Goldman Loves a Good Crisis

Programming note: This will probably be the last Money Stuff for a few months, because I expect to be going on parental leave soon. There may be a few special editions of Money Stuff during my leave, and you can follow me on Twitter (@matt_levine), but for the most part I expect to be busy elsewhere. Thanks as always for reading; I will genuinely miss you all, and I look forward to returning later this year.

When there is a big economic and financial crisis, like the one precipitated by Covid-19, an investment bank’s trading division will probably either make a lot of money or lose a lot of money. Financial asset prices are moving around a lot, and you’re either going to be on the right side of those moves, or the wrong side. As we have discussed before, it is more likely that you will be on the right side: The banks’ trading divisions are mostly in the business of providing liquidity to clients, not holding a bunch of assets; what happens in a crisis is not only that asset prices go down (though, in the case of Covid, also rapidly up again) but also that the price of liquidity goes up, and if you are selling liquidity you make a lot of money. But the banks are exposed to asset prices too, one way or the other, and if they’re on the wrong side of the assets they can lose a lot of money.