How does Goldman Sachs make money?
There is an increasing divide between the haves and have nots. However, as the rich get richer, it’s important to try and understand how Wall Street makes its money. Where does the money that generates the huge profits for Goldman Sachs come from?
Before the outbreak of the 2008 crisis, Lloyd Blankfein, CEO of Goldman Sachs, was awarded $75 million in bonds. The average income of a United States family in the same period was $ 52,670, or 0.07% of what Blankfein earned. These gigantic profits from Goldman Sachs are the most real symbol of all that is wrong with the financial system, and the vast majority of the world does not know how Goldman’s enormous machinery works to suck people’s money.
Goldman Sachs describes its business under 4 large segments that are its 4 “I’s”.
1) Investment Banking
The activities of traditional investment banking include such things as advice on mergers and acquisitions, underwriting of public offers/private placements, and risk management for companies among other things. It generates a commission for these activities.
2) Institutional Client Services
This segment deals with market creation activities in the stock, bond, commodities and foreign exchange markets. Here, Goldman Sachs invents the market by creating products with false expectations. Goldman Sachs bets on everything. Goldman Sachs imposes market prices and its speculations with gold and oil are known. Goldman Sachs invents a price for today, and another for tomorrow, and this generates huge dividends. We wont go into the details and mechanics of this but you can read up on a bit more here.
3) Investment and Loans
Goldman Sachs also invests in existing loans (such as corporate bonds, or government bonds), which provide a basic return to finance important customers. These loans are long term and safe; In addition to the bonds, Goldman Sachs also holds a portion of equity and real estate investments.
4) Investment Management
This is another area where Goldman Sachs moves a lot of money. Throughout its 144-year history (founded in 1869 by German immigrant Marcus Goldman and his son-in-law Samuel Sachs), Goldman has managed to attract the richest customers. The heart of Goldman Sach’s services is its portfolio management and financial advice. Management caters to wealthy individuals, as well as institutional clients and corporations.
Doing the work of God
It is quite interesting that most people associate Goldman Sachs as a traditional investment bank, but their annual reports point out that investment banking only generates 15 percent of net income. Most of Goldman Sachs’ revenues (almost 70%) do not come from investment banking or traditional investment management activities, but rather from own-account operations in the stock, bond, commodity, premiums and foreign exchange and credit. In short, Goldman Sachs generates a huge flow of money speculating with commodities, raising or lowering the price of gold, oil, shares of companies, sovereign bonds, foreign exchange, commodities, etc.