GS will be the most spectacular Wall St failure in history

Dec.04, 2008 in Market Outlook

When GS hit $250, I called them the best short on the market and posted their tremendous L3 losses to prove it. At the time, they were claiming no writedowns on their $73B in crumbling, illiquid L3 asset backed paper.

It’s time, again, to do a little math.

http://www.markit.com/information/products/…

Let’s use ONLY the AAA paper average loss, and apply it ONLY to their L3 illiquid assets, ignoring that GS effectively declared bankruptcy due to the failure of their core business.

The average AAA loss is 52%. That is annual loss of $38B, on L3 alone, using the most conservative of assumptions. GS has been keeping those losses hidden, off books, in the first 3 Qtrs of 2008, electing to declare a (laughable) profit of $9.62/share. This, even as they admitted they could no longer function without TARP funds and FDIC insurance to cover their colossal actual losses on $1.2T liabilities.

So…

($38B) over 395M shares is TRUE annual loss of $96 per share, add the $10 they claimed as a gain, and you’ve got a $106 per share loss in the fourth QTR alone, assuming real estate remains stable through end 2008 (doubt it).

Will they declare it?

Of course not. But that won’t make it go away, either. The less they admit to now, the larger the catastrophe later. GS management rolled the dice that the real estate market would soar back in 2008, and they lost H-U-G-E. The time is rapidly approaching for (what little is left of) the most spectacular Wall St failure in history.

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