The FT’s John Gapper thinks it would be a big mistake for Treasury to allow Goldman Sachs to pay its way out of the strictures of the Troubled Asset Relief Program. He writes:
[W]e now know unambiguously that Goldman is a “systemically important financial firm”. In other words, Goldman is too big to fail and would be bailed out by the US government if its balance sheet failed. That privilege should come with weighty conditions.
Note that Goldman’s status is a choice, not a tag it has unwillingly been given. It could avoid this by shrinking itself into an institution like a private equity group or a merchant bank, which can take all the risks it desires because its partners lose everything if it fails.
Goldman does not want to do that because it likes having the engine of its capital markets division and equities operations alongside its advisory and fund management arms. It calculates, probably correctly, that the pay-obsessed Congress is not sufficiently serious to put a new Glass-Steagall Act in its way.
It would be monumentally stupid not to come up with some new way of organizing our financial system after this crisis. Or old way: After being extremely skeptical at first, I’ve been warming up to the idea of a new Glass-Steagall Act to divide conventional banking from other financial activities, although—as Gapper himself put it a while back, “where would you draw the line?” Wherever the line is, I think the partnership form of organization is going to have to make a big-time comeback if Wall Street is to become a place capable of doing business in a sustainable, responsible fashion. So maybe that’s the ticket for Goldman (which was the last of the big Wall Street firms to go from partnership to public company, a mere 10 years ago): As soon as you buy out your outside shareholders and become a partnership again, you can do whatever the heck you want.