Why Is Goldman Being So Generous?
July 22, 2009
According to that Bloomberg story Zubin just linked to, Goldman is buying back its warrants from the government for $1.1 billion, which turns out to be the price Treasury named, and about 98 percent of what the standard option-pricing models suggest they're worth. (A warrant is the right to buy stock in a company at an agreed-upoin price at some point in the future.) This turns out to be a pretty good deal for the U.S. taxpayer--and contrasts pretty starkly with JP Morgan's approach to its warrant buy-back, which was basically to tell Treasury to screw off.
Jamie Dimon Vs. Larry Summers
July 19, 2009
Jamie Dimon has won big. JP Morgan Chase now stands alone, both in financial position and political clout--including special access to the White House and, as explained in today's NYT, Rahm Emanuel's likely attendance at his next board meeting tomorrow. Dimon's semiotics have been brilliant throughout the crisis--it wasn't his fault, he was forced to take TARP money, and--in phrasing that will make the history books--bankers should not be "vilified." But now he has a problem. Larry Summers forcefully stated Friday that high recent profit levels for big banks (i.e., JPMorgan and Goldman) are b
Goldman: Kind Of Like Too Big To Fail--except Bigger
July 15, 2009
The second graf of the Journal's story on Goldman's massively profitable second quarter: With competitors such as Lehman Brothers Holdings Inc. and Bear Stearns Cos. gone, and others like Citigroup Inc. flailing, Goldman appears to be pulling off one of the biggest market-share grabs in Wall Street history. In fairness, some of this market-share poaching came in areas like stock underwriting, which aren't what you think of as systemically risky activities. (Unlike, say, selling credit default swaps, in which ramping up your market share might not be the greatest idea.
Parsing Goldman's Defense Of Its Pay Increases
July 02, 2009
As Zubin noted, the Journal has a piece today cataloguing the quick rebound in compensation at big Wall Street firms like Goldman and Morgan Stanley: Based on analysts' earnings forecasts for 2009, Goldman Sachs Group Inc. is on track to pay out as much as $20 billion this year, or about $700,000 per employee.
Goldman Makes The Case Against Inflation
June 13, 2009
In yesterday's daily research report (not online), Goldman's economists thoroughly debunk the view that the Fed's response to the recession will fuel inflation. Part of the argument is that, as Paul Krugman has pointed out, an increase in the money supply isn't inflationary when banks aren't lending out the extra money. Goldman says that, even before the Fed expanded the money supply (i.e., create extra reserves that the banks could use to increase lending), the banks weren't lending as much as they theoretically could.
Why The Stress Test Leaks Have Been So Confusing
May 06, 2009
The public relations campaign packaging the bank stress tests is kicking into high gear and our professional information managers are really hitting their stride. They face, of course, a classic spin problem: you need to get the information out there, but you don't want to be too definitive on the first day or soon after--if you're easy on the banks, that looks bad; if you're tough on the banks, that might be dangerous. The best way to handle this is by jamming your own signal--which they are starting to do in brilliant fashion. To the WSJ you leak that BoA needs to raise a great deal of capit
What Treasury Needs Is A Distraction
May 05, 2009
The bank stress tests are beginning to create a perception problem, but not--as you might think--for banks. Rather the issue is top level Administration officials' own optics (spin jargon for how we think about our rulers). At one level, the government's approach to banks--delay doing anything until the economy stabilizes--is working out nicely. This is the counterpart of the macroeconomic Summers Strategy and in principle it is brilliant.
Is Tarp Scaring Off Goldman's Best And Brightest?
April 14, 2009
That's certainly the line Goldman CEO Lloyd Blankfein is pushing. Thanks to the strings attached to the TARP (i.e., bailout) money they've received, banks like Goldman face restrictions on how much they can pay their 25 best-compensated employees (more or less). As I understand them, the restrictions don't limit pay per se, but do limit the size of a bonus to one third of overall compensation, which is meaningful since that's where most of these guys make their money.
A Few Deep Breaths On The Aig-goldman Conspiracy
March 03, 2009
A few important addenda to my earlier item about the links between Goldman and AIG, which the Times editorial page took up today. First, a thoughtful item from Portfolio's Felix Salmon casting doubt on the theory that the AIG bailout was conceived as a Goldman bailout: I do think that Geithner should be asked about the firms threatened by an AIG collapse, however, and I do think that he should reply in detail.
A plugged-in source points me to Goldman's latest economic forecast, which anticipates -7% GDP growth this quarter and -3% GDP growth next quarter, down from an earlier forecast of -4.5% and -1%, respectively. What's remarkable about the change, though, is that the new numbers factor in the stimulus, whose effects Goldman thinks will be significant (and positive), whereas the old forecast didn't. And yet they still have the economy contracting by much more than previously thought. Kind of gives you an idea of what we're up against...