Boo-Hoo Banks: Goldman’s TARP Payback

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.

“The Obama Effect” – Private Capital and Public Backlash

File this under Author: Captain Obvious.

The Chicago Tribune, reporting from an ACG conference, quoted several private equity professionals in predicting a wave of deals designed to capitalize on the Obama administration’s aggressive stimulus spending.

Our firm has already seen several of these deals in industries ranging from mobile broadband to energy management software. It’s a good sign. The best way to put fiscal stimulus dollars to work is to incent entrepreneurs and investors into expanding and building new businesses that take advantage of them. It’s the inefficient pet projects directed to heavy donors in certain congressional districts that we want to avoid.

But I worry about the public backlash that is sure to accompany the inevitable headlines some of these deals will generate. It seems to me that the hyperactive liberal media outlets are not missing many opportunities to vilify “profiteers” in this environment (especially those in the banking and private equity industries), regardless of whether or not they are serving a purpose in the administration’s attempts at recovery.

Just as the “outrage” over banks benefiting from the AIG bailout was way off base (protecting counterparties was the entire point), the backlash awaiting opportunistic investors will be seriously misguided. The stimulus package is designed to pump dollars into the economy as quickly as possible and hopefully create jobs and stimulate investment along the way. The media and the greater public should applaud the extent to which it might eventually accomplish the latter.