Bailout Update: Goldman Says Thanks and Farewell; and Required Reading On AIG
To close the book on the financial bailout, or at least its chapter, Goldman Sachs has redeemed the warrants to purchase Goldman shares, issued with the $10 billion of capital the Treasury insisted the company take under the TARP program. Rather than haggle like some petulant institutions, Goldman is paying the Treasury's full asking price, $1.1 billion. Counting $318 million on dividends on the CPP preferred stock, the return to the U.S. taxpayer is an annualized 23 percent on the funds invested.
The firm also is showing very good manners, thanking the taxpayers for the opportunity - as if the request for humility from MoneyWatch editor-at-large Jill Schlesinger had trickled up to the executive suite. From yesterday's press release:
"This return is reflective of the government's assistance, which benefitted the financial system, our firm and our shareholders," said Lloyd C. Blankfein, Chairman and CEO. "We are grateful for the government efforts and are pleased that this additional money can be used by the government to revitalize the economy, a priority in which we all have a common stake."A nice gesture indeed, and sure to be remembered if there is another bailout.
But wait: there's one more part of the bailout to be resolved. The bank still has $21 billion of capital, from debt issued during the lock-up of the debt markets last fall, that is guaranteed by the FDIC (it's important to note, though, that Goldman has paid $600 million in related fees to the FDIC). The debt is short term, and therefore is not likely to be explicitly refunded and repaid, as was the preferred stock.
Second, writing in the August issue of Vanity Fair magazine, Michael Lewis traces the evolution of AIG Financial Products, the elite derivatives trading operation that backed the expansion of subprime mortgage lending, and profiles the underskilled and self-deluding boss that forced its growth. If he's got it right, rather than the center of this whole thing being a mathematical model, or invisible, unstoppable market forces, it's one person.