Goldman’s TARP out: give up ALL state aid

April 22, 2009

goldman-crop — Jonathan Ford is a Reuters columnist. The views expressed are his own —

Goldman Sachs wants to do its duty by the American people and give them their TARP money back. Some spoilsports have urged the government simply to say no because allowing the investment bank to repay the cash would make other banks look bad.

But this seems rather un-American. Why shouldn’t taxpayers get their money back if Goldman really doesn’t need it? The point to insist upon is that they get all of it back — and on commercial terms.

To be clear, that means not just the $10 billion of TARP-related preference shares the government subscribed for last autumn, but also the rest of the Federal assistance Goldman has received.

That includes the $29 billion of FDIC backed bonds that Goldman has issued at low coupons, without which — as Jon Unia observes in a snappy letter to the Financial Times on April 22 — it might have posted a first-quarter loss rather than a profit. Goldman has, as it points out, issued bonds without a guarantee since last autumn, so it’s not impossible. The full $29 billion would need to be refinanced on commercial terms. After all, either you’re a private sector player or you’re not.

Unia also observes that if Goldman wants to prepay the prefs, it should be charged by the taxpayer for the temporary loan of the Federal balance sheet. This, after all, is what a commercial lender like Goldman would do if the boot was on the other foot.

There is even a mechanism for it to happen. As part of any pref repayment, Goldman could be obliged to buy out the warrants it issued to the Treasury at the same time as the prefs at a price negotiated between the two. This payment could be the prepayment premium.

My suggestion would be that in any such negotiation Treasury Secretary Tim Geithner should select a Rottweiler of an adviser to act on the taxpayers’ behalf — one who could not be accused of being in Goldman’s pocket. Who could fill that role? How about Dick Fuld?

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