Wednesday, August 5, 2009

There's Smoke at GS, and there's Smoke at JPM…

Get the marshmallows and weenies ready, the fire’s coming soon. Karl Denninger is seeing smoke coming from the Goldman offices. Guess what… Karl knows simple math!

Is This Statisitically Reasonable? (GS)

Remember what was said about Madoff when people started looking at his operation?

There were only two possible explanations for the firm's apparently never-losing trading: They were either front-running or cheating in some other fashion, or the entire thing was a gigantic ponzi scheme.

We later learned that #2 was the case.

But is there an example of #1 somewhere? Hmmmm....

Aug. 5 (Bloomberg) -- Goldman Sachs Group Inc. made more than $100 million in trading revenue on a record 46 separate days during the second quarter, or 71 percent of the time, breaking the previous high of 34 days in the prior three months.

Trading losses occurred on two days during the months of April, May and June, down from eight in the first quarter, the New York-based bank said today in a filing with the U.S. Securities and Exchange Commission. The company made at least $50 million on 58 of the 65 trading days during the quarter, or 89 percent of the time.
Just two days of losses in the entire quarter?

There are a lot of very good traders in the world, but nobody has that sort of record on any sort of consistent basis unless they've managed to rig the game.

Rigged game? Absolutely.

And then there’s the smoke over at the house of Morgan – JPMorgan. Actually, it’s already on fire, the public just doesn’t see the flames yet. The fire will eventually eat through the walls of their “house,” and then you are going to see the flames – it’s just a matter of time. There are charts and table breakouts from the OCC reports like I’ve been showing you at the following link - below is just an excerpt:

Derivatives Interest Rate Swaps, The Elephant In the Room

I’d like to delve into the numbers, or math, showing how J.P. Morgan’s derivatives book cannot be ‘hedged’.

As per their call reports filed with the Comptroller of the Currency’s Office, we know J.P. Morgan’s derivatives book grew by a cancerous 12 Trillion from June 07 to Sept. 07. The OCC’s Quarterly Derivatives Report serves as the public’s only peek into the opaque and murky world of derivatives-flim-flammery.

…If you’re wondering why J.P. Morgan never seems to get caught up in any sort of hideous mark-to-market losses concerning their derivatives or hedge book – consider that back in the spring of 2006, Business Week’s Dawn Kopecki reported,

“President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye.”

So do any of you think that J.P. Morgan gets a pass? I would suggest to you that if they had not – our whole financial system would already have collapsed in a heap.

You see folks; hubris has been cast upon us in an attempt to have us believe that wealth is really created on a printing press and on trading desks in N.Y. at J.P. Morgan or Goldman Sachs

Well said, I’ve got my marshmallows ready because the jungle is burning around these financial “lions.” Hmmm, I’m thinking s’mores, how ‘bout you?

Tight Fit - The Lion Sleeps Tonight (1982):