Goldman Sachs Calls Back
Last week i called Goldman Sachs and asked if they’ll be returning the money they say they didn’t need. This week, I got a call back from none other than Lucas van Praag, the subject of much humor at 1440 Wall Street.
So I explained what I had read about Lloyd Blankfein’s testimony, and went on about the problems facing Philadelphia.
“So what’s your point,” van Praag asked me.
“It’s simple,” I replied. “If you don’t need the money, are you planning on returning it?”
van Praag sighed, and began a long response, the brunt of which i have transcribed (it’s a little rough):
The 9 banks receiving tarp in the first round were summoned to dc by treasury, told each was getting injection. We didn’t ask for it, told we were getting it. Reason given by Treasury was for safety and soundness. One firm said they didn’t want money, but Treasury told them if they said no they could never turn to Feds for assistance on anything ever. Treasury and fed very concerned about stability of the system. There was a great deal of highly irrational behavior on the market. By taking action they took, authorities thought they were behavng in a way necessary and prudent.
We intend to pay back the money as soon as praticable, as soon as possible. We want this to be used in the areas of the economy where it’s needs. Several requirements:
1. we need to replace the capital with like capital, common equity or preferred stock, which requires functioning market, which is getting better.
2. regulators, fed, and treasury have to agree we can pay it back. Stress tests. I don’t think they’re going to give any permission to give back until stress tests.
Did we need the money when given? No. Do we feel safe and sounder with it. Yes.
It is true that interbank market is extremely severely damaged by lack of confidence in the system, which is why the fdic said to banks in the us that they could issue debt that they need to fund their normal operations with fdic funds. The reason this was necessary is that a lot of banks are pretty opaque about what their assets are worth.
He also added that Goldman has done a lot more lending with the TARP funds, but offered no evidence to prove that. Perhaps that was after they spent $1,000,000 in taxpayer funds for lobbying the government, and after they cut back on lending.
I thanked Mr. von Praag for his time, transcribed his response as best I could, and forwarded it to this sweaty economist guy i know, who has a gift for boiling down complex statements into something a lot more digestible (ie, he cuts through bullshit like a goddamn light saber), and has been on target for months that this isn’t a problem of liquidity but solvency:
basically it’s “we didn’t need the money…but we can’t afford to pay it back.” They’re pretending their solvency issues are just a fed/regulator fantasy.
… which is pretty much what i thought Lucas was talking about, but in a lot more words. I wish i got paid the big bucks to spew bullshit. i just get to call it, and as Diogenes could tell you, there’s no income in that career…
February 20th, 2009 at 10:58 pm
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