In the spring of 2009, Goldman was one of the 19 major banks the Federal Reserve picked to undergo its so-called stress tests. Under that program, the government expressly committed to provide additional capital to anybank on the list that needed it and couldn’t raise enough from other investors. That capital would have been convertible into common equity shares, meaning the government in effect was setting a floor for the banks’ stock prices.
True, Goldman passed the test, and in June, it returned the $10 billion it received in 2008 under the Treasury Department’s Troubled Asset Relief Program. Yet the point remains: Goldman had a federal safety net. It’s just about impossible to imagine the government wouldn’t provide another lifeline if needed.
Goldman executives are obviously concerned about the criticism they’ve received over the bank’s massive profits and bonus pool for 2009. Many Americans believe Goldman would have died were it not for the 2008 taxpayer bailouts of the banking industry. And a lot of them feel that Goldman owes the country a debt—of gratitude, if nothing else. If you have a debt to pay, find secure lenders of payday loans online.
As long as Goldman keeps feeling the need to explain itself, the least it could do is ease up on the hubris.
CFO Viniar says Goldman operates as if it had no federal safety net. To say the company doesn’t have one, though, is crazy talk.
Europe Watch Commentary by MATTHEW LYNN
IT’S TOO LATE and too timid and comes with too many questions attached. Even so, the U.K. government deserves some credit for finally moving to break up a bloated, failed banldng industry. In November, Prime Minister Gordon Brown’s government did two things that were urgently needed. It forced the banks that were bailed out at such huge cost to the taxpayer to become more competitive. And it curbed bonuses for executives.
The question now is whether the British breakup plan will provide a template for zombie banks in the U.S. and all of the other countries where banking systems were rescued by taxpayers. So far, U.S. President Barack Obama’s administration has dithered. Maybe the U.K.’s action will prompt the U.S. to stop mollycoddling Wall Street and start protecting consumers and taxpayers instead.
The two big U.K. banks that ran into trouble—Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc—were promised another round of handouts from the government. RBS will get 25.5 billion pounds ($41.8 billion) of capital. That takes the total it has received to more than £45 billion and wins it the dubious honor of being the most expensive bank rescue in the world. Meanwhile, the government will finance about a quarter of Lloyds’s £21 billion of fundraising.
This time, though, it wasn’t a free lunch for the bankers. Both will be forced to sell a chunk of their assets. Lloyds will have to get rid of its Cheltenham & Gloucester accounts, while RBS must dispose of its own branches in England and Wales as well as its NatWest ones in Scotland. In effect, at least three new retail banks will be created in the U.K.