Macro Tsimmis

intelligently hedged investment

Goldman Sachs (GS) update #2—the fix is in

Posted by intelledgement on Mon, 24 Nov 08

Great news for Goldman Sachs (GS) today: President-elect Barack Obama announced his intention to nominate Timothy Geithner to be Secretary of the Treasury. While not a Goldman alumnus, Geithner was undersecretary as a protégé of then-Secretary of the Treasury—and former Goldman CEO—Robert Rubin. More to the point, as President of the New York Fed earlier this year, Geithner managed the demise/sale of Bear Stearns and was a key player—working with current Secretary of the Treasury (and former Goldman CEO) Hank Paulsen—in the decision to let Goldman competitor Lehman Brothers go bankrupt while orchestrating rescues of Merrill Lynch and Goldman debtor AIG.

The takeaway is that Geithner is not only committed to the bank bailout strategy, but a key architect of it. With this nomination—as well as the appointment of Larry Summers (for whom Geithner also worked when the former was Secretary of the Treasury) to head the National Economic Council, also announced today—Obama has effectively ended any hope that his economic policy might differ in any substantial way from that of the current administration. We will get more easy credit, more deficit spending, more easy money, more desperate attempts to paper over the cracks in the broken system rather than a serious attempt at reform.

We should probably cash in our financial company shorts here. GS was up 17% today, BAC was +24%, HBC was +4%, and WFC was +20%. But there is still substantial systemic risk in play—and in truth, most of these companies probably remain on thin ice (not to mention that in the long run, we’d be better off without them)—so we will hold on for now just to be sure an immediate collapse has actually been averted.

Previous banking company short-related posts:

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