These guys are THAT good

Goldman's trading gains were made on behalf of clients. They are not betting the firm's own money. So the beneficiaries there are their clients.

It's also not really that unbelievable to me and doesn't suggest fraud (although that isn't to say that Goldman isn't fraudulent in its business practices). Goldman has only had losing days 11 times in the last 12 months. What makes it much more likely that Goldman is going to make money rather than lose on any given day. is that unlike me, it's a market maker in the FICC products (fixed income, currency, commodities) markets that generated those net positive days. What Goldman and JP Morgan (which reported no days of losses for the quarter) do is act as an intermediary in those markets to help keep them liquid and to make sure there is enough capital at all times. They may be doing something fraudulent--although it's easy to accuse without proof--but if they are not, they are simply guilty of acting as a market maker. And honestly, that doesn't involve much proprietary trading or putting anything at risk. As a market maker, they generate automatic revenue from bid-offer spreads. And with that automatic revenue, it would be really hard to lose money most days. It's basically like a bank charging people fees to do transactions and then reporting that they made money every day during the quarter from those fees.

You can criticize the market maker system, but as long as that is the system, it's very easy for investment banks to make money in an environment like this. Also, the last year has been a great time to be a trader in general -- whether you are Goldman Sachs' traders or an individual with a trading platform on a desk. I'm not an investment bank, don't have the trading resources of their desks and in the last year, I have found it easier than ever to come out ahead in the commodities I play with, and in most currencies. It's been easy, provided you don't overthink yourself.

 

People can't have it both ways. When things were really volatile, the banks got killed and they had to shoulder the blame for what their losses did to the economy as a whole. But in a quarter that was marked by virtually no volatility, all they did was make markets and collect bid-offer spreads for profits, and as a result now there will be people who want to excoriate them for running profitable businesses.

Do those same people get upset when the store down the street makes money every day for three months? Because it's really the same thing. It takes a quarter like this for there to be no days in which they don't come out behind. But these banks certainly have gone many quarters in which you could count the days they came out behind on five fingers or less. The markets are set up for them to make money, and the banks provide a necessary role in keeping them liquid. Criticize the system of market makers if you want (although before you do, you really should have a logical suggestion for how you keep the FICC markets liquid without them), I certainly can, but to criticize the banks for doing what they are supposed to do under that system doesn't make much sense.

 

Proprietary trading gains are NOT accounting for those days. If they were claiming their prop desks were right 100 percent of the time for a quarter, yeah, you could yell fraud. It's an impossibility.

The profits they reported (and the string of profitable days) came because their FICC and equities units, which in this new world of populist scapegoating of the banks, are dominating their businesses. Those units make their returns by making markets for clients, not by betting the firm's money. What this shows is that in the wake of the hell they have taken over their CBO debacles, they are NOT doing crazy types of propietary trading. Instead, they are sitting back, making markets for clients, and collecting bid-ask spreads for steady (but not the home runs they were going for a few years ago) profits.