Goldman Sachs Concedes Existence of Too Big to Fail
By Simon Johnson - Huffington Post
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The Goldman team shows there was an even larger advantage for huge non-bank financial companies than there was for banks, but they neglect to mention that their company was one of our large non-banks as the crisis intensified. Goldman was allowed to convert to become a bank holding company in September 2008, so that it could access the Fed's discount window (i.e., increase its ability to borrow from the central bank.) This conversion was allowed - or perhaps even urged by officials - precisely because they feared the consequences of Goldman failing.
Goldman executives argued long and hard in September 2008 that they were too big - and complex and generally important - to be allowed to fail. Hank Paulson, then Secretary of the Treasury and former head of Goldman, felt strongly that the continued existence of his firm was essential to the well-functioning of the world economy.
The measured difference in spreads is obviously huge but even greater is the real funding advantage between not being able to borrow from the Fed (think CIT group, $80 billion total assets, which foundered and begged for assistance in fall 2009) and being able to borrow from the Fed (Goldman Sachs, $1.1 trillion total assets when it hit the rocks in mid-September 2008).
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