Goldman Sachs, from bailout to billions in bonuses

    I was just reading this piece in today’s New York Times on the enormous profits being posted by the investment bank Goldman Sachs, and I was reminded of an article I read a week or so ago in Rolling Stone by Matt Taibbi. Here are clips from both for your consideration.

    First, the New York Times:

    …Analysts predict the bank earned more than $2 billion in the March-June period, thanks to its trading prowess across world markets. If they are right, the bank’s rivals will once again be left to wonder exactly how Goldman, long the envy of Wall Street, could have rebounded so dramatically only months after the nation’s financial industry was shaken to its foundations.

    The obsessive speculation has already begun, along with banter about how Goldman’s rapid return to minting money will be perceived by lawmakers and taxpayers who aided Goldman with a multibillion-dollar cushion last fall.

    “They exist, and others don’t, and taxpayers made it possible,” said one industry consultant, who, like many people interviewed for this article, declined to be named for fear of jeopardizing business relationships.

    Startling, too, is how much of its profits Goldman is expected to share with its employees. Analysts estimate that the bank will set aside enough money to pay a total of $18 billion in compensation and benefits this year to its 28,000 employees, or more than $600,000 per employee. Top producers stand to earn millions…

    Now, a clip from Matt Taibi’s article, entitled “Great American Bubble Machine”:

    The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money…

    The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They’ve been pulling this same stunt over and over since the 1920s — and now they’re preparing to do it again, creating what may be the biggest and most audacious bubble yet…

    After the oil bubble collapsed last fall, there was no new bubble to keep things humming — this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle…

    When I read the Taibbi piece initially, I was somewhat inclined to believe it, but, now that I read that the men and women of Goldman Sachs are already averaging $600,000 in pay and bonuses just a few short months after their taxpayer bailout, I’m absolutely convinced that there’s something’s going on. I know that they’ve apparently paid back the piece of the bailout pie that went to them directly, but clearly they’ve benefited from all of this in other ways, such as though contracts and subsidiaries, as well. One wonders what might be done about something like this in a functioning democracy – you know, one in which elected officials aren’t beholden to corporate interests.

    Oh, and if you’re interested in reading more about this, the folks at Sachs issued a statement in response to Taibbi’s article. And, Taibbi, as you might have guessed, then fired back himself.

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      8 Comments

      1. Mike want longr name
        Posted July 12, 2009 at 9:00 pm | Permalink

        Of course the real bubble machine is the Federal Reserve, that funnels resources from anyone who holds dollars to Goldman Sachs, JPMorgan, and other giant banks. Who owns the Fed?

        Mark, it’s time for you to start researching HR 1207, Ron Paul’s bill to audit the Fed. Mark Schauer (Lenawee County) has cosponsored, as have 40 some other Democrats (I think the total count is 260 cosponsors, almost 60% of congress). It would be great to push Dingell harder on this, and you are a very vocal voice in his district. What do you say?

      2. Tom T.
        Posted July 12, 2009 at 9:31 pm | Permalink

        Goldman never needed the bailout. They were pressed to take money by the Treasury, who wanted to include all of the biggest institutions in its giveaway program, so that we wouldn’t be able to tell which were strong and which were weak. They repaid the taxpayers with interest; that’s all they’re obliged to do.

      3. Posted July 13, 2009 at 6:45 am | Permalink

        And, yes, I know that they were apparently forced to take the bailout cash. It doesn’t change, however, the fact that something smells really bad.

      4. Posted July 13, 2009 at 6:45 am | Permalink

        And I’ll check out that legislation, Mike. Thanks.

      5. Frogger
        Posted July 13, 2009 at 10:09 am | Permalink

        Alumni from Goldman run the world. They’re not only too big to fail – they’re too powerful not to be profitable.

      6. What's In a Name
        Posted July 13, 2009 at 8:00 pm | Permalink

        On top of what’s been reported above, it’s been discovered that Goldman Sachs execs dumped hundreds of millions of dollars in Goldman stock from their own personal portfolios while Uncle Sam was bailing them out:

        http://www.reuters.com/article/ousiv/idUSTRE56D03R20090714

      7. Craig
        Posted July 14, 2009 at 8:19 am | Permalink

        Their earnings this quarter blew away the projections. They’re reporting $3.44 Billion.

      8. Meta
        Posted July 17, 2009 at 10:39 am | Permalink

        Today’s Paul Krugman op-ed:

        The Joy of Sachs, by Paul Krugman
        Commentary, NY Times

        The American economy remains in dire straits, with one worker in six unemployed or underemployed. Yet Goldman Sachs just reported record quarterly profits — and it’s preparing to hand out huge bonuses, comparable to what it was paying before the crisis. What does this contrast tell us?

        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 … made another crisis more likely.

        Let’s start by talking about how Goldman makes money.

        Over the past generation — ever since the banking deregulation of the Reagan years — the U.S. economy has been “financialized.” The business of moving money around, of slicing, dicing and repackaging financial claims, has soared…

        Such growth would be fine if financialization really delivered on its promises — if financial firms made money by directing capital to its most productive uses, by developing innovative ways to spread and reduce risk. But can anyone, at this point, make those claims with a straight face? …

        Goldman’s role in the financialization of America was similar to that of other players, except for one thing: Goldman didn’t believe its own hype. … Goldman, famously, made a lot of money selling securities backed by subprime mortgages — then made a lot more money by selling mortgage-backed securities short, just before their value crashed. All of this was perfectly legal, but the net effect was that Goldman made profits by playing the rest of us for suckers.

        And Wall Streeters have every incentive to keep playing that kind of game.

        The huge bonuses Goldman will soon hand out show that financial-industry highfliers are still operating under a system of heads they win, tails other people lose. … You have every reason, then, to steer investors into taking risks they don’t understand.

        And the events of the past year have skewed those incentives even more, by putting taxpayers as well as investors on the hook if things go wrong. … Wall Street in general, Goldman very much included, benefited hugely from the government’s provision of a financial backstop — an assurance that it will rescue major financial players whenever things go wrong.

        You can argue that such rescues are necessary if we’re to avoid a replay of the Great Depression. In fact, I agree. But the result is that the financial system’s liabilities are now backed by an implicit government guarantee.

        Now, the last time there was a comparable expansion of the financial safety net, the creation of federal deposit insurance in the 1930s, it was accompanied by much tighter regulation, to ensure that banks didn’t abuse their privileges. This time, new regulations are still in the drawing-board stage — and the finance lobby is already fighting against even the most basic protections for consumers.

        If these lobbying efforts succeed, we’ll have set the stage for an even bigger financial disaster a few years down the road. The next crisis could look something like the savings-and-loan mess of the 1980s, in which deregulated banks gambled with, or in some cases stole, taxpayers’ money — except that it would involve the financial industry as a whole.

        The bottom line is that Goldman’s blowout quarter is good news for Goldman and the people who work there. It’s good news for financial superstars in general, whose paychecks are rapidly climbing back to precrisis levels. But it’s bad news for almost everyone else.

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