Goldman Sachs' magic trick - December disappears!

[DontSayBanana]

I dunno; I'll wait for Mimsky or alfred russell to chip in, but I have a hard time believing there would be a loophole that big in the accounting regulations. I would guess it will "largely be ignored" means that it doesn't have to go into the quarterly announcement, but the money needs to be accounted for, so will go out as an addendum to the quarterly report.

[Neil]

Hopefully Morales and his Anorexia Tour will save us!

He'd better eat something.  Otherwise, he won't have enough strength when the time comes for Martim's Great South American Crusade against Columbia that should have happened a year or two ago.  Evo is Chavez's second-in-command, after all.

[BVN]

Hopefully Morales and his Anorexia Tour will save us!

He'd better eat something. 

Well, he listened to your advice. He started to eat again.

[saskganesh]

Sneaky.  Still, I would imagine that draconian new accounting regulations brought in by the Neil Administration will solve this sort of sorcery.

But don't Jewish sorcerers already do your bidding?

Saul banned all magicians from the kingdom. thus there are no Jewish sorcerers.

[Valmy]

Saul banned all magicians from the kingdom. thus there are no Jewish sorcerers.

See if Saul had kept the magicians I bet they would never have lost to the Babylonians and Assyrians.

[alfred russel]

When they became a bank holding company in September 2008, they changed to a fiscal year end of December from their previous year end of November. This change was effective in 2009. Morgan Stanley did the same thing. I believe the change was required to become a bank holding company, but I'm not sure of that.

The change in fiscal year end means that for both Goldman Sachs and Morgan Stanley December 2008 will be something of an orphan month: 2008 will end in November and 2009 will begin in January (give or take a few days).  Even though Goldman Sachs won't include December 2008 in any of its quarterly or annual figures (as it shouldn't per the accounting and SEC literature), it will and has disclosed the financial results of December 2008.

Some people that should know better (Paul Krugman) are embarrassing themselves by jumping on this as something of a scandal. It is suspicious that Goldman Sachs posted massive losses in the one month that no one is going to focus on, but it seems from the reporting of other banks that the January – March timeframe really was improved for business.

[garbon]

He'd better eat something.  Otherwise, he won't have enough strength when the time comes for Martim's Great South American Crusade against Columbia that should have happened a year or two ago.  Evo is Chavez's second-in-command, after all.

Bolivian President Evo Morales ended a five-day hunger strike today after Congress approved a new electoral law that will boost the voting power of his core constituency.

God I hate South America!

[Valmy]

God I hate South America!

Brazil seems to have finally learned their lesson.  We just need a couple of the countries to go sane.

[Martim Silva]

Some people that should know better (Paul Krugman) are embarrassing themselves by jumping on this as something of a scandal. It is suspicious that Goldman Sachs posted massive losses in the one month that no one is going to focus on, but it seems from the reporting of other banks that the January – March timeframe really was improved for business.

Krugman, like all other experts, knows full well that things could not have possibly improved in the January-March timeframe.

There were no stimulus packages enacted in that timeframe that could have turned the housing market around, while soaring unemployment [not one month went by when at least 630,000+ people did not lose their jobs] and credit card defaults meant that it *should* have been the worse quarter possible for the banks.

Granted, the government did inject money to stabilize the financial system, and the non-conventional measures taken by the Fed did somewhat defuse the crisis in the monetary markets, but we still saw that both the cost of insurance against defaults by the companies increase dramatically and the soaring of the spreads charged by the banks. This indicates that fewer loans were handed out.

The result is that, while banks could concievebly say that the quarter was more stable and that their losses decreased, it is *simply impossible* that they can now come and say they had amazingly good quarters (beating by gigantic margins absolutely everything that every expert in the field predicted) and even record profits, like Wells Fargo.

(if you're a bank in the most serious recession since WW2, took large writedowns, have devalued stocks in your portfolio, reduced the loans you're giving out and you're working in an environment of soaring unemployment and rising credit card defaults, then you *cannot* have record profits, period. Even taking the merger with Wachovia into consideration)

That, combined with the fact that the FSAB changed the 'mark to market' rule and allowed the banks to use their own models to evaluate their troubled assets, means that every specialist is hugely suspicious of the numbers the US banks put out, and they immediately come under close scrutiny when they are released. Everyone is up in arms against this attack on the transparency of the financial institutions' accounts.

And it is by no means with these gimmicks that the US will restore Chinas' confidence in the American financial system.

[Valmy]

Chinas' confidence in the American financial system.

I guess China will have to start exporting to that other enormous importing economy...you know...um...

oh right.  I guess they will have to stick with us.

[MadImmortalMan]

Some people that should know better (Paul Krugman) are embarrassing themselves by jumping on this as something of a scandal. It is suspicious that Goldman Sachs posted massive losses in the one month that no one is going to focus on, but it seems from the reporting of other banks that the January – March timeframe really was improved for business.

Krugman, like all other experts, knows full well that things could not have possibly improved in the January-March timeframe.

There were no stimulus packages enacted in that timeframe that could have turned the housing market around, while soaring unemployment [not one month went by when at least 650,000 people did not lose their jobs] and credit card defaults meant that it *should* have been the worse quarter possible for the banks.

Granted, the government did inject money to stabilize the financial system, and the non-conventional measures taken by the Fed did somewhat defuse the crisis in the monetary markets, but we still saw that both the cost of insurance against defaults by the companies and the soaring of the spreads charged by the banks. This indicates that fewer loans were handed out.

The result is that, while banks could concievebly say that the quarter was more stable and that their losses decreased, it is *simply impossible* that they can now come and say they had amazingly good quarters (beating by gigantic margins absolutely everything that every expert in the field predicted) and even record profits, like Wells Fargo.

(if you're a bank in the most serious recession since WW2, took large writedowns, have devalued stocks in your portfolio, reduced the loans you're giving out and you're working in an environment of soaring unemployment and rising credit card defaults, then you *cannot* have record profits, period. Even taking the merger with Wachovia into consideration)

That, combined with the fact that the FSAB changed the 'mark to market' rule and allowed the banks to use their own models to evaluate their troubled assets, means that every specialist is hugely suspicious of the numbers the US banks put out, and they immediately come under close scrutiny when they are released. Everyone is up in arms against this attack on the transparency of the financial institutions' accounts.

And it is by no means with these gimmicks that the US will restore Chinas' confidence in the American financial system.

Okay.

[Savonarola]

Saul banned all magicians from the kingdom. thus there are no Jewish sorcerers.

See if Saul had kept the magicians I bet they would never have lost to the Babylonians and Assyrians.

They totally nerfed magic-users in the latest edition.  Magicians wouldn't have been much help at all.   

[Admiral Yi]

I sure hope Martim is wrong, that Wells Fargo didn't release a fraudulent 1st quarter number.

Are you short Wells Fargo Martim?

[alfred russel]

Krugman, like all other experts, knows full well that things could not have possibly improved in the January-March timeframe.

There were no stimulus packages enacted in that timeframe that could have turned the housing market around, while soaring unemployment [not one month went by when at least 630,000+ people did not lose their jobs] and credit card defaults meant that it *should* have been the worse quarter possible for the banks.

Granted, the government did inject money to stabilize the financial system, and the non-conventional measures taken by the Fed did somewhat defuse the crisis in the monetary markets, but we still saw that both the cost of insurance against defaults by the companies increase dramatically and the soaring of the spreads charged by the banks. This indicates that fewer loans were handed out.

The result is that, while banks could concievebly say that the quarter was more stable and that their losses decreased, it is *simply impossible* that they can now come and say they had amazingly good quarters (beating by gigantic margins absolutely everything that every expert in the field predicted) and even record profits, like Wells Fargo.

(if you're a bank in the most serious recession since WW2, took large writedowns, have devalued stocks in your portfolio, reduced the loans you're giving out and you're working in an environment of soaring unemployment and rising credit card defaults, then you *cannot* have record profits, period. Even taking the merger with Wachovia into consideration)

That, combined with the fact that the FSAB changed the 'mark to market' rule and allowed the banks to use their own models to evaluate their troubled assets, means that every specialist is hugely suspicious of the numbers the US banks put out, and they immediately come under close scrutiny when they are released. Everyone is up in arms against this attack on the transparency of the financial institutions' accounts.

And it is by no means with these gimmicks that the US will restore Chinas' confidence in the American financial system.

I was referring to business being better for financial institutions during Q1. So far every indication is that Q1 was good for business in the financial sector: we have Goldman Sachs and Wells Fargo that have released positive results, and Citigroup said the first two months were better than any period in the past year+ (one other bank had similar comments, but I don't remember which at the moment).

At the same time, Q4 last year was almost universally miserable. Put those together, and the requirement for Goldman Sachs to report December 2008 as a stand alone period, and I don't think it is shocking that December 2008 would be bad and Q1 2009 would be good.

As for the accounting rule changes, we had a thread discussing their impact. I don't think it is going to be large, and I believe Wells Fargo commented it wasn't in Q1 (I can't find that in a quick search I did). I also believe Goldman Sachs lobbied against the changes. In about a month all this companies will file their 10-Qs and we can see exactly what the impact was.

[The Minsky Moment]

It certainly not impossible for some banks to be making money, especially those who were aggressive about writing off in 08.  A principal source of income for many banks is the interest spread.  Right now, banks can get money from the Fed at near zero and lend it out at 5-6% (secured) or even more unsecured.  You don't need a math PhD to see how one might make some income off that.