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How One Goldman Sachs Trader Made More Than $100M
- edutechnion 10y agoShort version: banker provides liquidity to the markets and buys up junk bonds from panicked sellers at 40 cents on the dollar. Banker then sells the bonds for more money as the panic dissipates. Some people wonder if important banks like GS should still be making volatile bets like this.
- fweespeech 10y agoYeah. Imho, the problem is the fact GS is important and has such sizable market share than what they are doing exactly. If we had 20 large banks the size of GS, GS doing stupid shit and tanking wouldn't be an issue.
- qaq 10y agoGS seams to run fairly tight shop I doubt they take very large unhedged positions.
- kafkaesq 10y agoReally now? Goldman Sachs will pay $5.06bn for its role in the 2008 financial crisis, the US Department of Justice said on Monday. The settlement, over the sale of mortgage-backed securities from 2005 to 2007, was first announced in January. “This resolution holds Goldman Sachs accountable for its serious misconduct in falsely assuring investors that securities it sold were backed by sound mortgages, when it knew that they were full of mortgages that were likely to fail,” acting associate attorney general Stuart Delery said in a statement. -- https://www.theguardian.com/business/2016/apr/11/goldman-sachs-2008-financial-crisis-mortagage-backed-securities https://www.theguardian.com/business/2016/apr/11/goldman-sac...
- qaq 10y agoThey made money and later payed a fine , how is this disputes a statement that GS does not take large unhedged positions?
- kafkaesq 10y agoThe point is that the assertion you attempted to make in favor of the idea that GS just of course wouldn't take large unhedged positions -- "they run a tight shop" -- just doesn't have a great deal of solid backing.
- qaq 10y agoIf you provide an example of a large unhedged position that GS has on the books I'll totally believe you.
- kafkaesq 10y agoYou can believe whatever you want. Based on my own research over the years -- and personal dealings with people who have worked there -- I tend not to trust that "shop".
- brianwawok 10y agoYour quote is about honesty. OPs quote was about unhedged rusk. They have little to no relation. You can be both a dishonest trader AND a smart one.
- cheez 10y agoBuy low sell high
- dogma1138 10y agoGS has about 90 bln in total equity and nearly a trillion dollars in total assets. 100m sounds high but 100m is a rounding error especially if spread across 100s or even 1000s of trades.
- JumpCrisscross 10y agoNote that they made $100 million. I did not see a value at risk, gross notional or netted, presented.
- zaroth 10y agoTFA says billions bought and sold before fading out to ads. I guess making 5% returns isn't such a big deal when you are playing with billions of other people's money.
- akhatri_aus 10y agoIf they had 100s of such trades, the management wouldn't look at it as rounding error. That's reductio ad absurdum that is.
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- draw_down 10y agoWhy shouldn't they? If they make risky bets that don't pan out, they will make their losses will the government's problem.
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- fweespeech 10y agohttp://archive.is/rIBZT http://archive.is/rIBZT For anyone that wants to avoid the paywall.
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- temuze 10y agoHow to get around the WSJ paywall: - Copy the URL - Paste the URL into the Facebook textbox where you would create a post - Click on the preview, so the referrer url is Facebook Could probably make a Chrome extension for this...
- fweespeech 10y agoThe problem is these tricks aren't 100% reliable.
- ChadMoran 10y agoCTRL+SHIFT+N Opens a new incognito window. Paste. Done.
- andrewbinstock 10y agoNope. Doesn't work on Windows 7 running Chrome, nor I expect on many other system/browser combos.
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- wangchow 10y agoOr, do what's fair and pay up if you like the articles..
- kzisme 10y agoIs their $12/12 weeks method ~really~ that effective for news aggregation websites such as HN or Reddit? Unless you've been a subscriber to the physical subscription, and enjoy it I see no reason why someone from one of these sites would subscribe.
- PhantomGremlin 10y agoI would gladly pay $1/week for the WSJ. Reporters and editors have mortgages to pay and families to feed. The problem is that's a teaser rate. The current rate for 1 year is $277. That's way more than I'm willing to pay for a single newspaper.
- trequartista 10y agoThe market making exemption of the Volcker Rule is based on RENTD - Reasonably Expected Near Term Demand. So Goldman has to prove that this was the case for the high yield bonds. Proving this could be quite tricky though - because they have to factor in a whole lot of parameters (market maturity, depth, liquidity, product holding periods, macro-economic outlook and the trading desk's estimation of client demand). But I'm sure Goldman has models to track each of these. So all in all, this is quite a windfall
- jhulla 10y agoYeah - given the size and market environment during the trade, I'd imagine there were many people looking over trader shoulders to keep everything legit. Someone is going to have a nice Xmas.
- polskibus 10y agoDid he make 100 m in profits for the company or did he earn 100 m for himself from GS as renumeration?
- roymurdock 10y agoOne junk-bond trader at Goldman Sachs Group Inc. earned more than $100 million in trading profits for the firm earlier this year, an unusual gain at a time when new regulations have pushed Wall Street to take fewer risks.
- adamnemecek 10y agoFor the firm.
- alfalfasprout 10y agoHe'll likely get something in the ballpark of 5-10% as bonus. That's the typical rate at a desk where he's primarily making money from flow.
- ksec 10y agoSo he make 5-10M Bonus? Is this a lot in Investment Banks? ( Absolutely no idea about their payscale. )
- kchoudhu 10y agoFor a good trader on a desk having a good year, yeah that's about average.
- zump 10y agoQuestion.. if employees at a bank are making these kind of salaries, why doesn't everyone do it?
- lbotos 10y ago1) It takes an insane amount of mental fortitude. 2) The day-to-day component isn't very "glamorous/fun" it's time intensive and can feel very "hurry up and wait". 3) You should to be really comfortable with math. I did some basic forex trading with trades that were on average $400-$1000 of risk and it really opened my eyes to how "trading" works. It's all about risk management. I freaked out when I realized that big bank guys are taking positions in the 100k+ range and even though it was fun, I stepped away.
- lordnacho 10y agoLike the article says, it's very hard to distinguish between market making and prop trading. Especially in illiquid stuff like corporate bonds, the MM needs to hold positions for extended durations, so they have a valid excuse to not be closed down entirely by Volcker. The real reason they make all that money is flow. The guy on a desk like that knows what customers are calling, what they're concerned about, roughly how easy it is to get rid of stuff, and so on. It's not surprising he has a good idea of what's going to happen, and he's in a good position to take advantage. Surprised their VAR (which is a crap way to measure risk) is not even halved in relation to before the crisis. People were definitely chucking it about back then, and the mood these days is like a morgue.
- jhulla 10y agoMarket making is inherently prop trading - the firm's capital is at risk - unless trades are paired or hedged immediately. For thinly traded stuff that may take a while to unload, it is just prop trading. I personally think Banks should be incredibly boring utilities. But that ship sailed a long time ago. Lots of great stuff was thrown out the window in January. My winning bet for the year was to start buying EWC (ishares Canada) during the market lows. You say "and the mood these days is like a morgue". Please elaborate.
- lordnacho 10y agoThe mood among bank staff... everything is shut down by compliance, and if they could, they'd work in a different industry. People I know at banks, anyway.
- stcredzero 10y agoThe mood among bank staff... everything is shut down by compliance In what sense is "everything shut down by compliance?" Is compliance so cumbersome, that no one can be arsed to do any big trades?
- totalZero 10y ago
- ankit70 10y agoFor anyone who can't ready this article, search for 'Tom Malafronte' from your mobile and read the full 'AMP' version. Thanks Google!
- zazpowered 10y agoIs this that amazing if he bought billions of dollars worth of bonds? Serious question
- eurg 10y agoRelated discussion by Matt Levine: https://www.bloomberg.com/view/articles/2016-10-19/bond-trades-and-merger-codenames https://www.bloomberg.com/view/articles/2016-10-19/bond-trad...
- jgalt212 10y agoThe genius of this guy's trade was not buying cheap and selling dear, but his ability to convince his boss (and boss's boss) to allow him to buy so many bonds (well beyond the amount almost all of his peer's risk limits would dictate).
- nstj 10y ago@dang - the profits were for the firm, so the title is clickbaitish. Suggested alternative: "How One Goldman Sachs Trader Made His Firm More Than $100m"
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- Sarki 10y ago"The gains were the work of Tom Malafronte, a managing director on the bank’s high-yield-bond desk in New York." A "Managing Director" so I'm pretty certain that he didn't do it himself, his team(s) did. Frankly annoyed by this recurrent praise for management people, at this level such a guy never dips a toe in the trenches.
- osullivj 10y agoMD on a major bank trading floor is very much a hands on job. Probably supervising between 2 & 20 junior traders, ultimately tesponsible for their positions, and setting strategy. An IT MD in a bank would have headcount in the 100s.
- zump 10y agoWhat's their bonus like?
- osullivj 10y agoI know a trading Director for a rates desk who got GBP2.2M EOY 2007. MD would be more.
- dizzylight 10y agonot too much for fix income sector
- nstj 10y ago