Letting Goldman roll the dice

[AllentownJake]

On this morning’s conference call, David Viniar, Goldman Sachs’ chief financial officer, emphasized the bank’s valuable social role. His bank made markets and provided credit when other financial players were suffering.

But is Goldman really such an indispensible financial intermediary? One look at the firm’s revenue breakdown shows that it’s more casino than anything else, and some of the markets it makes still put the economy in danger.

With markets recovering and competitors falling away, Goldman’s trading and principal investment revenue through the first nine months of the year was nearly $24 billion, on pace to break the $30 billion record set in 2007.

Goldman, in other words, generates most of its revenue trading its own money and earning vigorish on customer transactions. It’s a hybrid hedge fund and bookie, with an investment bank and asset management business thrown in for good measure.

With that in mind, one is left to wonder whether Goldman was really worth saving last year. What have taxpayers received for the $50 billion worth of cash and guarantees, for giving Goldman access to the Federal Reserve as its lender of last resort?

Saving Goldman was largely about saving the derivatives market, which is so big and unstable that the death of one counterparty could mean the death of all. With big commercial banks like JPMorgan Chase in deep, saving the derivatives business was as much about protecting depositors and maintaining the integrity of the payment system as it was derivatives themselves.

http://blogs.reuters.com/rolfe-winkler/2009/10/15/letting-goldman-roll-the-dice/