Goldman Sachs - still scum
Matt Taibbi asks: Is Goldman screwing taxpayers on TARP negotiations?
Can you guess what the answer is? I knew you could!
Taibbi discusses an article by Allan Sloan in Fortune Magazineabout the negotiations between GS and Treasury. As part of the TARP deal, We The People acquired stock warrants which Goldman has to buy back before they are fully clear of TARP. The negotiations mentioned are over the price Goldman will pay for those warrants. Don't you think the taxpayers should get a good price for those, seeing as how we saved Goldman's ass and enabled those huge profits they posted last quarter? Here's Sloan:
Had Goldman retained something it was once reputed to have -- a sense of short-term sacrifice in return for long-term profit -- it would have agreed to pay the government generously for the warrants. It could have announced that on Tuesday, along with its profits, and looked like a decent, concerned corporate citizen instead of Greedhead Central.
The warrants are very valuable, especially with the recent sharp run-up in Goldman's stock price. The warrants carry the right (but not the obligation) to buy 12.2 million Goldman (GS, Fortune 500) shares at $122.90 each. Goldman's closing price of $156.84 yesterday put the warrants "in the money" by a bit over $400 million. (That's the $33.94 difference between $156.84 and $122.90, multiplied by 12.2 million.)
Given that the warrants still have more than nine years to run, they're clearly worth more than $400 million, because its owner has years of upside. However, because there's no existing market for such long Goldman warrants, their value is in the eye of the beholder (and the pricing modeler).
Alas, no one would tell me what the government is asking for the warrants or what Goldman is offering for them. "We are in discussions with the Treasury on the buyback of the warrant," said Goldman spokesman Lucas VanPraag. "The purchase price has yet to be determined.... We believe that taxpayers should get a decent return, and we hope that our discussions with the Treasury will do just that." The Treasury declined comment.
My estimate -- okay, my SWAG (for scientific wild-assed guess) -- is that the Treasury is asking for $1 billion to $1.5 billion and Goldman is offering $500 million or so.
Under the law, Goldman, like other early TARP repayers, has the right to force the Treasury to sell back the warrants after a lengthy set of price arbitrations.
When I say that taxpayers kept Goldman alive, I'm not talking about the $10 billion of TARP money or the $12.9 billion of AIG (AIG, Fortune 500) bailout money that Goldman got. The $10 billion was nice, but not necessarily essential to Goldman's survival, and Goldman says it was holding enough assets and collateral to get all or almost all of the $12.9 billion had the government not bailed out AIG.
Rather, I'm talking about the way that U.S. and foreign governments -- in other words, taxpayers -- saved the world's financial system, saving Goldman in the process. Had many of the world's biggest institutions collapsed, which would have happened without taxpayer aid, Goldman would have been wiped out because the firms that owed it money wouldn't have been able to meet their obligations.
I'm also talking about the Federal Reserve Board moving with lightning speed last fall to allow Goldman to become a bank holding company. By giving Goldman access to vast amounts of money it was making available to bank companies, the Fed ended panicky demands from Goldman customers that the firm immediately return the cash and securities it was holding for them. That was the equivalent of a run on the bank, which no institution can survive. Stopping it saved Goldman.
Now this is how Goldman shows its gratitude. It could have shelled out a few extra bucks and done the right thing for taxpayers (and ultimately for itself) by exercising good business judgment and looking generous. Instead, it's behaving in a way that brings to mind one of my favorite Biblical verses, Deuteronomy 32:15: "So Jeshurun waxed fat and kicked...and spurned the Rock of his salvation." In these ultra-political days, filled with economic pain for so many Americans, that's not only the wrong way to act, it's foolish. A word I never thought I'd associate with Goldman.
Let's support the PROFIT act, which is designed to address exactly this issue. It's too late to affect the GS negotiations, but we can send a message as well as making sure that in the future the taxpayers get something for our massive investment.
I cannot leave without noting Matt's wonderful parenthetical:
(in fact technically its payment of exorbitant bonuses before this matter is settled is illegal — or could be, if the state chose to interpret the TARP that way)
Well, can't we do that? Yes, we can!