Goldman needs to retire its FDIC-backed debt

July 17, 2009

If Goldman Sachs wants to go back to the future and keep setting aside record sums of money for compensation and year-end bonuses, it should first retire all of its oustanding FDIC-backed debt.

The big investment firm has issued some $22 billion in longer-term debt under the Federal Deposit Insurance Corp.’s Temporary Liquidity Guarantee Program. Goldman sold most of those notes during the height of the financial crisis, when the bank desperately needed to raise capital like most other financial institutions.

But something seems wrong with Goldman setting aside $11.4 billion for compensation, benefits and bonuses in the first-half of the year when it’s still benefiting from all that government-guranteed debt it sold.

I’m hearing Goldman is tiring of getting beaten-up in the financial press and becoming the poster child for the return of Wall Street excess. All the name calling apparently is starting to hurt Lloyd Blankfein’s feelings.

Well if that’s the case, there’s an easy way for Lloyd to start quieting the angry masses and that’s by moving to retire some of the FDIC-backed debt early. Instead of setting aside money for near-record compensation, use that money to start paying down the FDIC debt ahead of its stated maturation date.

Sure there may be some penalty involved in doing this and it might require some negotation with debt holders. But it would provide Goldman with an answer the critics who say it’s only thriving by living off the government’s largess.

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[...] Goldman should give up its government support or part of its profits.  (Barron’s, Matthew Goldstein) [...]

You’re right, Matthew, there is something wrong here. The US Government should not allow healthy firms to participate economic stabilization programs. This is the price for making bailouts promiscuously and taint-free.

Then again, I wasn’t in favor of any of the bailouts, preferring RTC 2-type solutions. We need more stick and less carrot.