Wall Street crowed over Goldman Sachs latest earnings report.
However, what Goldman's second-quarter profit report didn't say is that, despite having repaid $10 billion in federal stimulus money, the financial giant continues to benefit hugely from several government programs aimed at loosening credit markets.
For starters, $13 billion of the government’s bailout of AIG went straight to Goldman as a 100 percent payoff of bets the firm had placed with the insurer, said Lucas Puente at the Economic Policy Institute.
That money — effectively a second round of cash for Goldman — was delivered despite the bank’s protests it did not need the money.
Further, a Federal Reserve program allows Goldman to borrow funds overnight for close to zero percent. This program also has boosted bank profits by widening the spread between the cost of their incoming and outgoing capital.
Goldman also benefited from artificially inexpensive debt thanks to the FDIC’s Temporary Liquidity Guarantee Program, which put a federal guarantee behind bonds issued by Goldman and other banks to make them more attractive to other investors.
“When Goldman sold $5 billion of 3.5-year bonds last November, it was able to attract buyers while offering a yield only 200 basis points higher than ultra-safe Treasuries with similar maturities,” Puente said.
“I don’t know how you measure that subsidy,” Mark Zandi, chief economist at Moody’s, told The New York Times. “That’s why they say it’s invaluable. It’s an infinite subsidy. It’s their franchise value.”
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