Word: risks
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...Goldman Sachs gambling with government funds? During the first quarter, the investment bank greatly increased the amount of trading risk it takes in the market. Should those wagers go sour, Goldman could lose heavily, and so could taxpayers...
...with the help of TARP funding," says analyst David Hendler, who follows Goldman and other financial firms for CreditSights. In a report to clients, Hendler wrote that subsidized funding from the government has "manufactured" these outsized gains for Goldman. "Goldman's results were unbalanced and . . . . due to extremely high risk taking...
...with AIG, but declined to comment exactly how its trading profits were generated. A Goldman spokesman said, "By putting the capital on our balance sheet to work we are helping the market to function, which benefits the market and the economy." The spokesman said Goldman is comfortable with its risk profile...
...what is clear is that Goldman is taking significant trading risks, opening the firm up to the possibility of big losses at a time when regulators and lawmakers are trying to reduce the dangers of the nation's financial system, not increase them. At the end of the first quarter, Goldman's measure of value-at-risk, which tracks how much the financial firm could lose in one day, rose to $240 million. That was up over $80 from just over a year ago, and it is 10 times the risk the firm used to take on a daily basis...
...well. Goldman was the first of the major financial firms to report earnings in the first quarter. Citigroup and J.P. Morgan have said that they, like Goldman, made money in the first two months of the year. So it is likely those firm have increased the amount of risk they are taking as well. If so, the ramping up of trading at Goldman and others underscores how much these firms have evolved in the past decade and how difficult it may be for regulators to reign in the firms' risk to the economy...