Taibbi: Is Goldman Screwing Taxpayers in TARP Negotiations?

[seafan]

Matt Taibbi takes note of a rare occasion that the MSM starts to sniff around the Goldman shenanigans.



Allan Sloan at CNN Money wrote yesterday:

I've always thought that the guys running Goldman Sachs were really smart, not only about making money, but also about projecting a classy image to the world outside of Wall Street. Clearly, I overestimated them.

If there was ever a firm with the motivation -- and the money -- to be gracious to the U.S. taxpayers who kept it alive when the financial markets were imploding, it's Goldman. It had a chance to look good and do good for taxpayers and itself and Wall Street for a relative pittance -- and has blown it. Horribly.

As you have probably noticed, Goldman is getting attacked for posting record profits and setting aside a record amount for employee compensation about three seconds after it repaid its $10 billion of loans from the Troubled Asset Relief Program. Repaying those loans freed Goldman from pay restrictions on its top honchos, who seem headed for record or near-record bonuses unless things go badly for the firm in the second half of the year.

What you probably don't know is that Goldman, flush with cash and profits, is squabbling with the Treasury about how much it should pay taxpayers to buy back the stock purchase warrants it gave the government as part of the TARP deal. Talk about tacky.

.....

Taibbi pulls out a choice quote:

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.

via Goldman Sachs pulls a dumb move by squabbling over TARP - Jul. 17, 2009.

So as part of the TARP deal the government holds some very valuable stock purchase warrants that Goldman eventually has to buy back from the state in order to be fully free and clear of its obligations (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). Sloan here is guessing that Goldman is underbidding to buy back those warrants by $500 million or more; neither he nor anyone else has any real evidence on this score, but rumors that the banks have been taking a hard line in these negotiations have been circulating for weeks.

Another part of this article details yet another hidden subsidy to Goldman in the past year — the state’s rapid intercession to give Goldman access to liquidity that prevented a run on the bank:

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.

The press is starting to pile on now, and Goldman is taking it from all sides, which is sort of interesting. Let’s see how long it lasts.

Funny, how the Bush Administration's actions during the Financial Katrina were superbly coordinated and carried out with all the precision of a finely oiled machine. Priorities, you know.




Sloan concludes:

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.

Keep up the pressure, people.




(bold type added)

[crickets]

1. Matt Taibbi is doing a great job covering this

and explaining it so that it makes sense. It's infuriating, but it makes sense.