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Goldman chief sees economy as 'a lot better today'

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TIM PARADIS | May 8, 2009 03:19 PM EST | AP

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NEW YORK — Goldman Sachs Group Inc. Chairman Lloyd Blankfein sounded an upbeat note about the economy at the company's annual meeting Friday.

"It's a lot better today even though you could still argue about whether the end of this recession will be sooner or later," he said. "There are reasons for optimism."

He said the economy is in better shape than in the fall when credit had dried up after the collapse of the brokerage Lehman Brothers Holdings Inc.

Goldman was among the banks Thursday that the government didn't ask to raise more capital following a review of the books of the nation's 19 largest financial institutions.

Blankfein said Goldman expects to "soon" repay the $10 billion in government loans it received last fall under the U.S. Treasury Department's plan to invest in hundreds of banks to try to revive frozen credit markets.

Asked by a shareholder whether the company would write a check by year-end, he said, "I would expect so." Goldman raised $5 billion in April through a sale of shares designed to raise money for the repayment.

American Express Co. on Thursday became the first major financial institution to formally request permission to return money under the Troubled Asset Relief Program, or TARP.

Goldman, like others seeking to hand back the money, is eager to move out from under the restraints imposed by the government, which include caps on pay.

At the meeting not far from Goldman's Lower Manhattan headquarters, Blankfein read a three-page outline of the company's compensation principles, which include discouraging "excessive or concentrated" risk-taking and evaluating workers beyond what they contribute in a single year.

"We know what a hot button this is for people," he said, referring to pay packages on Wall Street seen as lavish by many in Washington and elsewhere.

Misplaced bets on mortgages and complex financial instruments are part of what felled Lehman Brothers last September and touched off the freeze in credit. Big bets meant big pay packages but there was little recourse when the trades soured.

"Employees should think and act like long-term shareholders," Blankfein said.

He said so-called clawbacks should be in place to strip workers of pay that has already been awarded if they are found to have endangered the company.

Blankfein said he doesn't expect the company will cut workers. "I feel like the business is off its lowest ebb," he said.

Goldman shares rose $3.92, or 2.9 percent, to $137.65 in afternoon trading.

Board member Stephen Friedman, who resigned Thursday as chairman of the Federal Reserve Bank of New York's board, defended his conduct Friday in serving in both posts.

Friedman was the subject of a Wall Street Journal story that raised questions about his ties to Goldman.

"I followed the rules as I always have," he said. Friedman said he received a waiver to serve another year.

"I felt it was my obligation to continue to serve," he said.

Goldman received the Fed's OK late last year to become a bank holding company as a way to boosts assets. During that time Friedman sat on Goldman's board and had a large holding in the company, a violation of Fed policy, the Journal reported.

The New York Fed's general counsel Thomas Baxter says Friedman's purchases of Goldman stock didn't violate the Fed's rules.