Irreconcilable Differences Between Goldman Sachs and CIT

From Minyan Peter at Minyanville.com. He hits the nail right on the head.

Irreconcilable Differences Between Goldman Sachs and CIT
(7/14/09 Minyanville.com) [emphasis is mine]:

"As a teenager, I hated those conversations with my father that began with him saying, “So let me get this straight…” during which my adolescent logic would be picked apart, thought by thought, until even I saw how clearly stupid I'd been. Bread crumb, bread crumb, bread crumb -- bear trap.

"This morning as I saw Goldman Sachs' (GS) cup-runneth-over earnings and the headlines regarding CIT Group (CIT), I couldn’t help but hear my father’s voice once again. Only this time, he'd be saying:

“So let me get this straight. Last year, the government agrees to make Goldman Sachs a bank holding company. They move all of their counter-party derivatives business into a newly formed bank. They receive billions in TARP funds, and tens of billions in FDIC guarantees so they can issue debt.

"And now they report unbelievable earnings, but they don’t have an asset category called “loans” on their balance sheet? And as Todd noted this morning, Goldman executives sold $700,000,000 worth of stock during the period when they received $10 billion in TARP money?

"And then on the other side, you have CIT, whose balance sheet is almost all loans, whom the government won’t step up to support in a liquidity crisis -- even though the government allowed them to become a bank holding company and gave them TARP funds? And they're both 'banks’?”

"To which my only response is: “Yes.""

"... Goldman Sachs receives all of the benefits of being a bank without lending money, while CIT -- which has been a small and midsize company lender for more than 100 years -- can’t make the transition to “bank” fast enough and risks complete failure."

But Goldman Sachs is hardly alone.

"Now, in the interest of full disclosure, Goldman is hardly alone in its arbitrage of government-banking regulations: Look at the balance sheets of State Street (STT) and Bank of New York Mellon (BNY) and they don’t look much like banks either, yet they were quick to take full advantage of the government bank-bailout programs. "

A commercial bank accepts money from one party and lends it to another.

The government must be high on something (I don't know what) and is playing God. They refused assistance to Bear Stearns, Washington Mutual, Lehman Brothers but bend over backward to help AIG, Citigroup, Goldman Sachs and Morgan Stanley (whose applications to become a commercial bank were approved over one weekend - a lightening speed), Bank of America (although you could feel BofA is sort of treated as an "outsider", not a true-blue Wall Street bank which BofA isn't).

And according to CNBC, the government, after denying any federal help to CIT, may be trying to block the private sector help to CIT [emphasis is mine]:

"CIT, the finance company struggling to avoid a Chapter 11 filing as soon as tomorrow, is seeking to line up between $2 to $3 billion in secured financing from private investors over the next day, according to people close to the situation.

"A number of private equity firms and fixed incomve investors have expressed interest in talking to CIT about providing financing that would be secured by some of the company's currently encumbered assets, such as airlines and rail cars.

"If it materializes, that financing would be incumbent on CIT gaining approval from regulators to move assets from the finance company to its bank.

"These approvals are all CIT is currently asking of regulators, who have thus far indicated they would provide no addtional support for the company.

"And so CIT finds itself in the postion of needing the approvals in order to have a chance to secure private capital and having regulators who appear unwilling to ofer those so called "non-objections." "

Goldman Sachs had no problem transferring assets to its so-called bank. But the regulators are unwilling to allow CIT to do the same.

I can understand the logic, however arbitrarily it is applied, that the taxpayers shouldn't foot the bill any more. But why block the transactions between the two willing, private parties? CIT needs money, and private investors may be willing to provide that money and willing to take the risk. What business does the government have?

Irreconsilable differences between Goldman and CIT? The former is favored by the government, the latter isn't. Why? Is it maybe because CIT actually lends to businesses and that is too much risk for the government?. It makes you wonder whether the government really wants to see the economy out of recession (it says so). It probably does (if only for the sake of higher tax revenue), but it wants to see it happen under the government's direction and strong guidance. Good luck with that.

Tweet