Countdown to January 18: Goldman’s Bonus Day

Sources say that Goldman Sachs’ bonuses will be announced on Monday, January 18, and actually paid sometime between February 4 and February 7.  In previous years, the bonuses were paid in early January – but the financial year shifted when Goldman became a bank holding company.

For critics of the company and its fellow travelers, the timing could not be better.

Anxiety levels about the financial sector are on the increase, even on Capitol Hill.  The tension between high profits in banking and stress in the rest of the economy becomes increasingly a topic of discussion across the nation.

And you are hard pressed to find any government official who has not by now woken up – in private – to the dangerous hubris of big banks.  To add insult to injury (and many other insults), the Bank for International Settlements is holding a meeting to discuss excessive risk-taking in the financial sector; according to CNBC Thursday morning, Lloyd Blankfein of Goldman and Jamie Dimon of JPMorgan Chase were invited but did not show up (they really are very busy).

The smart strategy for Goldman in this context would be to pay no bonus for 2009 (in cash, stock or any other form), but this is not possible for three reasons.

  1. Goldman would need to make a credible commitment to employees to “take care of them next year”.  But any legally binding commitment would be as good as a cash bonus (who knows, they could even be traded over-the-counter).  And any verbal promises would be completely noncredible – among other things, Goldman cannot know for sure how the coming perfect storm will play out: the supertax on bankers in Europe, Sheila Bair’s good idea of tying deposit insurance premiums to the risk in banks’ compensation structures, Hank Paulson’s memoir on February 1, Chris Dodd’s resignation and the collapse of any meaningful Obama financial reform – allowing the Democrats to wake up to how they can run hard against Big Finance in 2010, etc.  And besides, how much would you trust your boss at Goldman?  The old culture there is gone.
  2. For all their communication blunders in recent months (internally they wince at “God’s work“), the responsible executives think they can hide the size of the bonuses or talk more about how stock and option grants encourage the right kind of behavior or put in some sophisticated clawback language.  Some of the best lawyers in the country are working very hard on this question, but it’s all for naught.  The headline bonus number will be at least $20bn and if they try to hide this with sophisticated mumbo-jumbo, that will only bring greater attention and spread the pain over many news cycles as we run through denials, further exposures, more denials, and damning details.  When you’re in a hole, stop digging – Goldman is talking with top PR consultants; perhaps they should bring in Tiger Woods to advise on this point.
  3. The most important reason is also Goldman’s greatest weakness: throughout the organization, people really think they are worth the money.  But remember these facts and keep track of how many times you hear them repeated: Goldman Sachs essentially failed in September 2008; it was saved by extraordinary and unprecedented government efforts at the end of September and subsequently (particularly through its conversion to a bank holding company, which gave access to the Fed’s discount window); partly this treatment was shaped by the special favor with which Hank Paulson viewed Goldman (documented in nauseating detail in Andrew Ross Sorkin’s Too Big To Fail); and the strategy of allowing Goldman to recapitalize through taking huge risk with an unconditional government guarantee in 2009 only makes sense if they use the proceeds to boost their capital – not if they pay out massive bonuses.  In any reasonable economic analysis, the entire bonus pool at Goldman should be paid – with gracious thanks – to the government.

The refrain that will be repeated by Goldman executives is: We need to pay the bonuses in order to keep the best people.  But think about this like a stockholder for a moment – where exactly would these people go to work if this year’s bonus is set at zero?

Among the Casino Banks, Goldman is currently the best place to work and, looking forward, that’s where folks will make the most money.  Hedge funds are not hiring in large numbers – most of the new financial sector jobs are at the other Too Big To Fail firms, who are now bringing people back (naturally).

Goldman’s management should come to its senses and pay no bonuses of any kind to anyone; no good people would leave.  Fortunately, while the executives who run Goldman are smart, they are not that smart.  The bonuses they announce on January 18 and pay in early February will become the rallying point for real reform.

By Simon Johnson

55 responses to “Countdown to January 18: Goldman’s Bonus Day

  1. The blagues will make sure of it.

  2. Thanks for the mention of disgruntled stockholders. I don’t understand why this hasn’t gotten more attention. Supposedly, under capitalism, the first responsibility of firms is to their shareholders. This seems to have been superseded by ridiculous payments to company management and staff.

    Once I realized this, I sold all stock in my portfolio and cashed out. The rules of the game have been changed; only a fool would participate once you’ve realised it.

  3. But remember these facts and keep track of how many times you hear them repeated: Goldman Sachs essentially failed in September 2008; it was saved by extraordinary and unprecedented government efforts… In any reasonable economic analysis, the entire bonus pool at Goldman should be paid – with gracious thanks – to the government.

    Yes indeed.

    The truth which should be broadcast everywhere is that we the people OWN Goldman Sachs, in perpetuity.

    It was and is insolvent, it failed, only taxpayer money was used to zombify it.

    That our corrupt government, having bought it “on our behalf”, then simply handed it right back to the Keystone Kriminals who ran it into the ground in the first place, doesn’t change the fact of ownership.

    GS is and forever will be for as long as it still exists a welfare state parasite. It has not, will not, and cannot ever again “earn” a cent of legitimate “profit”, as it is absolutely dependent upon the welfare it looted from the taxpayer.

    There’s no way it could ever pay back what it owes.

    Of course, GS wasn’t “earning” money “capitalistically” in the first place, but just running con jobs in an artificial environment generated by friendly government corruption.

    And that’s all it continues to do, running rigged casino games via HFT and other scams.

    According to Zero Hedge they’re not even very good at trading

    http://www.zerohedge.com/article/exclusive-forensic-reconstruction-goldmans-proprietary-trading-detail-throughout-2008

    but simply can use their entrenched position for extortion and rent-raking.

    Yup, it’s quite a world where they’re going to be giving out “bonuses”.

    (And then there’s all the other bank rackets who are as bad or worse. It’s at least a semi-decent sign that the two rackets who have so far announced bonuses, GS and Wells, both blinked and said they’d dispense them via some convoluted process. They certainly would have preferred the more direct route.)

  4. Mr. Johnson, can you or someone please explain to me why these clowns aren’t msde to use their profits to boost their net capital reserves so we don’t have to bail them out the next time they’re on the wrong side of the trade?

    Why in God’s name should they be allowed to distribute these profits among themselves and then borrow from the taxpayer via the fed funds rate of .25%, lever it up ten fold and speculate with it wildly in the same never-ending game of heads-they-win, tails-we-lose? Are we that big a chump as taxpayers?

    What is going on with Bernake, Geithner and Congress. Are they total eunuchs?

    What is wrong with our legislators!!! So many ivy league educations…So many ineffectual tools!

  5. It’s worth noting, I saw on the Rachel Maddow show that they think that Democrat Richard Blumenthal has a better chance of winning the political race for Dodd’s seat than Dodd would have if he stayed in. I know very little about Blumenthal, but at first glance it seems there is hope there.

  6. “What is going on with Bernake, Geithner and Congress. Are they total eunuchs?”

    Pretty much. Body scan all of them on national TV!

  7. 1) this is not the carol above at 7:39 am, but the carol from the last several months.

    +
    2) “The bonuses they announce on January 18 and pay in early February will become the rallying point for real reform.”

    I wish it would be true, but I do not see people actively rallying.

    quote:
    The banking committee is the second-largest in Congress and is known as a “money committee” because joining it makes fundraising, especially from donors with financial interests litigated by the panel, significantly easier.

    The Democratic leadership chose to embrace this concept, setting up the committee as an ATM for vulnerable rookies. Eleven freshman representatives from conservative-leaning districts, designated as “frontline” members, have been given precious spots on the committee.

    In short, by setting up the committee as a place for shaky Democrats from red districts to pad their campaign coffers, leadership made a choice to prioritize fundraising over the passage of strong legislation.
    end quote

    http://www.huffingtonpost.com/2009/12/29/the-cash-committee-how-wa_n_402373.html

    please read the rest (very interesting, and depressing) and realize that there is no h o p e that congress will ever c h a n g e.
    Massive numbers of people, protesting in the streets, is the only way legislation of bonus banksters will change. There were only 5000 protesters at the banksters meeting in Chicago. No people protesting, hence no fin. reform.

    +
    3) “no bonus for 2009 (in cash, stock or any other form),”

    Simon you’re absol;utely right to not fall for the bonus as stock nonsense. Plenty of executives have sold shares recently in exchange for many million $$. Their stock will be replenished with the bonus. End result: they just got many millions cash.

    +
    4) “with an unconditional government guarantee”

    This is one of the many, many outrageously lacks of action by the government. Giving and lending all those billions without any condition. The government and regulators knew full well that what they were doing was hugely unfair to the taxpayers and main street. See e.g. Geithner, then NY Fed boss, not wanting AIG to obey it’s SEC disclosure requirements, as was revealed yesterday. It would have been so simple and just to have prescribed how banks should use the profits from the government aid. Most importantly: it was the only time government could have prescribed anything at all. Now they don”t even meet the president at his request.

    +
    5) “particularly through its conversion to a bank holding company,”

    It deserves repeating, time and again, that GS changed to bank holding status only in name. They are NOT a bank: they do not take deposits and lend to small businesses. They only get free money from Bubblenanke.

  8. markets.aurelius

    Simon, to your point, here’s a great post on the mechanics of how “talented” trading desks make money:

    http://seekingalpha.com/article/181527-goldman-sachs-s-director-conveniently-misses-the-point?source=email

    And this is in addition to the subsidized debt still on the books. Remember, this is the firm that in the first and second quarters of 2009 was telling its creditors that without the full faith and credit of the US Govt supporting its debt it would cease to exist, all of which is in GS’s 10q and k for ’08. They still enjoy the ff+c of the govt, and the market acknowledges this by keeping its credit spread to USTs next to nothing. Talk about playing with the house’s money.

    All that, and no obligation to perform any banking functions — those pedestrian tasks like lending and credit intermediation for productive investments. And no risk of failure, regardless of the risk undertaken.

    So, a perfectly convex profit function, which translates into a perfectly convex payout. That is the genius of GS — not its trading or financial acumen, but its ability to transform itself into a ward of the state while retaining all of the profit. Absolutely brilliant.

  9. bungalowbill

    SJ: “Goldman would need to make a credible commitment to employees to “take care of them next year”. But any legally binding commitment would be as good as a cash bonus (who knows, they could ever be traded over-the-counter).”

    ROTFLMAO! I didn’t know SJ could be so funny!

  10. Simon’s language like

    “reckless risktaking by banks considered Too Big To Fail”

    is ok for economists, but it’s euphemistic.

    The truth is that they act to maximum personal advantage no matter what it looks like as long as it can conceivably meet the letter of the law. And if they want to do something clearly illegal, they get the law changed.

    It’s not “reckless risk taking”. With respect to the government, it’s “government arbitrage”, or “screw the taxpayer” or “asymmetric returns”. With respect to customers it’s “milk them dry then take the meat”. With respect to equity holders it’s “get the cash now and take equity as an unexpected bonus”. With respect to bondholders it’s “other people’s money, with public guarantees, who cares?”

    It’s not reckless. It’s intentional. Stronger language is needed.

    “Maximizing counterparty losses including for the US taxpayer” doesn’t quite have the right ring to it, but it’s the right idea.

  11. I totally disagree with you that “no good people would leave”.
    But my point is another one: Given your proposal has to be industry wide ie. that no bonuses would be paid by any firm in the finance industry owing to implicit government support, you are out of your mind to think that anyone will bother to do any work at all next year. And my personal opinion is that the economic recovery is not sufficiently underway to be able to do without a motivated financial sector.
    You might think of it as a ‘bonus’, but plenty of other people know it is just a means of keeping fixed costs down ie. your proposal is really of an extreme pay cut across the industry to the tune of 80% perhaps more. The socialists of course all smile with glee at the idea of such a pay cut (‘narrow the gap between rich poor by bringing down the rich’) but what I’m saying is, the heart of capitalism will not drop arms and take up your socialist values. I think you are a bit deluded to assume productivity will be unaffected, but I am clearly more capitalist than you. The people in the industry I would hazard a guess you are really trying to impact are those senior people who took the directional decisions five years or so ago. But if you cut pay for these people by 90% then they simply retire and manage their own wealth for what would now be a similar return. Those who say well others will then quickly take up those posts for less money are somehow under the impression these people are blind to the events that would have promoted them.
    Pay peanuts, get monkeys.
    And to the people who no doubt will say ‘they’re all monkeys anyway’ how come the recruitment process is still able to be so demanding and there are still so many applicants per place from the best universities in the world?

  12. It’s the line in that argument: “The refrain that will be repeated by Goldman executives is: We need to pay the bonuses in order to keep the best people.”

    Bonus incentives to attract and retain the best and the “brightest”—the U.S. economy almost tanked, these very banks almost went under themselves – and they still want their year-end bonuses — what planet shall we say these people are on?

    The same argument was floating around regarding the derivative division at AIG. They needed to keep the knowledgeable employees there in order to unwind those complicated instruments, thereby the inference being, warranting those year-end bonuses in order to maintain and resolve the company’s near death experience. The formulas to calculate value and risk may have been complicated and beyond the understanding for most of us, but the outcome obviously reflected some mistakes. The more weighty factors that probably contributed to AIG’s downfall – the rating agencies complicity, lack of insurance industry regulation (although, not is the case with traditional reinsurance (insurers insuring other insurers)), and the federal government’s own lack of regulations, and ineptness.

  13. Because there are a lot of sociopathic monkeys in this country.

  14. Cheers!

    It is intentional and it is the institutional structure that Johnson is challenging and needs to be changed. Nevertheless, as you said it is a catch 22 situation if they do not like the laws they lobby against them and most of the time change them.

    With mid-term elections coming up it is important to continue to bring the noise. The public is not stupid they now that these banks are still standing only due to taxpayer largesse.

    Good clip from Moyers: http://www.pbs.org/moyers/journal/12182009/watch2.html

  15. I was so encouraged by your comments on “On Point” that I am going to the considerable trouble to switch my accounts from Wachovia to my local bank. I’m sick of getting ripped of $8 just for adding up my deposit slip incorrectly.

  16. C Jones said “the heart of capitalism will not drop arms and take up your socialist values”

    Really?, the taxpayer bailout of the investment/ commercial banks, AIG, automakers, etc IS socialism. Privatization of profits and socialization of risk has been the mantra since the implementation of “capitalism.” Taxpayer bailouts are the safety-net of industry welfare —capitalism. from new american: “Back in 1932, the railroads deemed too big to fail and J.P. Morgan ruled the global financial roost, President Hoover’s Reconstruction Finance Corporation — the Depression-era equivalent of the Emergency Economic Stabilization Act of 2008 — loaned the then-considerable sum of $5.75 million to Missouri Pacific Railroad to enable it to pay off its debt to J.P. Morgan and Company No sooner had the debt been paid than Missouri Pacific was allowed to go bankrupt. The big stakeholders in the railroad and the bankers that owned its debts were happy, and the American public was stuck with the bill.” Sound familiar?

    Is there an industry that doesn’t have a government contract and/or received government subsidies, bailouts?

    Wash, rinse, repeat……

    Capitalism is a myth.

  17. How come enterprising young kids in the inner city end up selling drugs? Cause that’s where the money is.

    When massive, sand-pounding deflation lingers for another decade, we’ll see how many traders are still around. If we knock america’s best talent out of government-based rent-seeking and, eventually, into actual productive enterprises, well, that wouldn’t be *all* bad, would it?

    Goldman was (and probably is) insolvent. Any capitalist should want them dissolved. Goldman was (and is) a rent-seeking entity exploiting its access to political power to extract money from the masses. Any socialist should want them dissolved.

    What a happy set of circumstances!

    Cheers,
    Carson

  18. “Goldman’s management should come to its senses and pay no bonuses of any kind to anyone; no good people would leave.”

    Wow, what an amazingly retarded thing to say. Why do people take this guy seriously?

    The funny thing is, I doubt Simon could even get an entry-level job at Goldman. And if by some miracle he did, he’d be a fourth-quartiler and would be out after one year.

  19. C Jones: “you are out of your mind to think that anyone will bother to do any work at all next year. And my personal opinion is that the economic recovery is not sufficiently underway to be able to do without a motivated financial sector.
    …. your proposal is really of an extreme pay cut across the industry to the tune of 80% perhaps more.”

    It is this sort of comment that unfortunately strengthens me in my opinion that NOTHING will change, not even electing a change-you-can-believe-in president.

    Given that the federal minimum wage is $ 7.25 per hour I find it out of this world to suggest that $ 100.000 a year would not be enough to do a decent job. And then to think that many financial ‘services’ workers ‘earn’ oftentimes much more than 100k. (FYI, ‘services’ and ‘earn’ are misnomers).

    It is ridiculous that financial ‘services’ firms in London are now offering double (!) salaries to buy ‘talent’ from each other. It is a circular movement (A hires from B, which hires from C, which hires from A), resulting in ever increasing salaries.
    The City has fired an estimated 50.000 financial ‘experts’, so normal economics suggests that if anything salaries should come down.
    If you estimate that abolishing the bonus might result in 80% reduction, it confirms that the bonuses had grown completely overboard.

    You suggest that we need a motivated financial sector to enable an economic recovery. Could it be that you’ve listened too much to Paulson/Bernanke/Summers/Geithners?!
    They, and you, have it backwards. Not only that, but the developments of the last 18 months have shown that all the money thrown at Wall Street has done nothing for the real economy, and will hurt the real economy sometime in the future when the much higher tax bills come due!!!

  20. “the economic recovery is not sufficiently underway to be able to do without a motivated financial sector”: The financial sector is motivated to loot the real economy.

    “you are out of your mind to think that anyone will bother to do any work at all next year”: Good. Less work means less harm.

    “I think you are a bit deluded to assume productivity will be unaffected”: Since they don’t do anything useful anyway and are actively malevolent, this would be a boon.

  21. ” In previous years, the bonuses were paid in early January – but the financial year shifted when Goldman became a bank holding company.”

    {hehe}

  22. The banker bonus issue hit the political big time literally from the first day of the current Congress. This issue for the first time in many years will be the defining political issue for the retention of incumbents. Current members of the House and Senators up for re-election have a defining problem that must be solved to be retained. Most will be retained but none can be sure of their prospects. Remember, anti incumbency votes need not be massive to deny re-election. Every Representative and Senator up for re-election must make a decision based on the citizen being disgusted with a Congress unable to control and punish the bankers. This Congress has one overriding issue from a now guaranteed highly inflamed electorate. Congress must do something to satisfy the citizen blood lust about bankers well before elections because the anti incumbency issue will force the issue in the primary election.

    The Congress moves almost immediately or incumbents start facing opponents in the primaries in March, April and May. The earliest primaries will show if there is in fact an issue about banker bonuses with the electorate.

    The current Congress must move very fast to satisfy voters. Settling of banker bonuses in January and February puts maximum pressure on incumbents. The media frenzy will see to that.

    Congress has only one real option here and that is excise taxes once bonuses are paid. What ever Congress does, it must be patently obvious to the most moronic voter that the bankers are hurt very bad.

    Any bill passed by Congress then puts Obama on the spot for the rest of his presidency. A veto would hurt him grievously.

    This looks to be shaping up as a bi partisan issue. All in Congress and the administration will be on the spot politically.

    Put an excise tax on the bonus stock due up front. Deny capital gain treatment. Congress really has few political options other than massive rapid passage of breakup of the big banks. They really have only six to eight weeks here if the bonus issue really exists with the electorate to the point there will be a 10-15 % swing in primary votes due to the bonus issue.

  23. James Gornick Far-fetched

    Far-fetched—Goldman’s and many others could be missing the boat…

    Uncle Billy Cunctator simply put the apathy as it is… You could call it exhaustion of the continued arrogance of the systems still inviting further depth to the crisis.

    Even greater is the need to understand the depth of the “Santa Retail Windfall” Signal Further Credit Woes Undermining Recovery Metrics and The Financial Sectors Support of Growth to Credit Defaults Exposures Looming in Corporate 4th Quarter and 1st Quarter 10k-filings forthcoming…

    This thought comes as I am currently in Financial Accounting course that had me raise the question to all that a absence of line-items is missing in the
    10k-filing metric that needs true reforms also by the Folks that can pass the laws.
    An interesting phenomenon is emerging as a common theme when reviewing the balance sheets of many of the Corporate Retailers 10k-filings and as well as other business sectors spanning the gambit of market niches. This phenomenon is the hidden gem of splitting out what sales where generated from revolving credit purchases or supported by extended receivables held by financing from third party creditors.

    Why is this important as a metric when assembled with the common unemployment reports, PPI, CPI, GDP and a host of other data points in forming our collective opinions of successful or failure within the decisions made to stimulate liquidity movement throughout the economies of the worlds Global Recovery?

    The Accounting Practices of the SEC-10k Filings guided by FASB and/or AICPA’s Accounting Trends and Techniques has no current ability to capture contraction of economic health of pre, current or post “Crises Stimulus Government Interventions” that is given a thorium to support if the Crisis Stimulus is actually working or not.

    The further heightened concerns comes from the true lack of hidden data-points that are not being reported but already within many automated systems that supports creditable metric for numbers to be used in measuring the ability of pre-depression or recession thorium management being used by Bernanke and other Central Banking regulators.

    The last communications coming out of Washington continue to undermine the trust factor of feasible test stress-ors of true economic recovery measured from actual source of payment being tendered across the many sectors including the retailing folks who enjoyed the last moment Santa windfall affect.

    Think long and hard on this next needed law change in accounting practices. Why should Congress; through the arm of the SEC, get as critical reported numbers, a measurement of what type of revenue was driven as split out as reported as line items making the final total revenues for quarterly and fiscal full year reporting.

    The fact to pull out source of type of payment type gives incredible insight to the effect of Crisis Stimulus. Imagine knowing if sales were based from use of cash or signature credit ATM type credit source or that of a true revolving financed type credit source. We already can see if a corporation has chosen to use Cash burn to self-stimulate that of a floated receivables kept on the books of the corporate support of inventory movement to adjust future inventory build to support the bottom-line earnings estimates projected by the host of many public companies.

    The question now for the world Central Banks and Governments comes down to getting further metric data-points for measuring recoveries based on sound decisions and not that of pure theory of studying a depression or thinking or assuming. The numbers are already there for all to gain further ability for analysis to get risk factors to investment risk/reward metrics that protect the economic long-term growth projections. The ability to determine if further debt collapse is pressing due to further contractions within credit supported recoveries or inverse affect is true with true verifiable growth of wealth units of a countries economic status hold the line of extending credit to debt ratios.

    Not so Far-fetched anymore in using true measurements of Money-Math for taking and opening up and/or closing off the open facet of the Central Banks Printing Presses and the continued guesses of keeping depressed levels of interest rates to support stimulus withdrawal or continuance to late or to soon.

    Continue learning why meaningful banking and financial reporting reforms are needed to upright a credit ship that has gone aground. The financial sector is still in need of being split up to make banks separate from the counterparts of the higher risk areas of the investment houses of their current operations.

    Go to http://www.baselinescenario.com to keep up with the economic voice of some of our smarter folks that have a handle on this crisis.

    Use your search engines and use the theme of (Far-fetched Financials) or (James Gornick) as many of the articles written to date should come up.

    Do a quick review of what stressors and circumstances are pressing the world Global recoveries through linking to Bill Moyer’s and his PBS guests.
    http://video.pbs.org/video/1290388692
    http://www.pbs.org/wgbh/pages/frontline/warning/

  24. HR at Goldman looks for a moral and political emptiness that SImon probably couldn’t fake. And that you don’t need to.

  25. Its not just socialism, its fascism.

  26. It almost seems when Obama came out in public back in Feb/March and gave some stock market advice to buy he already made a deal with GS. If you think about it .. What president would go public with stock market advice unless he was guaranteed a rally? Can you imagine if everyone went out and bought on his advice and the market when down? If I were president I would not be giving stock market advice unless I had a back up.. I would bet a large sum Jamie Dimon and Blankfien were in his office the day before explaining how they could guarantee a rally and save the world. This so Obama could feel confident enough to go public with a buy recommendation. Hence the reason we are getting such a weak response from this president.

  27. They will pay the bonuses, it will be very public, they will try only a little to hide it, there will be a huge public outcry, the populace and politicians will go absolutely ape sh*t.

    There will be no meaningful reform.

  28. More psychobabble from the same nut case.

  29. The Ape Sh-t then will not be among those who actually care to vote or it will all just be noisemaking for the fun of noisemaking. If the voting citizenry is truly upset and nothing is done this will be the time when being upset with incumbents coincides with the opportunity to send them packing at primary time.

    The warcry could readily be ” toss da scum”.

  30. because tossing them out in favor of republicans will be an improvement?

  31. Not at all. Virtually every member of Congress and Senator up for re-election will be opposed by other primary candidates in his own party. If a huge plurality of incumbents are tossed within their own party primaries, a message will be sent that is not politically ignorable.

    New blood will hammer home the point unless incumbents quickly ” solve” the bonus issue politically. If voters are truly upset about “financial gangsterism” they will vote out incumbents.

  32. Bill Gilwood

    “What is going on with Bernake, Geithner and Congress. Are they total eunuchs?”

    They’re in on it, directly and/or indirectly.

  33. Bill Gilwood

    The Bernakes, Geithners and Congress are on the payroll of the big banks; they’re complicit. If they were being hurt personally by all this flim-flam, would they choose to do essentially nothing as they are doing now?

  34. I am wondering if 2010 will provide definitive proof about the ineffectiveness of the American Political Paranoid . I speak here of the political science school of Richard Hofstadter. Is Boobus Americanus the ineffectual political blowhard that uncritically accepts conspiracy theories of governance? The the idea that there are controlling ” powers that be” that own everyone. That the citizenry can be ignored.

    A tenet of the Hofstadter school is that the disaffected political paranoid is not capable of organizing politically. It sure looks like the 2010 primary season will provide a working demonstration about citizen political ineffectiveness if incumbents simply are able to ignore the mass howlings and gnashing of the teeth that will accompany bonus payouts.

    If Congress can ignore a very high profile citizen issue of the electorate in a primary season Hofstadter will again be vindicated.

    My own view is that Congress is terrified of voter reaction. This would be a bipartisan incumbent fear.

    I suspect a real test of US politics is at hand. Is the issue that those that will vote consider the bonus issue just so much dreck and they do not want bank regulation? As for those that will not vote and who make a lot of noise simply be background noise that can be ignored.

    Is there no need for incumbents in Congress to put up or shut up politically with respect to popular opposition?

    Here is the Wiki on the Paranoid Style. Hofstadters seminal article on this issue ran in the November 1964 Harpers . Much of Hofstadter’s work is available on line

    http://en.wikipedia.org/wiki/The_Paranoid_Style_in_American_Politics

  35. There are some dubious allegations in #3 of the original article.

    Firstly, Goldman did not “essentially fail” in the fall of 2008. Goldman is funded rather differently from the other investment banks: their funding is quite long term (mostly >100 days) and at the time they had something like $150bn in cash or cash equivalents. They could have survived a long time, even with no customer business.

    Secondly, becoming a bank holding company did not give them access to the Fed’s Discount Window: they already had that. Shortly after Bear Stearns went down all the major investment banks were given access to the window (around 3/19/08 I believe). All the banks tested the facility but, as far as I know, Goldman never used the facility again.

  36. There is quite a bit of material in Andrew Ross Sorkin’s book that suggests GS was on the ropes too. Blankfein is directly quoted a number of times that GS could not survive. GS apparently suffered runs too.

  37. Nice point. I wrote a recent reponse to James article regarding deferring bonuses, and what I said was, why don’t we require that the bonuses (regardless of form) be held in escrow for revolving ten year periods, and, if the firm has to be bailed out, the accumulated bonuses would be used as the primary backstop.

  38. I found more than humor in your reference to Goldman using Tiger to assist them in their PR push. I found irony. The fact is that regardless of his wealth, few, if any, of us resent him for it, for at least two reasons: (a) he earned it by being the best at what he does, and (b) because he has made professional golf better just because of what he has done to improve competition and publicity. On the other hand, we all hate Goldman, because they didn’t earn their money, they played craps and the government (actually taxpayers) funded and continue to fund this, AND, they are a very evil market force vis-a-vis other banks and our economy. Even Tiger couldn’t survive the animus that they are attracting.

  39. julia schmidt

    Why don’t you switch instead to your local credit bureau. It’s just as safe, much more user friendly, gives you better rates and is regulated. If most of us took our money out of the big banks and put it in credit bureaus (okay maybe some of us could put some of our money in a few local banks – they aren’t all bad)we would get reform in a hurry.

    I’m no economist but I do know how to do political change – and what it takes is American citizens, aka “we the people.” No elected official, including our president, no Nobel-winning intellectuals, no experts from our great universities will be able to fix this mess by themselves. We have to do it. And the first thing we can do is take our money out of the big banks. At that point we will have the full attention of every politician and banker in the country. Then they will listen carefully when we tell them what reforms we expect. Let’s try it!

  40. MS had more about $180bn in cash dissappear inside of a month, GS themselves at the top believed that if MS went they we right behind (again, Sorkin is my source on this).

  41. Charles R. Williams

    Why demonize Goldman Sachs? This is a private enterprise that is managed for profit. The villains are the Paulsons, Geithners and Bernankes of the world who have bailed them out, their enablers George Bush and Barack Obama and the centrist politicians who prosper by selling influence to the highest bidder. It will only get worse the deeper the government involves itself in economic activity.

    Yes, the stage is being set for a far bigger crash. Interest rates are 0%, the government is goosing the housing market by financing and guaranteeing unsound mortgages, everyone now assumes that whatever they do the TBTF’s losses will be born by the taxpayer and the same crowd that confuses investment banking profits with the prosperity of the free enterprise system is running the show.

    Why would anyone expect Goldman Sachs to act any differently under these circumstances? Heads they win, tails the taxpayer loses.

  42. Of course the demand for high-paid casino jobs with guaranteed returns is great! Not using your brains but only your arrogance, that’s what pirates like most!

  43. Directly

  44. Except for the fact that Blumenthal didn’t investigate all of Dodd’s special treamtments…more of the same and elite looking after elite. Change the names if you want but nothing is going to change (and I say this in regards to both sides).

  45. http://www.ft.com/cms/s/0/caffc078-fc97-11de-bc51-00144feab49a.html?ftcamp=rss

    Seriously, the owners of the banks have no control over them, the employees publicly expropriate them without blinking. What’s the government going to do with a bit of regulation?

    Simon Johnson is right all along, we need to limit their size and hence market power. This is an anti-trust issue.

  46. Lloyd Blankfein would love nothing more than to pay no bonuses. Why? He owns approximately 4 million shares. If the firm didn’t pay $20 billion in bonus, earnings would rise $20 billion, which is approximately $30/share. The firm trades at 1.5 times book value, which would thus create a $45/share price increase. Multiply that by 4 million of his personal shares, and you have his personal net worth increase $180 million.

    So why does someone with $180 million choose to pay himself something dramatically lower, taxed at a higher rate (because it would be wages for him, not a capital gain from the stock price increase)?

    I don’t know – I guess as a shareholder he sees those people as relevant to his stock value. That’s weird – he’s thinking as a shareholder.

    As to those who say that it would have failed – too bad, it didn’t. Hindsight is 20/20, and you can’t go back and take what was done.

    By the way, do you not think that JP Morgan, Morgan Stanley, BofA, and the rest aren’t going to pay their people in a similar fashion. Where’s your anger with them?

    These kinds of articles have a combination of both hypocrisy and stupidity – all at once.

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  48. This is an interesting link:

    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6962632/America-slides-deeper-into-depression-as-Wall-Street-revels.html

    Thow out the text books. Stock market is an indicator lag… Storm the Bastille…?

  49. Sadly, doing the responsible thing in this case means you got a 0% return this year (or maybe negative, if you sold at the bottom), while the Bulls are up 30-50%+.

    The lesson, for me, unfortunately, is that when the President says “BUY”, only a fool wouldn’t.

  50. Or someone without integrity or self-respect?

    Perhaps I’m just of that generation of people who believe that business must be based on trust. Certainly the one that I ran in America in the late nineties was.

    My comments are not addressed to you personally; it’s just a general statement.

    Oh, and I didn’t take any losses. I sold early, before the worst of the declines and simply realized the gains I had previously achieved.

    The good thing about this whole situation is that I’ve changed my personal buying habits. I stopped shopping at supermarkets; I now shop at local businesses where I know the owners.

    Trust is essential in business. Any business that doesn’t act in a trustworthy manner deserves to lose all its trade, as have the companies that made up my portfolio.

    Also, I’ve had my money with with local banks for over a decade now. I applaud the Move Your Money campaign for encouraging others to do likewise.

  51. Jeffrey Anderson

    The stock was $60 in March, and is now $170.

    Nice sale. Keep taking your investment advice from accounting students.

    What shareholder in their right mind would be disgruntled?

    And by the way, according to Andrew Cuomo, GS employs 30,067 people, 1,556 of whom recieved a bonus over $1,000,000, or 5%. Not all the “management and staff” recieve “ridiculous payments”.

  52. Russ,

    I appreciate your passion, but consider it misguided. The people do not own GS. The people, represented by the DC Hedge Fund Co., bot $10 B worth of warrants from GS, for which it was paid 4% for the 6 months of ownership (6 months), and sold the warrants for $11.1 B to close the investment. Annualized the investment earned 23%.

    The sole benefit GS now recieves from the US gvt is FDIC backed debt, in other words cheaper debt. But very few consider the co. a credit risk at this point.

    I’m not happy about the situation, but that doesn’t make it wrong. If you’ve followed Simon Johnson throughout the crisis you know that he’s suggested, pleaded, even begged congress to “ensure upside for the US taxpayer”. This is who has failed us. A group of people who made a sizeable contribution to the crisis, who didn’t understand what they were getting involved in, whose incentives are always morally challenged, and who got sorely beaten at the game at hand.

    And by the way, according to Andrew Cuomo, GS employs 30,067 people, 1,556 of whom recieved a bonus over $1,000,000, or 5%. Not all the management and staff recieve ridiculous payments (as stated above-Carol).

    We’re being looted all right, just not by who you think.

  53. You can find companies which act responsibly to their shareholders. Sift through corporate documents.

    There are two types:
    (1) Family-owned, family-run. The execs own so much stock that they want the stockholders to do well, because they *are* the stockholders, and practically all their wealth is in the stock; you just happen to benefit.
    (2) Foreign, located in a country with stronger stockholder rights. (Sadly these are hard to invest in.)

  54. GS is a severe credit risk. I wouldn’t lend them a penny at less than 25% annually.

    Currently they’re back to the old game of using cheap government borrowing to make risky speculations. They *will* go bust again. Will they be bailed out again? They seem to think so. I’m not so sure.

  55. Wrong, dead wrong. Blankfein makes more money from paying himself large bonuses than from share price increase — because he cannot afford to sell off his shares at a high rate. It’s funny money until he sells it, and the rate he sells it at is controlled, both by law and by the market (it’s a large block and would drive the price down). So your estimate of how much he makes if the company retains the money is wrong….

    ….even if you assume that the company really “retains” the money. If GS is on the road to bankruptcy, it’s imperative for him to suck the money out before it has to get paid to creditors.

    The bonuses, even if paid in “stock”, allow him to increase his rate of cash production by increasing the rate of stock sales.