THE BUNNY TRAIL

Back from a wonderful Easter weekend with all of the grandkids. If you think dealing with the financial crisis is hard, try dealing with 2 year old triplets produced by son #2 and bride. It's like herding cats. How those two do it I have no idea but The Leader and Our Hero should give them a call for some advice. It will undoubtedly be better than some they have been receiving.

When we last visited the state of play, Wells Fargo had just released spectacular earnings as predicted by your humble scribe (see: "He sprang to his saddle..." March 11) Today, Goldman Sachs "beat the street" with a reported net of $1.8 billion. That's a lot of money for a firm reportedly in dire straits just a few short months ago. I'm willing to admit Goldman is good...better that most probably...but I still find it difficult to figure out how they manage to pull off coups such as that today where they successfully issued 5 million shares of common at $123 a share which and then watch it crash to $113 at the close. The $1.8 billion came almost exclusively from trading, and fixed income trading if one believes the release (there is no reason not to) but that is a hell of a lot of profit from a business with razor thin margins. Before September last, Goldie was an investment bank with gearing applicable to their position in the business.; read HIGH. Today, they are a commercial bank with gearing supposedly governed by the Basel Rules and monitored by the Fed. Forgive me, I love the number, but $1.8 Bil out of one facet of the business leads me to believe that the balance sheet mid-month was a Tad bit larger than one might expect it to be for a good, commercial bank leverage-wise. But it is what it is and there is $6.5 Billion more in tier one capital and a real headache for Our Hero.

Goldman has wasted no time in letting it be known that Plan A is repay the TARP money as soon as possible so that they can get beck to paying themselves obscene amounts of money unhampered by the silly thoughts of The Leader and and those of the dimmest of legislators. With a new injection of capital and bright prospects for the future (at least in their minds) they seem to have a strong argument. Although one might think that the return of taxpayer's dollars, the evidence of the ability to attract permanent capital at remarkable levels and the hope of a bright tomorrow fulfills all that the Administration has been asking for, there seems to be more than a bit of hesitation of its part. Mind you, there is still the sticky question of how does one price the warrants that the Government holds and would be forced to cash if the TARP funds are to be repaid (raising the specter of how does one price Our Hero's plan in general), but surely this can be worked out? Could it be, one asks, that the Administration has a bit more on its mind than a mere "tiding over" of the financial sector until a better day, and that the implied control that TARP and Our Hero's plan is at least as important? The implications of this position, long whispered in the press and on the Street, are perhaps being focused far too quickly for the Administration's liking as a result of the surprising strength of a portion, at least, of the financial sector. A plethora of good results over the next few weeks in, once again, a wonderful banking environment may well focus this issue and none too soon.

A bit of a sad note. last week, the Wall Street Journal carried a story about the absence of Paul Volcker from the public view despite his highly publicized joining of the Administration's financial team, his appointment as Chair of an advisory commission and the very public promise by The Leader that Mr. Volcker would have an important role to play going forward. Now some of you might have gotten the impression that I am not entirely happy with some of the positions taken by this Administration but this was not one of them. Paul Volcker is one of the giants (no pun intended this time) in the financial sector and his presence and learned counsel is needed and would be most welcome. Unfortunately, he did nothing to dispel the implications in the article that he is being...ah, underutilized. This is more than unfortunate and one would hope would be reversed. If not, one can only come to the view that in the twilight of a distinguished career of public service, a very fine man was used quite shamelessly to lend credibility to an otherwise less than ready group. I hope I am wrong, but I fear that I am not.