randallg99
Bronze Contributor
hey Russ - I think what's more fascinating than Buffet getting paid back is that GS sold themselves for peanuts when the times were dire and even though GS just paid back a chunk of cash, don't forget that Buffet still owns long term warrants that don't expire for another few years.
In regards to the banking world, we need to recognize that GS wasn't really a bank. it was the king of investment houses. But when liquidity came to a screeching halt in Sept08, we saw GS become an actual bank (by banking & insurance dept standards) only so that it could have access to Fed Reserve money which is not available to privately run investment brokerages. As a result, GS becomes regulated by government standards and thus needed to maintain certain capital levels which is where Buffet comes in to save the day. Now, don't get me wrong, I don't know what would happen if the government were to take over GS's assets but I am pretty sure they wouldn't have a clue what to do since GS's operations are a lot more complex than the average bank
So, let's recap some of the changes to the banking world:
there've been more bank closures by FDIC in the past couple of years than in all of US history combined in terms of branch locations as well as assets in nominal dollars. then there's the mark to market regulation that government imposed for only a short period which is where a lot of the banks got crushed.... and then there's when the banks got a bit crunched when regulators all of a sudden woke up and did their job ... and now there's Freddie and Fannie who all but got shut down via regulations, thus making secondary mortgage markets all but invisible meaning less ability for banks to make money on loans and mortgage originations.
so, what's a bank to do? one that's as leveraged and exposed to CDS markets as GS was? anyone facing a gun would happily sell their souls to stay alive. Don't forget that besides Buffets infusion, GS was a recipient of TARP funds via AIG so GS had access to capital that most institutions envied
and GS paid a lot to stay alive.... and so with Buffets cash in 2008, GS was able to avoid the harsh scrutiny other banks suffered because those banks lacked the capital to maintain reserve level thresholds.
is it a good thing that GS is paying buffet back? yes, it's a great sign that GS has the ability to pay a bunch but as you can see from the collusion GS executives enjoyed, they are really the exception to the rule that most banks won't enjoy.
as far as the other "biggies" are concerned, they still haven't valued their underperforming assets to their true values. combine that with these factors:
1. foreclosures have trickled
2. delinquencies are still high
3. loan originations are still low
it's hard to see where banks are making profits when their biggest profit centers have all but evaporated.....
R
In regards to the banking world, we need to recognize that GS wasn't really a bank. it was the king of investment houses. But when liquidity came to a screeching halt in Sept08, we saw GS become an actual bank (by banking & insurance dept standards) only so that it could have access to Fed Reserve money which is not available to privately run investment brokerages. As a result, GS becomes regulated by government standards and thus needed to maintain certain capital levels which is where Buffet comes in to save the day. Now, don't get me wrong, I don't know what would happen if the government were to take over GS's assets but I am pretty sure they wouldn't have a clue what to do since GS's operations are a lot more complex than the average bank
So, let's recap some of the changes to the banking world:
there've been more bank closures by FDIC in the past couple of years than in all of US history combined in terms of branch locations as well as assets in nominal dollars. then there's the mark to market regulation that government imposed for only a short period which is where a lot of the banks got crushed.... and then there's when the banks got a bit crunched when regulators all of a sudden woke up and did their job ... and now there's Freddie and Fannie who all but got shut down via regulations, thus making secondary mortgage markets all but invisible meaning less ability for banks to make money on loans and mortgage originations.
so, what's a bank to do? one that's as leveraged and exposed to CDS markets as GS was? anyone facing a gun would happily sell their souls to stay alive. Don't forget that besides Buffets infusion, GS was a recipient of TARP funds via AIG so GS had access to capital that most institutions envied
and GS paid a lot to stay alive.... and so with Buffets cash in 2008, GS was able to avoid the harsh scrutiny other banks suffered because those banks lacked the capital to maintain reserve level thresholds.
is it a good thing that GS is paying buffet back? yes, it's a great sign that GS has the ability to pay a bunch but as you can see from the collusion GS executives enjoyed, they are really the exception to the rule that most banks won't enjoy.
as far as the other "biggies" are concerned, they still haven't valued their underperforming assets to their true values. combine that with these factors:
1. foreclosures have trickled
2. delinquencies are still high
3. loan originations are still low
it's hard to see where banks are making profits when their biggest profit centers have all but evaporated.....
R