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Let Goldman Return TARP Funds


Nothing good can come of keeping firm beholden to government.

Goldman Sachs (GS) hopes to make a down payment on its freedom.

The Wall Street firm plans to raise $5 billion in a stock offering and use the net proceeds to repay half of a $10 billion government bailout it received last year.

This is more than good business or smart public relations. Goldman Sachs hopes to free itself from the increasingly heavy hand of government.

Last year, 953 top workers at Goldman Sachs -- or about 1 in 30 -- were paid more than $1 million each, the Wall Street Journal reports, citing "people familiar with the matter."

High salaries have become the unpardonable sin in Washington - and never mind that neither Congress nor President Obama has the Constitutional authority to dictate salaries in the private sector.

The irony: Uncle Sam forced Goldy to take the bailout money and included pay restrictions as part of the deal. Major banks were told everyone had to take the money to shield troubled companies that needed it most, fearing a customer stampede away from those badly pounded in the economic downturn.

The flippant view: The feds have become sort of a big-hearted mafia, doling out money to keep up appearances. But once you're in, you're stuck and bound by Vito's (or the government's) stringent rules. In addition to investment banks, this technique has been used to ensnare commercial banks, insurance companies and automakers. Ford's (F) decision to forego bailout bucks now looks prescient.

The stock and bond markets have bounced back from their lows, but Uncle Sam has yet to make it clear how tightly the government will control private companies that took TARP money or for how long.

It's unclear when, or if, Goldman Sachs will be permitted to repay the money. It's unlikely that Morgan Stanley (MS), generally expected to report a first-quarter loss, will repay its loan immediately. Earlier, several regional banks were rebuffed in their efforts to repay TARP loans. Does this seem a little odd, especially as Goldman reported better-than-expected first-quarter earnings of $1.8 billion?

Washington apparently doesn't understand that Goldman Sachs competes in a worldwide market and therefore needs to attract and retain top talent. If the money in New York isn't good enough, there's always London or, who knows, maybe Singapore.

The federal government has decreed that bonuses at companies that received bailout money can total no more than one third of an employee's total annual pay. What the feds don't understand is that Wall Street's base salaries are set low to keep the young gunslingers hungry. In short, the real money is in the annual bonus and -- gasp -- that's based on performance.

You can't expect Washington to understand anything about performance, let alone linking pay to performance. As a result, President Obama has drifted off to Never-Never Land and has backed a proposal to cap salaries at $500,000 at some companies receiving significant bailout bucks.
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No positions in stocks mentioned.
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