GoldCiti? Goldman called Citi about a merger

If anyone still hadn't fully digested the severity of the financial crisis, here's additional proof. And, if you thought financial firms just sat back and waited for government aide, you have been wrong. If anyone thought Goldman Sachs (NYSE: GS) was somehow unaffected by Lehman's bankruptcy, or wasn't trying to be proactive once it had happened, then the Financial Times over the weekend revealed just how much Goldman was affected. In fact, there was a lot going on -- and maybe still is -- leading up to the government bailout.

Goldman Sachs CEO Blankfein actually called Citigroup (NYSE: C)'s Pandit last month -- after Goldman changed status to commercial bank -- to discuss a merger. While it is reported that Pandit rejected the idea immediately, this kind of call underscores the severity of the crisis and all the secretive talks that never came to light, with and without the government's blessing, to try and resolve problems.

While Citigroup seemed more interested in Wachovia recently (losing out to Wells Fargo (NYSE: WFC), it may have wanted to consider Goldman's suggestion more seriously as the combined strengths would have been remarkable. With Citi's investment banking operation, it is, however, nearly unthinkable the amount of layoffs this merger would have caused -- much more than the current layoffs each firm is undertaking. And more shocking, it would have caused Goldman to lose its independence.

For now, such a merger is unnecessary given the Treasury's capital injection, not to mention Buffett's investment in Goldman. So far, Citi, though, hasn't seemed to move on any deals, or win the ones it does want.