True. But if Goldman Sachs had come up with the capital from some other source, meeting th regulator’s standard, would it have had to take money from the feds?
And that article contains this statement:
That statement sounds to me like they had the option to opt out, but he was recommending against it.
I didn’t address it as the quote seemed like a throw away comment in the reuter’s article. I tried to find additional information but was unable to do so. I’ve since gone back and searched and found the following three applicable links.
Order Approving Formation of Goldman Sachs as Bank Holding Company
Federal Reserve Board Press Release
As I have learned, the Bank Holding Act requires a notice period (normally 30 days). There is also a provision that provides for expeditious approval if an emergency exists. See Section 3 (b)(1) of the Bank Holding Company Act.
Per the Order Approving the Formation of Goldman Sachs as a Bank Holding Company, the board found that emergency conditions did exist due to the unusual and exigent circumstances affecting the financial markets.
Following all of that, there was a five day statutory waiting period, and the Goldman Sachs approval did wait that period of time.
What we don’t know is whether Goldman was pressured by the Treasury to become a bank holding company or whether they pushed for it. I think it’s obvious that there were some liquidity benefits to becoming a bank holding company that Goldman Sachs wanted despite the drawbacks in additional regulation. I still would not categorize this as any sort of bailout as there was no way that Goldman would have not received approval. Further, they already owned two banks (one foreign and one domestic), and the Fed window was already available to them.
They already met the regulator’s standard of being a bank, which is why they received approval to become a bank holding company. There are certain capital ratios that banks must meet. Goldman Sachs’s ratios were considered “well-capitalized”. Also, they did raise capital from other sources recently; they raised $5 billion from a stock offering and another $5 billion from Warren Buffett in September 2008 Cite
Read the next statement below the one you quoted.
That statement makes it clear that it is not an option. If they rejected, the regulators would force it anyways.
Solvent isn’t the right word to use. All of the TARP banks were either solvent or too big to fail. The Treasury didn’t provide funds to insolvent banks; those were/are allowed to fail.
So you think that anyone that indirectly benefited from TARP or the stimulus package was bailed out. I think you’re definition is so broad that it is useless. Also, I have no idea what you mean by “primary beneficiaries of the buyouts of insolvent properties.” What are the “Insolvent properties?”
Of note, prior to the TARP infusion, Goldman’s tier 1 risk based capital ratio was 11.6% while 4% is considered adequately capitalized and 6% is considered well capitalized.
The answer cited is a bit confusing. It is my understanding that GS has invested in a number of mortgage-backed securities and then went to AIG for insurance - CDS classic; i.e. small fee for essentially forking over those MBS-es from their balance sheet over to AIG. Now, once these MBS-es started defaulting (forget about collateral) AIG has to start paying out. As the default rates increase so does the payment. So, yes, I would agree that net position is small but notional amount insured is huge.
Now collateral… when pool of mortgages experiences unusual defaulting rates and on top of that significant decline in the housing market (i.e. you cannot sell the house or, even if you do you get 40 cents on dollar), then talking about collateral is BS.
So, yes, they did benefit from TARP program and AIG rescue.
My 2 cents…
Right, but those capital ratios were probably based on over-inflated values for many of their assets. If they were forced to deleverage (because they didn’t have access to the Fed window and/or their counterparties lost confidence in them), they would have been effectively insolvent, as would most large, leveraged institutions.
To address an earlier comment, Citi was probably insolvent, as was Wachovia, WaMu, and Merrill. They weren’t allowed to fail – they were either backed by the gov’t (Citi) or helped into a merger/acquisition, with government backing of chunks of their assets.
Anyway, GS greatly benefited from the AIG bailout and the bailout of the financial markets in general. Without the feds stepping in to stabilize it all, they would probably not have survived (JP Morgan, Wells, and maybe B of A probably would have). So, after everything looks like it’s settled down, they are now claiming that they didn’t need any of the help and getting back to massive bonuses, etc. – it just looks awful and pisses off the common folk. GS made their share of stupid mistakes (not as much as Bear, Lehman, Wachovia, etc.), but managed to maintain their trader call-option – socialize the losses, capitalize the gains. They should have the decency to shut the hell up this year and wait until next year to get back to handing out billions.
They were given $13 billion+ in welfare via AIG and still haven’t bought back their TARP warrant. They’ve issued over $50 billion in new debt backed by FDIC. As they’re now a bank holding company FDIC is their new AIG. And they owe unknown amounts of money to an alphabet soup of other Federal Reserve bailout creations like the TALF and Maiden Lane. We’re currently being told that tracking who this money went to is impossible too. They’re also making a fortune out of the TARP in that they’re one of the few people underwriting TARP lending by other banks. And they’re making tons of day-to-day risky bets because they’re all now guaranteed by the Fed. So not only were they bailed out from certain bankrupcy, they’re making billions in profit from the programs designed to bail the financial system out.
The collateral was marked down to account for the default rates and decline in value. Also, you’re leaving out the CDS on AIG itself (the hedging). Read the following: Link
Nice pointless post. Does this have anything at all to do with whether or not they were bailed out?
So you’re basically saying that their regulators are liars? You do realize that these assets have to be marked down in they’re impaired, right?
WaMu was allowed to fail. I’m sure it’s hard to keep up with the news of the biggest bank failure in history though, so it’s understandable that you would miss it. Wachovia was acquired by Wells without FDIC assistance. Again, it was sort of a big story.
Would you please read one of the several links I have posted that explains that they did not benefit from the AIG bailout? Either that or refute it with some facts.
Mark-to-mark accounting was suspended some time ago. None of the banks are telling the truth about the true value of their assets because they don’t legally have to anymore.
See page 6 of 7. Right to the point.
Let me help you out. Page 6.
Well, you’ve clearly not read any of the posts in this thread yet. There is so much wrong here it’s hard to know where to start.
You start, I’ll finish.
Are you trying to be wrong on purpose? Mark to market accounting was eased, not suspended. It occurred in April 2009. It’s effective for the most part beginning with the 6/30/09 reporting period. We’re talking about Goldman Sachs ratios from October 2008.
Sure. Here’s an easy one for you. Please explain how you are right when you say “still haven’t bought back their TARP warrant.”
It was “eased” to the extent banks no longer have to mark their assets to the market price. They can tweak a computer model to show any value they want for their assets and declare that the value.
This is an utter joke of an article. Explain this part.
They announced the conversion to a bank holding company on 9/21/08. The Capital Purchase Program wasn’t even “offered” until 10/13/08. Did Goldman Sachs have a time machine?