Already, some banks are bragging that they are starting to make money on an operating basis from trading profits and bigger lending margins.
To some, these pronouncements can make banks look like an overzealous kid on a bike, claiming he really doesn’t need his training wheels, as he strains to keep from wobbling.
It could create even more chaos in the financial system if some banks gave back the TARP money, only to howl soon after that they still needed it after all. “We see another $1.5 to $2 trillion of as yet unrecognized losses from U.S. assets still to hit global financial sector balance sheets and challenge its institutions,” said Daniel Alpert, a managing director of Westwood Capital.
“The near daily announcements over the past two weeks, by money-center banks and finance companies, that they are making money this year on an operating income basis, have become borderline irresponsible, relative to continued deterioration in value of the assets on their balance sheets and the continuing impact of a worsening recession,” he added.
Goldman, for lots of obvious reasons, wants to separate itself from this pack, and returning taxpayer money would certainly help. The firm’s famously well-paid executives—Mr. Blankfein made $60 million in 2007 (some of which was in stock, which has since fallen in value)—would be taxed at 90 percent of their bonuses if a bill passed by the House last week were to become law.
Goldman would also like to put an end to the whisper campaigns about ties between it and Mr. Paulson (and Timothy F. Geithner, too, for that matter).
Goldman, in an unusual move, considering its well-known reputation for secrecy, held a conference call with journalists last week to try to dispel what iat said was a myth about its exposure to AIG Goldman, in an artfully worded explanation, contended it was fully hedged, even as it accepted nearly $13 billion of the bailout money AIG got from the government.
And then there is the simple matter that Wall Street and Washington make strange bedfellows.
Paying back the TARP money would probably give Goldman Sachs a bigger lead over its rivals. With a Yankees-like payroll, it will continue to be able to steal the best talent from weaker firms that still have TARP money and are subject to restrictions on pay and the like.