Bloodbath Coming in the US Banking Sector

The stock market rallied today because of a slightly better than expected ISM Services number. Considering how much 'stimulus' the government has given to the FIRE sector it should be doing slightly better than the real economy.

Another reason the market rallied in New York today was a bullish call on the banking sector by a Goldman Sachs analyst.

Here is a somewhat different analysis of the situation by Chris Whalen of Institutional Risk Analytics. Chris believes that he sees strong evidence that "the fourth quarter in the banking industry is going to be a bloodbath."

Astounded by Goldman's Upgrade Banks Heading Into Storm Says Whalen

Even if Goldman is wrong, and lots of investors take their advice and get hurt buying into banking stocks before an approaching "bloodbath," they seem to have it covered, at least for themselves, with plenty of derivatives delivering hefty profits into their own pockets should those banks fail.

And they could be right. The government might be preparing fresh tranches of bailout money and there could be more toxic assets coming from off the banks' off-balance-sheets to yours, via the Fed.

Place your bets. Or better yet, save your money, and don't.

Yahoo Finance
The "Real" Economy Is Dying: Q4 "Going to Be a Bloodbath," Whalen Says
by Aaron Task
Oct 05, 2009 01:49pm EDT

Stocks rallied to start the week thanks to a better-than-expected ISM services sector report and a Goldman Sachs upgrade of big banks, including Wells Fargo, Comerica and Capital One.

But all is not right in either the economy or the banking sector, according to Christopher Whalen, managing director at Institutional Risk Analytics. In fact, Whalen says most observers are drawing the wrong economic conclusions from the stock market's robust rally.

"Why is liquidity going into the financial sector? It's because the real economy is dying [and] everyone is fleeing into the stocks and bonds because they're liquid at the moment," Whalen says. "That's not a good sign."

The banking sector's assets shrunk by about $300 billion per quarter in the first half of 2009, a sign of banks hoarding cash in anticipation of additional future losses, according to Whalen. "The real economy is shrinking because of a lack of credit."

The shrinkage will continue into 2010, Whalen predicts, suggesting the banking sector hasn't yet seen the peak in loan losses. Institutional Risk Analytics forecasts the FDIC will ultimately need $300 billion to $400 billion to recoup losses to its bank insurance fund. (In other words, the $45 billion the FDIC sought to raise last week by asking banks to prepay fees is just a drop in the bucket.)

"Investors should think about this because the fourth quarter in the banking industry is going to be a bloodbath," says Whalen, who believes smaller and regional banks like Hudson City Bancorp may come into favor vs. larger peers, which have dramatically outperformed since the March lows.

"When you see the markets rallying when the real economy is shrinking that tells you this [recovery] is not going to be very enduring," Whalen says.

In this regard, Whalen finds himself in philosophical agreement with Nouriel Roubini, George Soros and Meredith Whitney, among other "prophets of the apocalypse" who've once again been raising red flags in recent days.

Next Head of the European Central Bank a Goldman Sachs Alumnus or Buba's Head Boy?

The German patience with the EU is admirable.

And in the States, the patience with the rule of Wall Street and the hagiographic praise of Chairman Ben is ... remarkable.

One might even be tempted to call him 'maestro,' at least until the next bubble collapses.

Central Banking Publications
Weber Aims High
25 August 2009

So far, the front runner to succeed Jean-Claude Trichet as head of the European Central Bank, when his term ends in 2011, has been Mario Draghi, the shrewd current governor of the Banca d'Italia and Goldman Sachs alumnus (don't all boo at once).

But insiders are keeping a close eye on Axel Weber, president of the Bundesbank. If Draghi were to fall under a bus on the Via Nazionale (easily done, by the way), or if he were to give in to the blandishments of those who are urging him to dive into the treacherous waters of Italian politics, then Weber is positioning himself as the clear fall-back choice.

This would not go down well at the Elysée, where the thought of a German running the ECB makes President Sarkozy see red. Yet why not? Isn't it their turn, at last?

The efforts of French diplomats, allied to their enviable higher education and elite training, have ensured that Frenchmen have sat at the top of many of the great official international institutions for far longer than Germans (or indeed Brits). A Frenchman has occupied the post of IMF managing director for a total of 34 years since the founding of the Fund 65 years ago, while a German has been in the job for only four years. A Frenchman has been president of the European Commission for 14 years, while no German has held the post since Walter Hallstein, who retired in 1967. No German has headed up the EBRD in London, while Frenchmen have run it for 15 years. No German has led the OECD, and so on.

It would be understandable if Germans felt it was time to have their own man at the ECB. After all, it is German public opinion that in the end is critical for the long-term success of the euro. If German taxpayers are called on to bailout backsliding countries unable to discipline their economies (like Italy), they would be much more likely to do so with good grace if their own man or woman was seen to be minding the shop. So anybody committed to the success of the euro should be rooting for a German candidate, n'est-ce pas?

Enter politics. To reach the top job at the ECB, Weber needs to be nominated by the chancellor. Angela Merkel is fully expected to win the general election next month, possibly with a greatly increased personal mandate.

Now, observe a curious fact. For an institution known in the past for lambasting governments' deficit spending, the Bundesbank has been remarkably quiescent recently. Its big guns have fallen silent. Indeed, Weber has praised German economic policy. In a recent interview with Die Zeit online, Weber noted that the GDP recovery in the second quarter owed much to the support measures deployed by the government, the support of the state banking sector and the ECB's monetary easing. Meanwhile, Merkel has roundly criticised other central banks, such as the Federal Reserve and the Bank of England, while supporting the Bundesbank. They are both singing from the same hymn sheet.

Meanwhile, Weber has been quietly appointing his own people to several key positions while some Bundesbank board directors of an independent cast of mind appear to be heading for the exit.

The odds are still on Draghi. He is what the Italians call "furbo" – variously translated as smart, cunning or foxy. The French will be cheering him on. But the Italian fox will be on the outlook for a German greyhound coming up on the inside lane.

Goldman Sachs Set for Record Profits, Largest Bonuses Ever

As they say in the States, "in your face."

Or just some 'getting out of town money' ahead of a financial collapse?

The outsized financial sector, with its exorbitant fees, represents a serious tax and a growing threat to the real economy.

We may have, at best, the illusion of a recovery based on the increasing monetary inflation and monetization of debt as shown in the money supply figures, as compared to real GDP growth. Price, Demand and Money Supply

It will be a selective recovery at best, and damaging to the political fabric of the United States. It is a drain on the world economy while the US dollar is the reserve currency.

It is seigniorage on a grand scale, unprecedented tax on productivity not seen since the decline of colonialism, perhaps even feudalism.

Until the financial system is reformed there can be no sustainable recovery.

The Guardian
Goldman to make record bonus payout
Surviving banks accused of undermining stability

Phillip Inman
The Observer
Sunday 21 June 2009

Staff at Goldman Sachs staff can look forward to the biggest bonus payouts in the firm's 140-year history after a spectacular first half of the year, sparking concern that the big investment banks which survived the credit crunch will derail financial regulation reforms.

A lack of competition and a surge in revenues from trading foreign currency, bonds and fixed-income products has sent profits at Goldman Sachs soaring, according to insiders at the firm.

Staff in London were briefed last week on the banking and securities company's prospects and told they could look forward to bumper bonuses if, as predicted, it completed its most profitable year ever. Figures next month detailing the firm's second-quarter earnings are expected to show a further jump in profits. Warren Buffett, who bought $5bn of the company's shares in January, has already made a $1bn gain on his investment.

Goldman is expected to be the biggest winner in the race for revenues that, in 2006, reached £186bn across the entire industry. While this figure is expected to fall to £160bn in 2009, it will be split among a smaller number of firms.

Barclays Capital, Credit Suisse and Deutsche Bank are among the European firms expected to register bumper profits, along with US banks JP Morgan and Morgan Stanley following the near collapse and government rescue of major trading houses including Citigroup, Merrill Lynch, UBS and Royal Bank of Scotland.

In April, Goldman said it would set aside half of its £1.2bn first-quarter profit to reward staff, much of it in bonuses. It is believed to have paid 973 bankers $1m or more last year, while this year's payouts are on track to be the highest for most of the bank's 28,000 staff, including about 5,400 in London.

Critics of the bonus culture in the City said the dominance of a few risk-taking investment banks is undermining the efforts of regulators to stabilise the financial system.

Vince Cable, the Liberal Democrat treasury spokesman, said: "The investment banks more than any other institutions created the culture of excessive leverage, excessive risk and excessive bonuses that led to the downfall of the financial system. Now they are cashing in and the same bonus culture has returned. The result must be that we are being pushed to the edge of another crash."

Goldman Sachs said it reviewed its bonus scheme last year and switched from a system of guaranteed rewards that were paid over three years to variable payments that tied staff to the firm. It told employees last year that profit-related bonuses would be delayed by 12 months.

Until the release of its first quarter profits in April, it seemed inconceivable that a firm owing the US government $10bn would be looking to break all-time records in 2009.

David Williams, an investment banking analyst at Fox Pitt Kelton, said: "This year is shaping up to be the best year ever for investment banks, or at least those that have emerged relatively unscathed from the credit crisis.

"These banks are intermediaries in the bond markets where governments and companies are raising billions of pounds of new money. There is also a lack of competition that means they can charge huge sums for doing business."

Last week, the firm predicted that President Barack Obama's government could issue $3.25tn of debt before September, almost four times last year's sum. Goldman, a prime broker of US government bonds, is expected to make hundreds of millions of dollars in profits from selling and dealing in the bonds.

Arthur Levitt Hired by Goldman Sachs

Arthur is often trotted out as an independent analyst and pundit on financial news programs. His name has been floated for some of the top regulatory jobs in the Obama Administration.

Goldman does not require advice from Arthur Levitt. People like Art and Larry Summers are hired for their connections, insider knowledge, and for future services to be rendered. In this case Arthur will be offering to help to shape the evolving regulatory structure as it is 'reformed.'


Arthur Levitt to Serve as Advisor to Goldman Sachs

NEW YORK -- (Business Wire) --

The Goldman Sachs Group, Inc. (NYSE: GS) today announced that Arthur Levitt has agreed to serve as an advisor to Goldman Sachs. In this capacity, he will provide strategic advice to the firm on a range of matters, including those related to public policy.

“ArthurÂ’s experience and deep knowledge of our industry will be of tremendous value to our firm,” said Lloyd C. Blankfein, Chairman and Chief Executive Officer of The Goldman Sachs Group, Inc. “We look forward to having the benefit of his insight on a range of issues relating to the firm and financial services in general.”

Mr. Levitt was the 25th Chairman of the U.S. Securities and Exchange Commission and its longest serving Chairman. He began in this role in July 1993 and left the Commission in February 2001.

Before joining the SEC, Mr. Levitt owned Roll Call, a Washington D.C.-based newspaper that focuses on the US government. He also served as the Chairman of the New York City Economic Development Corporation, Chairman of the American Stock Exchange and President of Shearson Hayden Stone. He is presently a Senior Advisor to The Carlyle Group, Promontory Financial Group, Getco and serves on the board of Bloomberg LP...
.

Goldman Sachs Buries Losses to Beat the Estimates

That canny crew at Goldman Sachs does it again.

Last night in a surprise move Goldman announced their earnings early, showing a surprising profit of $1.8 billion, beating the Street estimate handily. The bulk of their profit purportedly came from speculative trading for their own accounts, using 'cheap FDIC guaranteed funds.'

Goldman also took the opportunity to announce a new stock issue designed to allow shareholders to help them pay back their government TARP funds. Since Goldman is putting aside 50% of its profits for employee bonuses even now, while they are still holding government subsidies, the reasons for this are obvious.

What was not reported last night is that Goldman had changed their reporting periods to begin the 1st quarter in January 2009 when they declared themselves to be a bank holding company. Prior to that, their fiscal 2008 year ended on November 30.

This made the month of December 2008 an 'orphan month' that was ignored in the financial headlines.

Goldman took this opportunity to realize some hefty writedowns in that December one month report, to the tune of approximately $1.3 Billion in pre-tax losses.

So, to earn an impressive $1.8 Billion in the first quarter, Goldman disposed of their losses in a largely ignored December filing. This facilitated their share offering with the 'wonderful earnings news' which Matt Miller of Bloomberg referred to approximately every five minutes as "blowing away their numbers."

However, this morning, Matt did mumble something about Goldman "maybe not blowing away their numbers."

Goldman did nothing illegal in their management of their earnings, both in the way in which they parsed the losses into a 'stub month' which was ignored, or in their decision to time an early announcement of 'exceptional profits' with a stock offering. But the financial press handled this badly, and considering the huge debt and forebearance Goldman owes to the government and the public it was not befitting a major institution with strong ties to the Obama administration.

The only thing getting blown away around here are the shareholders, taxpayers, and anyone else who buys what Wall Street in general is selling these days.

The banks must be restrained and the financial system reformed before we can have a genuine economic recovery.

Goldman Sachs Releases Earnings After Hours

Goldman Sachs released their earnings early tonight after hours, instead of tomorrow morning.

Goldman solidly beat both earnings and revenue expectations, and has indicated that they intend to pay back their TARP borrowings as soon as possible.

Matt Miller of Bloomberg TV has used the term 'blowing away' their numbers at least thirty times since they announced their numbers after the close.

The major source of profit for Goldman Sachs was from speculative trading.

There will be no recovery in the real economy until the financial system is reformed and banks are restrained into productive functions within our society.


Goldman posts $1.7 billion profit, plans $5 billion offer
Monday April 13, 2009, 4:28 pm EDT

NEW YORK (Reuters) - Goldman Sachs Group Inc posted first-quarter earnings of $1.66 billion, a higher-than-expected profit helped by strong trading revenue, and said it planned to raise $5 billion of common shares.

The New York-based bank reported net income applicable to common shareholders for the quarter ended March 27 of $3.39 a share. For the quarter ended February 29, 2008, the company posted net income for common shareholders of $1.47 billion, or $3.23 a share.

Analysts had on average expected earnings of $1.49 a share, according to Reuters Estimates.

Goldman said it planned to use proceeds of its share offering plus additional funds to repay the $10 billion of capital it received from the U.S. government under the Troubled Assets Relief Program.

AIG: A Scandal of Epic Proportion

"Goldman Sachs had said in the past that its exposure to A.I.G.’s financial trouble was 'immaterial'."

It appears that it was immaterial because Goldman Sachs, through their ex-CEO Hank Paulso, had set things up so they could not lose on their counterparty risk.

This story from last September documents Goldman Sachs involvement, at the highest levels, in the AIG bailout with then Treasury Secretary Hank Paulson.

AIG: A Blind Eye to Risk - NYT Sept 28, 2008

It seems fairly obviously that a relatively small department within AIG, the Financial Products division, was operating under the regulatory radar and was used as a patsy by a number of the Wall Street banks, who had no worries about losses because of their power to obtain the US government as a backstop to losses.

This is a scandal of epic proportion. 'Outrage' barely manages to express the appropriate reaction.

Obama is an educated, intelligent President, and can hardly retreat behind the clueless buffoon defense in vogue with so many CEO's and public officials. He has a directly responsible for this outcome now along with the Bush Administration and the Republicans.

Geithner and Summers should resign over their handling of AIG.

The Fed has no business regulating anything more complex than a checking account.

The difficulty with which we are faced is that despite their mugging for the camera and emotional words the Democrats and Republicans are owned by Wall Street and Big Business because of the existing system of lobbying and campaign funding.

Getting behind a third party for president is symbolic but ineffective. Giving a significant number of congressional seats to a third party will send a chilling and practical message to both the President and the Congress that enough is enough.

And in the meantime--

Contact Your Elected Officials


NY Times
A.I.G. Lists the Banks to Which It Paid Rescue Funds
By MARY WILLIAMS WALSH
March 16, 2009

Amid rising pressure from Congress and taxpayers, the American International Group on Sunday released the names of dozens of financial institutions that benefited from the Federal Reserve’s decision last fall to save the giant insurer from collapse with a huge rescue loan.

Financial companies that received multibillion-dollar payments owed by A.I.G. include

Goldman Sachs ($12.9 billion),
Merrill Lynch ($6.8 billion),
Bank of America ($5.2 billion),
Citigroup ($2.3 billion) and
Wachovia ($1.5 billion).

Big foreign banks also received large sums from the rescue, including

Société Générale of France and
Deutsche Bank of Germany, which each received nearly $12 billion;

Barclays of Britain ($8.5 billion); and
UBS of Switzerland ($5 billion).

A.I.G. also named the 20 largest states, starting with California, that stood to lose billions last fall because A.I.G. was holding money they had raised with bond sales.

In total, A.I.G. named nearly 80 companies and municipalities that benefited most from the Fed rescue, though many more that received smaller payments were left out.

The list, long sought by lawmakers, was released a day after the disclosure that A.I.G. was paying out hundreds of millions of dollars in bonuses to executives at the A.I.G. division where the company’s crisis originated. That drew anger from Democratic and Republican lawmakers alike on Sunday and left the Obama administration scrambling to distance itself from A.I.G.

“There are a lot of terrible things that have happened in the last 18 months, but what’s happened at A.I.G. is the most outrageous,” Lawrence H. Summers, an economic adviser to President Obama who was Treasury secretary in the Clinton administration, said Sunday on “This Week” on ABC. He said the administration had determined that it could not stop the bonuses.

(Among the outrages was the appointment of that sly old fox Larry Summers and his sidekick Tim Geithner by President Obama, and their continued tenure in any so-called reform government. - Jesse)

But some members of Congress expressed outrage over the bonuses. Representative Elijah E. Cummings, a Democrat of Maryland who had demanded more information about the bonuses last December, accused the company’s chief executive, Edward M. Liddy, of rewarding reckless business practices. (Well duh, that was and is the modus operandi of Wall Street Congressman - Jesse)

“A.I.G. has been trying to play the American people for fools by giving nearly $1 billion in bonuses by the name of retention payments,” Mr. Cummings said on Sunday. “These payments are nothing but a reward for obvious failure, and it is an egregious offense to have the American taxpayers foot the bill.” (Hey I have a good idea, lets elect some officials to make the laws and prevent these outrages through regulation. Oh yeah we did. Its you Congress! Its you Obama - Jesse)

An A.I.G. spokeswoman said Sunday that the company would not identify the recipients of these bonuses, citing privacy obligations.

Ever since the insurer’s rescue began, with the Fed’s $85 billion emergency loan last fall, there have been demands for a full public accounting of how the money was used. The taxpayer assistance has now grown to $170 billion, and the government owns nearly 80 percent of the company.

But the insurance giant has refused until now to disclose the names of its trading partners, or the amounts they received, citing business confidentiality.

A.I.G. finally relented after consulting with the companies that received the government support. The company’s chief executive, Edward M. Liddy, said in a statement on Sunday: “Our decision to disclose these transactions was made following conversations with the counterparties and the recognition of the extraordinary nature of these transactions.” (How about the threat of subpoena from the Attorney General? - Jesse)

Still, the disclosure is not likely to calm the ire aimed at the company and its trading partners.

The Fed chairman, Ben S. Bernanke, appearing on “60 Minutes” on CBS on Sunday night, said: “Of all the events and all of the things we’ve done in the last 18 months, the single one that makes me the angriest, that gives me the most angst, is the intervention with A.I.G.” (Considering you are presiding over the looting of the middle class, Ben my man, that speaks volumes - Jesse)

He went on: “Here was a company that made all kinds of unconscionable bets. Then, when those bets went wrong, they had a — we had a situation where the failure of that company would have brought down the financial system.” (AIG was a setup with the very banks, Goldman Sachs and crew, that you are bending our economy over backwards to save, Ben - Jesse)

In deciding to rescue A.I.G., the government worried that if it did not bail out the company, its collapse could lead to a cascading chain reaction of losses, jeopardizing the stability of the worldwide financial system.

The list released by A.I.G. on Sunday, detailing payments made between September and December of last year, could bolster that justification by illustrating the breadth of losses that might have occurred had A.I.G. been allowed to fail.

Some of the companies, like Goldman Sachs and Société Générale, had exposure mainly through A.I.G.’s derivatives program. Others, though, like Barclays and Citigroup, stood to lose mainly because they were customers of A.I.G.’s securities-lending program, which does not involve derivatives. (There ought to have been the managed unwinding and default on those derivatives - Jesse)

But taxpayers may have a hard time accepting that so many marquee financial companies — including some American banks that received separate government help and others based overseas — benefiting from government money.

The outrage that has been aimed at A.I.G. could complicate the Obama administration’s ability to persuade Congress to authorize future bailouts. (I would hope so. Obama has lost all credibility compliments of Geithner, Summers and Bernanke - Jesse)

Patience with the company’s silence began to run out this month after it disclosed the largest loss in United States history and had to get a new round of government support. Members of Congress demanded in two hearings to know who was benefiting from the bailout and threatened to vote against future bailouts for anybody if they did not get the information.

“A.I.G.’s trading partners were not innocent victims here,” said Senator Christopher J. Dodd, the Connecticut Democrat who presided over one recent hearing. “They were sophisticated investors who took enormous, irresponsible risks.” (Do something about it then you windbag - Jesse)

The anger peaked over the weekend when correspondence surfaced showing that A.I.G. was on the brink of paying rich bonuses to executives who had dealt in the derivative contracts at the center of A.I.G.’s troubles.

Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, implicitly questioned the Treasury Department’s judgment about the whether the bonuses were binding. (I would question if Barney Frank is competent to hold office since he has also been a key player - Jesse)

“We need to find out whether these bonuses are legally recoverable,” Mr. Frank said in an interview Sunday on Fox News.

Many of the institutions that received the Fed payments were owed money by A.I.G. because they had bought its credit derivatives — in essence, a type of insurance intended to protect buyers should their investments turn sour.

As it turned out, many of their investments did sour, because they were linked to subprime mortgages and other shaky loans. But A.I.G. was suddenly unable to honor its promises last fall, leaving its trading partners exposed to potentially big losses.

When A.I.G. received its first rescue loan of $85 billion from the Fed, in September, it forwarded about $22 billion to the companies holding its shakiest derivatives contracts. Those contracts required large collateral payments if A.I.G.’s credit was downgraded, as it was that month.

Among the beneficiaries of the government rescue were Wall Street firms, like Goldman Sachs, JPMorgan and Merrill Lynch that had argued in the past that derivatives were valuable risk-management tools that skilled investors could use wisely without any intervention from federal regulators. Initiatives to regulate financial derivatives were beaten back during the administrations of Presidents Bill Clinton and George W. Bush.

Goldman Sachs had said in the past that its exposure to A.I.G.’s financial trouble was “immaterial.” A Goldman Sachs representative was not reachable on Sunday to address whether that characterization still held. When asked about its exposure to A.I.G. in the past, Goldman Sachs has said that it used hedging strategies with other investments to reduce its exposure.

Until last fall’s liquidity squeeze, A.I.G. officials also dismissed those who questioned its derivatives operation, saying losses were out of the question.

Edmund L. Andrews and Jackie Calmes contributed reporting.

Chris Whalen: Tim Geithner is a Disaster and Will Be Out by June

"Tim Geithner has no financial skills. The only reason he is there [the Treasury Secretary] is to protect Goldman Sachs."

Interview with Chris Whalen of Institutional Risk Analytics on TheStreet.com

The Banking Crisis: Obama's Iraq Part 1

Its a step in the right direction, but its hardly reform.

Everything about the Obama Administration to date has been 'limp,' toothless, almost apologetic.

Obama is on the road to failure, getting an "A" for rhetoric but "F's" for vision, commitment, team-building, and action.


Bloomberg
Volcker Urges Dividing Investment, Commercial Banks
By Matthew Benjamin and Christine Harper

March 6 (Bloomberg) -- Commercial banks should be separated from investment banks in order to avoid another crisis like the U.S. is experiencing, according to former Federal Reserve Chairman Paul Volcker.

“Maybe we ought to have a kind of two-tier financial system,” Volcker, who heads President Barack Obama’s Economic Recovery Advisory Board, said today at a conference at New York University’s Stern School of Business. (Uh, didn't we have one up until a few months ago when Goldman Sachs and Morgan Stanley put on the Fed feedbag? - Jesse)

Commercial banks would provide customers with depository services and access to credit and would be highly regulated, while securities firms would have the freedom to take on more risk and practice trading, “relatively free of regulation,” Volcker said. (OMG - Jesse)

Volcker’s remarks indicated his preference for reinstating some of the divisions between commercial and investment banks that were removed by Congress’s repeal in 1999 of the Great Depression-era Glass-Steagall Act.

Volcker’s proposals, included in a January report he wrote with the Group of 30, would allow commercial banks to continue to do underwriting and provide merger advice, activities traditionally associated with investment banking, he said.

Still, Goldman Sachs Group Inc. and Morgan Stanley, which converted to banks in September, would have to exit some businesses if they were to remain as commercial banks, he said.

‘Separation’

“What used to be the traditional investment banks, Morgan Stanley, Goldman Sachs so forth, which used to do some underwriting and mergers and acquisitions, are dominated by other activities we would exclude -- very heavy proprietary trading, hedge funds,” he said. “So there’s some separation to be made.”

Jeanmarie McFadden, a spokeswoman for Morgan Stanley, declined to comment. A Goldman spokesman couldn’t be immediately reached.

Volcker also said international regulations on financial firms are probably an inevitable consequence of the industry’s current problems.

“In this world, I don’t see how we can avoid international consistency” on securities regulations going forward, he said. “The U.S. is no longer in a position to dictate that the world does it according to the way we’ve done it.”

Volcker’s comments come as President Barack Obama seeks legislative proposals within weeks for a regulatory overhaul of finance, especially companies deemed vital to the stability of the financial system.

Glass-Steagall

The new regulatory framework may stop short of reinstating Glass-Steagall, analysts say, though banks may separate their business lines in order to avoid strong regulatory scrutiny.

Volcker, who ran the Fed from 1979 to 1987, said the financial industry’s problems stem from larger issues. “I don’t think this is just a technical problem, it’s a societal problem,” he said. He cited bankers on Wall Street receiving multimillion-dollar bonuses for engineering failed mergers.

“There’s something wrong with the system,” Volcker said. “What are the incentives, what’s going on here?”

Goldman Sachs Says the Banks Now Need At Least $4 Trillion in Bailouts

Can we get an estimate that assumes we nationalize Goldman Sachs, Morgan Stanley, Citigroup, and J.P. Morgan, place them in receivership, selectively default on their derivatives, sell all their assets, and criminally prosecute their executive management from the year 2000 under the RICO statutes?

Reuters
Bank Bailout Could Cost Up to $4 Trillion: Economists
29 Jan 2009 04:35 PM

The cost of restoring confidence in U.S. financial firms may reach $4 trillion if President Barack Obama moves ahead with a "bad bank" that buys up souring assets.

The figure far exceeds even the most pessimistic estimates of how great the loan losses might be because there is so much uncertainty about default rates, which means the government may need to take on a bigger chunk of bank debt to ease concerns.

Goldman Sachs economists said ideally the public sector would step in to remove the hardest-to-value assets, which would alleviate nagging worries about future losses and hopefully help get lending going again.

"Unfortunately, with an unprecedented meltdown in mortgage credit and a deep recession in the broader economy, there is a great deal of uncertainty about the value of almost every asset," they wrote in a note to clients.

Obama and his economic advisers are expected to lay out their policy plan as early as next week. One idea that seems to be gaining traction is setting up an entity to buy troubled assets and hold them until they mature or resell them.

The hope is that once banks get rid of those bad loans, they can attract private investors, get back to the business of lending, and help revive the economy.

Vice President Joe Biden said Thursday that Treasury Secretary Timothy Geithner was considering all options to restart normal lending, but that no decisions had been made.

Goldman Sachs estimated that it would take on the order of $4 trillion to buy troubled mortgage and consumer debt. That number could shrink if the program were limited to only certain loans or banks, but it could also grow if other asset classes such as commercial real estate loans were included. (How much would it cost if we put Goldman and Morgan Stanley into receivership - Jesse)

New York Sen. Charles Schumer has said that a number of experts thought that up to $4 trillion may be needed to buy the bad assets, an estimate that a Senate aide said was based on informal conversations with people in the industry.

The Wall Street Journal said government officials had discussed spending $1 trillion to $2 trillion to help restore banks to health, citing people familiar with the matter.

At $4 trillion, that would be the equivalent of nearly 1/3 of U.S. gross domestic product. If the government had to fund that amount by issuing additional debt, it would intensify investor concerns about massive supply scaring off demand.

Depending on how the plan is structured, the government may not have to put up the full amount, and since the majority of people are still paying their mortgages and credit card bills, there is a reasonable expectation that taxpayers would recoup a substantial portion of the cost.

However, the potential loss is huge, and if more public money is needed to boost capital even after the bad assets are removed, the total would undoubtedly climb.

The International Monetary Fund said Wednesday that worldwide losses on U.S.-originated loans may hit $2.2 trillion, well above its October estimate of $1.4 trillion. It said banks in the United States, Europe and elsewhere probably needed to raise $500 billion to cover losses coming this year and next.

Cutting Out a Zero

For U.S. lawmakers who are already taking grief from voters over a $700 billion bailout approved last fall, passing another big spending measure carries significant political risk.

At the same time, Obama's team wants to take action that is bold enough to fix the problem once and for all, hoping to avoid the sort of ad hoc approach that has been criticized for adding to investor uncertainty.

Time is not on Obama's side. The more the economy weakens, the longer the list of potentially dodgy debt grows. That is why he faces enormous pressure from Wall Street to act fast.

The government would not necessarily have to spend the full $4 trillion to buy the assets. If it follows the model used in a Federal Reserve program to support consumer and small business loans, the government could potentially put up just 10 percent of the total.

Spending $400 billion would certainly be more palatable to Congress than $4 trillion. It may not even require that much additional funding. Economists estimate that perhaps $250 billion of what remains in the $700 billion bailout fund could be devoted to the "bad bank."

That money could buy bad assets, which would then be repackaged and sold to investors to raise more money which could then by recycled to buy more assets.

Stephen Stanley, chief economist at RBS Greenwich Capital, said although that sounds similar to the sort of financial engineering that spawned the credit crisis in the first place, it would be structured so that the central bank or whichever agency oversees the program is last in line to take losses.

"If things turn out so bad that the Fed ends up on the hook for $1 trillion in losses, then the financial sector, the economy, and everything else will be dead anyway," he said.

Goldman Sachs Offshores Its Profits and Reduces Its Taxes to 1%

"With the right hand out begging for bailout money, the left is hiding it offshore."

In fairness to Goldman, if there can be such a thing, they are taking a lot of writeoffs to reduce their taxes this year, in addition to offshoring their profits into foreign venues with favorable tax rates. That is just globalization, right?

As an aside, for some time now I have wondered if globalization has become just another enabler, wherein multinational financial corporations can play a larger set of jurisdictions and peoples against one another for the benefit of an elite minority. International trade based on an exchange of competitive advantage and surplus is a good idea.

Using globalization to undermine the values of certain countries with regard to the environment, healthcare, child labor, living standards, and the domestic laws is exploitation and victimization of the many by the few.

It is a way to reduce free nations to the lowest common denominator of victimization and indentured servitude. It does not have to be this way, but it all too often give rise to the slave and opium trade.

Without regulation free trade swiftly degenerates into manipulation and exploitation. Free trade is not a natural good in and of itself. It can be a highly destructive force, devastating entire economies.

It is never surprising anymore to see how many initiatives promoted by a certain political class like deregulation, globalization, and competitiveness are nothing more than facades for campaigns of organized looting.

We can comfort ourselves with the knowledge that most of the bailout money is being given out in bonuses anyway, and surely those multi-millionaire employees will be paying some income tax. Unless they are engaging in aggressive management of their tax returns. You think?

Goldman Sachs’s Tax Rate Drops to 1%, or $14 Million
By Christine Harper

Dec. 16 (Bloomberg) -- Goldman Sachs Group Inc., which got $10 billion and debt guarantees from the U.S. government in October, expects to pay $14 million in taxes worldwide for 2008 compared with $6 billion in 2007.

The company’s effective income tax rate dropped to 1 percent from 34.1 percent, New York-based Goldman Sachs said today in a statement. The firm reported a $2.3 billion profit for the year after paying $10.9 billion in employee compensation and benefits.

Goldman Sachs, which today reported its first quarterly loss since going public in 1999, lowered its rate with more tax credits as a percentage of earnings and because of “changes in geographic earnings mix,” the company said.

The rate decline looks “a little extreme,” said Robert Willens, president and chief executive officer of tax and accounting advisory firm Robert Willens LLC.

“I was definitely taken aback,” Willens said. “Clearly they have taken steps to ensure that a lot of their income is earned in lower-tax jurisdictions.”

U.S. Representative Lloyd Doggett, a Texas Democrat who serves on the tax-writing House Ways and Means Committee, said steps by Goldman Sachs and other banks shifting income to countries with lower taxes is cause for concern.

“This problem is larger than Goldman Sachs,” Doggett said. “With the right hand out begging for bailout money, the left is hiding it offshore.”

In the first nine months of the fiscal year, Goldman had planned to pay taxes at a 25.1 percent rate, the company said today. A fourth-quarter tax credit of $1.48 billion was 41 percent of the company’s pretax loss in the period, higher than many analysts expected. David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, expected the fourth-quarter tax credit to be 28 percent.

The tax-rate decline may raise some eyebrows because of the support the U.S. government has provided to Goldman Sachs and other companies this year, Willens said.

“It’s not very good public relations,” he said.

Goldman and Morgan Set to Hit the Street with Losses this Week

Since a significant portion of the anticipated losses will be coming from writedowns in commercial real estate the projected reports are probably difficult to make with accuracy. The Banks have a great deal of accounting discretion, and it is probably tied to their tax and public relations strategy among other things.

As you may recall, there was quite a fuss when it was reported that Goldman was setting aside $7 billion of its $10 billion in TARP money to be paid out in bonuses this month. To put it into perspective, those bonuses are about half of the money required to put some health into the US automotive sector.

Goldman and Morgan have been paying more attention to the outrage in the public and the Congress since then, but they are still on a heady Masters-of-the-Universe fast track.

UK Telegraph
Goldman faces $2bn loss – its first since 1929
By Simon Evans
Sunday, 14 December 2008

As the banking giant prepares to unveil shock figures, Morgan Stanley braces itself to add its own bad news

Goldman Sachs, the US investment bank, is this week expected to post its first loss since the Wall Street crash of 1929 when it unveils full-year results on Tuesday.

In the week when many Square Mile bank staff find out if they have scooped a bonus this year, Morgan Stanley is expected to complete a miserable Christmas picture when it also reports a loss, one day later.

Alex Potter, banking analyst at stockbroker Collins Stewart, said: "For these two remaining November year-end reporters, the past three months will have been pivotal to their year as well as to the 2009 outlook. This period encompassed the Lehman failure, as well as the nationalisations of Fannie Mae, Freddie Mac and AIG."

Analysts expect Goldman to say that it lost close to $2bn (£1.4bn) in the last quarter of 2008, compared to a $3.18bn profit during the same period last year.

Big losses are expected at the bank's proprietary property arm, Whitehall, which owns, among other investments, New York's Rockefeller Center. Sources suggest that Goldman will reveal writedowns of more than $2bn on the fund.

Big losses are also believed to have been recorded in its key principal investments portfolio, with some estimates suggesting they could come in as high as $3.5bn.

Goldman laid off 250 staff in Europe last week, the majority of the cuts coming at its London offices in Fleet Street, as part of a drive to slash the group's headcount by 10 per cent.

Morgan Stanley is expected to post only its second loss since it went public in 1986 – around $300m for the fourth quarter is forecast – although some estimates suggest that figure could be as high as $900m.

The ratings agency Standard and Poor's has estimated that Morgan Stanley owns $7.7bn of commercial real estate loan assets – none of which has been written down.

Morgan Stanley's numbers will come days after Bank of America's chief executive, Ken Lewis, revealed that the bank, which snapped up ailing rival Merrill Lynch earlier in the year, is looking to lay off as many as 35,000 jobs in the next three years. It is anticipated that the move will save as much as $7bn.

Is Goldman Sachs Managing Its Earning Expectations?

An interesting story from the Columbia School of Journalism regarding the Goldman Sachs story featured at The Wall Street Journal the other day suggest some oddness in the WSJ story on Goldman Sachs newly expected losses.

Did Goldman Sachs leak its own results? Are they accurate? Or was this a setup to dampen expectations on the results?

Or merely to provide 'guidance' to the Street? Note the stories at the bottom that shows analysts turning increasingly bearish on Goldman in October, and that Katzke of Credit Suisse actually cut estimates precipitously the day before the WSJ story, from a decent gain to a sharp loss. What precipitated her reversal?

Let's see how Goldman's numbers and follow-on stories come out, and judge accordingly. For now it looks like a simple case of follow the leader, the leader being Katzke from Credit Suisse who did a remarkable turnaround on her earnings projections from a gain of $2.47 to a loss of $4.00.

The Audit
Columbia Journalism Review
December 02, 2008 10:06 PM
Weird Goldman Sourcing at the Journal
By Ryan Chittum

A [Wall Street] Journal scoop this morning—or at least its sourcing—may have confused some readers.

The paper reported that Goldman Sachs’s loss this quarter would be much worse than expected, news it attributed to “industry insiders.”

That’s funny attribution, but okay. But scan the rest of the story and you’ll find that it appears nobody from Goldman was ever given an opportunity to comment. (Odd because the follow on stories indicate Goldman declined comments to other news outlets - Jesse)

Now, it’s highly unlikely that these experienced reporters got a story on A1 in the WSJ without calling the company for comment.

What the lack of a Goldman attribution signals to us is that Goldman Sachs itself leaked this to the Journal as a way to feed hungry beat reporters and get bad news into its stock price before it reports earnings.

The Journal has a nearly iron-clad internal rule that says a story can’t say a source declined to comment if that source is quoted elsewhere in the story. That can make for awkward negotiations if a reporter is trying to protect the identity of a source who doesn’t want to be named. (Apparently the WSJ broke that rule because Goldman declined to comment, so who leaked the insider information? - Jesse)

I don’t know why Goldman was so finicky that it wouldn’t let the Journal use its standard “people familiar with the matter” phrasing, but I’ve dealt with similarly skittish/irrational sources.

But for what it’s worth as an insiderism, that’s your likely explanation.

The Wall Street Journal
Goldman Faces Loss of $2 Billion for Quarter
DECEMBER 2, 2008

Goldman Sachs Group Inc., known for avoiding many of the blowups that have battered its Wall Street rivals, now is likely to report a net loss of as much as $2 billion for its quarter ended Nov. 28, according to industry insiders.

The loss, equal to about $5 a share, would be more than five times as steep as the current analyst consensus for the Wall Street firm, as it faces write-downs on everything from private equity to commercial real estate.

Though analysts and investors already were bracing for Goldman's first quarterly loss since it went public in 1999, the ...


Reuters
Goldman shares fall as analysts see bigger loss
Tue Dec 2, 2008 12:26pm EST
By Joseph A. Giannone

NEW YORK, Dec 2 (Reuters) - Goldman Sachs Group Inc shares fell Tuesday on speculation the bank's fourth-quarter loss could be much larger than expected -- more than $2.5 billion -- fueled by the plunging value of many Goldman investments.

The shares fell as much as 6 percent, rose briefly in volatile trading, then settled at $64.78, off 1.5 percent. They are down 70 percent this year.

For the past month, Goldman has been widely expected to post its first quarterly loss since going public in 1999. But poor market conditions got even worse last month as the U.S. Treasury abandoned its proposal to buy hard-to-trade mortgage securities and other debt from hard-hit banks.

Atlantic Equities analyst Richard Staite on Tuesday widened his loss forecast for Goldman to $4.65 a share, or $2.3 billion, for the fiscal fourth quarter ended Nov. 28. Staite forecast that falling equity and debt values will trigger more than $9 billion of writedowns.

Within hours, veteran UBS brokerage analyst Glenn Schorr forecast an even bigger loss -- $5.50 a share, or $2.7 billion -- driven by writedowns approaching $5 billion. S&P Equity Research cut its forecast to a loss of $3.25 a share.

That's a big change from a month ago, when the average Wall Street forecast was a profit of $2.34 a share; six months ago, the average estimate was a profit of more than $5.40 a share.

Currently, analysts' average forecast is a loss of $1.46 a share excluding one-time items, according to Reuters Estimates. Individual forecasts range from a profit of 23 cents at Wachovia Securities to a loss of $5.50 at UBS.

The average loss forecast will only deepen as Wall Street analysts try to estimate the impact of market weakness on a range of assets held in Goldman's investment portfolio and by its traders.

Goldman has long been the industry's most aggressive player in deploying its capital into everything from power plants and Japanese golf courses to ethanol makers and distressed debt.

As a group, analysts turned bearish on Goldman at the end of October, with industry watchers like UBS' Schorr and Merrill Lynch's Guy Moszkowski predicting small losses

AP
Ahead of the Bell: Goldman Sachs faces $2B loss
Tuesday December 2, 9:09 am ET

Report: Goldman Sachs could lose as much as $2 billion for its fiscal 4th quarter

NEW YORK (AP) -- Goldman Sachs Group Inc. could face losses totaling $2 billion when it reports its fiscal fourth-quarter results because of continued market turmoil and the expectation for large write-downs, according to a report in The Wall Street Journal on Tuesday.

The report, citing industry insiders and analysts, said the potential loss of about $5 per share would be largely due to write-downs on a wide array of assets that have increasingly lost value over the past three months.

A spokesman for Goldman declined to comment, noting that Goldman does not provide earnings guidance and does not comment on outside forecasts.

It would be Goldman's first quarterly loss since it went public in 1999....

AP
Goldman falls with market, analysts cut estimates
Monday December 1, 8:29 pm ET

Goldman Sachs falls as analysts cut 4Q 2008 and 2009 estimates

CHARLOTTE, N.C. (AP) -- Shares of Goldman Sachs Group Inc. dropped sharply on Monday as the broader market tumbled on concern about the economy and analysts cut their earnings estimates to reflect a dismal quarter.

Shares of Goldman fell $13.23, or 16.8 percent, to $65.76.

Goldman's decline came as the Dow Jones industrial average fell 680 points to about 8,149 and the Standard & Poor's 500 stock index lost nearly 9 percent. The decline was the result of investors' concerns about holiday shopping and new reports showing manufacturing activity fell to a 26-year low in November and construction spending fell by larger-than-expected amount in October.

In a note to investors Monday, Credit Suisse analyst Susan Roth Katzke said she now expects the New York-based firm will lose $4 per share in the fourth quarter. She had previously forecast a profit of $2.47 per share.

She also lowered her 2009 earnings estimate to $12 per share from $14.50 per share.

Analysts polled by Thomson Reuters, on average, forecast a quarterly loss of 62 cents per share and $10.38 per share for 2009.

Katzke lowered her target price on the stock to $140 from a range of $175-$200...

Goldman Sachs Target of Naked Short-Selling and Price Manipulation Complaints in High Yield Loan Markets

The charge is that as an agent bank Goldman Sachs has access to private information that gives it an advantage in the opaque market of high risk debt, and they have been using that information to target certain portions of the market with naked short selling to drive down prices and reap large profits for themselves at the expense of their clients and other market participants.

This is the template for potential market fraud that we described previously on several occasions. The banks have privileged information and access to funds that precludes a level playing field with other market participants. The uneven enforcement of the rules by the SEC and CFTC and lack of transparency in other markets is another significant factor.

We should note that the fails in this end of the markets are relative small change when compared to the fails in the Treasuries markets as we have previously shown, overseen by the Fed.

Now that Goldman is trading with public funds from the Treasury granted without oversight or restrictions by their former chairman the situation becomes even more outrageous, almost incredible.

Perhaps there is no explicitly legal wrong-doing. And we are only using this allegation against Goldman Sachs as an example. But even a simple top down examination of the market structures shows the weakness of our regulatory process, and the failure of crony capitalism and laissez-faire self-regulation to create markets that are transparent and worthy of trust and confidence for all participants. They more closely resemble dishonest poker games.

Until the financial system is reformed there can be no sustainable recovery.

Bring back Glass-Steagall and honest, responsive, and transparent regulation of the markets.


Bloomberg
Goldman Targeted by Investor Complaints of Naked Short-Selling
By Pierre Paulden and Caroline Salas

Nov. 17 (Bloomberg) -- Investors in the $591 billion high- yield, high-risk loan market are accusing Goldman Sachs Group Inc. of naked short selling to profit from record price declines.

At least two fund managers complained verbally to officials of the Loan Syndications and Trading Association, saying they believe Goldman helped drive down prices by using the technique, according to people with knowledge of the objections. New York- based Goldman is acting against its clients by trying to profit at their expense, the investors said.

A $171 billion drop in the value of the loans in the past year is pitting banks against investing clients on assets once considered so safe they typically traded at par. The drop exposed flaws in an unregulated market where trades can take from several days to months to settle and banks may have information unavailable to investors. In a naked-short transaction, a firm would sell debt it didn’t already own, betting the price will fall before it purchases the loan and delivers it to the buyer.

“The LSTA is closely monitoring issues of naked short selling,” Alicia Sansone, head of communications, marketing and education at the New York-based industry association, said in an e-mail.

The group, comprising banks and money management firms that trade the debt, plans to tighten rules to ensure transactions are settled more quickly and prices reported accurately, Sansone said. She wouldn’t elaborate or discuss the claims against Goldman....

Most Aggressive

The bank was seen as the most aggressive in recent months in selling loans at prices below other dealers’ offers and taking longer than the LSTA’s recommended seven days to settle the deals, according to the investors complaining to the trade group.

There’s no rule preventing naked short selling of loans. The U.S. Securities and Exchange Commission this year banned the practice for 19 stocks including Lehman Brothers Holdings Inc. and Fannie Mae and Freddie Mac from July 21 to Aug. 12 as share prices plunged. New York-based Lehman, once the fourth-biggest securities firm, eventually went bankrupt and Fannie and Freddie, the two largest mortgage-finance providers, were brought under government conservatorship. (Excuse us but isn't naked short selling of stocks illegal in the US? The SEC just does not enforce the law and the list of 19 was just a declaration of vigilant enforcement for a select group of 'special companies.' - Jesse)/em>

The slump in loan prices during the global seizure in credit markets is causing particular disruption in the loan market because the debt typically trades close to 100 cents on the dollar. Prices never were below 90 cents until February this year. By October they had fallen to a record low of 71 cents, according to data compiled by Standard & Poor’s. The decline, which S&P said equated to losses of about $171 billion, helped drive the complaints from fund managers.

‘Shell-Shocked’

“Investors are shell-shocked” by the decline, said Christopher Garman, chief executive officer of debt-research firm Garman Research LLC in Orinda, California. “In many ways they’re all but wiped out.”

Because prices were so stable, short sales of loans were unheard of until now, Elliot Ganz, general counsel of the LSTA, said at the group’s annual conference in New York last month.

“No one ever shorted loans,” Ganz said. “Prices never went down.”

High-yield, or leveraged, loans are given to companies with below-investment grade ratings, or less than Baa3 at Moody’s Investors Service and under BBB- at S&P. Banks typically form a group to arrange the financing. They then find other investors to take pieces of the debt, helping spread the risk.

Those loan parts can trade through private negotiations between banks and hedge funds or mutual funds. One of the lenders involved in the initial deal remains the so-called agent bank, which keeps track of who owns what piece. Unlike bonds and stocks, the debt doesn’t trade on an exchange and has no central clearinghouse.

Agent Banks

When a loan changes hands, the agent bank must sign off on the transaction, meaning it knows exactly who is buying and who is selling. The rest of the market is in the dark. Getting an agent to sign off, also can delay settlement.

“An agent will have a bird’s-eye view of who owns what and when,” said John Jay, a senior analyst at Aite Group LLC, a research firm that specializes in technology and regulatory issues in Boston. “They have information that no one else has....”

Three Days

In the bond market, the standard settlement time is three days following the trade. In a bond short sale, a trader acquires debt by borrowing the security in a deal known as a repurchase contract. The two sides specify how long the bond will be borrowed with the right to renew the pact. Because loans can’t be borrowed through such agreements, any short seller would have to go naked.

While the LSTA doesn’t track the amount of loans currently unsettled, at least 700 trades made by Lehman Brothers Holdings Inc. before it filed for bankruptcy hadn’t cleared, Ganz told last month’s conference....

Goldman Set to Payout All of Its US Bailout in Bonuses

bra·zen adj.
1. Marked by flagrant and insolent audacity.
2. Impudent, immodest, or shameless.
3. Unrestrained by convention or propriety.

Daily Mail Online
Goldman Sachs ready to hand out £7bn salary and bonus package... after its £6bn bail-out
By Simon Duke
8:55 AM on 30th October 2008

Goldman Sachs is on course to pay its top City bankers multimillion-pound bonuses - despite asking the U.S. government for an emergency bail-out.

The struggling Wall Street bank has set aside £7 billion for salaries and 2008 year-end bonuses, it emerged yesterday.

Each of the firm's 443 partners is on course to pocket an average Christmas bonus of more than £3 million.

The size of the pay pool comfortably dwarfs the £6.1 billion lifeline which the U.S. government is throwing to Goldman as part of its £430 billion bail-out.

As Washington pours money into the bank, the cash will immediately be channelled to Goldman's already well-heeled employees.

News of the firm's largesse will revive the anger over the 'rewards for failure' culture endemic in the world of high finance.

The same bankers who have brought the global economy to its knees seem to pocketing the same kind of rewards they got during the boom years.

Gordon Brown has vowed to crack down on the culture of greed in the City as part of his £500billion bail-out of the UK banking industry.

But that won't affect the estimated 100 London partners working at Goldman Sachs's London headquarters.

The firm - known as Golden Sacks for the bumper bonuses it pay its top bankers - is expected to cut the payouts by a third this year. However, profits are falling much faster. Earnings have plunged 47 per cent so far this year amid the worst financial crisis since the Great Depression.

This has wiped more than 50 per cent off the company's market value.

The news comes after it was revealed that even bankers working for collapsed Wall Street giant, Lehman Brothers, could receive huge payouts.

Its 10,000 U.S. staff are expected to share a £1.5billion bonus pool. The payouts were agreed as part of the rescue takeover of Lehman's American arm by Barclays last month.

The blockbuster handouts caused consternation among London employees of the firm, many of whom have now lost their jobs.

Even workers at the nationalised Northern Rock will scoop bonuses worth up to £50million over the next three years.

The extraordinary handouts include more than £400,000 for Rock's boss, Gary Hoffman, who is likely to become Britain's best-paid public sector worker.

The majority of Northern Rock's 4,000 workers will receive four separate bonus payments - the first of which will be made next March. Staff will get an extra 10 per cent on top of their basic salary.

Lloyds TSB also intends to pay its employees bonuses despite taking a £5.5 billion emergency cash injection from the taxpayer.

News of Goldman's bonus plan came as the firm promoted 92 of its bankers to partner level. A quarter are based in Fleet Street, London.

Partnership is the holy grail of the investment banking world as the exclusive club shares around a fifth of the firm's total bonus pool.

New York Attorney General Andrew Cuomo last night warned that Wall Street firms taking government-money risk breaking the law if they hand the cash straight back to employees.

Cash-strapped workers are being penalised by pay rises which are far below the soaring cost of living, research reveals today.

Despite inflation soaring to a 16-year-high of 5.2 per cent, the average worker got a pay rise of just 3.8 per cent in September.

The research, from the pay specialists Incomes Data Services, highlights the financial problems facing millions of workers.

Most of their household bills, particularly food and fuel, are rocketing by up to 35 per cent. However, their meagre pay rise does not begin to cover the extra cost.

The majority of the 50 pay settlements investigated by IDS were in the private sector covering around 1.1million employees.

They range from just 2 per cent for workers at the BBC to 5.3 per cent for workers at a firm of dockyard workers.

Incomes Data Services warned pay rises are likely to fall even further over the coming year as inflation is expected to drop sharply.

Economists predict inflation will fall below the Government's 2 per cent target next year.

Goldman May Be the Fed's Consigliere, But JPM is Still a Capofamiglia

Bloomberg
Fed to Provide Up to $540 Billion to Aid Money Funds
By Craig Torres and Christopher Condon

Oct. 21 -- The Federal Reserve will provide up to $540 billion in loans to help relieve pressure on money- market mutual funds beset by redemptions.

``Short-term debt markets have been under considerable strain in recent weeks'' as it got tougher for funds to meet withdrawal requests, the Fed said in a statement in Washington. About $500 billion has flowed out of prime money-market funds since August, a Fed official said.

The initiative is the third government effort to aid money- market funds, which in stable times are a key source of financing for banks and companies. The exodus of investors, sparked by losses from the aftermath of the Lehman Brothers Holdings Inc. bankruptcy, contributed to the freezing of credit that threatens to tip the economy into a prolonged recession.

``The problem was much worse than we thought,'' Jim Bianco, president of Chicago-based Bianco Research LLC, said in a Bloomberg Television interview. Policy makers are trying to prevent ``Great Depression II'' by stemming the financial industry's contraction, he said.

JPMorgan Chase & Co. will run five special units that will buy up to $600 billion of certificates of deposit, bank notes and commercial paper with a remaining maturity of 90 days or less. The Fed will provide up to $540 billion, with the remaining $60 billion coming from commercial paper issued by the five units to the money-market funds selling their assets, central bank officials told reporters on a conference call...