Goldman Sachs went into this crisis acting less like a bank and more like a hedge fund, and it seems they're going to dig themselves out the exact same way. The difference, of course, is that in the interim Goldman got involved with the bailout and became a bank holding company, which opens it up to new regulatory scrutiny. And, as a big component and provider of market liquidity, analysts say that even though the bank may pay back its TARP money in an attempt to return to greater independence, getting out won't be that simple.
Felix Salmon says:
..."Goldman has no business saying “thank you very much” for the financial-system bailout, but politely trying to decline participation in it by handing back the TARP funds. Like it or not, Goldman is a central part of the financial system, which means that it’s a central part of any bailout strategy. It can’t unilaterally say no to that, and I hope that it gets slapped down by Treasury as definitively as it was slapped down by the stock market yesterday.
So the government needs Goldman. But what does the bank's bubbly quarter say about its role as a stable partner? Even after Lloyd Blankfein's mea culpa last week, Goldman appears to be taking on significant new risks that will become the government's problem if they go bad. From Reuters:
Some analysts believe that argument and say that Goldman is playing an important role in buying and selling client assets now even as competitors are not. Spokesman van Praag notes that banks are under enormous pressure to keep financing markets open and liquid, which Goldman is doing.
But to many investors, the combination of a 5 percent increase in assets during the quarter and the jump in value-at-risk, a measure of risk, signal that Goldman is likely trading more of its own funds.
"I've never seen such high value-at-risk figures out of Goldman before, even in 2006. I would be astonished if they weren't taking more risk," said one hedge fund manager who requested anonymity because he is not authorized to speak to the media.
Lastly, even if Goldman does give back its TARP money it won't signal any sort of reversal for what will be by most accounts a long-lasting tightening of the relationship between banks and regulators. As the NYT points out, non-TARP government programs like billions in FDIC-guaranteed debt issued by banks "that come with virtually no strings attached" will continue to bind finance more closely to Washington.