Thursday, 15 October 2009

Something is not right with this world

Last year, virtually the entire financial sector in the world went belly up. 12 months on, Goldman Sachs reports a quarterly profit in excess of $3bn. Yes 3 BILLION DOLLARS. In one quarter. Profit

Goldmans is the one bank everybody loves to hate. But even by their standards, this is something. The last two quarters have seen the highest quarterly profits in their 140 year history.

Now, the economics I have been taught in college was that there is a positive correlation between risk and reward. If they have made such profits, they must have taken wild risks. Just a year after coming within an inch of annihilation, only a complete lunatic would take such risks so as to make this mind boggling profit.

Or else, the economics I was taught is wrong. In the post meltdown world, there is easy money to be taken. Without taking undue risks. So the reward for bringing the world so close to an abyss, is to be able to make unbelievable money by just being around and counting the cash; and the rest of the economy, including the taxpayer, be damned.

Oh yeah, they will say they are just so damned good that they have “earned” this money. Maybe, but still …They are not the only ones printing the money. Some others are too; JP Morgan made a tad more than even Goldmans.

Either way, something is not right in this world.


Anonymous said...

Definitely,some,many things are wrong :)

Sandhya Sriram said...

while i am able to with some resistance understand the investors for going with the tide, why are the regulators not raising these questions. the amount of money US has spent on Bail-outs last year is not a joke.

we talk about so many controls in the space of accurate accounting and disclosure - sarbanes oxley, IFRS and all the lot, isn't the regulator morally bound to look beyond the accountants and ask some sensible questions. Something like peeping beyond the corporate viel to safeguard the shareholder's interest.

I guess the catch is that we are so obsessed with documentation, we cannot obviously write a 100 pager dos and donts on the subject in some god only understands english and so we choose to let it be as it is.

Exkalibur666 said...

Extract from

JPMorgan Chase, America’s second-biggest bank, announced profits of $3.59 billion in the third quarter of this year, helped by earnings from its investment-banking activities. The bank has set aside $8.79 billion to cover pay, bonuses and other benefits for its employees in the first nine months of this year. This is about 38% of its revenue over the three quarters. The bank set aside 52% of its revenues for this purpose during the same period last year.

JP has accepted $25Bn of funds from US Govt to tide over cr crunch and recession.

Tax payer money being handed out to banks as freebies while 52% of revenue was given away as remuneration and bonus...

Ramesh said...

@athivas - Yes, Much is wrong indeed.

@Sandhya - Regulators have gone to sleep. They have little comprehension of the incredible speed which this area of business moves. Where competitive advantage is is microseconds of hitting the buy button that fraction ahead of competition.

@Exkalibur - Yes, JP Morgan is doing exactly the same.

Anonymous said...

Wow, really?? 3 billion dollars?? Something must have been really fishy before they covered it up with the scent of money!

J said...

Most of their money was made in investment banking. I wonder what part of the income came from the fact that the market just went up inexplicably and they had to do nothing. Just because they were propped up by the Paulsons of the world they are left standing to enjoy the spoils.

Srivats said...

Its too hard for my gooseberry brain to understand how its possible. :) Should I have invested on them months back ? crazy!

Happy Diwali ramesh :)

Ramesh said...

@thoughtful train - the scent of money is intoxicating indeed

@J - Yes, mostly through investment banking, and no doubt because all markets have risen. But to make this much money the amounts they must have punted must have been staggering. If the markets had gone the other way, then ???

@Sri - Best to stay away and invest for the long term Sri. Punting is for maniacs. Sane people should invest for the long term. happy happy Diwali.

Srivats said...

Yes Ramesh you are right

I have invested only on longterm mutual funds :) this proves that I am sane :P

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