Fool: God & banks are perfect

Great piece by Morgan Housel for Motley Fool – when it comes to stimulus, masters of the universe stand at the front of the line. Ridiculous…

…what trading results used to look like. Take this chart, made with data from Goldman’s annual report, which shows how many days Goldman’s trading division made specific amounts of money in 2003:

Source: Goldman Sachs annual report.

…it looks like a bell curve. Some big losses. Some big gains. Lots of in between. That’s what you’d expect. Now compare that with 2009′s breakdown of daily trading results:

Source: Goldman Sachs annual report.

No more bell curve. In 2009, Goldman’s trading division made boatloads of money on most days, lots of money on many days, and … that’s about it. Raging success became the norm. In six years flat, the concept of “risk” was seemingly vaporized.

Why? What changed? It’s hard to tell because Goldman is unwavering in its quest to keep trading information secret…

Goldman has developed a cute habit of beating around the bush when investors and reporters ask about these details. Asked whether the recent trading success was from client-driven or proprietary trading, COO Gary Cohn replied, “Over the last 12 months we have only recorded 11 loss days. It is implausible that a proprietary-driven business model could be right 96 percent of the time.”

Well, no it’s not, and I’ll tell you why. What has changed recently, and what has been a tailwind to banks’ proprietary trading operations, are 1) the concept of “too big to fail,” and 2) investment banks becoming bank holding companies (as Goldman did in the Fall of 2008), which provides access to the Federal Reserve’s safety net…

The absurdity of banks using the Federal Reserve to borrow money on the cheap for trading purposes, rather than lending to the broader economy, is the foundation of the so-called Volcker Rule proposed earlier this year, named after former Fed chairman Paul Volcker. Under the Volcker Rule, banks tied to the Fed would be banned from proprietary trading. Period.

Congress votes sometime over the next few days on whether to include a version of the Volcker Rule in forthcoming financial regulation bills. If you want to let your Senator know how you feel on this issue, click here for their contact information.

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC is a state registered investment advisor. The foregoing information is for informational, educational, or entertainment purposes only. It does not constitute an offer to buy nor a solicitation to sell any security, or to engage in any investment strategy. At the time of writing, neither the firm nor its clients owns securities issued by Goldman Sachs; a principal of the firm owns Goldman Sachs common shares in a personal account. 

URLs:

http://www.fool.com/investing/general/2010/05/14/only-god-and-the-banks-are-perfect.aspx