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Goldman Doesn't Assume Any Government Guarantee, Letter to the Editor, Financial Times by Lucas van Praag

Financial Times - 13 Apr 2010 - By Lucas van Praag
© 2010 The Financial Times Limited. All rights reserved

Sir, In your editorial "Goldman on trial" (April 8), you argue that Goldman Sachs enjoys an implicit state guarantee and that, because of this, our profits are "generated on the back of the US government's balance sheet".

Please permit me to make two points. First, we do not run our business assuming any kind of guarantee from the government. We have always viewed liquidity as the single most important consideration in managing our risk, which is one of the reasons we currently hold approximately $170bn in cash and liquid securities.

Second, unlike a commercial bank, our profitability is not a function of net interest margin. In other words, we are not in the business of borrowing cheaply and lending at a higher rate.

On AIG, we have always agreed that the system benefited from the bail-out of AIG, but your point about our hedges not surviving is misplaced. The reason for this is that we had margin and collateral requirements associated with the hedges. In other words, we held the cash.

It is impossible to know how the financial system would have fared if AIG had failed but, as we've said on many occasions, we are grateful that we didn't have to find out.