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[Rogerdodger]

Goldman Sachs in 'paper profits' row
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By Ambrose Evans-Pritchard
Last Updated: 1:37am BST 16/10/2007
A Goldman Sachs filing with the US Securities and Exchange Commission has led to allegations that it may have inflated profits in the third quarter to a spectacular $8.23bn (£4.03bn) by booking paper gains on mortgage derivatives at too high a value.

Analysts cited by Fortune Magazine claim that almost a third of the bank's revenue came from "short" positions on the lowest tier of mortgage derivatives and other forms of toxic debt.
These assets are extremely hard to price, and were not in fact realised. More than $2.62bn of declared profits were made entirely on house estimates at the underlying value.
Charles Peabody, an analyst at Portales Partners in New York, said there were concerns that Goldman had set optimistic values on instruments for which there was in reality little or no functioning market.
"Common sense tells me that a lot of these losses were real and a lot of their gains were paper, and that's something we'd like to know more about," he said.

Goldman Sachs bet correctly that mortgage securities would crash during the summer, but this has been a very erratic market. A hedge fund of rival Bear Stearns collapsed in June after making such bets earlier.
It was caught out by a snap rebound in the lowest tier of this debt, causing its complex arbitrage strategy to blow up.

A Goldman Sachs spokesman said suggestions of inflated paper gains were preposterous.
"We do this for a living. It is impossible to manage your risk if you don't know the value of your assets," he told The Daily Telegraph.
He added: "Besides, the regulators live in our building.
"We have some exotic assets, but if there is any debate about the value, we order a sale.
"In any case, these assets are not just contracts. They are secured by collateral. We can issue margin calls if we see the value going south," he said.
The bank said in its SEC filing that "valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence."



Meanwhile, Michael Savage was fanning the conspiracy flames tonight, claiming that Goldman Sachs runs the US Government with deals like this:


US Security for Sale - China’s the Buyer
China in Bid for US Security Firm 3Com

From the Washington Times (10/4/07):

“China’s Huawei Technologies and the investment firm Bain Capital Partners to buy 3Com, which makes equipment used by the Pentagon to block computer hackers, including those from the Chinese military.”