Goldman's memo on how to cash in on eurozone woe


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The Independent Online

Goldman Sachs showered its hedge fund clients with ideas on how to profit from financial chaos in the eurozone, as markets gyrated wildly last month.

The giant investment bank provided ideas for complicated derivatives trades that would pay off if confidence ebbed in the soundness of the European banking system, and a top trading strategist told clients he believed the banks would need $1tn of extra capital to weather the crisis.

Details of a 54-page strategy note originating from Goldman's trading desk and sent to favoured clients surfaced in a US newspaper yesterday, laying bare the bleak economic and financial outlook of at least one senior strategist inside the firm – not just for the eurozone but for the US, China and the rest of the global economy, too.

The alarming outlook was penned by Alan Brazil, a veteran strategist who sits on the Goldman trading desk, in a separate division to that which produces the bank's more formal and more widely disseminated economic and research.

"Here we go again," Mr Brazil says in the report, amid pages of charts displaying negative statistics similar to those that portended problems before the 2007-09 financial panic. "Solving a debt problem with more debt has not solved the underlying problem. In the US, Treasury debt growth financed the US consumer but has not had enough of an impact on job growth. Can the US continue to depreciate the world's base currency?"

Mr Brazil penned his note on 16 August, amid the big vacillations on financial markets that followed the loss of the US government's AAA credit rating and the European Central Bank's attempt to stabilise markets.

The report, released by the Hedge Fund Strategies group in Goldman's securities division, is written in the plain language of the trading desk.