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It appears that even after thoroughly dominating the US legislative, judicial and executive branches, the long tentacles of the squid have been no better than the Mongolian hordes at overcoming the Chinese Wall (which is ironic seeking how easy it is to ignore the same construct internally between the firm's prop and flow traders...and yes, we will be posting our response to Goldman shortly, we have not forgotten). In the meantime, half a world away, a small Chinese power generator, Shenzhen Nanshan Power, is blatantly refusing to honor contracts with Goldman Subsidiary J. Aron for $80 million in derivative losses, and it appears that China itself has decided to stand behind the small company.
Shenzhen Nanshan Power (000037.SZ) (200037.SZ) said in a statement that it received several notices from J. Aron & Company, a trading subsidiary of Goldman Sachs (GS.N), for at least $79.96 million as compensation for terminating oil option contracts. "We will not accept the demand by J. Aron for all the losses and related interests," said Nanshan, in line with the stance it took last December. "We will try our best to negotiate with J. Aron and resolve the dispute peacefully...but the possibility of using a lawsuit can not be ruled out when talks fail," it added. "J. Aron told us in one notice that if we do not pay the money, they will reserve the right to launch a lawsuit and will not send us any further notice." The State Assets Supervision and Administration Commission said in September that it would back state-owned companies in any legal action against the foreign banks that sold them oil derivatives, which resulted in losses when oil prices dived late last year. [ID:nPEK14474] A Beijing-based Goldman Sachs corporate communication official declined to comment.
"Why are they in the derivatives market if they know it is wrong ?"
Originally posted by GreenBicMan
Also we have to remember DERIVATIVES ARE HIGHLY LEVERED in most cases. So when we are throwing these numbers around you have to realize its mostly a facade.
For instance I can control $100,000 with $2000 (give or take) on the OTC FOREX Market. Does it mean I am liable for all $100,000? Hell no, just the $2000 margin + hypothetical additional losses.
Banks Bundled Bad Debt, Bet Against It and Won
Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc., an investment company whose parent firm was overseen by Lewis A. Sachs, who this year became a special counselor to Treasury Secretary Timothy F. Geithner.