Friday, November 20, 2009

Goldman Bonuses: An Intriguing Reason Why Treasury Yields Are Going Negative

FT puts out two more theories on why short-term Treasury Securities are "paying" a negative yield:
Short-term US interest rates turned negative on Thursday as banks frantically stockpiled government securities in order to polish their balance sheets for the end of the year.

The development highlighted the continuing distortions in the financial system more than a year after Lehman Brothers’ failure triggered a global crisis.

The growing appetite for short-term government debt reflects an effort by banks to present pristine year-end balance sheets to regulators and investors – an effort known as “window dressing” on Wall Street, analysts said.

The scramble has been exacerbated by the fact that all leading US banks, many sitting on big trading profits, will this year close their books at the same time – at the end of December. In past years, investment banks such as Goldman Sachs and Morgan Stanley reported annual results in November.
I don't buy the money manager/bank window dressing argument.

You would think money managers would be a little creative and find something with little risk where they can park funds. As for banks dressing up their balance sheets, that's what they have been doing all year. Has FT noticed that excess reserves are at a trillion dollars?

The intriguing FT argument is the one regarding Goldman Sachs, Morgan Stanley etc. Now that they are financial holding companies, they will be closing their books in December, so in order to get ready to pay out the billions in bonuses (which will be paid out in January), they are stockpiling the bonus payouts in T-Bills. I mean, without an obvious crisis, who would accept a negative yield, other than someone ready to cash out in a few days and not wanting to take on any risk, and even willing to accept a negative interest rates for safety and security, before the big pay day comes? I called Goldman spokesman Lucas van Praag to ask him if Goldman was buying T-Bills to stockpile for bonus payouts and he, naturally and not unexpectedly, told me that Goldman never reveals any of its market positions. I then asked him if he thought Goldman was trading CDO's with employee bonus money. He agreed with me this was unlikely.

Goldman stockpiling T-bills by the way dovetails with my earlier take that funds want liquidity to meet huge expected withdrawal requests. It isn't the money market funds, it's damn Goldman Sachs, et al., getting set to withdraw their billions in bonuses.

Which also highlights the fact that this is a "Goldman Sachs recovery" and nothing else. When their bonus money is put into T-Bills and it drives T-Bill rates negative, you know these people, and their bonuses, are the damn economic "recovery. "


  1. Why is Goldman Sachs deliberately destroying the U.S. economy? Who has put them up to this?

  2. To answer Anonymous @ 9:06 am, the ultimate vampire squid (to use writer Matt Taibbi's colorful language) behing the smaller vampire squid of GS is tired of dealing with the hassles of national sovereignty. If you want to suck the blood from all of humanity, you don't want troublesome regulatory or taxation clots to form at national borders and you especially don't want populist leaders rising up and trying to tear international banking's blood-sucking tubes off of their people. You need a one-world government and a one-world currency.

    As long as a country like the US is strong (fat and happy, if you will) we have no need to become part of such a one-world government. So the ultimate vampire squid needs to make the US howl in pain, then beg and crawl for rescue, from the same people who set up our downfall. It's called problem - reaction - solution, the oldest political game in the world.

    The good news is, a lot of people are waking up to the scam and they're not too happy about it. But we need a lot more people to wake up to reach critical mass, which is why I took the time to respond to your question.