During the double zero heyday, some hedge fund managers secretly wanted “rich list” compilers such as myself to tout their astounding take home pay. However, many a humble bank trader would protest any such estimations with the vehemence of George Brett being denied a home run on an excessive pine tar rule violation circa 1983.

I recall with some degree of clarity a Bear Stearns mortgage trader explaining to me in 2005 that if I published his estimated earnings his clients would be upset and wonder what in the name of Cayne he was pulling at their expense, if not a fast one.

No bank busted my chops over this issue more vigorously than Goldman Sachs. When I dared to estimate compensation levels for its highest paid traders the bank’s media spokespeople, lawyers, top executives and outside forces (the chilling midnight call from Howard Rubenstein) leaned on me, hard.

Despite all this intimidation and blowback, I knew and understood exactly where they were coming from. Or thought I did. (Ah but I was so much older then, I’m younger than that now.)

Recently, Goldman told federal inquisitors that it doesn’t break out its derivatives trading revenue and thus can’t tell them how much it made from creating and transacting the mortgage-linked instruments such as the ones that many have blamed for the financial crisis. “We don’t have a derivatives business,” Goldman’s CFO David Viniar said earlier this summer. “It’s integrated in the rest of our business.”

On Thursday, reports surfaced suggesting that Goldman might carve off its Principal Strategies business—its notoriously profitable proprietary trading arm—into a fund to be buttressed with outside capital, according to Bloomberg, citing a person with direct knowledge of the plan.

This is the pure prop group that Goldman CEO Lloyd Blankfein has long insisted accounts for, at best, a mere 10 percent of revenues.

Some critics of the firm have scoffed at the idea that Goldman only makes a relative smidgen from trading its own book, but Blankfein would know, so we’ll take him at his word. Of course, Goldman could simply break out what principal strategies kicks in, line iteming it in the firm’s quarterly earnings releases. But they don’t.

Drill down into the segmentation disclosed in GS public filings and there’s a Trading and Principal Investments bucket, which is not to be confused with principal strategies, the division said to be earmarked for spin off.

Drill down further into the Trading and Principal Investments bucket, and there’s the Fixed Income, Commodities and Currency (FICC) bucket. But as far as getting to the heart of all that monumental moneymaking, that’s where the public’s ability to delve deeply ends and the dense ambiguity begins.

For the three months ending June 30, 2010, Goldman produced $8.8 billion in net revenues. Around three-fourths, or $6.6 billion, of that $8.8 billion came from Trading and Principal Investments. Of that $6.6 billion, $4.4 billion was produced by the FICC bucket.

Half of Goldman’s revenues come from FICC, which, from a curious public’s standpoint, could just as well stand for “Forget It, Confidentially Cordoned.”

Veteran analysts who cover Goldman have told me that they can’t get the bank to break out CDS from CDO from pure prop; it’s all lumped into TPI and FICC, which, ironically, is an anagram for FCIC, also known as the Financial Crisis Inquiry Commission.

Spinning off its principal strategies group is genius in that it will appear as if Goldman is heeding the so-called Volcker rule banning hedge-fund style trading.

If Goldman really wanted to act in good faith it would tell the FCIC a little more about the activities within FICC, as opposed to engaging in masterful syntax and clever obfuscation.

I’ll set an example: I’ve made most of my income this year, around $30,000 through June 30, writing blogs and articles for Reuters HedgeWorld, the Buffalo News, Institutional Investor and ABCNews.com. I could tell you more about what I make, breaking it out per article, per day, down to the penny, if you care to know, and I don’t even trade publicly (but if I did, I would be on Pink Sheets under the symbol GDFLY.PK).

If Goldman wants to rake money in hand over fist that’s awesome, and there’s no necessary reason to mockingly label them a vampire squid. But they shouldn’t be able to get away with telling the federal government they don’t know how much they made from derivatives. Just seems arrogant.

If prop trading is only a small piece of how they make their money, well, where does the rest come from?

FICC?

WTFIFICC?

This entry was posted on Thursday, August 5th, 2010 at 12:20 pm and is filed under The Offering. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.