Goldman reports $1.8 billion profit. Goldman Sachs reported a much stronger-than-expected first-quarter profit Monday, bouncing back from its worst quarter as a public company. http://money.cnn.com/2009/04/13/news/goldman.earnings.report.fortune/index.htm?postversion=2009041317&iref=topnews
What do you think about it? What is the reason of fast recovery according Austrian economics? Can we agree that 10bn of government support to Goldman really helped?
What fast recovery? The economy isn’t recovering at all: unemployment is rising while inflation is creeping up, soon about to boom. Of course injecting 1/6th of a company’s market cap will help it earn a profit. This doesn’t mean that it’s any different than inflating our way out of a recession and setting up a worse one than before, like we did in 2001.
Unemployment is lagging indicator…
However, bank profits these times are probably more result of throwing cheap money to them and changing accounting rules than real signs of recovery. God knows what their assets are worth, they don’t have to mark to market anymore. Accountants are free to value assats based on their notion of “fair value” these days. Funny.
Bottom line: now you can’t tell what’s going on in the zone reality. The intervention in the markets is of epic proportions. It may be the sign of recovery, then again, it may not.
But these news from Goldman give some psychological-positive signs to the market (more confidence in banking sector; among investors) and it makes maybe small but first step to “Keynes recovery”(of course creating new money out of thin air and new boom is not recovery, it is just illusion of prosperity).
What do you think?
If you believe that this crisis broke out because of investor pessimism, then yes, this will help. [;)]
I didn’t say that. And I know Austrian economics and who is guilty for all financial downturns in history.
But my question is maybe it is the first small step to new boom by FED?
What do I think about it? I think the executives of Goldman Sachs should be tarred and feathered and have their homes ransacked in front of their weeping families and mistresses.
I’d tell you more about what I think, but I don’t want HSA snooping around mises.org.
How can I make my opinion about state of the economy when I’m not sure this profit is for real? There has been so much manipulation that I can’t trust any number anymore. That’s the problem with manipulation, important signals are lost. Price and profit are signals, according to which people adjust their actions. They could post 500 billion $ profit and still that would represent no usable data. So, currently market participants are like drivers driving in the heavy fog. Blindfolded.
4 worlds: Private Gains-Public Losses.
Goldman Sachs had its largest loss, Credit Default Swaps by several larger insurance companies with AIG foremost among them, covered by current and future US tax payers and current holders of currency. So it should be no suprise that they are suddenly profitable. Of course the same can not be said of the other parts of the world economy where these tax payers and currency holders actually reside.
Gary North’s daily - wrote about this today.
Goldman restructured the company back in October so it could receive a bailout. its Fiscial year now starts in January instead of December. They wrote off $1 Billion in losses in December, and this was not included in last quarters earnings we just received.
http://news.yahoo.com/s/ap/20090413/ap_on_bi_ge/earns_goldman_sachs
[…]
Shifting the start of its fiscal year certainly helped the bank’s overall results, said Denise Valentine, senior analyst at Aite Group, a Boston-based research firm.
“It’s a little bit of fancy footwork, but for the market as a whole it’s good news and it was needed,” she said. “When your star does well or does what is expected, you breathe a little easier.”
[…]
My first thought is: this company took 10 billion dollars and turned it into 1.8 billion dollars, and you think that helped? 
(It’s invalid reasoning, though; just a joke.)
Truth is, economics requires that you consider the unseen as well as the seen.
Sure, if you steal resources and oversubsidize a particular company or industry, you can get some pretty impressive results. Yes, you can build a spectacular automotive industry. But all the wealth you confiscated to do it came from somewhere. It all would have been spent on something else, something guaranteed to generate wealth because, in a free and voluntary economy, every exchange results in increased wealth for both parties to the exchange. I guarantee you that taking 10 billion dollars away from other causes and using it to prop up a company noone wanted to buy at that price destroyed wealth. Proof: if the company was capable of producing this much income, then it should have gone into bankruptcy, and in the resulting proceedings someone else would have bought it for much less, say, for 5 billion dollars. Then, not only would we have the net gain of 1.8 billion dollars of profit to the economy, we would also have an extra 5 billion dollars lying around somewhere, generating wealth and raising the standard of living for everyone! The free market price for this company would have been the right price to pay, and however much lower it is than what was injected into it is a good figure for how much wealth was destroyed.
Also, by subsidizing the company, supply of its services increased, sucking up demand that would have been used to purchase competing services, services which are actually more highly valued (proof: in a voluntary economy they would have been provided by profitable companies instead of loss-generating companies that need to be propped up). Whatever Goldman is providing is clearly inferior to other things the economy is generating that other people preferred instead. That might be competing services in the same industry as Goldman, or it might be something else entirely, like flood insurance or technological research and development. We don’t know! We will never know! But by subsidizing this company, we lost something we would have valued more highly: thus, wealth was destroyed.