Tuesday, June 23, 2009

Goldman Sachs Analyzes Its Risk Exposure

Until yesterday, the only real risk at the 5th branch of government (4th is the PIMCO/BlackRock two headed hydra) was making sure that 2009 is the year of the biggest bonuses on record (amusingly, now that Cerberus has all but followed Chrysler to its ignominious end (oddly missing from the company's industry expertise page - one would think the Dan Quayle-advised company learned more from this cataclysm than anything else), maybe Stephen Feinberg can sell the brand to the GS/PIMCO/BlackRock triumvirate and generate at least some recovery for its long-suffering LPs: the name would be so much more appropriate then). Now that that is taken care of, people can refocus on actually running the company (and running competitors into the ground). Conveniently, the presentation below allows readers a peek into the secretive areas of GS' risk management nether regions, and an overview of how the company positions itself in this riskfree (for GS; for others - not so much) environment.

Potentially the most relevant chart from the presentation is the one below: it highlights in broad brushstrokes just what it is that makes Goldman so unique (especially in terms of it making money while its PB clients are not so lucky). Of all, the most amusing bullet, bar none, is the "unwillingness to pay" discussion for credit markets: alas the commentary section has left out what really happens when a CDS counterparty really looks like it may be set for a half a trillion dollar implosion.

Additionally, the fat tail analysis is also somewhat non-self explanatory. As the chart below indicates that Goldman is dead set on analyzing the 99 percentile (in addition to the 95%) non-fat tail distribution. Does this explain the meteoric rise in VaR in recent reporting periods? Also - what happens on that rare 100th day, week, month? Especially if there is nobody left to bail you out.

hat tip Richard Sphere: Related Content
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