Goldman Sachs Stumbles: The End of the "Vampire Squid"?

Photo: laverrue

A few years ago, a friend of mine who used to work on Wall Street told me that the only stock anyone needed to own was Goldman Sachs. He was of course half-joking (I sure hope this wasn’t the advice he was giving clients), but his point was clear: whatever price increases were happening out in the world, whatever profits were there for the taking, no matter the market, you could be fairly certain that Goldman was on the scene.

The image of Goldman Sachs as some sort of omnivorous, ever-present beast was perpetuated by Matt Taibbi in his 2010 Rolling Stone article, in which he dubbed the firm “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” And that was just the second sentence.

It would appear that the squid has since had a few of its tentacles lopped off, or at least been shrunken down to size. For only the second time since it went public in 1999, Goldman Sachs has posted a quarterly loss. The result was a lot worse than expected: Goldman lost $428 million, or 84 cents a share; the market was anticipating something in the ballpark of just 11 cents a share.

The main culprit looks to be Goldman’s lower trading revenue, which at $4.06 billion was down 13 percent from a year ago. Though it was up 16 percent from the second quarter, that’s more a reflection of how poor Goldman’s second quarter trading results were than it is a silver lining on the present situation. Earlier this year, Goldman got uncharacteristically cautious (overly so, many would argue) and cut back on its risk. This is in stark contrast to the brassy, damn-the-torpedoes Goldman Sachs that we’ve come to know. Back in 2009 and 2010, Goldman cranked up its risk-taking and made huge profits, this at a time when most banks were still muddling along, shell-shocked in the aftermath of the financial crisis. Over the last few years, Goldman was Wall Street’s unquestioned alpha male.

So how come it suddenly looks like the cautious, careful one? The answer is that Goldman seems to have lost its trading mojo. Trading used to be Goldman’s bailiwick, the thing it did better and more aggressively than any other bank. Now Goldman looks pretty average. Last month it shut down its Global Alpha Fund. Once the firm’s biggest quantitative hedge fund, Alpha had lost 12 percent through August. Not only has Goldman gotten risk-averse, it has just lost its spot as the top trading firm on the New York Stock Exchange’s program-trading list.

But maybe this is an example of Goldman again having more foresight than the rest, and hunkering down in the face of the looming Volcker Rule — that piece of the Dodd-Frank bill that banks like Goldman fear because of how it tries to limit their trading activity. Following months of lobbying that tried to defang it, the Volcker Rule appears to have emerged relatively intact in the form of a 298-page document released by the FDIC last week.

Raj Thamotheram

Thanks for this blog but I'm not so convinced by either of your core arguments.

Extrapolating from one or even a few quarters about a company as powerful as Goldman Sachs seems a mite premature! This is especially so given the power of the most powerful transnationals:

Moreoever, just as the disappearance of one of the Big 5 accounting firms had little systemic impact on the remaining 4 (in terms of management of conflicts of interests, auditor rotation, etc) so the replacement of one "too big to fail" bank with another is also likely to mean more of the same.

Also whilst I agree the Volcker rule is good in theory, it’s the practice that really counts, and this is far from reassuring. Regulators seem to be continuing to allow banks all sorts of clever ways to circumvent the Rule (letter and spirit) and continue with very risky trading activities. There's no clear warning of very serious personal or organisational consequences if things go belly up again:


Joe Dokes

Considering that Goldmen appears to have actively participated in encouraging Greece to commit fraud in joining the EU's common currency, the fact that they are still in business speaks volumes about our current regulatory environment.


Joe Dokes


Call me cynical, but what better way for Goldman to get the public heat off its back in these troubling, Occupied times than by being one of the few major financial institutions that did not have solid earnings this quarter? Let the likes of Citi and JPMorgan wither under the public's contempt for some months and then return to gather up the pieces... Surely, this is the smart thing to do?


"goldman was wall streets unquestioned alpha male"- heh- alpha males dont need bailout $

Gary L.

By all indications, Goldman didn't need bailout money. They were told they were taking bailout money by the Secretary of the Treasury, and that they couldn't refuse the money.


The point isn't whether or not Goldman made money trading...its the fact that "too big too fail" companies shouldn't be allowed to trade for their own accounts due do the fact that such trading creates unneccesary risks to the economy at large without providing any benefits to society.

Either be in every other financial business but don't trade for your own account, or trade for your own accounts but stay out of everything else. But no entity should be allowed to do both at the same time.

Joshua Northey

If Goldman Sachs disappeared today it would only mean good things for the global economy.

It is just the worlds most successful rent-seeker inserting itself into transactions needlessly.

The added value part of the financial sector (capital allocation) is maybe 10% of its total activity. The rest is just very smart people finding any way they can to suck money out of the real economy.