Matt Taibbi, Rolling Stone - Goldman: New Reform Law Can Kiss Our Ass

[Amerigo Vespucci]

Goldman: New Reform Law Can Kiss Our Ass

Posted: Today,1:15 P.M. EDT | By Matt Taibbi

http://www.rollingstone.com/politics/matt-taibbi/blogs/TaibbiData_May2010/190594/83512

Just a quick note about a very interesting story that appeared in the LA Times.

It seems that Goldman executives have been advising analysts from other companies that they don’t expect the new financial regulations to cut into their profits in any meaningful way. A key passage in the story:

More recently, however, top Goldman executives privately advised analysts that the bank did not expect the reform measure to cost it any revenue.

"The statement was perhaps surprising in its level of conviction," Bank of America Merrill Lynch analyst Guy Moszkowski wrote in a note to clients, "but we've learned to take such judgments from GS very seriously."

The story is a bit confusing because it also quotes some sources as saying that banks like Goldman are seriously preparing for some major changes, the biggest of those being the reshuffling of personnel that would take those people engaged in proprietary trading (i.e. trading for the bank’s own account) and put them in other departments, most likely trading on behalf of clients.

The new rules will bar banks like Goldman from engaging in prop trading – the concept of this rule is that federally-insured depository institutions shouldn’t also be engaging in high-risk speculation – but there are a number of loopholes/exceptions to the rule that will allow the bank to continue gambling as before. Among other things the banks will be allowed to put aside a certain amount of money to sponsor hedge funds and will also be allowed to engage in some prop trading in separately-capitalized subsidiaries.

The LAT story suggests that banks like Goldman have either figured out how to compensate for their lost prop trading revenue, or else they’ve figured out a way to keep doing what they have been doing, only in some other form.