Tuesday, 7 April 2009

Government Sachs is in control

Lloyd Blankfein must be the luckiest guy on Wall Street. He leads one of the Street's biggest bailed-out firms, but unlike other companies propped up by taxpayers, Blankfein's Goldman Sachs Group Inc.

GS is far more profitable. And it's poised to become a more influential force with greater market share. Different from American International Group Inc. or Citigroup Inc., Goldman hasn't had to forfeit an ownership stake in its firm, and its shareholders - many of them management and employees - have benefited. Goldman shares trade above $100. That's less than half of where Goldman shares traded at their peak, but far better than the $1 and $3 that AIG and Citigroup shares trade for, respectively.

Since the fall of Bear Stearns Cos. a little more than a year ago, Goldman has taken more than $20 billion in taxpayer cash through loans, payments and backstops. Goldman's latest bailout coup was a $12.5 billion paid out of AIG's $180 billion government cash infusion.

Until it was fully extricated, Goldman always characterized its exposure to AIG as "immaterial," and that its $20 billion notional exposure to AIG was hedged. Turns out that it was - through government bailouts that didn't exist when Goldman entered the contracts.

Even former New York Luv Guv Eliot Spitzer told journalist Fareed Zakaria on Sunday that he thinks something smells. "The web between AIG and Goldman Sachs is something that should be pursued," Spitzer said. "Why did [those payments] happen, what questions were asked, why did we need to pay 100 cents on the dollar for those transactions if we had to pay anything, what would have happened to the financial system had it not been paid?"

But the AIG-Goldman affair is just the beginning, under the policy enacted by former U.S. Treasury Secretary Henry Paulson, Goldman's chief executive until 2006. Major competitors have failed or been diminished. Goldman already seems, if not just poised, to be dominating what's left of the investment banking landscape...
Source: MarketWatch

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