Different Money, Different Strings

There's not much question in my mind that the main reason Goldman is itching to pay back its TARP money is to free itself of the program's restrictions. One of Chris Hayes' readers makes the point:

Last fall, Goldman also raised capital from Warren Buffett, who got a sweet deal: $5 billion worth of preferred shares paying a 10% annual dividend.

The TARP money, on the other hand, is $10 billion with an annual yield of 5% - that's a much better deal for Goldman.

So shouldn't Goldman pay Buffett back first, which Goldman can do with a 10% penalty (i.e. it would cost Goldman $5.5 billion to pay back Buffett early)?

That would leave the firm with more equity on its balance sheet and roughly the same annual dividend payments on the preferred shares. Better for the shareholders, the bondholders and the firm as a whole.

Chris asks, "Wonder what Goldman's institutional investor shareholders think about this." Maybe they're upset, though there seems to be some agreement that Goldman stands to benefit from a bit of talent poaching while its rivals continue to strain under the compensation limits. Not surprising then that Jamie Dimon is itching to throw off the "scarlet letter" of TARP money, of which his firm took $25 billion.

Again, this is the big problem with letting Goldman go -- it encourages banks to compete to show how little they need the government's help, when in fact they all do. And it's particularly absurd given that the TARP funds are just one small part of the rescue architecture holding the banking system up.