Blogging Goldman's Agreement II: the fake investor

"WHEREAS, the United States Department of the Treasury (the "Investor") may from time to time agree to purchase shares of preferred stock and warrants from eligible financial institutions which elect to participate in the Troubled Asset Relief Program Capital Purchase Program ("CPP");"

Goldman's agreement with Treasury certainly looks like an ordinary securities purchase agreement. But, as was later revealed, Treasury is not an ordinary investor. For one thing, Treasury doesn't appear to have to power to bind the United States Government. Back in October of 2008, when Goldman signed up for the Capital Purchase Program, the attached executive compensation strings were contained in section 111(b) of the Emergency Economic Stabilzation Act of 2008. Section 4.10 of the securities purchase agreement memorializes the intention of the company to "ensure that its Benefit Plans with respect to Senior Executive Officers comply in all respects with section 111(b) of the EESA."

Then Congress changed the rules. The American Recovery and Reinvestment Act of 2009, passed in February 2009 by the newly-minted 111th Congress, established new, retroactive executive compensation rules for TARP recipients. Effectively, Congress went over Treasury's head and unilateraly amended a bunch of exisiting contracts. This is an emergency and things have been done in a hurry so no one is going to squawk about changed terms, but is it any wonder that TARP recipients want out of these agreements?

See Part 1 of Blogging Goldman's Agreement