First Goldman announces plans to raise capital to repay the TARP ASAP. No mention, of course, of giving up all the cheap debt it can issue via the FDIC guarantee, but why would it give up such a good thing when it gets to cherry pick from a bevy of government sponsored plans? It is best to just rid itself of that pesky political impediment to lucrative compensation packages.
Meanwhile, on the heels of that bold proclamation, the banking powerhouse announced plans to raise a $5.5 billion fund to buy discounted private equity holdings. While there is certainly no shortage of pension funds, endowments, banks and hedge funds looking to punt their investments in private equity funds at steep discounts, one has to wonder if this is a wise move, given how poorly many deals struck during the private equity boom are faring. Is there any value left in the equity slice of a highly leveraged deal operating in a harsh economic climate? GS is wagering that there is which makes one wonder; is Goldman getting bullish? After all, the bank let Abbey Joseph Cohen out of whatever hole she’s been hiding in lately to proclaim on CNBC this morning that, surprise surprise!, she’s bullish on the S&Ps! Ms. Cohen, best known for her consistent bullishness during the 90’s had to defend herself this morning as CNBC’s Melissa Lee grilled her about her lousy calls in the past couple of years. Ms. Cohen pointed out in her defense that she was not perennially bullish, and that she did tell investors to sell their tech and telecom stocks in March 2000. This is a fair point, but it doesn’t make up for missing out on warning investors about the credit bubble, which has been far more devastating and should’ve been on every strategist’s radar, particularly one who worked at a firm that was actively shorting subprime and making huge margin calls on AIG.
Goldman is set to report earnings tomorrow so investors will get some clarity into how well the investment bank is surviving all of the money the government has thrown at it in the past few months. It’s easy to make money when the yield curve is incredibly steep, you can shovel anything to the Fed and finance it at zero percent, you’re allowed to issue debt with a government guarantee, and you don’t really have to mark to market. Even Bear Stearns was set to report a profit for the first quarter of 2008, except they went bankrupt the day before they were allowed to report their good news.