Goldman’s just a piece of the puzzle

Goldman Sachs in recent days has been in most people’s minds for three reasons: it pre-announced its earnings (a huge one at $1.8bn) a day before it was scheduled to, it raised $5bn in capital for $123/share, and it is becoming loud about its intentions to pay back the TARP money it received from the govenment.  Wait, there’s a number four: it has some $164bn extra funds and liquid assets to buy distressed securities and loans if it wanted to.

Given the stringencies of the strings attached to TARP, it is not incomprehensible why some banks would want to pay back the money as soon as possible.  Somehow, there’s something about Goldman Sach’s intention that makes it look questionable so much so the idea of not letting them pay back the money even if they can all of a sudden looks like a good idea.

John Gapper of the Financial Times writes today specifically on the issues.

Mr Blankfein’s argument is seductive: it is Goldman’s “duty” to pay back the $10bn in taxpayer money it took last autumn when its future – and that of the global financial system – looked dicey.

Once it has repaid the $10bn, Goldman hopes to go back to paying employees what it wants, buying and selling more or less what it fancies and operating as before.

resize_jamie_dimonImmediately after hearing about Goldman’s intentions, I thought of Jamie Dimon who comes as more cooperative in this matter.  When asked if JP Morgan is paying the TARP money soon, as far as I can remember, what he said was that the bank would try to cooperate with the government as much as possible, which I could only take to mean that while it is burdensome to be under government’s (and the public’s) supervision 24/7, there is sufficient level of understanding about the implications of forcing the taxpayers’ money back.  (Although, with all the buzz Goldman has created, who knows if Dimon might just have a change of heart?)  Goldman’s Blankfein did not seem to have this kind of stance.

Another thing that hit me was the remark Blankfein made in a speech last week about compensation being greedy and self-serving, only to find out there’s an allocated $4.7bn, or 50% of Q1 revenue, waiting to be paid as bonuses. Sounds like hypocrisy to me.  Unless of course, there is admittance that when he made the remark on compensation, he meant to include themselves without really feeling of regret nor intentions of changing.

Considering the many former Goldman Sachs employees turned into Treasury servicemen, it becomes a big question, therefore, if Geithner would allow Blankfein to push through with their plans. Gapper writes,

It would exacerbate suspicions that Goldman, with its long history of producing Treasury secretaries, gets special treatment.

I am torn on the issue.  While I do want the money to be paid back, I am not sure about what its after-effects will be on the market (let alone what it would allow Goldman Sachs to do) yet  forcing banks to swallow food that’s been shoved into their mouths while being under the control of the not-so-effective-regulating government is similarly a taboo.

Either way, there just has not been an acceptable form of financial reform created good enough to let Goldman pay while also preventing them from going back to old way, in the same manner that there is no acceptable and effective government regulation that’s good enough to make banks feel comfortable to stay a TARP recipient, only ridiculous ones born out of whim. True there are pros and cons to being in or out of the TARP so soon, but I suppose regardless of where you stand, the cons of each are stepping on the pros.

Prior to this debacle, there was not much of a talk/discussion going on about the MBS, CDS, credit rating agencies, et al, I suppose just because everyone was enjoying the ride of the wave.  Yet now, day after day, what’s there is an overabundance of talks to the point that what’s happening are mere bickerings.  The fact that the crisis is one that’s unique makes it more difficult to pull the boxers away for a second from incessant punches on the face.  With that, no solution is being reached and quite sadly so.  True, there have been changes recently.  Maybe credit markets are getting better, numbers are flattening out instead of declining, housing sales and refinancing increasing.  They might be good, but they’re not directly going to the heart of the problem.

If it was the investment banks that played a major role in this financial crisis, where are the reforms to require more capital? Who is saying that, apart from compensation that’s hardly a cause, risk-taking needs to be matched by some sort of minimizer so banks don’t just go back to their old ways? Where are the necessary legislations that expand the body of firms performing credit rating analysis after the three biggies have failed to do their job well?

Discussion is without a doubt healthy, but the combination of its overabundance and the lack of new resolutions is not.  There are too many mouths talking, and very few (slow) Congress acting.  Everyone is busy with… I don’t know what. Amidst all the debate about this and that, yada yada yada, financial and governmental reforms are just happening too slowly people end up spending so much more time on the smaller things. Among many others, Goldman’s just one piece of the puzzle.


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