Why Is Goldman Paying Back The Government?

Why Is Goldman Paying Back The Government?

Why Is Goldman Paying Back The Government?

A reader emails to make a very interesting point about Goldman’s plan to issue $5 billion common stock in order to pay back its TARP funds:

You’ve probably seen the news about Goldman Sachs: The investment bank, after posting $1.7 billion in profits, is planning to pay back its TARP money so it can escape from compensation restrictions.

Last fall, Goldman also raised capital from Warren Buffett, who got a sweet deal: $5 billion worth of preferred shares paying a 10% annual dividend.

Copy Link
Facebook
X (Twitter)
Bluesky
Pocket
Email

A reader emails to make a very interesting point about Goldman’s plan to issue $5 billion common stock in order to pay back its TARP funds:

You’ve probably seen the news about Goldman Sachs: The investment bank, after posting $1.7 billion in profits, is planning to pay back its TARP money so it can escape from compensation restrictions.

Last fall, Goldman also raised capital from Warren Buffett, who got a sweet deal: $5 billion worth of preferred shares paying a 10% annual dividend.

The TARP money, on the other hand, is $10 billion with an annual yield of 5% – that’s a much better deal for Goldman.

So shouldn’t Goldman pay Buffett back first, which Goldman can do with a 10% penalty (i.e. it would cost Goldman $5.5 billion to pay back Buffett early)?

That would leave the firm with more equity on its balance sheet and roughly the same annual dividend payments on the preferred shares. Better for the shareholders, the bondholders and the firm as a whole.

Of course Buffett’s money comes with no executive compensation restrictions, and that’s the key. Goldman in its announcement this morning said it would set aside $4.7 billion in salaries and bonuses. That’s 50% of its quarterly revenues, a higher proportion than last year.

The key here is that Goldman executives feel it is really important to pay themselves and their employees lots and lots of money – so important that they’d rather ditch the great deal they have with the U.S. Treasury than give up the no-strings-attached deal with Buffett.

Maybe they’re right: without the possibility of high pay, the business will disintegrate, as the smart people who work at Goldman head for the exits. And Goldman did make smarter decisions than the idiots at Citigroup and Merrill Lynch.

Still, it’s pretty striking to see the lengths Goldman is going to ensure that they can still pay loads to executives and bankers.

Wonder what Goldman’s institutional investor shareholders think about this.

Support independent journalism that does not fall in line

Even before February 28, the reasons for Donald Trump’s imploding approval rating were abundantly clear: untrammeled corruption and personal enrichment to the tune of billions of dollars during an affordability crisis, a foreign policy guided only by his own derelict sense of morality, and the deployment of a murderous campaign of occupation, detention, and deportation on American streets. 

Now an undeclared, unauthorized, unpopular, and unconstitutional war of aggression against Iran has spread like wildfire through the region and into Europe. A new “forever war”—with an ever-increasing likelihood of American troops on the ground—may very well be upon us.  

As we’ve seen over and over, this administration uses lies, misdirection, and attempts to flood the zone to justify its abuses of power at home and abroad. Just as Trump, Marco Rubio, and Pete Hegseth offer erratic and contradictory rationales for the attacks on Iran, the administration is also spreading the lie that the upcoming midterm elections are under threat from noncitizens on voter rolls. When these lies go unchecked, they become the basis for further authoritarian encroachment and war. 

In these dark times, independent journalism is uniquely able to uncover the falsehoods that threaten our republic—and civilians around the world—and shine a bright light on the truth. 

The Nation’s experienced team of writers, editors, and fact-checkers understands the scale of what we’re up against and the urgency with which we have to act. That’s why we’re publishing critical reporting and analysis of the war on Iran, ICE violence at home, new forms of voter suppression emerging in the courts, and much more. 

But this journalism is possible only with your support.

This March, The Nation needs to raise $50,000 to ensure that we have the resources for reporting and analysis that sets the record straight and empowers people of conscience to organize. Will you donate today?

Ad Policy
x