Wednesday, March 25, 2009

Giving It Back

An article in the Business Day section of Tuesday’s issue of The New York Times discusses the plan in the works for Goldman-Sachs to repay the TARP funds they received in the fall.

There are a number of issues going on here.

1) It’s probably a good sign for the economy that someone can start repaying the money they got.

Very soon, actually — ideally within the next month, according to people involved in the process. That’s a much quicker timetable than the end-of-year goal previously set out …

2) Goldman-Sachs has gotten some bad press the last month because they were one of the largest recipients of money from AIG. So there’s money that went straight from the Treasury through AIG to Goldman-Sachs.

Criticism of Goldman over revelations that the firm had been the largest recipient of government money as a counterparty of bets placed with A.I.G. …

3) Goldman-Sachs has also gotten some bad press because Bush’s last Treasury secretary – Hank Paulson – was the CEO of Goldman-Sachs before taking that position.

Goldman would also like to put an end to the whisper campaigns about ties between it and Mr. Paulson (and Timothy F. Geithner, too, for that matter).

4) If you recall back in the fall, Paulson and the Treasury made a group of large banks all take money – whether they needed it or not – so as not to reveal who was in trouble. Apparently, Goldman-Sachs wasn’t.

But here’s the asterisk, and it’s a big one. If Goldman succeeds in returning our money, it could put pressure on other banks to give their money back, too, lest they appear weak.

This, you’ll recall, was the logic used by the former Treasury secretary, Henry M. Paulson, last October when he strong-armed some of the chief executives of the nine largest banks to participate in the Treasury plan to inject $165 billion of capital into the banking system, even though some felt they didn’t need it.

The problem now is that many of them may still need the money. And yet they may try to follow Goldman’s lead. …

Richard M. Kovacevich, chairman of Wells Fargo, expressed outrage at the TARP money he accepted and the strings that might be attached to it after the bonus bill passed last week.

“Is this America, when you can do what your government asks you to do and then retroactively you also have additional conditions put on?”

5) Goldman-Sachs is also making very clear that they are doing this because they want to be able to pay bonuses to people who deserve them without government interference.

“It’s just impossible to run our business in this environment,” said one senior Goldman executive who insisted on not being quoted by name for fear of crossing the Treasury …

The firm’s famously well-paid executives — Mr. Blankfein made $60 million in 2007 (some of which was in stock, which has since fallen in value) — would be taxed at 90 percent of their bonuses if a bill passed by the House last week were to become law.

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