Macro Tsimmis

intelligently hedged investment

Goldman Sachs (GS) update—now a bank holding company

Posted by intelledgement on Mon, 22 Sep 08

In case anyone had any remaining doubts about our short sale of Goldman Sachs (GS) shares, that would have been assuaged Sunday, night, when the Federal Reserve made the surprise announcement that the investment banks Goldman and Morgan Stanley (MS) had applied for and been granted bank holding company status. This means that the banks will be able to borrow money from the Fed at the same favorable rates that apply to the likes of Wachovia (WB), Bank of America (BAC), HSBC Holdings (HBC)—all of which we are also short—and other bank holding companies.

In effect, the government is—once again—acting to prop up institutions that have gotten themselves into deep water and are in danger of being swamped. We decry this policy, partly because it tends to prop up the share prices of companies we are short (at least, in theory…in practice, GS shares were down 7% today and BAC, WB, and HBC all declined as well) but mostly because it is a bad policy that wastes public resources to bail out companies that have behaved both stupidly and contrary to the public good and should therefore be allowed to lie in the beds of their own making, be those coffins or whatever. However, we take some solace in the affirmation from those in a better position to know than we are that things at Goldman Sachs are really, really bad.

And note to ourselves: consider shorting Morgan Stanley when the short ban ends on 2 October.

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