Don't Hate On Goldman For Cashing In On CIT

sharkattack

Are you upset that Goldman Sachs (GS) stands to collect big time if CIT goes under? Don’t be. As the pseudonymous Wall Street pro anal_yst over at The Atlantic Business Chanel reminds us, this is what’s known as prudent, responsible business.

Henry Blodget has a post up at Clusterstock/Business Insider expressing outrage that if CIT goes the bankruptcy route, the “evil vampire squids” at Goldman Sachs will reap a $1 billion payment before taxpayers. To clarify, this is a $1 billion “make-whole” payment (similar to a lump-sum payment, where the borrower pays off all future interest after a bond is called early) and would cover a 20-year deal in which CIT had agreed to pay Goldman about $85 million annually for 10 years, according to Bloomberg.

So sayeth Blodget:

The U.S. taxpayer, meanwhile, who should have been entitled to the usual last-in-first-out protection any private investor would have demanded (as Goldman did), will lose $2.3 billion.

Note the key phrase there, in bold (my emphasis). As I commented on the story, no one should be attacking Goldman for exercising prudent lending practices. If there is anyone to be outraged at, its the brain trust at the Treasury for extending rescue financing to CIT without exercising similar prudence.

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