div style="text-align: justify;"span style="font-weight: bold;"[I hope they don't hold their breaths waiting for a rational (or any) explanation for Goldman Sachs' special little singular arrangement.]/spanbr /br /Dear Chairman Bernanke:br //divp style="text-align: justify;" In the fall, Goldman Sachs secured access to government funding by converting from an investment bank into an ordinary bank. Despite this shift, the CFO of the company, David Viniar, said last week that the company is continuing to operate as if it were still a high-risk investment bank: "Our model really never changed," he noted in a quote to Bloomberg. "We've said very consistently that our business model remained the same." /pdiv style="text-align: justify;" /divp style="text-align: justify;"This statement seems accurate. span style="font-weight: bold;"Earlier this year, the Federal Reserve granted a temporary exemption to Goldman Sachs from standard bank holding company Market Risk Rules, allowing the company to continue operating as if it were an investment bank./span The company and its employees have taken full advantage of its new government subsidies, and the retained ability to bet big. In its most recent quarter, Goldman Sachs earned high profits of $2.7 billion on revenues of $13.76 billion, with 78 percent of this revenue derived from high-risk trading and principal investments. It paid out much of this revenue in compensation, setting aside a record $772,858 for each employee at an annualized rate. The company's own measurement of risk, its Value-at-Risk model, recently showed potential trading losses at $245 million a day, up from $184 million last May. /pdiv style="text-align: justify;" /divp style="font-weight: bold; text-align: justify;"Despite its exemption from bank holding company regulations, Goldman Sachs has access to taxpayer subsidies, including FDIC-backed bonds, TARP money (since repaid), counterparty payments funneled through AIG, and an implicit backstop from the taxpayer that allowed a public equity offering in a queasy market. span style="font-style: italic;"The only difference between Goldman Sachs today and Goldman Sachs last year is that today, the company is officially gambling with government money. This is the very definition of "heads we win, tails the taxpayers lose." /span/pdiv style="text-align: justify;" /divp style="text-align: justify;"It is worth noting that there sometimes might be good reasons to grant temporary regulatory exemptions, considering that companies cannot instantly change their business model. Still, given Goldman Sachs's last quarter results and public statements that it is not changing its business model, span style="font-weight: bold;"we are worried that the company is using its regulatory freedom to evade capital requirements and take outsized risks with taxpayers on the hook for losses. /span/pdiv style="text-align: justify;" /divp style="text-align: justify;"With this in mind, our questions are as follows:/pdiv style="text-align: justify;" /divp style="text-align: justify;"1) In the letter granting a regulatory exemption to Goldman Sachs, you stated that the SEC-approved VaR models it is now using are sufficiently conservative for the transition period to bank holding company. Please justify this statement. /pdiv style="text-align: justify;" /divp style="text-align: justify;"2) If Goldman Sachs were required to adhere to standard Market Risk Rules imposed by the Federal Reserve on ordinary bank holding companies, how would its capital requirements differ from the current regulatory regime?/pdiv style="text-align: justify;" /divp style="text-align: justify;"3) What is the difference in exposure to the taxpayer between these two regulatory regimes?/pdiv style="text-align: justify;" /divp style="text-align: justify;"4) What is the difference in total risk to the portfolio between these two regulatory regimes?/pdiv style="text-align: justify;" /divp style="text-align: justify;"5) Goldman Sachs stated that "As of June 26, 2009, total capital was $254.05 billion, consisting of $62.81 billion in total shareholders' equity (common shareholders' equity of $55.86 billion and preferred stock of $6.96 billion) and $191.24 billion in unsecured long-term borrowings." As a percentage of capital, that's a lot of long-term unsecured debt. Is any of this coming from the Government? In this last quarter, how much capital has Goldman Sachs received from the Federal Reserve and other government facilities such as FDIC-guaranteed debt, either directly or indirectly? /pdiv style="text-align: justify;" /divp style="text-align: justify;"6) Many risk-management experts, most notably best-selling author Nassim Taleb, note that VaR models can dramatically understate risk. What is your overall view of Taleb's argument, and of the utility of Value-at-Risk models as regulatory tools?/pdiv style="text-align: justify;" /divp style="text-align: justify;"As we work through legislative conversations regarding systemic risk, these questions are taking on increased significance. We appreciate your time and the efforts you are making to explain the actions of the Federal Reserve to Congress, and to taxpayers. /pdiv style="text-align: justify;" /divp style="text-align: justify;"Sincerely,/pdiv style="text-align: justify;" /divp style="text-align: justify;"Alan Grayson (D-Fla.)/pdiv style="text-align: justify;" /divp style="text-align: justify;"Brad Miller (D-N.C.)/pdiv style="text-align: justify;" /divp style="text-align: justify;"Dan Lipinski (D-Ill.)/pdiv style="text-align: justify;" /divp style="text-align: justify;"Elijah Cummings (D-Md.)/pdiv style="text-align: justify;" /divp style="text-align: justify;"Ron Paul (R-Texas)/pdiv style="text-align: justify;" /divp style="text-align: justify;"Tom Perriello (D-Va.)/pdiv style="text-align: justify;" /divp style="text-align: justify;"Maxine Waters (D-Calif.)/pdiv style="text-align: justify;" /divp style="text-align: justify;"Jackie Speier (D-Calif.)/pdiv style="text-align: justify;" /divp style="text-align: justify;"Maurice Hinchey (D-N.Y.)/pdiv style="text-align: justify;" /divp style="text-align: justify;"Walter Jones (R-N.C.)/pp style="text-align: center;"______________________br //pp style="text-align: justify;"Less than 4 years ago....br //pp style="text-align: center;"a href="http://www.washingtonpost.com/wp-dyn/content/article/2005/10/26/AR2005102602255_pf.html"span style="font-size:85%;"bBernanke: There's No Housing Bubble to Go Bust/b/spanbr /Fed Nominee Has Said 'Cooling' Won't Hurt/abr //ppspan style=""By Nell Henderson - Washington Post Staff Writerbr //span/ppspan style=""Thursday, October 27, 2005br //span/pp"Ben S. Bernanke does not think the national housing boom is a bubble that is about to burst, he indicated to Congress last week, just a few days before President Bush nominated him to become the next chairman of the Federal Reserve./ppU.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president's Council of Economic Advisers, in testimony to Congress's Joint Economic Committee. But these increases, he said, "largely reflect strong economic fundamentals," such as strong growth in jobs, incomes and the number of new households..../ppMany economists argue that house prices have risen too far too fast in many markets, forming a bubble that could rapidly collapse and trigger an economic downturn, as overinflated stock prices did at the turn of the century. Some analysts have warned that even a flattening of house prices might cause a slump -- posing the first serious challenge to whoever succeeds Fed Chairman Alan Greenspan after he steps down Jan. 31./pp style="font-weight: bold;"Bernanke's testimony suggests that he does not share such concerns, and that he believes the economy could weather a housing slowdown..../ppBernanke believes "the Fed's job is to protect the economy, not to protect individual asset prices," said William Dudley, chief economist for Goldman Sachs U.S. Economics Research./ppThat view mirrors Greenspan's. He and Bernanke have both said it is unrealistic to expect the Fed to identify a bubble in stock or real estate prices as it is inflating, or to be able to pop it without hurting the economy. span style="font-weight: bold;"Instead, the Fed should stand ready to mop up the economic aftermath of a bubble.../spanspan"/span/ppspan style="font-weight: bold;"br //span/ppspan style="font-weight: bold;"...and wipe the derriere of Goldman Sachs with Federal Reserve Notes charged to the American taxpayer./spanbr /span style="font-weight: bold;"/span/pp style="text-align: justify;" /pp/pdiv class="blogger-post-footer"img width='1' height='1' src='https://blogger.googleusercontent.com/tracker/7893272060787897238-2381592470272695985?l=delawarelibertarian.blogspot.com'//div
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