Goldman’s CEO, Lloyd Blankfein, told the Times that the firm serves an important social purpose by helping companies grow. He also poo-pooed the idea that Goldman is only able to make such bumper profits thanks to government support:
Blankfein dismisses any suggestion that Goldman needed to be bailed out, and, by extension, rejects any notion that the firm is now profiting from public support. Sure, he took $10 billion from Washington’s Troubled Asset Relief Program (Tarp). But the bank has since repaid the cash, with healthy interest — 23%. Goldman also benefited from the federal bail-out of the huge US insurance firm AIG. Goldman had bought $20 billion worth of insurance from AIG and received billions of dollars — perhaps as much as $13 billion — when Washington pumped $90 billion into the stricken giant. But Blankfein insists Goldman was “hedged” against any AIG losses, in the best possible way — with cash.
Blankfein told the Times that he is just a banker “doing God’s work.”
Whoever’s work he is doing, Blankfein’s assertions that Goldman isn’t benefiting from government support seems to be at odds with history. After all, at the height of the crisis, Goldman was allowed to convert into a bank holding company — and access cheap money from the Federal Reserve — a status which it still holds, despite engaging in no lending activity at all. As Alan Schram, the Managing Partner of the Los Angeles based investment firm Wellcap Partners, wrote, “now that they are a regular commercial bank they actually trade more, which makes sense: if the US Treasury covered my losses, I would also be happy to take major risks.”
Plus, as Daniel Harrison pointed out at bNet, Goldman’s implicit guarantee as a “too big to fail” firm was likely the only thing that enabled it to raise capital last year:
At the time of the collapse of Lehman Brothers, Goldman was forced to raise $10 billion of fresh capital by selling a 15 percent stake in itself to Warren Buffett and other investors…Just days before the share sales — which directly allowed Goldman to stay afloat — the firm received around $12 billion in government aid…Presumably, if Goldman Sachs had been able to privately raise the initial $12 billion provided to it by the U.S. government, it would have done so. What seems much more likely is that the investors — including Buffett — who later agreed to commit an additional $10 billion only did so on the basis that the firm was reasonably supported by government aid.
Blankfein hasn’t hit all sour notes recently. He has been the foremost advocate on Wall Street for restructuring pay packages and he is also supportive of a resolution authority to unwind failing firms. But by living in this fantasy world in which Goldman’s success is due solely to its financial prowess, Blankfein is endorsing Goldman’s rocket-ride back to billion dollar profits on the backs of taxpayers.