Thursday, December 2, 2010

Goldman "We Had Cash" Sachs Borrowed in Excess of $24 Billion from the Fed

Bloomberg's Christine Harper has done a great job of breaking down the borrowing done by Goldman Sachs during the financial crisis, which is now available as a result of the Fed's document dump.

While publicly maintaining a posture that they were financially healthy and implying they didn't need a government bailout, Goldman Sachs in reality borrowed multi-billions from the Fed.  Most curious, given the sums involved and because it would have provided important insight to investors as to Goldman's ability to borrow in the markets (versus using Fed money), Goldman failed to disclose in their quarterly report with the SEC that these borrowings were taking place. As one trader put it to me, "Goldman Sachs never figured they would be caught in this lie."

Here's Harper with the details:
Chief Executive Officer Lloyd Blankfein, 56, was quoted by Vanity Fair last year as saying the company might have survived the credit crisis without government help. The firm’s president, Gary Cohn, was more definitive, according to the magazine: “I think we would not have failed,” he was quoted as saying. “We had cash.”

Treasury Secretary Timothy Geithner, who was president of the Federal Reserve Bank of New York during 2008 and 2009, has disputed such an assessment.

“None of them would have survived,” without government help, Geithner said in an interview last December with Bloomberg Television’s “Political Capital with Al Hunt.”
Goldman Sachs took a $100 million overnight loan from the Primary Dealer Credit Facility on March 18, 2008, the day after the facility was created in the wake of Bear Stearns Cos. near collapse and rescue by JPMorgan Chase & Co. At the time, spokesman Michael DuVally said his firm was “testing” the facility and would use it “if doing so makes sense from an economic and funding diversification point of view.”

The firm didn’t borrow any more from the PDCF until Sept. 15, the day that Lehman Brothers filed the largest bankruptcy in U.S. history. On that day Goldman Sachs borrowed $2.5 billion at a 2.25 percent interest rate and furnished the Fed with $2.68 billion of collateral. The firm doubled the amount it borrowed to $5 billion on Sept. 19 and doubled it again to $10 billion on Sept. 22, when Goldman Sachs’s London subsidiary also took its first PDCF loan of $250 million.

Peak Borrowing

At the peak, Goldman Sachs borrowed $24.2 billion on Oct. 15, which included $18 billion for the firm’s U.S. broker-dealer and $6.2 billion for the firm’s London division, the data show. The peak borrowing came two days after the U.S. Treasury Department assembled executives from the country’s nine biggest financial firms and told them they’d be provided with capital injections from the government, with Goldman Sachs receiving $10 billion from the Troubled Asset Relief Program.

In its quarterly filings with the U.S. Securities and Exchange Commission, Goldman Sachs didn’t disclose that it borrowed from the PDCF.

The firm also borrowed from the Term Securities Lending Facility, which offered longer-term funding than the PDCF’s overnight loans. On March 28, 2008, Goldman Sachs borrowed $7 billion from the Fed’s TSLF in exchange for $8.42 billion of collateral that included $3.5 billion in agency-backed mortgage debt and $4.9 billion of non-agency backed mortgage debt. Before the loan was scheduled to mature on April 25, Goldman Sachs borrowed an additional $4 billion on April 11 and $223 million on April 18.

The two largest TSLF loans to Goldman Sachs were $7.5 billion on Dec. 4, 2008, and the same amount on Dec. 31, 2008, the data show. The firm also didn’t disclose its TSLF borrowing in its quarterly SEC filings, although it provided data on its borrowing to the U.S. Treasury


  1. Wenzel,

    From a WSJ report I read yesterday, I caught this tidbit about GS:

    "The data showed Goldman Sachs used an emergency overnight loan program from the Fed 84 times for a total of nearly $600 billion."

    As I pointed out to one GS apologist, is $600B (over half a trillion dollars) enough borrowing to severely overshadow "legitimate" resources they make use of in their daily business? I'm not sure what the relevant comparison would be here but does GS borrow anything close to $600B from private sources, or generate anywhere close to $600B in revenues over a year?

    If you're trying to look at the total GS pie and make a determination of whether they mostly do business in the market and in response to market conditions, or whether they mostly act to profit off of monopoly opportunities enabled by the Fed/govt, is the $600B emergency borrowing figure damning?

  2. @Taylor Conant

    What the hell are you reading WSJ for? They couldn't tell the difference between a bailout and an oatmeal cookie.

    GS never came near borrowing $600 billion. Max it looks like $16 billion. What they did was borrow very short term, so if they borrowed 16 billion for a day and still needed it after that they refinanced for another day. To WSJ this would be a "Total" borrowing of $32 billion, when in fact was a borrowing of $16 billion for 2 days.

  3. Wenzel,

    Fair point. Okay, so then to clarify:

    You're saying they never had an outstanding balance of loans anywhere close to $600B, even if they borrowed $600B on a cumulative basis?

    Is $16B at least a significant number in relation to Goldman's total operations? I see in 2009 they had annual revenues $51.7B and average quarterly revenues of $13B. I don't know if that is a good comparison to use and I don't know what their total volume of borrowing was for any of those periods (the max "outstanding" borrowing).

    How can we use these figures to compare it to Goldman's "legitimate" or market-based business to see if they're mostly relying on the government, substantially relying on the government or only partially relying on the government?

  4. Obviously GS can violate SEC rules with impunity.

    But don't these violations of SEC rules bother investors (as reflected in the GS stock price)?

  5. Robert, are you saying that money borrowed for a short period of time doesn't count as borrowed money? If I borrowed $10 and paid it back in 10 minutes, I would still have borrowed the money If I did that again I would have borrowed a total of $20. How can you say otherwise? You can't pick and choose what you think is borrowed and what isn't. It sounds like you work for GS who really know how to use the balance sheet and PR.

  6. @JR

    A gross amount provides a false picture.IF you borrowed $250,000 on your house and then refinaced the 250,000 and if I went arround saying you borrowed $500,000 on your house, it would provide a completely misleading situation as to your finances.

  7. The Fair Tax could be a first step in defeating federal tyranny

    Read, comment, follow, and share. Start a movement. Join a revolution:

  8. "Fair" and taxation have nothing to do with one another, unless you think there is a form of robbery which might be considered "fair" to its victims.

  9. Bravo Taylor Conant, you are one of the good guys.

    Quote: Taylor Conant said...
    "Fair" and taxation have nothing to do with one another, unless you think there is a form of robbery which might be considered "fair" to its victims. December 5, 2010 6:10 PM Unquote