $1.6 billion in taxpayer subsidies (mostly through Liberty Bonds) from New York City and state taxpayers to finance the Firm's new headquarters near the World Financial Center in Lower Manhattan in return for a commitment to keep at least 9000 employees and a major trading operation in Manhattan. It also comes with the expectation of the creation of at least 4000 new jobs by 2019.
In 1986, David Brown was convicted of passing inside information to Ivan Boesky on a takeover deal. Robert Freeman, who was a senior Partner, the Head of Risk Arbitrage, and a protégé of Robert Rubin, was also convicted of insider trading, with his own account and with the firm's.
In 2006, as a result of an SEC investigation, Eugene Plotkin, a former research analyst in the Fixed Income division of Goldman Sachs, and David Pajcin, a former employee of Goldman Sachs, were prosecuted for insider trading. The prosecution began after regulators noticed unusually high trading volume before a merger announcement and discovered that a retired seamstress in Croatia, the aunt of Pajcin, had made more than $2 million. Plotkin and Pajcin traded in at least 25 stocks within one year based on inside information obtained through these schemes. Plotkin was sentenced to 57 months in prison and was also ordered to pay a $10,000 fine and to forfeit up to $6.7 million, the amount of the scam's illegal profits. Pajcin, who cooperated with the government, was sentenced to time served by a federal district court judge on January 18, 2008.
Goldman in the mortgage market
Actions in the subprime mortgage crisis
Despite the 2007 subprime mortgage crisis, Goldman was able to profit from the collapse in subprime mortgage bonds in the summer of 2007 by selling subprime mortgage-backed securities short.
Two Goldman traders, Michael Swenson and Josh Birnbaum, are credited with bearing responsibility for the firm's large profits during America's sub-prime mortgage crisis. The pair, who are part of Goldman's structured products group in New York, made a profit of $4bn by "betting" on a collapse in the sub-prime market, and shorting mortgage-related securities. By summer of 2007, they persuaded colleagues to see their point of view and talked around skeptical risk management executives . The firm initially avoided large subprime writedowns, and achieved a net profit due to significant losses on non-prime securitized loans being offset by gains on short mortgage positions.
Goldman Sachs' newest acquisitions are to include the subprime portfolio of imploded mortgage company Popular Financial Holdings late in the third quarter of 2008.
Detractors believe that Goldman wasn't quite as careful with its clients' money as it was with its own — its flagship Global Alpha hedge fund tumbled 37% in the global credit crunch. As most individual investments of hedge funds are not made public, however, no one can know exactly what assets the firm traded during the period leading up to the credit crisis.
http://en.wikipedia.org/wiki/Goldman_Sachs
December 21, 2008
AP study finds $1.6B went to
bailed-out bank execs
By FRANK BASS and RITA BEAMISH, Associated Press
Banks that are getting taxpayer bailouts awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits last year, an Associated Press analysis reveals.
The rewards came even at banks where poor results last year foretold the economic crisis that sent them to Washington for a government rescue. Some trimmed their executive compensation due to lagging bank performance, but still forked over multimillion-dollar executive pay packages.
Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management, the AP review of federal securities documents found.
The total amount given to nearly 600 executives would cover bailout costs for many of the 116 banks that have so far accepted tax dollars to boost their bottom lines.
Rep. Barney Frank, chairman of the House Financial Services committee and a long-standing critic of executive largesse, said the bonuses tallied by the AP review amount to a bribe "to get them to do the jobs for which they are well paid in the first place....
The AP compiled total compensation based on annual reports that the banks file with the Securities and Exchange Commission. The 116 banks have so far received $188 billion in taxpayer help. Among the findings:
_The average paid to each of the banks' top executives was $2.6 million in salary, bonuses and benefits.
_Lloyd Blankfein, president and chief executive officer of Goldman Sachs, took home nearly $54 million in compensation last year. The company's top five executives received a total of $242 million.
This year, Goldman will forgo cash and stock bonuses for its seven top-paid executives. They will work for their base salaries of $600,000, the company said. Facing increasing concern by its own shareholders on executive payments, the company described its pay plan last spring as essential to retain and motivate executives "whose efforts and judgments are vital to our continued success, by setting their compensation at appropriate and competitive levels." Goldman spokesman Ed Canaday declined to comment beyond that written report.
The New York-based company on Dec. 16 reported its first quarterly loss since it went public in 1999. It received $10 billion in taxpayer money on Oct. 28.
_Even where banks cut back on pay, some executives were left with seven- or eight-figure compensation that most people can only dream about. Richard D. Fairbank, the chairman of Capital One Financial Corp., took a $1 million hit in compensation after his company had a disappointing year, but still got $17 million in stock options. The McLean, Va.-based company received $3.56 billion in bailout money on Nov. 14.
_John A. Thain, chief executive officer of Merrill Lynch, topped all corporate bank bosses with $83 million in earnings last year. Thain, a former chief operating officer for Goldman Sachs, took the reins of the company in December 2007, avoiding the blame for a year in which Merrill lost $7.8 billion. Since he began work late in the year, he earned $57,692 in salary, a $15 million signing bonus and an additional $68 million in stock options.
Like Goldman, Merrill got $10 billion from taxpayers on Oct. 28.
The AP review comes amid sharp questions about the banks' commitment to the goals of the Troubled Assets Relief Program (TARP), a law designed to buy bad mortgages and other troubled assets. Last month, the Bush administration changed the program's goals, instructing the Treasury Department to pump tax dollars directly into banks in a bid to prevent wholesale economic collapse.
The program set restrictions on some executive compensation for participating banks, but did not limit salaries and bonuses unless they had the effect of encouraging excessive risk to the institution. Banks were barred from giving golden parachutes to departing executives and deducting some executive pay for tax purposes.
Banks that got bailout funds also paid out millions for home security systems, private chauffeured cars, and club dues. Some banks even paid for financial advisers. Wells Fargo of San Francisco, which took $25 billion in taxpayer bailout money, gave its top executives up to $20,000 each to pay personal financial planners.
At Bank of New York Mellon Corp., chief executive Robert P. Kelly's stipend for financial planning services came to $66,748, on top of his $975,000 salary and $7.5 million bonus. His car and driver cost $178,879. Kelly also received $846,000 in relocation expenses, including help selling his home in Pittsburgh and purchasing one in Manhattan, the company said.
Goldman Sachs' tab for leased cars and drivers ran as high as $233,000 per executive. The firm told its shareholders this year that financial counseling and chauffeurs are important in giving executives more time to focus on their jobs.
JPMorgan Chase chairman James Dimon ran up a $211,182 private jet travel tab last year when his family lived in Chicago and he was commuting to New York. The company got $25 billion in bailout funds.
Banks cite security to justify personal use of company aircraft for some executives. But Rep. Brad Sherman, D-Calif., questioned that rationale, saying executives visit many locations more vulnerable than the nation's security-conscious commercial air terminals.
Sherman, a member of the House Financial Services Committee, said pay excesses undermine development of good bank economic policies and promote an escalating pay spiral among competing financial institutions — something particularly hard to take when banks then ask for rescue money.
He wants them to come before Congress, like the automakers did, and spell out their spending plans for bailout funds.
"The tougher we are on the executives that come to Washington, the fewer will come for a bailout," he said.
___
On the Net:
SEC Filings & Forms: http://www.sec.gov
Emergency Economic Stabilization Act: http://www.treas.gov/initiatives/eesa/
December 16, 2008
Goldman Sachs posts first loss
since going public
NEW YORK – Goldman Sachs Group Inc. on Tuesday reported its first quarterly loss since it went public in 1999, losing $2.29 billion during its fiscal fourth quarter.
The loss proves the turmoil in the financial markets has tripped up even the best-run financial institutions. The New York-based bank has long been considered the premier investment bank on Wall Street, and in recent quarters, the sturdiest bank amid the market turmoil.
The Wall Street firm lost $4.97 per share in the quarter ended Nov. 30. In the year-ago quarter, Goldman earned $3.17 billion, or $7.01 per share.
Analysts polled by Thomson Reuters, on average, forecast a loss of $3.73 per share for the latest quarter. Over the past several weeks, analysts sharply slashed their estimates amid ongoing concern about investment losses. Just a month ago, analysts predicted Goldman would lose just 28 cents per share, with some analysts still predicting a quarterly profit.
Investors shook off the disappointing news, sending shares higher by $7.95, or 12 percent, to $74.41 in afternoon trading. As of Monday's close, the shares were down 69 percent in 2008.
The investment banking sector was turned on its head in September when Lehman Brothers filed for bankruptcy and Goldman and Morgan Stanley became bank holding companies. Like most banks, Goldman was hurt by the plunging value of its investments, especially at its principal trading desk.
Goldman reported negative revenue of $4.36 billion in its trading and principal investments unit, which includes its fixed income, equities and principal investments divisions. Negative revenue occurs when a company must reverse some previously recognized revenue because its value has declined.
Overall, Goldman reported negative revenue of $1.58 billion, compared with revenue of $10.74 billion during the year-ago quarter. Analysts were expected quarterly revenue of $662.8 million.
The principal investments division recorded a net loss of $3.6 billion during the quarter. The division lost $2 billion on corporate investments, $961 million from real estate investments and $631 million tied to the firm's investment in Industrial and Commercial Bank of China. Goldman purchased a minority stake in the Chinese bank in 2006. The loss tied to that investment was due to a decline in ICBC's share price.
Negative revenue in the fixed income division totaled $3.4 billion. The weakness was attributed to losses on investments including corporate debt, private and public equities and trading in credit products. The division's losses included $1.3 billion from non-investment-grade credit origination activities and $700 million on commercial mortgage loans and securities.
Goldman's chief financial officer, David Viniar, said during a conference call that losses were widespread.
"This was really across the portfolio of equity assets and credit assets," Viniar said.
Goldman's quarterly loss was in line with Moody's Investors Service's expectations, but that did not stop the ratings agency from cutting its view of the bank Tuesday. Moody's cut its long-term senior debt rating for Goldman to "A1" — still investment-grade — from "Aa3." The ratings agency said the quarterly loss is just a further indication of vulnerabilities banks have to the ongoing credit crisis.
Goldman's quarterly loss came during a three-month period that brought sweeping changes to the bank and the investment banking sector — a sector that is essentially being rebuilt after the September collapse of Lehman Brothers Holdings Inc. and the sale of Merrill Lynch & Co. to Bank of America Corp.
With investors lacking confidence in the stand-alone banking model, both Goldman and Morgan Stanley quickly gained federal regulatory approval to become bank holding companies in an effort to remain independent.
Morgan Stanley is scheduled to report fiscal fourth-quarter results Wednesday. Analysts widely predict the bank will post a loss, though not as severe as Goldman.
The banking structure change allows the pair to build large deposit bases to help fund operations, which is considered vital amid the market uncertainty that has all but shut down the credit markets.
Viniar said Goldman will continue to build that deposit base through third-party distribution channels and its private wealth management business. He did add that Goldman is considering internet banking and would look at a possible acquisition in an effort to boost deposits. The bank is aiming to increase deposits to between $50 billion and $100 billion, from about $20 billion.
Also with the regulatory change, the banks now have wider and permanent access to a slew of funding options from the federal government, first and foremost the government's bank investment program that was launched in October.
Goldman was among the first banks to receive funds as part of the $700 billion government program. The government gave Goldman $10 billion in fresh capital in return for preferred stock and warrants to purchase common shares. The goal of the government program is to spur the credit markets and get banks lending to each other and customers again.
Goldman also received a boost when billionaire investor Warren Buffett invested $5 billion in capital and it raised an additional $5.75 billion through a public stock offering.
The security that comes with becoming a bank holding company — the structure that traditional commercial banks take — also could hinder future growth for Goldman as it looks to return to profitability. Goldman will come under closer regulatory scrutiny from the Federal Reserve and will have to ratchet down its leverage, which it parlayed into billions of dollars in quarterly profits amid the market boom earlier this decade.
For the full year, Goldman earned $2.04 billion, or $4.47 per share. Goldman had remained profitable through the beginning of the year, while other financial firms posted huge losses tied to the troubled housing and credit markets.
Amid the tumult, Goldman moved to cut costs like many other banks as well. Even those moves, though, were unable to keep it from the fourth-quarter loss. During the period, Goldman said it would be cutting about 10 percent of its work force as it looks to save on expenses. Goldman began notifying in early November roughly 3,200 employees they were being laid off.
Seven top executives at the firm, including Chief Executive Lloyd Blankfein, also agreed to forgo their annual cash and stock bonuses. Blankfein received total compensation of $54 million in 2007, according to calculations by The Associated Press, making him the sixth-highest-paid CEO of a Standard & Poor's 500 company in 2007.
December 16, 2008
THE FINTAG NEWSLETTER
Madoff part 2.
Last Thursday the news broke and it hardly registered a blip on the news radar. Today we face financial meltdown of the hedge fund industry and the loss of tens of billions of dollars and the destruction of livelihoods.
Yesterday I looked critically at the investors who had not read the prospectuses or carried proper due diligence. The problem with Madman Madoff's funds is you could only touch them by investing through feeder funds. These feeder funds were promoted by interested parties who put layers of fees on top and sold them as proper fund of funds.
Take the Fairfield Sentry fund. It has a proper Auditor - PWC, an administrator and a custodian - Citco. It is a BVI fund and is managed by a well known Investment Manager. So far, so good. Ok, the custodian only looks after 5% of the assets (the other 95% are looked after by Madoff) but unless you like reading small print it looks like fine.
The biographies of the managers are respectable, including Jeffrey Tucker who used to work as a lawyer for the SEC. The fund has a board including 2 directors located in risk adverse Switzerland. One of the directors is not paid which is strange but I guess he must be paid elsewhere. Thankfully, Goldman Sachs is a sub custodian although I think Refco must have been a misprint.
The Investment objective is "The Fund seeks to obtain capital appreciation of its assets principally through the utilization of a nontraditional options trading strategy described as "split strike conversion", to which the Fund allocates the predominant portion of its assets. This strategy has defined risk and profit parameters, which may be ascertained when a particular position is established ..." and sounds quite convincing.
I am not so sure about the Investment Restrictions including "e) no more than 10 percent of the Net Asset Value of the Fund may be invested in securities of countries where immediate repatriation rights are not available;" but I like the fact US citizens are excluded - "The Fund will require as a condition to the acceptance of a subscription that the subscriber represent and warrant that he has a net worth in excess of U.S. $1,000,000 and is not a U.S. person".
The 13 year track record averages in excess of 10% a year and its volatility is very low indeed. The fund has grown and subscriptions exceed redemptions so it must be a popular.
Excellent. So where did it go wrong? Well PWC have some explaining to do. It looks like they never validated the underlying investments. Madoff obviously just gave them the NAVs and they took them as red. Citco's care of duty is to look after the assets and it has done so. Shame it only looked after 5% but that is better than nothing. The manager should perhaps have carried out some proper due diligence on the underlying but then it made so much in fees it got a bit punch drunk.
So there you go. A sound investment run by people who didn't quite do their jobs. I take back all my negative posturing and instead tell you how I see it through a slew of crap cartoons and virals....
November 3, 2008
Propaganda is to a democracy what
violence is to a dictatorship.
In The Red, White, and GOLDman Sachs I wrote:
Remember that $85 $120 billion dollar government *bailout* that AIG got in September? Well the rumor mill had it that it was really a bailout of Goldman Sachs; that Goldman Sachs had $40 billion in AIG counterparty risk.
And then I went on to catalog all the Goldman cronies now shepherding the *bailout* funds.
Think my conspiracy theory is crazy?
There's more from the Washington Post last week:
Effectiveness of AIG's $143 Billion Rescue Questioned
A number of financial experts now fear that the federal government's $143 billion attempt to rescue troubled insurance giant American International Group may not work, and some argue that company shareholders and taxpayers would have been better served by a bankruptcy filing.
The deal that the Treasury and the Federal Reserve Bank of New York pressed upon AIG was intended to stop any domino effect of financial institutions falling because of their business ties to AIG. The rescue allowed AIG to provide cash to huge banks and other players who had invested in rapidly souring mortgages insured by the company.
Early this year, investors had begun privately demanding that AIG pay off its billion-dollar guarantees. But in mid-September, when the demands for cash reached a public crescendo, AIG had to admit that it didn't have enough cash on hand to meet the obligations.
In the first weeks of its federal rescue, AIG has used the loan money to post collateral demanded by these firms, sources close to those deals say.
The company may be forced to borrow additional federal funds for rising payouts to counterparties. Neither the government nor AIG is releasing information about the specific amounts paid to individual firms, but numerous credit experts say that the value of those mortgage assets is probably declining every week. That means AIG has to pay a higher price as part of its guarantees.
In February, internal notes show, board members discussed a growing dispute between AIG Financial Products and Goldman Sachs about the value of those assets when Goldman called for AIG to post collateral. AIG's chief financial officer warned of "Goldman's acknowledged desire to obtain as much cash as possible." But AIG's external accountants warned that it was they who alerted management to the dispute, not AIG Financial Products, and that the division was not properly considering the market in its pricing.
Rutledge warns that because there has been no public disclosure of AIG's payments to counterparties, it is impossible to know whether the pricing it is using now is proper....
Marginalizing Morons: More On The Secret Goldman Sachs Bailout
October 6, 2008
From Politics in the Zeros:
Apparently it’s the Goldman Sachs Bailout Act
Bob Morris
Category: Credit crisis Tags: bailout act, Neel Kashkari
Else how to explain that Neel Kashkari, a 35 year old protege of Paulson (former Goldman Sachs CEO), has been chosen to head the $700 billion bailout. Kashkari also used to work for Goldman, at a mere VP level and has a background in engineering. Wow, sounds like he’s just super-qualified for the job. I’m sure they looked long and hard before deciding, darn, no one in the entire country is better qualified than Kashkari.
Ethically, this stinks. The conflicts of interest are obvious. And the simple fact of the matter is that Paulson didn’t really spring into action until Goldman Sachs stock started plunging. Yes, there was and is a real crisis. But the sight of dear old Goldman cratering like all those plebian stocks was simply more than they could bear.
“Get ready to be disgusted by the coming investment bank / Goldman Sachs clusterfcuk,” I’m told…
2008 - November. From Marginalizing Morons:
In The Red, White, and GOLDman Sachs I wrote:
Remember that $85 $120 billion dollar government *bailout* that AIG got in September? Well the rumor mill had it that it was really a bailout of Goldman Sachs; that Goldman Sachs had $40 billion in AIG counterparty risk.
And then I went on to catalog all the Goldman cronies now shepherding the *bailout* funds.
Think my conspiracy theory is crazy?
There's more from the Washington Post last week:
Effectiveness of AIG's $143 Billion Rescue Questioned
A number of financial experts now fear that the federal government's $143 billion attempt to rescue troubled insurance giant American International Group may not work, and some argue that company shareholders and taxpayers would have been better served by a bankruptcy filing.
The deal that the Treasury and the Federal Reserve Bank of New York pressed upon AIG was intended to stop any domino effect of financial institutions falling because of their business ties to AIG. The rescue allowed AIG to provide cash to huge banks and other players who had invested in rapidly souring mortgages insured by the company.