Goldman Sachs Makes Us All Rich

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Apparently, not all of the Treasury's bank bailout-related investments were bad ones. Bloomberg reports that taxpayers are making a whopping 23% (annualized) on the Treasury's warrants for Goldman Sachs.

Unfortunately, Bloomberg also notes, that we should have done better:

That 23 percent return compares with the 42 percent surge in Goldman Sachs's share price since October. . .



So as well as we did, any other equity investor would have done almost twice as well. Apparently Uncle Sam is not the next Warren Buffett. But it's not as bad as it seems, explains Bloomberg source Linus Wilson, a University of Louisiana at Lafayette finance professor:

The firm is paying about 98 percent of the warrants' value, based on Wilson's use of the Black-Scholes and Merton option pricing models. By contrast, he estimates that BB&T Corp. and U.S. Bancorp have struck deals with Treasury to pay less than 60 percent of the value of their warrants.



And it's also better than we did with JP Morgan:

Unlike JPMorgan Chase & Co., the second-biggest U.S. bank by assets, Goldman Sachs agreed to pay the full amount sought by Treasury for its warrants.



It sounds to me like Goldman is tired of hearing people say things like it is a "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." Goldman may have taken one for team USA here to avoid more criticism, especially in light of its record $3.44 billion second quarter earnings. After all, they can afford it.

Still, it's nice to see Goldman's recognition that public perception might actually matter. That's characterized pretty clearly in its CEO's statement about the warrants, via Bloomberg:

The 23 percent annualized return to taxpayers "is reflective of the government's assistance, which benefited the financial system, our firm and our shareholders," Chief Executive Officer Lloyd Blankfein, 54, said in a statement. "We are grateful for the government efforts."



In other words, you and I are getting a bonus from Goldman Sachs this year too -- $1.1 billion. Let's just hope Washington doesn't spend it all in the same place.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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