With the big investment banks done reporting this week, one thing has become clear, Goldman Sachs is in a class by itself. Unlike the other banks, Goldman anticipated the credit crunch and put hedging strategies in place that produced the third best quarterly profit in the company’s 138 year history. Amazing.

How did it do it? By seeing the trends and betting against the mortgage market. The company’s mortgage profits actually rose significantly while the company also doubled revenue from equity trading and generated record investment banking fees.

As the chart shows, Goldman suffered along with all of other i-banks during the credit crunch but its stock is bouncing back. Based on these earnings, Goldman should bounce even higher.

It's PE is a bit higher than it's peers:

Goldman 9.68

Bear Stearns: 8.78

Morgan Stanley: 7.28

But how can you bet against a company that seems to have its pulse on the financial market. Short term, the stock may vaccilate but long term I'd put my money with the guys (and girls) who clearly know how to make lots of it - in good and bad.

We often hear from our banks that money market funds are safe and that they rarely, if ever, go down. Well, these funds have been having problems and yesterday a major bank, SunTrust Financial announced it was injecting $1.4 billion into two fund to protect them from losing value.

Much of this loss comes from SIVs. SIVs (Structured Investment Vehicles) are off balance sheet transactions that banks use to boost investetment returns. An SIV transaction involves borrowing short-term money at a low interest rate and then using that money to buy longer-term securities at a higher rate. The f und pockets the difference.

Lately, SIVs have been running into trouble because as liquidity has declined in the market due to the credit crunch,the value of the longer-term securities has fallen. The credit crunch has also made it much more difficult for banks to refinance the short-term debt and as a result, many banks are forced to sell off their longer-term securities at lower prices. Money markets that have engaged in these transactions have suffered losses.

How do you know if your money market fund has invested in SIVs? I called Fidelity and Smith Barney to investigate and received different answers.

Fidelity told me that their money markets don't invest heavily in SIVs and they quoted a figure of 3.6% of the total. I wasn't sure if this was in aggregrate or referring to a specific money market. While the investment specialist tried to be helpful he wasn't very sure of what to say. He said that investors should ask their bank about specific funds.

I then called Smith Barney and was told that this is not a problem with regular money market funds, but only with enhanced money market funds. These are money markets which state they are going to invest in higher risk investments in return for the promise of higher returns. The only problem with this is that I investigated the SunTrust funds that ran into trouble - the STI Classic Institutional Cash Management Money Market Fund and the STI Classic Prime Quality Money Market Fund. Neither of the funds bill themselves as enhanced money markets. The Classic Institutional Cash Management Money Market Fund says the following on its website:

The Fund seeks to provide as high a level of current income as is consistent with the preservation of capital and liquidity by investing in high-quality money market instruments issued by corporations and the U.S. Government.

The Prime Quality Money Market Says:

The Fund seeks to provide as high a level of current income as is consistent with preservation of capital and liquidity by investing exclusively in high-quality money market instruments.

None of this sounds like it shoud be risky. None of it sounds like an enhanced money market.

I do think that if you have substantial money in a money market it warrants a call to your bank, broker, or investment professional. Ask them about SIVs and how much of the fund is invested in these vehicles. At the moment, the banks seem willing to make investors hold by using their own capital to offset losses. If credit conditions continue to deteriorate, who knows if they will continue to do it. A simple call will help you understand your risk and ensure that your safe money is indeed safe.

Bloomberg published an article today in which analysts and bank executives said the rates being paid by some banks was insanity (way too high). I say let's see higher rates. Savers are finally getting some measure of respect for their money.

"“You have a whole raft of smaller banks out there, some of which are in difficulty, who are paying rates that are bordering on insanity,” James Wells, chief executive officer of SunTrust Banks Inc., said in a conference call with investors Nov. 13."

The article goes on to say that:

"A key reason regulators pushed Wachovia to sell was that they were screwing up deposit costs up and down the Eastern Seaboard,” said Tony Plath, a finance professor at the University of North Carolina at Charlotte. “A lot of hot money was moving into Wachovia and other banks that weren’t matching Wachovia were getting clobbered.”

Now, I don't know about you, but I think that high rates are a good thing. One of the central premises of sites like BestCashCow is that bank competition is the only way for you to earn a fair return on your money. In the article, Ken Lewis, CEO of Bank of America describes peer bank Wells Fargo as a "rational pricer," code language for providing very low rates. Bank of America has never been know for their generous rates either. Bankers hate high deposit rates because they lower their profit. Of course Ken Lewis wants rates low. It makes his job easier and makes it easier to pay for all of the high rise buildings BofA operates in Charlotte, Boston, NY, and San Francisco. It makes it easier to pay for the Countrywide and Merrill Lynch acquisitions.

But our goal isn't to make it easier for bankers, it's to get the best return for our money so we can pay the rent, send our kids to college, and maybe retire. Consumers, people like you and me should also be working to maximize our return. But the secret a lot of banks don't want you to know is that you can get a much higher return without any additional risk just by doing a bit of research. Check out the savings, cd, and money market tables on BestCashCow or the deals on Bank Deals or the info on other financial sites. If your money is earning a significantly lower return, then you should change banks. Don't be fooled by the fancy marketing and branding campaigns. And because the banks covered on this site (and on most of the others) are FDIC insured, you can change banks without any risk. Your money is covered up to FDIC limits whether you are earning 1.2% at Bank of America or 4% at a smaller Internet bank.

So the choice is really yours. Do you want to put money into all of those banker's pockets? Or, would you rather do a bit of research and put the money into your own?