Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Madharry who wrote (37987)	5/22/2010 12:47:52 PM
From: Spekulatius	Read Replies (2) \| Respond to of 78462

re GS - Madharry, GS is not borrowing their short term funding from the FED, I never said it that way. They are borrowing it via interbank lending from other too big to fail institutions - I called it quasi guaranteed. This is made easier because they are a bank holding now. FWIW, the FDIC guaranteed LT debt was a great bargain for GS - they took it on in the worst of the crisis - due to the FDIC guarantee they paid close to the going rate for treasuries - a 1B$ gift annually. Clarification -the 1.5B$ in interest for GS was quarterly, which makes it ~6B$ annually - not a bad rate to float ~600B$ in liabilities. Just imagine for a while, GS had to pay 5% interest rates , that would make 30B$ /year! Their entire profit would be gone. That is probably not reasonable since they have other low cost funding sources - the discount window (also run by the Fed) etc. But still, without cheap money, they would have to liquidate a huge amount of their trading operation and their profit would fall. They probably would end up being 1/2 the size and half the profits and could return some excessive funds to shareholders. We would end up with an investment bank and asset managemer with a little gambling on the side. Now it's 80% gambling and 2% other business, all financed by cheap taxpayer guarantees. Maybe they can convert their gambling operation into a hedge fund in this case. I'd guess if you buy for tangible book, you would be OK even in that latter scenario.