Commentaries

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Goldman needs to retire its FDIC-backed debt

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.

Piech firmly behind the wheel at VW and Porsche

However the Volkswagen-Porsche stand-off resolves itself, it looks as if Ferdinand Piech holds all the cards. That should worry VW <VOWG.DE> investors.

Just look at how things stand. VW’s chairman has an iron grip on the carmaker’s board, having struck an alliance with the unions who control half the seats on it. Meanwhile, he and some of his relatives also have a blocking stake at Porsche <PSHG_p.DE>.

The debt nightmare is still with us

Pouring trillions of dollars into the global financial system has done more than pull the world away from the abyss.

It has convinced many to look again to well-worn signposts like major stock exchanges, currencies and sovereign debt to gauge where things are headed, rather than keeping their eye on credit markets to figure out where and when it will end. Take the attention being given today’s stock market rally.

The government owns the MBS market

OK, it’s not a majority owner, but the government has an impressive stake in the $4.5 trillion agency mortgage-backed securities market.  Barclays Capital’s last count, as of July 3, puts Federal Reserve purchases at $621.6 billion since it launched the program in January.  Separately, the Treasury Department has picked up more than $145 billion since the government put Fannie Mae and Freddie Mac in receivership in September. The Treasury data is through the end of May.

The Federal Reserve has pledged to buy up to $1.25 trillion of mortgage bonds guaranteed by Fannie and Freddie and $200 billion of agency debt by year end.

The negative feedback loop

Another month, another dismal jobs report from the U.S. Labor Department. It’s hard not to gulp when you see another 467K jobs lost this month. And an unemployment rate of 9.5% isn’t exactly heartwarming.

The jobs report certainly has its detractors who say it’s not the best indicator to watch when you’re looking for signs of recovery since it lags turning points in the economy. But given the role of the U.S. consumer, who has driven the economy out of previous recessions, the rapid fire deterioration in the labor market is likely to create a negative feedback loop.

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