squawk

The Great Bank Rush of 2008: What's the Money For?

MichaelZZ:

RE: "The only reason for Goldman Sachs to take a desperate (GS also gave Mr. Buffett 43,000,000 warrants to purchases GS common @ $115 per share) action was because it knew it was experiencing an EC impairment and needed to raise additional EC:


Goldman did the deal with Buffett because it needed to bring the firm into regulatory compliance after converting to a bank holding company. As an investment bank, its leverage was capped at 40:1; as a bank holding company the cap is 12:1. Given Goldman's balance sheet & market conditions, the best strategy was to raise its equity capital rather than reduce the debt on its books. For every $1 of equity raised, it was able to cover $12 of debt on its books. 'Nuff said. Otherwise, good, well thought out post.