No One Knows How Goldman Sachs Makes Money

PBS economist Paul Solman answers viewer mail:

Fact is, no one knows for sure where Goldman’s profits come from. So here’s the request: If YOU know how Goldman has been making its money – taking advantage of credulous clients, say, or front-running the big ones (see below) – please write and let us know…. [H]ere’s the larger picture as we currently understand it, put piquantly by a Republican friend who used to work at the Treasury. “Goldman Sachs is a hedge fund,” he says, “masquerading as a bank.” It works like this. Because the Fed is holding the overnight funds rate so low, AND because Goldman is deemed TBTF (too big to fail), Goldman can borrow short-term at very low cost and very low risk. It can then take the borrowed money and invest it at much greater risk, for which it earns commensurately greater, hedge fund-like returns.

via The Business Desk with Paul Solman | Online NewsHour | PBS.



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