Goldman Sachs (NYSE:GS) has paid the government $1.1 billion to redeem the warrants it issued in conjunction with the TARP money that was injected into the company.
Goldman originally borrowed was strongly encouraged to accept $10 billion from the government in the initial round of TARP advances. In addition to the price it paid to the government to redeem the warrants, Goldman paid $318 million in dividends on the TARP advance. Goldman calculates the Treasury realized an annualized 23% return on its “investment.”
So at long last we have discovered a way for the government to actually generate positive returns. Inject money into companies whether they want it or not, dictate the terms of the investment and then make life so miserable for them that they will do anything to pay it back.
By the way, the $1.1 billion that Goldman paid the Treasury for the warrants is based on the Treasury’s calculation of the value of the warrants. It’s a pound of flesh but Goldman probably would have paid double just to get this sorry exercise over and done with.