5 ms·

You are correct, sorry. That's tier capital, right?

by gills 18y ago

jacoblyles 18y ago
I never had bank risk-adjusted capital regulations memorized, and it is much too complicated for me to care to relearn now. However, the addition of a new liquidity source on the balance sheet in general has no direct effect on the income statement. Borrowing money is not income. Indirectly, it will have an effect through the interest expense owed to the owner of the liability and the interest income earned from the additional cash. However, the net interest income or expense is likely to be much less than the $10 billion face value of the liability. A caveat: I didn't read through their financial statements, and I refuse to do so unless someone will pay me.
- jjs 18y ago
  > A caveat: I didn't read through their financial statements, and I refuse to do so unless someone will pay me. Upvoted for badass mercenary attitude. You should try consulting! :D
- anamax 18y ago
  > Borrowing money is not income. No, but paying for their losses does mean that whatever income they do have isn't offset by said losses, and that produces profit. Goldman's counter-party risk was subsidized by taxpayers via AIG. If doing so really was a good idea, it should have been done directly and in public.
  - jacoblyles 18y ago
    Yes, if AIG were to go bankrupt, Goldman and others would have had to take a one-time charge to net income to account for the reduction in the value of the assets owed to them by AIG based on what they expected to be able to recover through bankruptcy court. In this, Goldman is not special, though.
    - anamax 18y ago
      > In this, Goldman is not special, though. We don't know how the AIG flow-through worked. There have been rumors that some firms (Goldman Sachs is usually named) are getting 100% while other folks are taking a haircut.
      - op12 18y ago
        I really don't understand this continued suspicion of the AIG/Goldman flowthrough. What they did was a textbook case of how to protect yourself against a counterparty going bankrupt. It will be used as a case study one day of how to exercise prudence. Direct from the conference call that explained their exposure: "When AIG was rescued, Goldman Sachs had $10 billion of exposure to the insurance company that was offset with $7.5 billion of collateral as well as credit-default swaps that would have paid off in the event of an AIG bankruptcy, Viniar said on the March 20 call." So Goldman had $10 billion of insurance with AIG. As the insurance started going in their favor, as is common banking practice, they demanded collateral be pledged (treasury securities) that they could seize in the event of bankrupty. This was 7.5 billion worth of collateral in extremely safe treasury bonds. So in the event of default, Goldman would have kept the securities in lieu of getting the cash settlement. Because they did not default, AIG had the securities returned to them and they paid out cash instead (this is the 10 billion number that "went from tax payers to goldman" that everyone keeps saying). The remainder 2.5 billion was the disagreement between the parties as to where the insurance should actually be marked. So to be prudent, they bought CDS protection that would pay 2.5 billion in the event of default. What is the problem here?
        anamax 18y ago
        > This was 7.5 billion worth of collateral in extremely safe treasury bonds. > this is the 10 billion number that "went from tax payers to goldman" that everyone keeps saying Goldman Sachs was owed $10B. 7.5B was available in pledged securities. Goldman got $10B in cash because of govt flow-through via AIG. > So to be prudent, they bought CDS protection that would pay 2.5 billion in the event of default. Shouldn't the insurer be paying off, if solvent, and not the US govt? And, if the insurer is not solvent, why shouldn't Goldman take the hit? > What is the problem here? The claim is that Goldman is not taking a hit from their transactions with AIG while other parties are. The above documents that Goldman is, in fact, not taking a hit from their transactions with AIG. The only remaining question is whether other parties are taking a hit for their transactions with AIG. If they are, the question is Goldman Sachs is being treated differently.

You are correct, sorry. That's tier capital, right?

by gills 18y ago

You are correct, sorry. That's tier capital, right?

I never had bank risk-adjusted capital regulations memorized, and it is much too complicated for me to care to relearn now. However, the addition of a new liquidity source on the balance sheet in general has no direct effect on the income statement. Borrowing money is not income. Indirectly, it will have an effect through the interest expense owed to the owner of the liability and the interest income earned from the additional cash. However, the net interest income or expense is likely to be much less than the $10 billion face value of the liability. A caveat: I didn't read through their financial statements, and I refuse to do so unless someone will pay me.

jjs 18y ago
> A caveat: I didn't read through their financial statements, and I refuse to do so unless someone will pay me. Upvoted for badass mercenary attitude. You should try consulting! :D
anamax 18y ago
> Borrowing money is not income. No, but paying for their losses does mean that whatever income they do have isn't offset by said losses, and that produces profit. Goldman's counter-party risk was subsidized by taxpayers via AIG. If doing so really was a good idea, it should have been done directly and in public.
- jacoblyles 18y ago
  Yes, if AIG were to go bankrupt, Goldman and others would have had to take a one-time charge to net income to account for the reduction in the value of the assets owed to them by AIG based on what they expected to be able to recover through bankruptcy court. In this, Goldman is not special, though.
  - anamax 18y ago
    > In this, Goldman is not special, though. We don't know how the AIG flow-through worked. There have been rumors that some firms (Goldman Sachs is usually named) are getting 100% while other folks are taking a haircut.
    - op12 18y ago
      I really don't understand this continued suspicion of the AIG/Goldman flowthrough. What they did was a textbook case of how to protect yourself against a counterparty going bankrupt. It will be used as a case study one day of how to exercise prudence. Direct from the conference call that explained their exposure: "When AIG was rescued, Goldman Sachs had $10 billion of exposure to the insurance company that was offset with $7.5 billion of collateral as well as credit-default swaps that would have paid off in the event of an AIG bankruptcy, Viniar said on the March 20 call." So Goldman had $10 billion of insurance with AIG. As the insurance started going in their favor, as is common banking practice, they demanded collateral be pledged (treasury securities) that they could seize in the event of bankrupty. This was 7.5 billion worth of collateral in extremely safe treasury bonds. So in the event of default, Goldman would have kept the securities in lieu of getting the cash settlement. Because they did not default, AIG had the securities returned to them and they paid out cash instead (this is the 10 billion number that "went from tax payers to goldman" that everyone keeps saying). The remainder 2.5 billion was the disagreement between the parties as to where the insurance should actually be marked. So to be prudent, they bought CDS protection that would pay 2.5 billion in the event of default. What is the problem here?
      - anamax 18y ago
        > This was 7.5 billion worth of collateral in extremely safe treasury bonds. > this is the 10 billion number that "went from tax payers to goldman" that everyone keeps saying Goldman Sachs was owed $10B. 7.5B was available in pledged securities. Goldman got $10B in cash because of govt flow-through via AIG. > So to be prudent, they bought CDS protection that would pay 2.5 billion in the event of default. Shouldn't the insurer be paying off, if solvent, and not the US govt? And, if the insurer is not solvent, why shouldn't Goldman take the hit? > What is the problem here? The claim is that Goldman is not taking a hit from their transactions with AIG while other parties are. The above documents that Goldman is, in fact, not taking a hit from their transactions with AIG. The only remaining question is whether other parties are taking a hit for their transactions with AIG. If they are, the question is Goldman Sachs is being treated differently.