After reporting an excellent quarter (one that elicited hilarious responses like this), Goldman Sachs announced in greater detail their intention to raise $5B to repay its $10B in TARP loans.
This announcement was met with elation from analysts and whiny whispers from other banks. It remains unclear whether the Treasury and the Fed will even allow this to take place for fear that such a move is not in “the best interest of the marketplace.”
All the talk about whether or not Goldman’s repayment would be detrimental to the financial industry is hogwash.
Loans are meant to be paid back. To some extent, we should be grateful that Goldman is capable of doing so. Not only would it lower the taxpayer capital at risk, provide a presumably healthy return and free up billions more for weaker institutions, it sends a strongly positive message to the markets and the masses that the bailout is not a hopeless exercise and that the big banks are not fundamentally helpless.
Would it give Goldman a leg up on the other banks? Sure. They would be freed from onerous regulation and oversight and in turn would likely expand their talent lead. As if the brand value of the “Goldman pedigree” was not enough (it was), now they would be free to compensate their employees with less restrictions and scrutiny than their bulge bracket competitors.
But now is the time to let the strong survive – and emerge stronger. Let’s let the self-correcting mechanisms of the business cycle do their thing and ignore the sour grapes coming from the rest of Wall Street.