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FRED
12-14-06, 08:32 PM
Investment Banks Post Record 2006 Profit (http://biz.yahoo.com/ap/061214/earns_investment_banks.html?.v=5)
December 14, 2006 (Joe Bel Bruno - AP)

Investment Banks Lehman Brothers, Bear Stearns Report Record Earnings, Bonuses in 2006

Lehman Brothers and Bear Stearns sent a not-so-subtle message to Wall Street on Thursday when announcing 2006 results -- the word "record" appears a combined 37 times in their earnings reports.

Surging stock and bond markets, coupled with an unprecedented level of takeover activity, has turned the big investment houses into corporate cash machines. It is also delivering stratospheric bonuses to top employees, with Goldman Sachs Group Inc. doling out a staggering $16 billion this year.

For all of fiscal 2006, Lehman Brothers Holdings Inc. reported record net income of $4 billion, up 23 percent from the previous year. Bear Stearns Cos.'s profit for the year soared 40 percent to $2.1 billion. Goldman Sachs said Tuesday its full-year profit soared 70 percent to $9.4 billion, and Morgan Stanley Inc. is set to deliver strong results when it reports next Tuesday.

AntiSpin: Reading this you'd think that these investment banks had a great year generating revenues from investment banking, but you'd be wrong. For the latest reported fiscal year, Morgan Stanley, for example, generated only 16.4% of revenues from investment banking, 21.2% from asset management, 14.3% from commissions and 12.5% from "other." Where do the bulk of their revenues–35.6% to be exact–come from? "Principle Transactions" as in long-short and other hedge fund strategies.

How about the biggest winner of the bunch, Goldman Sachs, whose full-year profit soared 70 percent to $9.4 billion, which is, by the way, greater than the GDP of Honduras. Investment banking generated 14.8% of revenues, asset management 19.2%, commissions 12%. Hedge fund type investments? A whopping 54% of revenues. What does that make Goldman but a giant hedge fund?

We reported earlier this week that:

Hank Paulson, who made $700 million at Goldman Sachs before taking over the US Treasury this year ... has reactivated a crisis team with a command centre in Washington to cope with the 'systemic risk' in a market melt-down. His worry? 8,000 unregulated hedge funds with $1.3 trillion at hand, and derivative contracts now worth $370 trillion. 'We need to be very careful here,' he said.

A well-sourced article in Washington's Weekly Standard says Mr Paulson fears a "serious crisis that would be a body-blow to the US economy".

Average house prices have fallen from $244,000 in April to $221,000 last month, with more violent corrections in Florida, Arizona, and New England. Builders have warned of a "death spiral" as they slash prices to off-load a glut of unsold homes.

"The US needs a trillion dollars a year just to stand still," says David Bloom, currency guru at HSBC. Modern financial crises have always begun on the peripheries of global economy, setting off a chain reaction. Mr Bloom says the seizure this time will be at the heart of the system as the dollar buckles, pressing down on the "aorta of capitalism".
Eight thousand unregulated speculative investment pools pose a risk of a "serious crisis that would be a body-blow to the US economy"? After running the world's biggest and most successful USIP (http://www.itulip.com/glossary.htm#USIP), Paulson ought to know.

sparki
12-15-06, 05:51 AM
hello from germany,

i totally agree.

here is my take on goldman sachs

<a href="http://immobilienblasen.blogspot.com/2006/12/goldman-sachs-hedge-funds-or.html">"goldman sachs. hedge funds or investmentbank?
"</a>

akrowne
12-15-06, 10:15 AM
I think it was destined to come to this. Evolutionarily, the only way hedge funds could continue to grow bigger would be by essentially merging with banks: then the money creation can be poured directly into speculation.

The system has become almost a Platonic ideal of an unsound speculation machine.

We had adequate warning with LTCM, then REFCO, MotherRock and Amaranth, but few people have cared, as long as the lucre keeps coming.