Treasury Secretary Tim Geithner questioned Lloyd Blankfein’s claims made in a Vanity Fair article that Goldman Sachs (GS) could have survived the financial crisis on its own without government assistance.
“None of them would have survived a situation in which we had let that fire try to burn itself out,” the US Treasury secretary said in an interview with Bloomberg Television. Mr. Geithner added that other Wall Street firms were also at risk of being wiped out.
Goldman’ Sachs CEO, Lloyd Blankfein, told Vanity Fair magazine in an article published online this week that he believed his company could have navigated the financial turmoil on its own without government intervention. Goldman’s president, Gary Cohn, was more definitive on his assertion, “I think we would not have failed,” he told the magazine. “We had cash”.
It is ironic listening to these claims when it is a well-know fact that at the height of the financial crisis many banks were literally on the ropes as they were leaking cash and were in real danger of running out. What’s even more ironic is that Geithner — who rightly took issue with Blankfein and Cohn’s claims — has been constantly criticized for providing the money to enable international insurer (AIG) to pay out tens of billions due under CDS agreements. And undeniably, a major recipient of these payments was non other than Goldman Sachs, who bagged over $12 billion. Without this money, Goldman was in imminent danger based on the assumption that a subsequent bankruptcy of AIG would have been enough to push the firm over the edge, and perhaps force it to declare bankruptcy.
Geithner emphasized during his Bloomberg interview that “None of them [banks] would have survived… including Wall Street’s big institutions” had the government stood aside and let the crisis run its course, he said. “The entire U.S. financial system and all the major firms in the country, and even small banks across the country, were at that moment at the middle of a classic run, a classic bank run.”
Regardless of Goldman’s claims, the New York-based firm — the fifth-largest U.S. bank by assets which benefited significantly from the bailout of the entire banking system — would ultimately have failed along with other financial institution if the regulators hadn’t acted as they did. The reality is the govt’s actions averted a major systemic problem.