pay no attention to the banker behind the curtain

i have to give goldman sachs credit. everytime i think they are completely cornered and have no where else to go other than into the dustbin of history, they manage to pull off another trick. i still believe you can't fool all the people all the time (this is not an endorsement of david einhorn).

but this time i gotta give the wizards at goldman extra credit because this one is obvious and yet no one seems to notice. that's the best kind of trick. goldman announced earnings yesterday which surpassed guidance and by most accounts was a blow out quarter.

but check this out - they reported net income of $1.66 billion from january - march. however, they changed their fiscal year. their year end used to be november but they switched to january. the net effect was they reported their quarter for the last three months and separately reported december as an "orphaned" month. and guess how they did in december? they lost $0.8 billion. so it seems goldman took all its losses and crammed it into the orphaned month which won't show up on any specific quarter.

bravo goldman! i don't think you can use that trick again, so i wonder what you will do for an encore.

how can banks possibly be doing well? banks traditionally make money from the following sources: investment banking advisory work (this business is basically dead except perhaps restructuring), loaning money (they likely made money on this since they can borrow from the government for almost nothing and lend out at higher rates - but that's what caused this whole mess to begin with - so i doubt they are doing much lending), trading (with major hedge funds blowing up and the rest all hating on goldman sachs this cannot be doing well) and wealth management services (this has to be going terribly). so besides some chicanery, how is goldman making its numbers?

lastly, i want to point out that the real problem at Goldman and Citi and all the other banks is the toxic assets which are not marked correctly. with the suspension of mark to market accounting we are likely to create zombie banks that never make money as they slowly trickle out the losses on their balance sheet. think of it like this - if you have a loan portfolio that you've said is worth $100 billion but if you went to sell it, would only fetch $80 billion, then what does $1 billion or $2 billion in profit really do for you? you're still $20 billion in the hole. so when citi reports earnings for the quarter, how does it matter when their assets are massively mismarked? it reminds me of my friend who reported winning $3,000 in blackjack. so i said, "congrats, drinks on you tonight!". he responded, "no way, i lost $10,000 on blackjack this morning". i don't see how you can call any of these banks profitable.