If Goldman Returns Aid, Will Others?

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Any good news these days — not that there is much — seems to come with an asterisk. The market is popping, but, as some bears ask, is it just a setup for another bigger fall?

So here's something else to ponder: Goldman Sachs is planning to give back its TARP money soon. Very soon, actually — ideally within the next month, according to people involved in the process. That's a much quicker timetable than the end-of-year goal previously set out by Lloyd C. Blankfein, Goldman Sachs's chief executive. As taxpayers, we should be thrilled that Goldman is going to quickly pay back the $10 billion it was given last October, right?

Well, not so fast.

Goldman's sudden urgency to return the money stems, in part, from the uproar over A.I.G.'s bonuses last week, and the criticism of Goldman over revelations that the firm had been the largest recipient of government money as a counterparty of bets placed with A.I.G. It's also paying a hefty 5 percent interest payment to taxpayers for that money.

"It's just impossible to run our business in this environment," said one senior Goldman executive who insisted on not being quoted by name for fear of crossing the Treasury Department.

Of course, another factor in Goldman's decision to return the money is that it can: the firm is known to be sitting on a balance sheet with about $100 billion of available cash, so a mere $10 billion should be no problem.

Top Goldman managers held a series of meetings last week and tentatively decided to give the money back even more quickly than originally planned, people involved in the talks said. Goldman officials also privately held talks with Barney Frank, the Democratic chairman of the House Financial Services committee, about the subject, these people said.

They are expected to begin discussions with the Treasury Department as early as next week when Mr. Blankfein returns to New York from vacation. A spokesman for Goldman declined to comment.

If this plays out as Goldman hopes, the good news for taxpayers, of course, is that we will be made whole.

But here's the asterisk, and it's a big one. If Goldman succeeds in returning our money, it could put pressure on other banks to give their money back, too, lest they appear weak.

This, you'll recall, was the logic used by the former Treasury secretary, Henry M. Paulson, last October when he strong-armed some of the chief executives of the nine largest banks to participate in the Treasury plan to inject $165 billion of capital into the banking system, even though some felt they didn't need it.

The problem now is that many of them may still need the money. And yet they may try to follow Goldman's lead. (Goldman envy can be costly — we saw what happened to Merrill Lynch when it tried to play catch-up by making riskier bets).

Already, some banks are bragging that they are starting to make money on an operating basis from trading profits and bigger lending margins.

To some, these pronouncements can make banks look like an overzealous kid on a bike, claiming he really doesn't need his training wheels, as he strains to keep from wobbling.

It could create even more chaos in the financial system if some banks gave back the TARP money, only to howl soon after that they still needed it after all. "We see another $1.5 to $2 trillion of as yet unrecognized losses from U.S. assets still to hit global financial sector balance sheets and challenge its institutions," said Daniel Alpert, a managing director of Westwood Capital.

"The near daily announcements over the past two weeks, by money-center banks and finance companies, that they are making money this year on an operating income basis, have become borderline irresponsible, relative to continued deterioration in value of the assets on their balance sheets and the continuing impact of a worsening recession," he added.

Goldman, for lots of obvious reasons, wants to separate itself from this pack, and returning taxpayer money would certainly help. The firm's famously well-paid executives — Mr. Blankfein made $60 million in 2007 (some of which was in stock, which has since fallen in value) — would be taxed at 90 percent of their bonuses if a bill passed by the House last week were to become law.

Goldman would also like to put an end to the whisper campaigns about ties between it and Mr. Paulson (and Timothy F. Geithner, too, for that matter).

Goldman, in an unusual move, considering its well-known reputation for secrecy, held a conference call with journalists last week to try to dispel what it said was a myth about its exposure to A.I.G. Goldman, in an artfully worded explanation, contended it was fully hedged, even as it accepted nearly $13 billion of the bailout money A.I.G. got from the government.

And then there is the simple matter that Wall Street and Washington make strange bedfellows.

Paying back the TARP money would probably give Goldman Sachs a bigger lead over its rivals. With a Yankees-like payroll, it will continue to be able to steal the best talent from weaker firms that still have TARP money and are subject to restrictions on pay and the like.

"The guys who have the least chains around them will be able to run the fastest," said Meredith Whitney, the banking analyst.

And who wouldn't want to unshackle themselves?

Richard M. Kovacevich, chairman of Wells Fargo, expressed outrage at the TARP money he accepted and the strings that might be attached to it after the bonus bill passed last week.

"Is this America, when you can do what your government asks you to do and then retroactively you also have additional conditions put on?" he asked after a speech at Stanford University, according to Reuters. He went on to say that he wished he had never accepted the TARP money.

"We would have been able to raise private capital at that time, and with that private capital, given what is going on today, it is very unlikely that we would have had to reduce the dividend." Whether that is true or not remains an open question, but you can bet he would like to give the money back too.

Ms. Whitney, however, said she wasn't sure whether Wells Fargo was in a strong enough position to do so. The same goes for Citigroup and Bank of America. Perhaps the only firm other than Goldman that analysts feel confident can give the money back is JPMorgan Chase, which has expressed its own desire to return the cash.

It remains possible that Treasury could try to persuade Goldman to hold off on paying the money back until the economy stabilized. That could stir up a new flavor of public outrage.