Why Treasury Doesn’t Want Goldman’s Money

In a perfect world one or more of the recipients of TARP money paying it back would be considered a good thing. We don’t live in a perfect world.

In the New York Times, Andrew Ross Sorkin, notes that Goldman may well pay back the $10 billion it received but the Treasury might not want them to do it right away. The problem? If Goldman and some others pay their loans back, those that don’t will be painted as weak sisters.

Recall, that some of the recipients say they never needed the money but Paulson made them take it. Everyone had to participate lest the world find out that all were not equal. If some now start bolting, those that swore that they only took the money out of patriotism are going to have to either step up to the plate or eat a little crow. The fear is that pride might overcome good sense and some banks that really do need to keep the money for awhile will try and return it.

Sorkin also points out the advantages of getting out from under the TARP restrictions. Specifically, you get out from under the salary and bonus restrictions so you can pay yourself more money and you can go out and poach the best and brightest from your competition.

It all demonstrates just how weird the whole situation has become. A great object lesson in the distortions that comes with government control of the private sector. As the Geithner PPIP plans start to get off the ground expect much more of this. Also keep all of this in mind as you see the new regulatory regime rolled out by the administration and Congress.

Personally, I hope Goldman ups the ante. We need these guys to get back to business. A little competition might cause people to get their houses in order a bit more quickly.

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