Tuesday, July 16, 2013

Squid unbound

From the Goldman Sachs quarterly earnings statement --

As of June 30, 2013, total capital was $240.08 billion, consisting of $78.04 billion in total shareholders’ equity (common shareholders’ equity of $70.84 billion and preferred stock of $7.20 billion) and $162.04 billion in unsecured long-term borrowings.

It's quite a trick that banks can do, getting to count borrowed money as "capital" -- 2/3 of its total capital, in the case of the Vampire Squid. Presumably the wheeze is that since the money is unsecured and long-term, Goldman Sachs can use it to absorb losses.

But of course, when you're too big to fail and too connected to fail and you've got a hotline to the central bank, borrowing unsecured and long-term so that the regulators can check off the "well capitalized" box is probably pretty easy.

Nice work if you can get it.