Friday, July 17, 2009

Goldman Insatiable Sachs

While Citigroup, Bank of America, and Morgan Stanley, Troubled Asset Relief Program recipients are finding ways to circumvent TARP compensation restrictions, Goldman Sachs, having “paid back,” those funds, may brazenly pay out some $773,000 per employee as total compensation in 2009. This comes on its reported net earnings of $1.81 billion and revenues of $9.43 billion for the quarter ending March, 2009, a nifty operating profit of almost 20% in the depths of the “Great Recession.” Don’t get me wrong, I’m all for profit and the capitalist system, but Goldman had taken TARP funds, and was the largest recipient of AIG TARP money due to collateral calls on mortgage related Collateralized Debt Obligations, and presumably AIG (we, the taxpayer) may be on the hook for more. The herd of financial firms has thinned and we have handed them monopoly-like power.

While I recognize that the financial mess was primarily an inherited one by the Obama administration, we are not addressing the toxic assets that are still haunting the books of many financial institutions. Bad mortgages and a weak real estate market persist, and unemployment continues to grow. We may have forestalled the complete seizure of the financial system, but the structural weaknesses remain, and taxpayers are underwriting a postponement of a solution, benefiting financial institutions such as Goldman.

Paul Krugman at the New York Times makes these key points about GS’ earnings and compensation plans in his column, The Joy of Sachs:

First, it tells us that Goldman is very good at what it does. Unfortunately, what it does is bad for America.

Second, it shows that Wall Street’s bad habits — above all, the system of compensation that helped cause the financial crisis — have not gone away.

Third, it shows that by rescuing the financial system without reforming it, Washington has done nothing to protect us from a new crisis, and, in fact, has made another crisis more likely.

His conclusions are must reading. Wall Street seems to be calling the shots in Washington, all of this while reported unemployment flirts with 10% and with real unemployment substantially higher as dispirited workers who have given up looking for a job, or part-timers who want a full-time job, are not even counted. Sounds like a good time for record payouts at Goldman Sachs.

As Mary Elizabeth Lease wrote in the early 1890’s, “It is no longer a government of the people, by the people, and for the people, but a government of Wall Street, by Wall Street, and for Wall Street.” Hat tip: Got Shares? (