Monday, 1 March 2010

Robber Bankers

It is understood that Goldman Sachs are merely undertaking God's work.

The release yesterday of the Goldman Sachs (GS) financial figures for 2009 suggest either that a whole host of deities run the trading rooms at GS...
...or that GS manipulate markets.

How about a probabilistic yet holistic overview of why the latter is the Real hyperreality?

All market analysts and trading teams set benchmarks on performance.
For GS, the positive daily performance benchmark is a profit of $100 million.

In 2009, GS achieved this threshold on 50% of trading days and yet never once had a losing day of the equivalent magnitude - that is 131 trading days with greater than $100 million profits and 0 days with greater than $100 million losses.

The 131 days of exceptional performance shattered the previous GS record of 90 days in a year above this level.
Additionally, out of 263 trading days, the investment bank only lost any money at all on 19 days.

The $13.4 billion annual profit certainly befits a state-based investment bank whose major opponents were torpedoed from the water or drastically down-muscled following Hank Paulson jumping from the financial levers of power at GS to the financial levers of power above the Bush administration.

Now, now, now.....

Financial markets are supposed to be well-regulated competitive platforms where skilled analysts attempt to detect mis-priced assets in the hope of benefiting from the value when the price moves to the true or equilibrium value.
Due to the vast array of economic, psychological and algorithmic inputs to any market price, we are supposed to be dealing with probabilities.
Generally, an increase in how 'wrong' a price is leads to a greater percentage of occasions where we might expect to earn handsomely.

But markets are noisy. Knickpoints and breakpoints disrupt future dynamics. Black Swans and other uproarious events destabilise the markets. Super-systemic inputs distort the template.

The top people at GS are obviously in a much stronger position than most analysts.
GS are able to benefit from excessive levels of inside information, regulatory forewarning (particularly from governmental sources), cornering of markets or, as was the case with Greece (using the words of Phil Angelides, the chairman of the US Financial Inquiry Commission), utilising the practice of creating securities and "fully betting against them".

But even so...
131 days at $100m+
0 days at $100m-

This is the equivalent of playing repeated games of chess against your four year old granddaughter with the added advantage of being white in every game.
And with the option of removing threatening pieces from the board as the mood takes you.

The fact that these results coincided with the PR release of news about the devastating cuts that we must expect in public services in Britain (and across the allegedly developed world) over the next decade is surely just another example of the market timing of GS.

There is no competition in the market.
This is monopolistic bullying to all intents and purposes.
With no rules.

Meanwhile The Economist ask us: "Is democracy compatible with sound finances, in the long run?"

Are these two things which don't exist compatible with one another?
These are the questions of Our Time.

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