Sunday, January 10, 2010

Goldman Sachs--About to Go Bankrupt, Again

Remember how quickly Goldman Sachs went bankrupt the first time? A hung over kid clinging to the toilet bowl, they promised taxpayers who bailed them out that they would never touch investment banking again, and would instead turn into bank holding company with consumer retail locations.

They ignored their own mandate after Treasury Secretary Paulson, the same Goldman Sachs CEO who bankrupt the company, seized the taxpayers' money in the face of 100:1 voter opposition. He reimbursed Goldman's mountain of losses to the tune of $320B (16x Goldman's total operating capital at peak), most of it laundered through AIG at 100 cents on the dollar.

Today, Goldman Sachs losses are much worse. They've got over a $trillion in mega-leveraged liabilities. They've marked-up, instead of written down, a $53B ultra-leveraged, completely worthless subprime portfolio, and have lost hundreds of billions in diving commercial real estate which they continue to book as more valuable than 2005.

Even as litigation from their first bankruptcy settlement pours in, Goldman Sachs employees continue to loot the bonus pool, setting aside a record-doubling $22B in one time pay raises in an all out sprint for the exit door. They know what's coming.

The second Goldman Sachs bankruptcy will be even faster, and this time, there will be no way out.


  1. There will be no way out? I have a hard time believing they won't have their way with Congress and Pres Obama. At the very least they'll issue new outstanding stock.

    This is a really interesting post FDR. Most believe Goldman is in great shape right now, but maybe you've exposed their great secret, marking up assets.

  2. Yes, I also exposed that the day their stock hit $250. Within months, it plunged 85%.

    There was only one large rabbit in the bailout hat. They consumed that innocent, floppy-eared rodent by mid-afternoon the same day he plopped in their lap; that bankruptcy bail out wasn't 5% of what it needed to be.

    Now, GS employees are looting their own company, along with GS as an institution, which hopes to short their own shares to close to $0:

    - Insider Purchases - Last 6 Months
    --- Purchases N/A
    --- Sales 338,989
    --- Net (Sold) (338,989)
    - Net Institutional Purchases - Last Qtr
    --- Net Shares Purchased (Sold) (16,676,500)

    Like you said, Joe S, that's probably one of the best case scenarios as the general public almost universally believes GS is the long play of the century. The marriage of the two, a deluge of 5th wavers turned B wavers, married with the biggest bear ever to devour leverage, makes GS the greatest single stock shorting opportunity on the market today.

  3. Insiders have barely sold any Goldman Sachs shares, they sold 1.4%. Wake me up when they sell another 15 million and I may buy into your thesis. Until then then lack of selling by insiders seems a strong vote of confidence in their shares

  4. FDR

    What will make them not use mark to fantasy accounting?

  5. FDR,

    Where are you getting your numbers from? I would like to see them so I can run some math :)

    Interesting post!

  6. "What will make them not use mark to fantasy accounting?"

    Two things: The process of discovery (actually selling a commercial asset for 50% or less of its booked value) and never-ending margin calls.

  7. With Chinese exports exploding, the rest of the world should soak up the US imbalances and provide the largest global expansion in history. I believe the low volume market will continue until the old highs are broken next spring. Once this occurs volume will return and prove that P3 is just the new playstation sitting under the Christmas tree. I am still amazed you can show a loss in a market this easy to make money in. I hope Volatility doesn't pick up because you will get smoked. I do agree we will have deflation for years to come, but your positions have nothing to do with trying to profit from this. You will figure that out soon though that all paper assets, especially equities, will be your best hedge against the type of deflation we will experience. Look for profit margins to decrease due to lower sale prices yet profits to soar with international sales taking up the slack and adding massive growth. Higher profits will confuse the herd.

  8. To the first anonymous - the fact that insiders are not buying and only selling should say something.

    Does anyone know what percentage of the float do insiders hold?

  9. If the government is buying S&P futures with printed money at 0% interest, they can hold these contracts indefinitely, correct? That would be a nice way to transfer huge amounts of cash to everyone involved. If I own a stock at 10 and the government pays me 100 I just made $90. Even if it falls to $10 again the government can hold it for 20 years and slowly sell it off in better times. They have no risk and now that the mechanism is in place, the market can never really fall again because they can print more money then sellers can muster to sell. They will let it correct 10% here and there to get better prices, but this seems like a win for everyone but the shorts.

  10. Fed makes 45 billion and gives it back to the U.S. Treasury? Huh?

  11. FDR, FYI this article was above the fold in this mornings paper:

    It talks about how the Fed made $45B in profits, but that the bulk of that will be given to the Treasury (less operating costs). I know you've described the Fed as strictly-for-profit. Is this article contradicting that?


  12. "Fed makes 45 billion and gives it back to the U.S. Treasury? Huh?"

    Like all private corporations, Fed profit is revenue - expenses (to include salaries). As I've said many times, the Fed considers printing money an expense when it is, of course, free cash.

  13. Sooo...the interest the Govt. paid the Fed was Fed 'Revenue'.

    Revenue - lining_their_pockets = 'Profits'

    The 'Profits' given back was interest money the Govt. paid them on printed_for_free_cash, loaned to us.

    So we just paid the Fed billions to print free cash. The fact they gave any 'Profits' back is nothing more than returning some of the monstrous overpayment when they ran out of ways to expense it out.


  14. Correct. Remember, according to the Fed they must "buy" our Treasuries.

    Everything a private company "buys" is accounted as an expense. Like the Fed has money! They don't of course, they print it. They are not Federal and they have no reserves.

    Both the Treasury bond, and the cash they print to "buy" it was 100% profit. They may or may not decide to pay back a small portion of the interest on top of capital that was 100% profit in the first place.

  15. I hope Paulson and Geithner both get raped in the butt before this is all over. Obama is bringing these "chickens" home to roost. Good. Its these least these self serving criminal arrogant fks deserve for the smack in the face they gave to the taxpayers.

  16. Depressions are funny things. You can tell you are in one by a variety of indicators, not just price tags. Bob Prechter of EWI has identified some great cultural characteristics of all financial meltdowns:

    - Melancholic music ballads replace bee-bop

    - Disturbing movies come into vogue, particularly vampire flicks like the 1930's horror classics

    - Boom-time heroes suddenly going bust

    And this one should make you happy:

    - Government inquisitions against Wall St.

    Point is:

    Paulson and Geithner might get really really surprised and find themselves in jail.


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