We all heard about the great results that Goldman Sachs posted today, which far exceeded the analysts' expectations...
However, in his blog at the NYT, the Economics Nobel Prize calls the attention to an article by Floyd Morris, reported via Ritholz - the real reason why Goldmans' earnings were so good is due to magic: they made the whole of December disappear!
Quote:
"Yesterday, we noted that the bulk of their [GS] profits had come from AIG transfer payments — the AIG 100% payouts funded via bailout monies that saw Goldie as one of the largest recipients. Floyd Norris notes that most of the AIG effect was in December. "For the first quarter, the total A.I.G. effect on earnings was, in round numbers, zero."
How is it possible that this occurred? Isn't GS on a December to February calendar? Well, there is a small asterisk about that. It seems that GS is moving from a December to a quarterly calendar. Meaning their latest Q is January thru March.
But what of December, with all t he AIG monies and the comparison to the strong December 2007 and all?
In a word, Orphaned:
Goldman's 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman's news release, and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ending in February.
The orphan month featured — surprise — lots of writeoffs. The pre-tax loss was $1.3 billion, and the after-tax loss was $780 million.
Would the firm have had a profit if it stuck to its old calendar, and had to include December and exclude March?
Truly astounding . . . the word Chutzpah simply does not do it justice . . ."
Floyd: http://norris.blogs.nytimes.com/2009/04/14/the-case-of-the-missing-month/
Ritholz: http://www.ritholtz.com/blog/2009/04/how-to-puff-up-earnings-goldman-sachs-style/
Krugman: http://krugman.blogs.nytimes.com/
Jews = :smarty: :thumbsup:
Sneaky. Still, I would imagine that draconian new accounting regulations brought in by the Neil Administration will solve this sort of sorcery.
Quote from: Neil on April 14, 2009, 07:02:05 PM
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? :blink:
Quote from: Martim Silva on April 14, 2009, 06:50:28 PM
Truly astounding . . . the word Chutzpah simply does not do it justice . . .
Nope. You also need the words conspiracy, Zionist, protocols, Bilderberger, Freemasons, Bubonic Plague and "alleged holocaust".
Quote from: Caliga on April 14, 2009, 07:03:17 PM
Quote from: Neil on April 14, 2009, 07:02:05 PM
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? :blink:
So because someone does my bidding means I shouldn't make them obsolete and take their power from them?
They're beholden to me, not vice-versa.
Is this one of Martim Silva's Portugese fascism thingies?
Quote from: Razgovory on April 14, 2009, 07:16:25 PM
Is this one of Martim Silva's Portugese fascism thingies?
I would assume so. Always going on about how good he had things when Carlos Santana ran the country.
Quote from: Razgovory on April 14, 2009, 07:16:25 PM
Is this one of Martim Silva's Portugese fascism thingies?
I'd have to read it to find out, so i guess that will forever be a mystery to me. :(
Quote from: Martim Silva on April 14, 2009, 06:50:28 PM
We all heard about the great results that Goldman Sachs posted today, which far exceeded the analysts' expectations...
I hadn't until today.
Quote from: Neil on April 14, 2009, 07:18:03 PM
Quote from: Razgovory on April 14, 2009, 07:16:25 PM
Is this one of Martim Silva's Portugese fascism thingies?
I would assume so. Always going on about how good he had things when Carlos Santana ran the country.
Free concerts for everyone?
They've already destroyed a lot of wealth. Been there, done that (very well). Months of the year are a logical new challenge.
December needs to be destroyed so it can be renamed.
And december is right in time for the birth of christ, who is the messiah after all.
A bit like how Obama is the messiah in today's america.
So it's only logical that December will be renamed to Obamy
Quote from: MadImmortalMan on April 14, 2009, 07:04:51 PM
Quote from: Martim Silva on April 14, 2009, 06:50:28 PM
Truly astounding . . . the word Chutzpah simply does not do it justice . . .
Nope. You also need the words conspiracy, Zionist, protocols, Bilderberger, Freemasons, Bubonic Plague and "alleged holocaust".
That bit was a quote from the article, not mine [hence the "..."]. And the author is jewish, which is why he used the word 'Chutzpah'. Read the articles.
(Seriously people, are you so nuts that you even consider declarations written by Jews as 'anti-semitic' if you think they were written by gentiles? It denotes a serious level of paranoia)
Hopefully Morales and his Anorexia Tour will save us!
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.
Quote from: garbon on April 15, 2009, 02:16:09 AM
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.
Quote from: Neil on April 15, 2009, 08:18:41 AM
Quote from: garbon on April 15, 2009, 02:16:09 AM
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.
Quote from: Caliga on April 14, 2009, 07:03:17 PM
Quote from: Neil on April 14, 2009, 07:02:05 PM
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? :blink:
Saul banned all magicians from the kingdom. thus there are no Jewish sorcerers.
Quote from: saskganesh on April 15, 2009, 09:29:20 AM
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.
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.
Quote from: Neil on April 15, 2009, 08:18:41 AM
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.
QuoteBolivian 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!
Quote from: garbon on April 15, 2009, 10:12:41 AM
God I hate South America!
Brazil seems to have finally learned their lesson. We just need a couple of the countries to go sane.
Quote from: alfred russel on April 15, 2009, 09:59:00 AM
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.
Quote from: Martim Silva on April 15, 2009, 01:21:32 PM
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.
Quote from: Martim Silva on April 15, 2009, 01:21:32 PM
Quote from: alfred russel on April 15, 2009, 09:59:00 AM
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.
Quote from: Valmy on April 15, 2009, 09:36:16 AM
Quote from: saskganesh on April 15, 2009, 09:29:20 AM
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. :(
I sure hope Martim is wrong, that Wells Fargo didn't release a fraudulent 1st quarter number. :(
Are you short Wells Fargo Martim?
Quote from: Martim Silva on April 15, 2009, 01:21:32 PM
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.
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.
Could you go over that again, but use simple words?
Quote from: Berkut on April 16, 2009, 10:26:54 AM
Could you go over that again, but use simple words?
Borrow at 0.5%, lend the money out at 5%+ ---> make money.
I do share some of Martim's suspicions. I agree that weakening mark to market risks making accounts more opaque and gives excuses to avoid further write-downs. I do think there are still huge unrecognized losses lying around. I am concerned about the very large goodwill assets that are still sitting on bank balance sheets when it should be clear these need to be written down.
But singling out Wells and Goldman is . . . odd. They are stronger than their competitors, and there is definitely a competitive advantage to that. Kitchen sinking losses in late 08, while an obvious ploy to flatter later earnings result, is a much better approach than not doing the writedowns and sticking one's head in the sand. It's not like anyone was fooled by Goldman's orphan month - the stock is down in anticipation of their planned equity offering -- investors know how to read a balance sheet. I am far more worried about the continuing viability of the weaker players, whose stock has all gone up significantly in the last few months despite the fact that they live day-to-day on the sufferance of the Fed and Treasury.
Quote from: The Minsky Moment on April 16, 2009, 10:38:17 AM
I do share some of Martim's suspicions. I agree that weakening mark to market risks making accounts more opaque and gives excuses to avoid further write-downs. I do think there are still huge unrecognized losses lying around. I am concerned about the very large goodwill assets that are still sitting on bank balance sheets when it should be clear these need to be written down.
So we finally get some insight into the impact of the accounting rule changes--Citi spelled them out in their press release announcing earnings (I believe they are the first financial institution to do so, though everyone will have to in their 10-Q).
Citi wrote:
"Citi adopted FASB's recent rule changes regarding fair valuation (FAS 157) and other than temporary impairments (FAS 115). The adoption of the changes to FAS 157 had no impact on Citi's financial results. The adoption of the changes to FAS 115 resulted in approximately $631 million pre-tax of lower impairment charges recorded in revenue in the current quarter. Additionally, the cumulative effect of the changes to FAS 115, which did not impact revenues, led to a $413 million after-tax increase in retained earnings and an offset in other comprehensive income on the balance sheet. "
My interpretation of this is as follows:
FAS 157 (the change in the fair value standard): no impact.
FAS 115 (the change in the recognition of losses for fair value): This is a bit less clear, but my interpretation is as follows:
a.) $631 of new asset impairments in the current quarter effected by new guidance (unchanged by the accounting rule change)
b.) The tax effected loss related to the $631 impairement: previously recorded in net income, now recorded in other comprehensive income
c.) The $413 million switch between retained earnings and other comprehensive income: this is a switch between two components of shareholders equity. It may have some significance for regulators, I don't know, but it is basically a balance sheet wash.
Bottom line: you get a reclass in P&L accounts between net income and other comprehensive income, and a reclass between two shareholder equity accounts. I don't see this as an earth shattering change.
1) Did FAS 157 have no impact because there is really no impact or because Citi was on the edge of skirting the rules before, and FAS157 gave then more breathing room? The issue is that evaluation of assets is a continuous process. Maybe you can convince your auditor to give you a pass in time X, but the auditor is going to be less forgiving in X+1. But if rule clarifications give you cover in X+1 then a corrective that might have otherwise happened doesn't happen. From the outside world's perspective, it looks like there is no change.
The real concern here is the corrosive effect of uncertainty - one can't really be sure what is going on under the hood, and comparability between similar institutions is compromised.
2) Re FAS 115 I admit confusion. The first line seems to indicate that the change resulted in $631M less in impairment charges than would have occurred absent the rule. But I don't understand the offset to other comprehensive income.
Quote from: The Minsky Moment on April 17, 2009, 10:31:03 AM
1) Did FAS 157 have no impact because there is really no impact or because Citi was on the edge of skirting the rules before, and FAS157 gave then more breathing room? The issue is that evaluation of assets is a continuous process. Maybe you can convince your auditor to give you a pass in time X, but the auditor is going to be less forgiving in X+1. But if rule clarifications give you cover in X+1 then a corrective that might have otherwise happened doesn't happen. From the outside world's perspective, it looks like there is no change.
The real concern here is the corrosive effect of uncertainty - one can't really be sure what is going on under the hood, and comparability between similar institutions is compromised.
2) Re FAS 115 I admit confusion. The first line seems to indicate that the change resulted in $631M less in impairment charges than would have occurred absent the rule. But I don't understand the offset to other comprehensive income.
1) On 157, who knows. The clarified rule gives objective criteria for when a market is deemed not to be orderly. The standard before was much more subjective (the reason for the supposed need for new guidance was that auditors were insisting on the most conservative interpretation). Maybe they were pushing the limits of the more subjective standard before, all we know is that they say it didn't have an effect, and presumably they got their auditors to buy off on that statement. My take is that while I'm generally skeptical of the changes that are taking place, this one will improve comparability as it does remove some subjectivity.
2) It is because of the way the rule change was put in place. Their net income will be $631 million higher (less applicable taxes). This is going to boost their headline earnings number. However, the revised rule says that their assets still must be written down by $631 million. The accounting treatment under the revised rule is to run this writedown through other comprehensive income (net income plus other comprehensive income equals comprehensive income). That is more opaque, and if you only look at the earnings number (or PE ratio) will be misleading. However, on the balance sheet assets and liabilities won't be changed and all components of comprehensive income are disclosed.
This discussion reminds of me of the actuarial exam I took that dealt with accounting. I hope you two can live with yourselves for triggering suicidal thoughts in me.
Quote from: alfred russel on April 17, 2009, 10:50:10 AM
2) It is because of the way the rule change was put in place. Their net income will be $631 million higher (less applicable taxes). This is going to boost their headline earnings number. However, the revised rule says that their assets still must be written down by $631 million. The accounting treatment under the revised rule is to run this writedown through other comprehensive income (net income plus other comprehensive income equals comprehensive income). That is more opaque, and if you only look at the earnings number (or PE ratio) will be misleading. However, on the balance sheet assets and liabilities won't be changed and all components of comprehensive income are disclosed.
I understand now.
That is - I understand what you just said. Not why FASB chose to do it this way.
Quote from: The Minsky Moment on April 17, 2009, 11:12:04 AM
I understand now.
That is - I understand what you just said. Not why FASB chose to do it this way.
I don't think they wanted to--I think their take was that Congress was going to intervene if they didn't do something, and it was hard to do something constructive when the original basic premise was sound.
I do think it is a poor set of changes, btw, but ones we can live with and see the effects of.