Sent in by our long-lost collective member Faisal Chaudhry:
Fresh on the heels of the euphoria in the financial press about Goldman Sachs reported first quarter earnings of $1.66 billion, a recent entry on our blog (Questions About Goldman’s Great Quarter) asked how much of the current profit is a result of Goldman’s getting full payment for its previous financial bets from AIG.
While the answer is not clear yet (and likely will remain so), the Monday edition of Bloomberg’s “On the Economy” radio program with Tom Keene and Pim Fox (access the audio here) provided a fascinating look into what Wall Street’s take on the matter is. The passage from nonplussed nonchalance to equivocating chagrinned concession that Gary Townsend of Hill Townsend Capital undertakes in the space of two plus minutes is priceless for what it reveals about how these questions are regarded, parsed, and set aside by the lords of finance. (Jump to the 11m 6 sec mark .)
With a barely subdued glow, Townsend’s monotone first points to Goldman’s go getter attitude in proposing to use the newfound confidence it has earned in the eyes of the market by rolling up its sleeves and raising $5 billion in equity through sales of its shares in order to “unpartner” itself from its pesky and “unhappy” TARP-induced relationship with the government. He next lodges his “personal” opinion that the companies “who were not particularly interested in accepting the TARP” funds should not be faced now with any restrictions whatsoever on when they can repay the bailout money and “get out” of said pesky relationship. When faced with the obvious next question from Fox about whether Goldman’s first quarter would have been as good as they were had it not taken the TARP money it supposedly “never wanted” in the first place, Townsend’s swagger starts fading as he lunges towards evasion by highlighting the “additional expense” from the preferred dividend that Goldman has had to pay out to the government already and that has “presumably, worsened the [first] quarter [earnings]” now being reported already.
As if it wasn’t curious enough to be apparently unable to parse the type of catastrophic cost Goldman’s bottom line might have suffered had the “unwanted” bailout money never been poured into its coffers in the first place, things only get worse when Fox asks Townsend what role the credit default swaps paid out during the quarter to Goldman by AIG (via the “unwanted” moneys the government foisted upon that company) played in the $1.6 billion first quarter. You can hear Townsend start folding under the weight of his own inconsistencies (at the 12m30sec mark) after he is left little choice but to concede that the answer to the “very interesting question” he first suggests awaits more data must certainly be in the affirmative. As he grudgingly concedes “what seems to have happened is that the Government is fulfilling the obligation to Goldman and others on the other side of the CDS’s” . Alas, he must let drop that “indeed, the government has provided that value [of the AIG bailout] to Goldman.” He is sure, however, to ask rhetorically before closing “[but] isn’t that rather obvious?”. It would seem that a mere two minutes earlier, of course, it was not, at least, to Townsend’s mind. As for Wall Street’s collective mind, we won’t hold our breath.