The Vilification of Goldman Sachs’ Pay Practices
Mike Santoli has an interesting perspective on the furious reactions to Goldie’s bonuses in this week’s Barron’s:
“Absent in the rage against people earning impressive pay after their firms got public help is the key question: Do we want the firms that received aid to continue operating as autonomous, profit-seeking businesses, or as quasi-utilities operating under tight government restrictions?”
That is the key disagreement I have had with those folks furious about the bonuses: The firms that paid back the TARP — do we never allow them to resume control of their businesses? Are they now “non profits?” Who is appropriate to determine their pay packages — their owners, board members and senior management — or the Government?
Santoli further suggests we consider the means and implications of explicitly limiting pay:
“Goldman, operating at less than half the leverage of a couple years ago, last quarter produced a return on equity well below what it logged in peak years. It set aside a much smaller portion of its revenue to employees last quarter than it typically has, 43%.
What if Goldman set aside half as much as it did for bonuses, say 20% of revenue. Where does the other half go? To the bottom line, where it builds up book value, which could allow Goldman to leverage a greater capital base and trade more and become even bigger in the markets it plays in, likely with fewer of the better people to oversee the risk as they could go find a new employer willing to pay. Or do we want to legislate away the chance for a Goldman to earn even what it did last quarter? Or require that the government get some percentage of the take? On what legal or practical basis, at this stage?
If Goldman weren’t exploiting the market opportunities it is, those opportunities would still be there, and others would get to them — whether other banks or hedge funds — and would pay their people (maybe some hired from Goldman) the big money.
Let’s get to the true heart of the matter” It is that these folks — many of whom are assholes — make oodles and oodles of money, much more than they would be permitted to if a munificent and just deity were paying closer attention to this little ball of earth and water:
“It has long been true that the “average” employee on Wall Street is overpaid, his or her bonuses dragged higher by those who make huge scores for their firm. The solutions — bonuses based on multi-year, risk-adjusted performance; “clawbacks” if trades go bad after bonuses based on them were paid; more pay in the form of long-vesting company stock — are being implemented by the remaining firms.This isn’t the same as saying “the market will sort it out,” but that any new rules or structural changes need to be considered from all the angles. And remember that the most important consequences of such measures are often the unintended ones.”
Interesting stuff, worth thinking about.
>
Previously:
Much Ado About Nothing $23B: Goldman Sachs Bonus (Oct 14, 2009)
http://www.ritholtz.com/blog/2009/10/much-ado-about-nothing-23b-goldman-sachs-bonus/
Goldman Sachs: “A Bunch of Clever Thugs” (Oct 15, 2009)
http://www.ritholtz.com/blog/2009/10/goldman-sachs-%E2%80%9Ca-bunch-of-clever-thugs%E2%80%9D/
Source:
Will This Week’s GDP Validate the Rally?
MICHAEL SANTOLI
Barron’s October 26, 2009
http://online.barrons.com/article/SB125633731314404773.html
October 24th, 2009 at 8:01 am
This always makes people see red.
OK, have at it . . .
October 24th, 2009 at 11:28 am
but most of the blogoshphere thinks that its not fair….becos maybe goldman makes money only with the help of “insider tips” from the government…
like say for example: tip that lehman will be allowed to fail….aig will be rescued…etc..
IMO if some one makes money by exploiting the loopholes in the market…..if we think it is not fair….we should focus on closing loopholes….
but maybe most folks are simply jealous….
btw…can people comment on my “flaming opinion” in a previous thread:
http://www.ritholtz.com/blog/2009/10/friday-reads-2/#comments
or maybe it is a common knowledge now…and nothing can be done about it…since delusional folks are not open to change of beliefs?
October 24th, 2009 at 11:34 am
“.. The solutions — bonuses based on multi-year, risk-adjusted performance; “clawbacks” if trades go bad after bonuses based on them were paid; more pay in the form of long-vesting company stock — are being implemented by the remaining firms”.
I don’t really care how much an employee gets paid as long as he isn’t in my pocket, or on Hank Paulson’s speed dial.
An IB or any other institution that has a CEO or Board which has socialized their risk because of their control, not influence, but control of the FED, SEC, Treasury, and CFTC thru placement of former employees in key positi0ns didn’t EARN any bonuses and shouldn’t receive more than minimum wages.
There are the Goldman Sucks’ and AIGs of the world which frontload legislation, or stop legislation by buying politicians by the truckload, to thwart leverage rules that place their firms in position to hazard catastrophic systemic risks as we all now know. Paying bonuses to people who intentionally put the US Economy in jeopardy is like paying assassins who took down the World Trade Center multigenerational fortunes and freeing them from prosecution .
That being the case, the members of the firms who take huge amounts of money are screwing shareholders by lowering net income, screwing the citizens of the United States by ‘keystoning’ their firms in untenable positions, and that they get away with it thumbing their noses at the rest of us
is an atrocity of the first order.
October 24th, 2009 at 11:34 am
Barry put up a chart a few months ago that shows how the government’s increasing issuance of debt over the past 30 years tracks very closely with the measure of Wall-Street-income as a percentage of GDP. These people on Wall Street are making excessive gobs of money because they’re the closest to the spigot. And GS happens to be the closest.
October 24th, 2009 at 11:37 am
over decades the completely corrupt system has been built up layer by layer to obfuscate responsibility to any one party. big corporations and the government are more than ever one in the same with people moving in and out of each entity seamlessly. in government you a used to have small protections by having to get voted in. looking past the buying of votes via massive private war chests (corzine and bloomberg anyone?) with little government regulation of such an unfair practice, today you have more and more very senior government members that are no long voted in by the public but appointed (czar anyone?). goldman is just the most visible parasite of this structure and something the public can at least somewhat relate to.
October 24th, 2009 at 11:42 am
Without TARP, mark-to-myth, and the bailout of AIG counterparties, where would GS be? I don’t see how you come to any conclusion other than that these bonuses are completely paid for by the taxpayer.
I see GS as an unacknowledged GSE.
~~~
BR: So what is your conclusion?
Despite paying back TARP, they cannot issue bonuses anymore?
Where does that leave us? Follow that to its logical conclusion . . .
October 24th, 2009 at 11:50 am
Rikky..
you bring up the second issue that bothers me most…………buying politicians with campaign donations??
but how do you make incumbants make law against their own interest??
answer: when majority of people rise against this tyranny….
BUT there is a problem: 45% of people only want to vote based on their religious beleif…all these things dont matter to them.
IMO we need to fix the fundamental issue in this country…..the government is no more “for/by/of the people” it is “for/by/of the lobbyists”
being the devil’s advocate: what if goldman is really a group of smart people…able to exploit the gaps…and no other firms are able to do it….even though the same opportunity is available to them??
October 24th, 2009 at 11:58 am
For great PR, Goldman could return 50% of the money it received from AIG. This would retroactively be accepting 50 cents of the dollar, instead of face value for their insured products. I think it would go over well with the public.
There was no way those were worth full value and the folks at AIG who offered to pay that much should replaced with lower paid employees who understand the business.
October 24th, 2009 at 11:59 am
wunsacon has it right. It’s a little late at this point to be worrying about Goldman, et al. turning into public utilities.
BR writes: “That is the key disagreement I have had with those folks furious about the bonuses: The firms that paid back the TARP — do we never allow them to resume control of their businesses? Are they now ‘non profits?’”
BR, you know as well as anyone that Goldman hasn’t paid back TARP. They paid back 10 B of the TARP, but not the 13 B “from AIG” (i.e. the taxpayer). Let them pay back the 13B, pay off the TLGP bonds, and stop using the Fed for “liquidity”. When they do all of this and stop pretending to be a BHC — with special privileges — then I’ll quit complaining about what they do. [BR: Its actually 19B, if you include the $6B they grabbed before AIG fell]
A year ago, I never thought about Goldman Sachs. Not once. I didn’t care what anyone on Wall St. took home in pay. Totally their business. But if my tax dollars are going to prop up your failed business, then it’s MY business.
BR, I really don’t see what your disagreement with some of us is. We all agree that what Goldman does is their business when they’re risking their own dime, but when it’s clear they’re not…? Why is it OK for Goldman to take money from millions of people and then make themselves fabulously wealthy with that money?
October 24th, 2009 at 12:02 pm
Let’s get to the true heart of the matter” It is that these folks — many of whom are assholes — make oodles and oodles of money, much more than they would be permitted to if …
- we had the rule of law
- actual capitalism
don’t see why why need to jump to the extreme of a deity.
What do I want? For them not to exist. As it should be.
October 24th, 2009 at 12:03 pm
Here’s what the DC-NYC alliance is *not* paying for:
http://www.jsonline.com/news/wisconsin/64677772.html
http://www.nakedcapitalism.com/2009/10/debt-stress-in-middle-class-america.html
October 24th, 2009 at 12:06 pm
Too much is being made about TARP being repaid. TARP was not the only component of the bailout. Let me know when they give up their FHC status, access to the Fed discount window, FDIC backing of their debt, etc. And let’s not forget the taxpayer absorbing their counterparty risk in the AIG debacle, the Fed’s propping up of the MBS market, etc. GS is effectively a ward of the state, along with C, BAC, JPM, WFC, and MS.
October 24th, 2009 at 12:07 pm
If Goldman weren’t exploiting the market opportunities it is, those opportunities would still be there, and others would get to them — whether other banks or hedge funds — and would pay their people (maybe some hired from Goldman) the big money
————–
Yes and the others would be vilified. These bonuses are the straw that should break the camel’s back.
October 24th, 2009 at 12:10 pm
Also, gotta love the recent appointment of a 29 year old kid from GS as the new COO of the SEC’s enforcement division. Someone needs to drive a wedge into the revolving door between Wall Street and Washington, with a sledgehammer if need be.
October 24th, 2009 at 12:11 pm
The solutions — bonuses based on multi-year, risk-adjusted performance; “clawbacks” if trades go bad after bonuses based on them were paid; more pay in the form of long-vesting company stock — are being implemented by the remaining firms
———–
The creators of the securitized crap should have had their compensation attached to the performance of the products they were creating.
I bet we wouldn’t have seen the defaults we are seeing now.
October 24th, 2009 at 12:39 pm
I do not have a problem with people being paid a lot, but under the current structure of a public company, I do have a problem with the manner in which they are paid, which is the bonus being the largest proportion. GS is a successful company at what it does, despite the negative articles from a number of media sources. I have a huge problem that their dividend is only .78%. A lot of their success in the last ten years has been garnered because they went public, which gave them other avenues for capital that previously were unavailable. I think a huge amount of the “excess” they give in bonus, should be paid via dividend. Reward employees with stock, not cash, then they can either keep the gift that keeps on giving through the miracle of compounding, or sell it to make their co-op payments and pay their association fees out at the Hamptons. However, it would also reward shareholders regardless of employment, and they should be doing this more.
When they were a partnership, having the biggest bonuses on the street was braggin’ rights–plus there was no more efficient way to spread the wealth. I think their bonus structure encourages short term results over long term, plus it isn’t the most efficient way for those employees to receive those dollars. As a public corporation, there should be some amount of stewardship to your shareholders, which currently there isn’t.
October 24th, 2009 at 12:39 pm
One of the true crimes not getting enough MSM attention, is the fact there are no laws preventing TARP funds, similar to what is being used to pay exorbitant CEO salaries, from being lobbied for additional TARP funding!
October 24th, 2009 at 12:53 pm
They may have paid back their TARP, but they still have captured regulation and oversight, along with having the treasury and Fed overtly giving them cash (via AIG) and rigging markets in their favor for their profit.
Frankly, this is the sort of thing that radicalizes people, the “optics” are VERY BAD.
When the mark-to-fantasy crap stops, when the monetization stops, when we see wall street crooks in cuffs being frogmarched into patrol cars, maybe THEN the vilification will abate.
October 24th, 2009 at 12:54 pm
JasRas..
why should anyone care for shareholders when they hand over their money and ask for nothing in return??
October 24th, 2009 at 12:56 pm
And while GS gets all the attention about bonuses, 7 more banks get shutdown by the FDIC http://contraryriches.blogspot.com/2009/10/fdic-friday-returns.html
October 24th, 2009 at 1:03 pm
Who pays Goldman all this money that it can make such extraordinary profits? If the bulk of this money is from Investment Banking services, like mergers and acquisition advice, etc., etc…then there are businesses and individuals who think Goldman is providing a valuable service. The government should stay out.
Correct me if I’m wrong (and I really not sure about this)…but I don’t believe that the majority of Goldman’s profits are from actual goods and services being provided to its clientele. [And please spare me the blather about the indirect benefits to our society via "Goldman the Liquidity Provider".] No, the bulk of profits appear to be from trading activities. There’s no real crime in deriving profits from trading, BUT:
As a society, we have to ask…should Goldman be offered more protection and less scrutiny than a [V]egas [c]asino?
The fact of the matter is, Goldman is little more than Wall Street’s version of The [M]irage. Only, unlike a [V]egas [c]asino, Goldman plays the role of both the House and the [G]ambler…. Imagine sitting at a [b]lackjack table with a Goldman employee dealing the cards and Goldman employees sitting next to you doubling down in the hopes of a 21….and that all of them get to play their respective roles with access to the Federal Reserve’s discount window.
Ostensibly, our country restricts [g]ambling, ostensibly for “moral” purposes.
I suspect that the real reason we restrict [g]ambling, though, is that our society believes that [g]ambling just isn’t very productive. An economy predicated on [g]ambling probably isn’t making a whole lot of stuff, nor providing a whole lot of useful services….
Unless, of course, that [g]ambling involves speculating in the stock market. Then, the House (ie Banks) are all for it.
Goldman brings less value to the table than a [V]egas Casino. At least the [C]asino offers a good time.
Goldman has privileged access to positions of power within our government.
Goldman has privileged access to our Central Bank’s discount window.
Goldman has a huge pile of murky Level 3s and an opaque balance sheet.
Despite all this (and despite them being “so smart and savvy”) Goldman would have gone belly-up but for our government intervening.
No, I don’t want the government stepping in and telling the [M]irage what it can pay its execs…
But if our government allowed the [M]irage get these Goldman advantages, then I don’t want the [M]irage paying out 23 billion in bonuses either.
End access to the Discount Window.
End the implicit guarantee of a bailout.
Demand full and transparent disclosure of its Level 3s, etc.
Pay the government 15 billion as “deferred interest” from TARP…
And then Goldman should be able to pay itself whatever it wants.
October 24th, 2009 at 1:06 pm
Goldman is still in control of the the policy. Paying TARP does not matter. (Paying TARP was first and most a PR-move by Goldman. Why wouldn’t they pay back what they got from Buffett at much more onerous terms? ).
If we experience another market crash/shock, what happens to Goldman? They get rescued. Clear-cut. This is the reason their counterparties prefer doing business with them.
As Soros mentioned in an FT interview today, if Goldman wants to continue to take same risks, they should be considered a hedge fund, not a bank backed by US taxpayers.
October 24th, 2009 at 1:06 pm
The key question is not why Goldman? But why not any one of us? I think many people would agree that they would do just about anything for a guaranteed $1 million a year payout. But what stops any of us from actually “finding” these supposed opportunities? And I mean to think of this in from its most basic assumptions rather than anthropomorphizing a business structure such as Goldman. Are they really just “smart”? I mean I am sure we are all smart. Are they just that little bit smarter? Is it the “culture”? Well what does that really mean? Why can’t we just go out and create that same “culture”?
I mean, we can see and measure the reasons why a baseball player might be “worth” so much to a team. But baseball is also a heavily regulated market with very specific rules that are continually enforced by supposedly neutral arbiters.
But if the answer to any of these questions with regard to Goldman relies upon something other than raw and pure talent then there really is a problem with the system (at least theoretically). In fact, even if the Goldman story is describable as “pure” talent there still remains a question as to whether we want to allow a small group of smart people to combine and exert tremendous power that is more than the sum of their parts. Particularly if once or twice a generation they blow themselves up and cost us billions of dollars.
A “company” is nothing more than a group of people that the government allows to operate as a fictitious “individual.” Such groupings are provided a negative “subsidy” in the sense that they are shielded from liability for their actions on behalf of this “person.” Thus if their individual or collective actions cost more than the money on hand for the fictitious “individual” they are not subject to any individual liability (subject to some very rare exceptions which occur infrequently). At one time, people understood that the grant of limited liability was intended as a true subsidy to encourage risky but beneficial investment in large projects requiring huge amounts of pooled capital. I think if one proposed that such a subsidy was necessary for speculative markets one would have been met with shock and derision.
We, as a society, already shield Goldman employees from the consequences of their bets gone wrong. All we have done now is extend that subsidy to allow for recapitalization in certain extreme circumstances. When viewed on that continuum I think it is easier to see why the culture” of these firms is not really challenged by the bailouts. It just extends the playing field that is already there.
October 24th, 2009 at 1:12 pm
Amen. The bailout was not done to benefit companies or CEOs, but to save the world from the great depression or worse. It was in the interest of the governing authorities, and in the interest of main street, even though main street is too stupid to realize it. As a gold plated conservative I had to argue endlessly in favor of TARP to my brain dead compatriots (of course I draw a strong distinction that and the farcical Obama/Pelosi stimulus).
Sure, I like to see bad businesses fail, and the good rewarded. Please God, let it be so one-thousand times. But I am not going to stand on this principle while the world economy is driven into a second great depression. There are limits even to MY rigid idealism.
Given the above, all the sanctimony about bonuses and pay is founded on stupidity, and promoted by demagogues. The quicker things get back to normal so there is less percentage in ongoing bluster about pay and bonuses the better for all.
Regarding voting, I can think of no better reason for making political decisions than on the basis of values, which is what is really happens when people vote based on “religious beliefs” as the commenter above lamented. In fact, we all do this anyway… its just that some of us have traditional values, some marxist, some pantheistic, and some just plain perverse, like for example the ACLU.
October 24th, 2009 at 1:19 pm
Aside from the fact that the polarization of incomes and wealth will likely bring down our civilization in the next decade or so, I can’t think of a reason why anyone should be upset.
With both political parties aligned with wealthy benefactors, who needs to worry about change anyhow?
In a global economy where wages fall and profits rise (but accrue mostly to the extremely rich) what can possibly go wrong?
The glaring disparities between the rich and the rest will become ever more apparent as this great recession plays out. This December we will see the first of many truly Dickensonian holiday seasons.
October 24th, 2009 at 1:24 pm
20% is a sign of restraint?
No, it’s a sign that when the brokerages went public, they continued to operate as nothing had changed.
Can you imagine GM, IBM, or Microsoft offering 20% of revenue in bonuses?
The shareholders would lynch them.
October 24th, 2009 at 1:25 pm
somebody bit….great..
engineerd1…so you think politicians deserve 45% of the votes just because they have the same beliefs??
and in fact the beliefs are nothing but based mostly on two issues(you know what they are).
so those two issues should be the only thing based on which all elections should be fought?? everything else is just a side show.
so we throw our votes based on non-issues…and lobbyist buy the politicians who can only win by using money….. why are we complaining then??
we should try to become politicians…..so that we can reap from this arrangement.
or we can try to become part of the lobbyist group.
oh well its not easy to become all that….hence we keep whining endlessly….while the fundamental issue is this mess is created/maintained by us….
October 24th, 2009 at 1:30 pm
It’s not just Goldman.
We seem to forget that there is a HUGE gulf between privately-owned and publicly-owned enterprises. When a company “goes public”, it agrees to a tighter standard — to more rigorous reporting requirements, and to an entirely different set of rules than a privately-owned firm adheres to. This is in order to protect the shareholder, who is not expected to have the the same skills and control that a private owner would be.
Instead, what we see, pretty much universally across the Bananamerican corporate landscape, is robber baron CEOs plundering the coffers of publicly-owned corporations via larcenous compensation schemes and employment contracts that amount to outright theft.
In theory, this should be prevented by shareholder approval of board members who watch out for the interests of the shareholder, but we all know what a joke that is, with board members being their own merrband of pirates, in collusion with the senior management and getting nice perks for very little in the way of oversight or contribution to the enterprise. And these days, the individual shareholder is rarely represented directly, as most shares are owned through a financial intermediary, such as a mutual or pension fund, or some financial entity.
The time has come (the Walrus said), to rewrite the rules regarding compensation at ALL publicly-owned corporations, and put an end to the robber barons of corporate Bananamerica.
Yeah, like that’ll ever happen.
October 24th, 2009 at 1:34 pm
The answer is in taxation. Tax large scale bonuses to death to stamp them out. Bring back very high graduated tax rates. Put in a tax on each transaction, or at least on certain types of trading.
Those of you who are very close to Wall Street do not seem to realize the level of resentment and even hatred for you in the rest of society. It is perceived that you have nearly ruined the country because of your unrestrained greed. A populist type president could get elected next term just by demonizing Wall Street. The American people consider you to be the enemy.
October 24th, 2009 at 1:38 pm
“Do we want the firms that received aid to continue operating as autonomous, profit-seeking businesses, or as quasi-utilities operating under tight government restrictions?”
For companies that still owe the government money, my answer would be “yes”.
And to go a step further, maybe deposit-taking, FDIC-insured institutions in general should be regulated as quasi-utilities. If the CEO’s don’t like the regulations, they can just stop accepting deposits.
October 24th, 2009 at 1:40 pm
wrongway @ 1:34
And what about Tiger Woods, David Letterman, and Oprah Winfrey?
“Stamp them out” with taxes also?
How is the line drawn?
October 24th, 2009 at 1:45 pm
Dr. Kenneth Noisewater @ 12:53
“they still have captured regulation and oversight, along with having the treasury and Fed overtly giving them cash (via AIG) and rigging markets in their favor for their profit”.
I agree completely. But GS did nothing wrong by accepting the payout from their CDS contracts. As far as the AIG payouts are concerned, the people to be vilified here are Hank Paulson, George Bush, and all members of Congress who voted for that TARP fiasco.
October 24th, 2009 at 1:45 pm
“Despite paying back TARP, they cannot issue bonuses anymore?”
Barry, but it’s not just TARP that helped Goldman. Wasn’t other shadow programs with the great graphic earlier in the summer that you had regarding FDIC guarantying debt, allowed to be a bank holding company without a bank, etc. i’m not saying Goldman employees shouldn’t get bonuses, it’s the amount of profits and bonuses. isn’t something wrong with making all-time profits in our current economic state? the bonuses are like pornography, i can’t define it, but i know it when i see it.
~~~
BR: Agreed.
My issue is what do you want to do about it?
October 24th, 2009 at 1:46 pm
The time for morally correct action was during the crisis.
October 24th, 2009 at 1:47 pm
Its easy to see why the public is leery. GS is a hedge fund that masquerades as a bank. They should not have any access to the US Treasury under any circumstances. They put our entire financial system on the brink, and there is some question whether they are TBTF or deserve to be a public entity at all.
October 24th, 2009 at 1:54 pm
engineerd1 Says: “The quicker things get back to normal ….”
Normal is a long ways off. I agree btw with your comments on TARP – it had to be done. Same with QE, zero interest rates, stimulus progams, etc. However the net affect of all of these measures to date has only been the achievement of “less bad”. Job losses still very high. Housing still a mess. CRE just around the corner. State & Local Govt revenues still falling. Take away the props – $1.8 trillion annual deficit spending, $2 trillion quantitative easing and the economy probably will not be self-sustaining.
Our economy is founded on a business model that is no longer operative. Financial engineering, dollar subsidization and consumer consumption. Financial engineering took a Minsky, foreign central banks want out of the dollar game and the consumer, who for years offset falling incomes with cheap and easy credit and inexpensive imports, is now working fewer hours and must pay back past debts.
We need to think seriously about what the “new normal” will be. We are headed in a direction where it will be a society with just a few extremely wealthy and most of the rest increasingly poorer. I cannot see how this can be avoided on the present path.
October 24th, 2009 at 1:58 pm
The bailout was done for the benefit of the bankers, their stock and bond holders, and not for Main Street.
“William K. Black – the senior regulator during the S&L crisis, and an Associate Professor of both Economics and Law at the University of Missouri – says that the Prompt Corrective Action Law (PCA), 12 U.S.C. § 1831o, not only authorizes the government to seize insolvent banks, it mandates it, and that the Bush and Obama administrations broke the law by refusing to close insolvent banks.”
http://www.washingtonsblog.com/2009/09/we-cant-break-up-giant-banks-can-we-yes.html
(nice summary post)
Main St. is not too stupid, they were exactly right. Here’s Dean Baker last fall talking exactly about this issue:
http://www.youtube.com/watch?v=UfR_gPzTMnk
October 24th, 2009 at 2:00 pm
engineerd1 wrote:
“Amen. The bailout was not done to benefit companies or CEOs, but to save the world from the great depression or worse. It was in the interest of the governing authorities, and in the interest of main street, even though main street is too stupid to realize it.”
Just keep telling yourself that. What, are you one of the idiot congressmen who voted for the TARP — even though not one of them actually understood what was happening?
It’s funny, isn’t it, how all the “stupid” “demagogues” out there know far more about the bailouts, about banking, and about the financial system than 99.9% of the people in govt who say they support the bailouts. On second thought, it’s not funny at all.
Anyhow, engineerd1, take your best shot. Show us the chain of causality whereby we are all left in the street, fighting each other over a scrap of rat meat. Go ahead. You can’t do it. And neither could Bernanke or Paulson or Kashkari or Geithner… They’ve had ample opportunity, but they can’t do it. That’s because there is none. Would there be damage? Yes. Would the economy grind to a halt. Hells no. So go ahead. Show us what you got. Thanks.
October 24th, 2009 at 2:02 pm
vv111y @ 1:58
Good post. How many times did we here the politicians say that we had to have TARP because there was no authority to seize assets of the large banks?
October 24th, 2009 at 2:03 pm
“hear”, not “here”.
October 24th, 2009 at 2:04 pm
I’d have to dig this up (just going by memory) — during the crisis when the money market was frozen, Bernanke made some kind of claim that the banks had to be saved and the Fed was unable to intervene. I think it was Dean Baker who said that the Fed actually had the authority and means to intervene without the big banks. He further claimed that Bernanke did just that, right after TARP was past but BEFORE any of the money actually made it to the banks.
October 24th, 2009 at 2:06 pm
DL,
Not only that, but Whalen has argued till he’s blue in the face that the regulators can use their leverage with the board (i.e. to replace or indict them) in order to force a restructuring of the debt. Because that’s the greatest outrage in all of this — that the bondholders haven’t lost a penny. Meanwhile the taxpayer has risked everything — and lost a great deal. It’s funny to hear uncle Ben say “We didn’t have the authority…” because the very authority theythreatened to use on Ken Lewis and his board, is the exact same authority thy could have used to have that “adult conversation” with the bondholders.
October 24th, 2009 at 2:07 pm
clawback @ 2:00
Ditto.
October 24th, 2009 at 2:07 pm
Since money is fungible it’s just as possible to say that beneficiaries of public largess (via TARP, etc) paid off their debt with taxpayer money as it is to say they paid their debt from operational success (for which bonuses were paid). Sure it’s likely the majority of these firms would have been insolvent and bankrupt w/o bailouts and, in a real capitalist society, would have been liquidated months ago but this isn’t and they weren’t so why bother to argue further.
The primary remaining issue is the ongoing public backstop these firms possess: As long as a government guarantee and/or ready access to government money is in place, even implicitly, then no financial firm can have free rein to conduct its own operations. If those operations could affect systemic risk — e.g., virtually any trading or securitization operation — then those operations also must be subject to oversight and restriction: No exceptions; accepting credit requires accepting the creditor’s terms (as bankers know damn well).
Either that or forget the current banking model entirely and allow every citizen to have an account with the central bank. Who needs a middle man for the mundane purpose of taking deposits and making loans if they increase systemic risk? Let investment firms go back to their primary business and take their lumps accordingly.
Personally I think many of these firms just plain forgot the essential nature of their business: The bundling and selling of risk; leveraging up to acquire more of their own or each others products never made any business sense however much sense it may have made to the bottom line of bonus recipients.
October 24th, 2009 at 2:08 pm
“the greatest outrage in all of this — that the bondholders haven’t lost a penny.”
“Ditto” to that also.
October 24th, 2009 at 2:10 pm
In response to wunsacon at 11:42AM, BR says:
“BR: So what is your conclusion?
Despite paying back TARP, they cannot issue bonuses anymore?
Where does that leave us? Follow that to its logical conclusion . . .”
BR – Goldman et al can pay out any amount as wages and bonuses as their board and “shareholders” are willing to accept (privatization of “profits”) – however, there should be an equally ironclad rule that there will under no circumstance be socialization of losses. They can have their billions in bonuses but with immediate effect no Fed discount window borrowing nor FDIC guarantees of their debt. They should be truly left to operate within the context of the market – i.e. if they screw up their shareholders and bondholders take the hit and not taxpayers.
What we have seen to date is Wall Street wants their cake and eat it to – heads I win, tails the taxpayer loses. That should not be acceptable. I believe that banking and commerce needs to be separated and banks should be a utility with low profit margins, completely transparent to the taxpayers that backstop deposits and regulated to insure their financial health to prevent any taxpayer losses. Financial institutions that engage in securities business should be free to run their own business within rules of transparency and under the judgment of the open market.
~~~
BR: Agreed. The first cartoon I put in Bailout Nation was John Sherfius’ Socialism for the Rich, Capitalism for Everyone Else.
October 24th, 2009 at 2:14 pm
What am I missing? I’m not an economics guy, or an investment guy. I try and pay attention tho. Please correct me, anyone. GS mad bad bets, gambled and lost. Their losses threatened to take down the country. The country gave them enough money to not take down the country. Then they made money from that and then paid the bonuses to their employees for a job well done. Is that basically it? If so, this country is upside down. What in the hell is the incentive not to do this again when it worked so well the first time? UUUUGGGhhh!!! There’s no capital ‘h’ in ‘UUUUGGG’ because I can’t afford them anymore.
October 24th, 2009 at 2:20 pm
“Personally I think many of these firms just plain forgot the essential nature of their business: The bundling and selling of risk”
yup. when they couldn’t sell the risk they kept them. Or they were drug dealers using their own stash all along. they all became hedge funds and blew up, and Uncle Sam put the less than handful humpty dumpties back together with printed dollars. and we they’re enjoying monopoly bonuses.
October 24th, 2009 at 2:22 pm
They should be thankful they aren’t being lined up and shot like they would be in China. Then we could bill their family for the bullet.
We are supposed be to worried about the feelings and financial fortunes of the WS douchebags that drove the bus into the ditch?? Fuck that…and fuck them.
October 24th, 2009 at 2:32 pm
Bill Ackerman of Pershing Capital was on Charlie Rose last year. According to him, the banks legal structure actually made it easy to take them over with minimal or no disruption to the broader financial system. The claims of TEOTWAWKI were totally unfounded – as in they were lies.
October 24th, 2009 at 2:33 pm
consider that Buffett was a loan shark to two companies last fall during desperate times, GE and GS. his warrants with GE, which makes real and financial products are losers. but his bet on GS, which only peddles financial products are Gold. is it better to be live or memorex?
October 24th, 2009 at 2:38 pm
to clarify Bill Ackerman – this was in terms of logistics, the nuts and bolts of a bank seizure
October 24th, 2009 at 2:43 pm
An excellent article by Mort Zuckerman. A bleak future for the rest of us.
http://www.nydailynews.com/opinions/2009/10/21/2009-10-21_drowning_in_debt_obamas_spending_and_borrowing_leaves_us_gasping_for_air.html
October 24th, 2009 at 3:00 pm
Sure, we should forgive and forget. After all, we’re annoying the Masters of the Universe. Just remember, unregulated markets are the answer to everything. As quickly as we can get the guys at the top doing what they do best the better off we’ll all be.
Honestly, BR, this is not a black and white issue. Both punishment and regulation seem called for here given GS’s recent gross misconduct. Moreover, the assumptions that GS is both “autonomous” (which I think means no longer operating with government support) and working in a free market (ie one with real competition, a level playing field and clarity) are very questionable. At the very least, right now they are operating with the explicit TBTF backing of the USG. Please explain why we should continue to cover their potential losses but not have any say in how they operate?
October 24th, 2009 at 3:04 pm
Any organization that is deemed to be ‘Too Big To Fail’ should be too big to exist privately. If the banks are now de facto guaranteed by the state, why shouldn’t they be de facto run for the explicit benefit of the state? It is intolerable to have it both ways: banks receiving taxpayer money in times of distress and then capturing all excess profits in bountiful periods. This is further exacerbated by the ability of central banks to re-charge bank balance sheets via the interest rate curve and other measures. The state is in many ways facilitating bank profits; executives then take credit for the economic rent received and pay themselves very well as a result.
Yes, the banks may deliver significant economic returns (though that is now very debatable over the duration of the credit cycle), and some of those returns are directly tied to innovation and productivity, but in many ways it is impossible to differentiate between profits earned legitimately and profits earned as economics rents against the state. Should we give the executives the benefit of the doubt?
I think not.
Barrie?
October 24th, 2009 at 3:34 pm
BR writes: “That is the key disagreement I have had with those folks furious about the bonuses: The firms that paid back the TARP — do we never allow them to resume control of their businesses? Are they now ‘non profits?’”
Now BR you are either applying for a job at GS or you have suspended all your reasoning. I’m about to go like the Green Day song 21 guns and :
“.. Lay down your arms
Give up the fight
One, 21 guns .. ”
BR do you actually believe that GS is no longer benefiting from tax payer’s $$$? So if they make the wrong bet and lose enough billions to go under the government will no bail them out again? – GET REAL
~~~
BR: I could never work at a place like Goldman Sachs. Aside from the fact that I have spent much of the past few years trashing them, I have this unfortunate tendency of telling people what I really think. Phrases like “GO FUCK YOURSELF” don’t go over too well with senior management there . . .
My point is the giant givraway under Paulson was where the problems lay. A MUCH BETTER DEAL FOR TAXPAYERS SHOULD HAVE BEEN CUT. THATS WHAT WE SHOLD BE FURIOUS ABOUT
Post TARP repayment, I am not sure what we can really do.
October 24th, 2009 at 3:43 pm
Love the debate here…from the 30,000 foot level, ask yourselves what has been added to society when GS made 80% of their profit on trading last quarter? I can’t think of any. How many people truly earn that million dollar bonus and actually benefit society? Does anyone think they would be allowed to fail now? Could anycompany exist just by trading if the game weren’t somehow tilted in their favor?
October 24th, 2009 at 3:46 pm
Since GS has direct access to the US treasury to borrow money to buy stocks etc …or bogusly “reflate “ the past 6 months equity markets… they are a government agency and should be kept to abide by the “civil” servant’s(?) pay scale system.
October 24th, 2009 at 4:01 pm
kmckellop, ha ha. the most they should make is a GS 15
October 24th, 2009 at 4:21 pm
If the bulk of this money is from Investment Banking services, like mergers and acquisition advice, etc., etc
———
But even the benefits of these activities are debatable. M&A and easy credit are what got us in this too big to fail system.
October 24th, 2009 at 4:23 pm
And I mean to think of this in from its most basic assumptions rather than anthropomorphizing a business structure such as Goldman. Are they really just “smart”?
———–
Mix that with hunger for power, fear and sociopathy and you’ve got a nice little club.
October 24th, 2009 at 4:39 pm
Rules/Regulation will fix everything.
But no, GS and GE or Union, they don’t have to abide by the pay rules.
Some people are more equal than others I suppose.
October 24th, 2009 at 4:47 pm
clawback: chain of causality? maybe thats your problem.. you think economics is like physics?… wait a minute, causality breaks down even there, forgot….
techy: I don’t know what you want from politicians. That they should “work in the public interest”, or some such naivte? What the hell is that? And in what way does it exist apart of the notion of subjective values? I am comfortable voting for anyone who loves free enterprise and realizes moral restraint is essential to civilized life, without wasting time on specific issues. This means 99.9 percent of the time I am voting Republican…. It is really very simple….. Ideology gets a bad rap, but in my view it is what separates us from animals.
October 24th, 2009 at 4:59 pm
engineerd1,
I hate to say it, but I told you so. (I.e. you can’t explain how we end up in a Mad Max movie if we don’t bail out the bondholders and CDS counterparties at 100 cents on the dollar.)
October 24th, 2009 at 5:02 pm
Further proof that something is wrong…while GS pays their bonuses, 106 banks have failed this year alone…and many others have not failed yet, because the government is going slow to avoid inciting panic. Those people are out of jobs.
Bank failures hit 106 for year; many more are By DANIEL WAGNER, AP Business Writer Daniel Wagner,
Ap Business Writer – Sat Oct 24, 7:24 am ET
WASHINGTON – It’s a big number that only tells part of the story. The number of banks that have failed so far this year topped 100 on Friday — hitting 106 by the end of the day — the most in nearly two decades. But the trouble in the banking system from bad loans and the recession goes even deeper.
Dozens, perhaps hundreds, of other banks remain open even though they are as weak as many that have been shuttered. Regulators are seizing banks slowly and selectively — partly to avoid inciting panic and partly because buyers for bad banks are hard to find.
http://news.yahoo.com/s/ap/20091024/ap_on_bi_ge/us_bank_failures_18
October 24th, 2009 at 5:03 pm
The “logical conclusion” is that these TBTF’s need to be broken up and the system overhauled separating risk-taking IB’s and Hedge Funds with what should be more conservative commercial banks that are there to provide credit to the economy. That way if the IB’s and Hedge Funds go down, they no longer have an implicit gov’t guarantee and they go down on their own. The vanilla banks, however, will be heavily regulated and partly backed the the USG, and therefore, salaries and bonuses will be lower at these firms.
October 24th, 2009 at 5:11 pm
clawback…. you are right… I can’t explain that to you as a chain of causality…. but I can give plausibility arguments, which is sufficient in this discipline. A capitialist economy runs on credit. When credit dries up because of lack of faith, the machine grinds to a halt. it takes the richest guy in the room to stand up and say ” go ahead, if things go wrong I got your back” to keep things moving. That is what was done.
I will back down some….Part of me would have liked to see things done pure and right. Let em fail.. I am a rigid right wing ideologue after all. No one can say what exactly lies down the road not taken, but people of good will must realize that the risks down that road were severe. But if you think the principals in this action were motivated by self interest, or suffering from economic ignorance, or a part of some international jewish conspiracy out of Goldman, then you are not a person to be taken seriously, and I regret the time already invested in this communication.
October 24th, 2009 at 5:16 pm
@ mannwich,
“The “logical conclusion” is that these TBTF’s need to be broken up and the system overhauled separating risk-taking IB’s and Hedge Funds with what should be more conservative commercial banks that are there to provide credit to the economy. That way if the IB’s and Hedge Funds go down, they no longer have an implicit gov’t guarantee and they go down on their own.”
What a concept – commercial banks with access to the discount window, and investment banks, hedge funds, and insurance companies on their own. Sounds familiar….
October 24th, 2009 at 5:23 pm
@WM: Isn’t this what our banking system used to look like before the elimination of Glass-Steagall?
October 24th, 2009 at 5:27 pm
If any of us think this (or something far worse) fiasco isn’t going to happen again soon, they are sadly mistaken. From Naked Capitalism today…..
“Earlier this month, I received a sobering e-mail from a senior, recently-retired banker. This particular man, a veteran of the credit world, had just chatted with ex-colleagues who are still in the markets – and was feeling deeply shocked.
“Forget about the events of the past 12 months … the punters are back punting as aggressively as ever,” he wrote. “Highly leveraged short-term trades are back in vogue as players … jostle to load up on everything from Reits [real estate investment trusts] and commercial property, commodities, emerging markets and regular stocks and bonds.
“Oh, I am sure the banks’ public relations people will talk about the subdued atmosphere in banking, but don’t you believe it,” he continued bitterly, noting that when money is virtually free – or, at least, at 0.5 per cent – traders feel stupid if they don’t leverage up.
“Any sense of control is being chucked out of the window. After the dotcom boom and bust it took a good few years for the market to get its collective mojo back [but] this time it has taken just a few months,” he added. He finished with a despairing question: “Was October 2008 just a dress rehearsal for the crash when this latest bubble bursts?”
I daresay this missive reflects some element of hyperbole. But I have quoted it at length because the question is becoming more critical. Six months ago, the financial system was in deep distress, reeling from a meltdown. Now despair and panic have been replaced not simply by relief – but, in some quarters, euphoria. Never mind the high-profile rally that has occurred in the equity markets; what is perhaps most stunning is the less visible rebound in debt and derivatives markets, as risk assets have displayed what Barclays describes as a “stellar performance”
October 24th, 2009 at 5:32 pm
Goldman paid one percent in takes last year and Santoli wants to know were the other 20 percent should go? WTF! Then he worries that Goldman would be operating with fewer good people, that’s the F****ING point we want our best and brightest to be paid for actually creating something like engineering or biotechnology, not demolishing the public’s money! Should banks be run like the power or water company, as a public service to move capital to small businesses? Hell yes! Santoli doesn’t get it, maybe he should come out to Chicago for the Showdown so he can see for himself were this country is headed. The casino is now closed!
October 24th, 2009 at 5:40 pm
engineerd1,
I studied both physics and economics as an undergrad — I mean “chain of causality” in the demotic sense of “what would have happened and how”.
Anyhow, devil is in the details. Credit, as such, didn’t dry up, freeze, clog or do anything else metahporical. The commercial paper market for financials went south (there’s another one!) because everyone on Wall St. (and a few other places) looked at their own books and said holy heck, we can’t take that risk! All other forms of credit were fine. Plain vanilla bank loans even spiked up in Sept./Oct. in order to meet demand not met in the CP market. Further, if you look at the data from the Minn Fed, even industrial CP, contrary to all this “won’t be able to make payroll” talk, was fine for almost all mfg co’s. Now, this isn’t to say there wouldn’t have been dislocation in the credit markets. Far from it. But immediately, bank lending and other forms of credit were moving in to replace the collapse of the “shadow banking” system. Credit didn’t simply stop last fall. It’s just that the insolvent TARP banks heard the music stop and almost no one could find a chair.
Now, the Fed could have stepped in to provide credit in place of other sources, which they did. That’s fine with me as a temporary measure. Considering they dithered and lied for a whole year (do some digging, they knew a bailout would be needed by Jan 2008), that’s the least they could do. But TARP was a separate measure as part of an attempt to make the banks solvent again — it wasn’t about short-term liquidity at all. TARP was absolutely unnecessary, because after backstopping the banks, the Fed, FDIC, and the otherr regulators could have begun the process of winding these suckers down. They say they didn’t havve the authority, but they did. Ask Chris Whalen.
But more importantly, let’s go back to the fact that the regulators knew for almost a year before they finally went to Congress. In fact, according to Kashkari ,and this is hinted at by Geithner, they knew they couldn’t get bailout money (TARP) out of congress unless there was total fear in the air. That was the reason for Paulson and Bernanke’s late-night meeting with the congressional leadership after the first TARP bill was voted down. They knew they HAD to scare the bejesus out of them or they wouldn’t get the money.
So…this idea that we either do the whole TARP enchilada in response to a sudden , unexpected crisis, OR the entire world burns… that’s a totally false choice. This is important: it was never a choice of TARP or die. Never. Paulson and Bernanke deliberately presented it to Congress as if those were the only two choices. But they could have forced the Ibanks and big BHC’s to begin reducing leverage and stop relying so heavily on over-night lending, LONG before September. Nothing could have saved Citi at that point, and maybe not Lehman either, but it is ridiculous that Paulson, BB and Geithner did next to nothing from Jan. 2008 until September. And we’ve still done very little (except use taxpayer money). Instead of letting the bondholders and shareholders take the losses they deserve, Congress forced FASB to change reg 157 — and I suspect they will also backtrack on SIV’s as well. I’m sorry, but these clowns deserve no respect whatsoever. They have failed.
October 24th, 2009 at 5:59 pm
Mannwich RE to your senior, recently-retired banker’s comment : classic Elliott Wave two top behavior…next comes wave three.
October 24th, 2009 at 6:03 pm
@kmckellop: What we have here is a gov’t-induced panic buying, “get-back-to-even” spree. Once that ends, and the selling commences, will the dip-buyers be there (aside from the Fed, of course)?
http://www.zerohedge.com/article/manhattan-project-did-bernanke-use-monetary-nuclear-option
October 24th, 2009 at 6:17 pm
““It has long been true that the “average” employee on Wall Street is overpaid, his or her bonuses dragged higher by those who make huge scores for their firm.”
Just report the Median bonus, not the average.
October 24th, 2009 at 6:26 pm
How about a special tax on that portion of a bonus attributable to the time they were subsidized. In fact, to make it more general, how about a special tax, say up to a maximum of 90%, on any earnings, dividends, whatever, during the year or two or three prior to receiving bailout funds.
October 24th, 2009 at 6:38 pm
“Do we want the firms that received aid to continue operating as autonomous, profit-seeking businesses, or as quasi-utilities operating under tight government restrictions?”
Excellent question! Obviously, any company that can bring down “the-world-as-we-know-it” should be operating as utilities. And any other company should be allowed to fail. Yeah, it’s that simple!
October 24th, 2009 at 6:51 pm
We bailed them out…now it is time for them to bail us out. Tax the crap out of the bonuses and use the money to pay down national debt, help the unemployed, etc. Turn about is fair play.
October 24th, 2009 at 7:18 pm
Steve Barry Says:
October 24th, 2009 at 3:43 pm
“Could anycompany exist just by trading if the game weren’t somehow tilted in their favor?”
____________
Great question. And the answer is: not for long.
Our markets aren’t about trading, they’re about gambling. Your question is equivalent to this one: “Could any casino exist just by gambling if the game(s) weren’t somehow tilted in their favor?”
It’s not gambling if you own the casino.
October 24th, 2009 at 7:20 pm
Steve Barry Says:
October 24th, 2009 at 3:43 pm
“Could anycompany exist just by trading if the game weren’t somehow tilted in their favor?”
____________
Great question. And the answer is: not for long.
Our markets aren’t about trading, they’re about gambling. Your question is equivalent to this one: “Could any ca$ino exist just by gambling if the game(s) weren’t somehow tilted in their favor?”
It’s not gambling if you own the ca$ino.
October 24th, 2009 at 7:36 pm
Yes, GS should pay as it pleases after:
.. It has no access to almost 0% interest from the FDIC.
… It sets bonuses, with clawbacks, based on long term results.
… It is barred from talking with Treasury Department and Federal Reserve officers.
… It explains why rating agencies were confused (deliberately?) by its complex derivatives, and how it will make its products transparent to raters.
… Its people who manipulate the market beyond allowed practices go to jail.
The market is supposed to be fair as well as free. That’s why we need regulation and why GS must lose its privileged position with the government.
October 24th, 2009 at 7:49 pm
engineerd1,
I worked at Goldman for many years, and all I can say is that you’re no John Kennedy.
TARP was the government response to the realization that a cathedral of finance had been built, notably by Citi and Merrill, on top of 28 years of mortgage cashflow that wasn’t coming in. It was a panic response in a panic situation. Perhaps understandable, but wrong. You don’t add debt when the problem is too much debt. There were other ways of addressing the situation.
Goldman fucked up in their assessment of counterparty risk. They, along with everyone else, were writing total return swaps and what have you with AIG. In their opinion, they were playing by the rules, and as such should be paid contractually. But these were bad contracts, just like the subprime mortgages being written by their correspondants for their securitizations.
You can’t clawback bonusses which have already been paid out. The only thing you can do to recoup taxpayer money is to severely raise taxes on all Wall St. bonusses, so that Blankfein suffers like everyone else, recognizing that he previously took home a significant paycheck when the CDO-money machine was operating.
October 24th, 2009 at 8:15 pm
Rajaratnam: Relentless Pursuit of Data
http://online.wsj.com/article/SB125634088127304905.html?mod=googlenews_wsj
“…Employees at Galleon recall some unusual scenes. Last summer, Mr. Rajaratnam asked a junior female analyst to buy a black spandex outfit from retailer Lululemon Athletica Inc. as part of a research project into the company, a hotly traded stock. He then asked the analyst to wear the outfit at the firm’s morning meeting, said people who were there. As employees giggled, Mr. Rajaratnam made the point that few consumers would pay so much money for the expensive outfit in a recession, these people said. Mr. Rajaratnam then asked the analyst to walk back and forth on top of the conference table, said the people who attended…”
If your D&O Liabilities cover this sort of stuff, I’m available… and…
…Looks like Rupert Murdock wants this guy convicted. Fair and balanced… Yeah Right.
By next year Fox Street Journal will have half colors front page photos of it and Page Three stripper/Analysts. Go Rupert. Go Fox. You’re good for America.
I side with Rupert the tabloid master over Obama and Rahm any day of the week. What class.
P.S. ..and why don’t all this Matt Taibi lovers link to any supporting data supporting their “knowledge” of GS’s CDS book in August ‘08?
October 24th, 2009 at 8:34 pm
@Mannwich,
“@WM: Isn’t this what our banking system used to look like before the elimination of Glass-Steagall?”
Yes, along with other rules and regulations concerning off-balance sheet items, capital requirements, etc.
You know, all those awful policies that restrict growth and free trade.
October 24th, 2009 at 8:56 pm
“TARP was the government response to the realization that a cathedral of finance had been built, notably by Citi and Merrill”
what about Bear Stearns and Lehman? so what happened to Bear’s mortgage and derivatives book. do they just disappear, void out inside of JP Morgan Chase Chemical Manny Hanny?
October 24th, 2009 at 9:19 pm
Geez, there is a lot more than GS pay and bonuses being discussed here. And many of the issues while interesting and worth discussing, are not affecting GS pay and bonuses.
Has GS garnered to much access to those in power in D.C. ? Yes
Do they use it to shape policy in their favor? Yes
Have they unfairly benefitted in a way that others, competitors, etc have not? Yes
Are there rules against ANYTHING that they have done in the above statements? No
Are other industries, companies, people trying to do the same thing all the time? YES
(sugar industry, pharmaceuticals, insurance, NEA/Teachers, UAW/unions, AARP/old people)
Are you just as outraged? No
So are we going to be outraged at what actually seems to be a problem with D.C. and “how things get done”, or are we going to talk about GS bonuses and whether as a pay structure this is the best and most appropriate us of corporate capital for a publicly traded company?
If this is about how GS has crafted the system to their advantage and it pisses you off, don’t look at GS, look at D.C.! GS just demonstrate how friggin’ good they are. They’ve read the rules on the back of the box, they know what is there, and better yet, what isn’t and uses it to their advantage probably better than any other legally created entity. I guess you should have killed those kids in Math Club instead of giving them swirlies and shoving them in their lockers in high school, because in the real world, payback is a bitch!
October 24th, 2009 at 9:28 pm
Vilification ..Damn right..!
You can’t clawback bonuses ..ha! I call bullshit …without politics ..and with a bit of integrity and toughness ..you certainly could… a gigantic organized systematic FRAUD …no fiduciary responsibility… I’d bet RICO statutes could be applied easily .. of course in my mind not just Goldman!
You could nail Mozillo for $300 million alone…and he’d still have $100 mil…
The need for more regulation seems to me a waste of time and misguided ..most everything that was done was knowingly fraudulent and illegal. The real problem is desire ..the government has been bought and paid for..and the populous is ignorant and illiterate.
And I believe engineered1 to be most correct the unknown consequences where to great a risk and could have easily spiralled into a public panic which did not occur.
This post from a non finance pro seemed to nail it squarely.
andrelee40@hotmail.com Says:
October 24th, 2009 at 2:14 pm
“GS made bad bets, gambled and lost. Their losses threatened to take down the country. The country gave them enough money to not take down the country. Then they made money from that and then paid the bonuses to their employees for a job well done.”
October 24th, 2009 at 9:38 pm
excuse me ..did I say the govt is bought and paid for.. that’s just inaccurate and so 1960’s ..the govt and big business are siamese twins
October 24th, 2009 at 9:38 pm
It’s simple Barry, do away with the government guarantees of their debt, have them pay back the money they were paid via AIG, re-employ fair value accounting standards, then if they have any money left they can pay their bonuses.
October 24th, 2009 at 9:42 pm
JasRas,
You don’t think these same people are angry at all of the above named industries/groups that are screwing the taxpayer? This IS a thread about Goldman’s bonuses for this year. And this IS a blog about finance and markets. You’re beating up on a strawman here, I’m afraid.
On the other hand, school teachers, for example, aren’t exactly making tens of millions of dollars — each –per year, either. And most of them actually give us good service in return for what they’re paid. Compare that to the bankers. They failed miserably, were bailed out to the tune of hundreds of billions (or trillions, depends on who you ask), and now are making insanely rich salaries thanks to our good graces (and the fact that our congressmen completely ignored our cries of NO BAILOUT). If people are more outraged about Goldman than about the teachers’ union, it’s for good reason. But in any case, let’s take this for the gift it is– Goldman’s bonuses put into high relief systemic injustices that had remained relatively obscure for a long time. Well, to most people they were obscure.
Contrary to what you seem to believe, people are very angry at their politicians. Whatever you think of them, that’s what the tea parties are about. That’s what Dylan Ratigan’s whole show is about. That’s what The Daily Bail is about. It’s what Arianna Huffington talks about all the time on HuffPo and on Morning Meeting. Etc, etc. Just because you were picked on in highschool or whatever doesn’t mean that critics of Goldman Sachs are misguided.
October 24th, 2009 at 10:15 pm
Tax them, it’s the only solution. Theres got to be a happy medium between their excessive pay, and the cost they are taking from everyone. Let em make millions if they give half in taxes it will eventually even out.
October 24th, 2009 at 10:42 pm
BR: Agreed.
My issue is what do you want to do about it?
——————————————————
I don’t have the answer to that. I get why the TARP was pushed through last fall. I’m not so sure as others as it was done for purely interest of the bankers. I take the gov’t word that it tried to save the banking sector to save the economy, and prevent a disaster. The gov’t can’t want to intentionally make the rich richer, and everyone else poorer, leading to a social disaster. Remember how everyone wonder last fall how the IBs and banks would make money in the future? I think the current profits are probably unintended consequences of TARP and asset reflation. The Goldman bonus outrage is just another derivative of the AIG bonus outrage. It’s pennies compared to trillions of debt printed. Goldman employees shouldn’t get bonuses as if the firm had no gov’t help. But they shouldn’t get no bonuses either. I guess, like the health care debate, it will be a lot of noise, then a compromise will be agreed upon that solved nothing and pleasing no one. How’s that for a solution?
October 24th, 2009 at 11:35 pm
I’ve said a lot, but many commenters keep coming back to this idea that the govt was doing the best it could, in a panic situation, to prevent a disaster. Let’s be clear: Paulson, Bernanke, Geithner and Kashkari (that we know of) were well aware of the problems as early as January of 2008. But instead of doing whatever was necessary and prudent THEN to fix these problems, they tried to kick the can down the road and try to avoid triggering a mere “recession.” Geithner has said this all along. Well, the can got kicked and then they were faced with a much bigger financial and economic disaster in September — but partly because of choices they had made 9-12 months earlier.
So, instead of crediting these clowns with preventing Armageddon (which is a counterfactual and can’t be proven), why don’t we credit them with what they actually did do, which is helping to cause or exacerbate the Great Recession. And to be fair, let’s admit that Bernanke was able to prevent the total failure of 9 or 10 major institutions all at once. But this is like giving the kid playing with matches and gasoline credit for eventually calling the fire dept, thereby ensuring that only half of the neighborhood burns to the ground. In the public’s eye and in the eyes of most of Congress, the fire just up and started. The have no idea that little Benny and Timmy and Hank helped start it.
October 24th, 2009 at 11:56 pm
clawback,
the gov’t knew the problems were deep, probably back as far as 2007 when the Bear funds blew up. they didn’t want a panic, hence subprime was contained happy talk. to steal from Todd Harrison, last fall they effectively sold the car crash and bought the cancer. things were going to get real ugly, they chose the route of slow decline over years, instead of the an immediate crash. i can’t prove it (what they know and when they knew it), but those were the two choices when there is so much debt without the income or cash to make even the minimum payments. we can’t go back and see what would have happened if they also let AIG, Citi and BofA go under too. (Goldman and Morgan Stanley may have survived w/o gov’t bailouts.) They saw what happened with just Lehman, who didn’t appear to be as interconnected. Lehman was likely supposed to teach people the moral hazard, but Lehman took down the money market, probably an unintended consequence. so now we have another asset bubble that they hope will deflate slowly. what we discuss now is academic.
October 25th, 2009 at 12:09 am
People have known for three thousand years that banking is the ultimate rip-off.
October 25th, 2009 at 12:19 am
“from Todd Harrison, last fall they effectively sold the car crash and bought the cancer”
Yes, great line. On TechTicker, I think.
“the gov’t knew the problems were deep, probably back as far as 2007 when the Bear funds blew up”
No, definitely. But according to Kashkari (Charlie Rose interview), they had decided by Jan. of 2008 that they would need a massive bailout. The only problem (in their view) was that Congress, who knows nothing about finance or banking, wouldn’t give them the money until they saw (financial) blood in the streets. What gets me is why the ibanks were still levered up massively and why banks like Bear, to name one, were risking their asses every day by depending on overnight lending using crap MBS as collateral.
“what we discuss now is academic.” Goodness, let’s hope not. As it stands, we’re making almost every single policy mistake in the book — except tariffs. One would hope that instead of throwing good money after bad, at some point we either resolve Citi (and anyone else who’s still eligible) or restructure their debt with the bondholders. One would also hope that we’ve done something with the CDS on those bonds so as not to bring down JPM or whoever is holding the bag on that one.
Bottom line, I’d rather take the car crash now rather than let my kids inherit the cancer later on (oldest is 7).
October 25th, 2009 at 12:28 am
Oh, let’s not forget. Big Hank got the SEC to change the net capital rule in 2004. By 2007, the feds knew the game was over. Wow. 3 short years to blow up the world economy. That’s impressive by any standard.
October 25th, 2009 at 12:39 am
i meant academic as discussing last fall, whether to let all the troubled banks go down at once or not.
we still have the huge derivatives problem, and those toxic assets are still marked to fantasy. i think housing values will need to go back to 2006, 2007 levels for them to be whole, and that could take 30 years. You should read Todd’s site, Minyanville.com, too. i discovered Todd back during the Nasdaq bubble when he was Cramer’s head trader and filled in diarist at RealMoney, i.e. TheStreet.com Cramer is an interesting character, I learned a lot from him at TheStreet.com Cramer is more than the clown on Mad Money. Todd described his bipolar relationship with Cramer in his memoir at Minyanville.
Todd was on Tech Ticker in July 2008, saying he was in all cash. you should have seen the obscenities hurled his way for that in the comments. Todd is generally early, turning bullish this Feb. Then bearish again around September. It’s all for a trade. His other great line for trading is “our ultimate destination pales in comparison to the path we take.” I think that is Barry’s take too for this current uptrend. Do you want to make money or be right in your economic outlook.
As far as throwing money after bad, the world used to laugh at the Japanese for queasing (Barry’s word for quantitative easing). but now we all are queasing, because we don’t want to take the tough medicine. let the crash happen, and recover sooner. remember, the Fed didn’t want a recession after the Nasdaq crash and 9/11. so we got a housing bubble from 1%, zero% fed funds rate. now we will get mother of a recession. i don’t think they can generate a third bubble in 10 year period. can they?
October 25th, 2009 at 2:50 am
Break ‘em up. Break ‘em up into little pieces.
October 25th, 2009 at 4:01 am
Let the crash happpen = run on the banks = neighbor shoots you for food. You can not be serious in proposing this.
October 25th, 2009 at 7:04 am
clawback,
w/this: “I’ve said a lot, but many commenters keep coming back to this idea that the govt was doing the best it could, in a panic situation, to prevent a disaster. Let’s be clear: Paulson, Bernanke, Geithner and Kashkari (that we know of) were well aware of the problems as early as January of 2008. ..”
nice point~
that peep get all worked up about these GS bonuses..it’s all, too, predictable.
a nice, depending on your POV, distraction from the meat of the Matter.
this: “the govt was doing the best it could, in a panic situation, to prevent a disaster.” may be *True, but “For Whom?” is, too, seldom queried..
Context is Everything. We might do well by wondering, for starters, why We have Two eyes..
here’s a decent starting point http://www.austinkleon.com/2008/02/11/we-see-with-two-eyes/
October 25th, 2009 at 7:52 am
It is a shallow or facile conclusion to state that anyone has actually “paid back” the Tarp. Folks with 1 year of college accounting can eaily deconstruct this myth. Goldman may have “paid back”the nominal loans IN ITS MANE but the bulk of the remaining TARP funds that have NOT been repiad went to prop up bad assets that Goldman sold or bought. But for that aid, Goldman is history. When Goldman pays THAT back, you won’t hear a peep from me about bonuses but you know what? They would be SIGNIFCANTLY lower.
October 25th, 2009 at 7:56 am
The solution is simple. Look at the Dutch. They certainly don’t put up with any nonsense. As a ‘can do’ nation they appear to be streets ahead of the US and the UK. All they did was use people power.
Perhaps it is time for US and UK consumers to take their savings out of the banks that pay their boards astronomical pay packages and move them to the solid, decent, boring and unsexy, often smaller and local, banks.
That will give short shrift to the arrogant corrupt ‘too big to fail’ banks wasting taxpayers’ money by dabbling in the stock market instead of lending to people and small businesses. See:
http://news.bbc.co.uk/2/hi/business/8323991.stm
October 25th, 2009 at 8:11 am
taken to it’s logical conclusion? thus, the FEAR issue is we all become communists, lol, well they did that when they did TARP………….In KISS terms tarp was neccessary to save the world, we had zero control over that, okay we gotta help the banks cause no one will do biz with each other cause they all know how bad there books are and the other guys could be worse………okay fine, they’ve done this before………so the goal was to save banks, NOT MAKE THEM RICH, yet, they have become rich, now how could that be when there downfall was sub-prime and mortgages and anyone with a napkin knows next year foreclosures will be worse, yet, the banks books are saying, oh we are better, much better………..way too many illogical things scream out at people, to each there own, oh here’s tarp to save you, banks response, oh we will use that money to buy other banks, we need cash the fed will buy all of our bad trades at close too par, AIG pay-offs, the list goes on and on, my favorite is goldman getting permission to keep there VAR at astronomical levels until DEC of this year, you get into the details of all of this and it is in fact stupidier and stupider what was done……………the general feeling is save em, okay but allowing them to rape the taxpayer is sickening, so folks are not only sickened by GS and DC, but the fact it’s obvious when u get into the details GS is doing this knowingly and intentionally, now I’m sure GS feels they are helping folks make money and doing the right thing etc. etc., I think that’s obvious, the bottom line though is the insane amount of debt being piled upon day after day, you’re average baby boomer having been in biz for 30 years have looked at tons of balanche sheets over the years and this one the governments, thanks to the banks is totally insane, plain and simple………the bonuses are just a global reminder that the insanity continues, and there is no end in sight, thus, the outrage………..jeeze we all wanna make money
October 25th, 2009 at 8:25 am
“Let the crash happpen = run on the banks = neighbor shoots you for food.”
This is bumper-sticker gnosticism. Better to define terms. Otherwise this might be read: Acquiesce, peasant.
October 25th, 2009 at 8:26 am
To Torrie Amos
The solution is simple. Look at the Dutch. They certainly don’t put up with any nonsense. As a ‘can do’ nation they appear to be streets ahead of the US and the UK. All they did was use people power.
Perhaps it is time for US and UK consumers to take their savings out of the banks that pay their boards astronomical pay packages and move them to the solid, decent, boring and unsexy, often smaller and local, banks.
That will give short shrift to the arrogant corrupt ‘too big to fail’ banks wasting taxpayers’ money by dabbling in the stock market instead of lending to people and small businesses. See:
http://news.bbc.co.uk/2/hi/business/8323991.stm
October 25th, 2009 at 8:43 am
Via: Business Insider:
During that long summer between the collapse of Bear Stearns and the collapse of Lehman Brothers, Hank Paulson held a secret meeting with the board of Goldman Sachs in Moscow.
Andrew Ross Sorkin tells the tale of the meeting in his new book, Too Big To Fail:
When Paulson learned that Goldman’s board would be in Moscow at the same time as him, he had [Treasury chief of staff] Jim Wilkinson organize a meeting with them. Nothing formal, purely social — for old times’ sake.
For f**k’s sake! Wilkinson thought. He and Treasury had had enough trouble trying to fend off all the Goldman Sachs conspiracy theories constantly being bandied about in Washington and on Wall Street. A private meeting with its board? In Moscow?
For the nearly two years that Paulson had been Treasury secretary he had not met privately with the board of any company, except for briefly dropping by a cocktail party that Larry Fink’s BlackRock was holding for its directors at the Emirates Palace Hotel in Abu Dhabi in June.
Anxious about the prospect of such a meeting, Wilkinson called to get approval from Treasury’s general counsel. Bob Hoyt, who wasn’t enamored of the “optics” of such a meeting, said that as long as it remained a “social event,” it wouldn’t run afoul of the ethics guidelines…
http://cryptogon.com/?paged=3
**who wasn’t enamored of the “optics” of such a meeting**
~~
“… it is time for US and UK consumers to take their savings out of the banks that pay their boards astronomical pay packages and move them to the solid, decent, boring and unsexy, often smaller and local, banks.”–carolus augustus
iow, “Defund to Defend”
also, http://www.collectorscorner.com/Products/Item.aspx?id=4829763
~~
as an aside http://cryptome.org/
October 25th, 2009 at 9:06 am
Excerpted from a larger Open Letter to Congress written by John Hussman back in September:
“The key is to recognize that for nearly all of the institutions currently at risk of failure, there exists a cushion of bondholder capital sufficient to absorb all probable losses, without any need for the public to bear the cost.
For example, consider Morgan Stanley’s balance sheet as of 8/31/08. Total assets were $988.8 billion, with shareholder equity (including junior subordinated debt) of $42.1 billion, for a gross leverage ratio of 23.5. However, the company also has approximately $200 billion in long-term debt to its bondholders, primarily consisting of senior debt with an average maturity of about 6 years. Why on earth would Congress put the U.S. public behind these bondholders?”
http://www.hussmanfunds.com/wmc/wmc080922.htm
October 25th, 2009 at 9:12 am
JasRas at 12:39 pm … techy at 12:54 pm
“JasRas .. why should anyone care for shareholders when they hand over their money and ask for nothing in return??”
why that David Gilmore album is so good thru the years .. what else is there really ….
“theres no way outta here .. once your in .. your in for good”
October 25th, 2009 at 9:16 am
Gilmour .. duh .. “slow down .. your movin to fast”
October 25th, 2009 at 9:16 am
Here’s Hussman again, from March 2008, re Bear Stearns:
“3) The deal is being defended on the notion that the global financial system would have “failed” had Bear Stearns not been rescued. But the orderly transfer, netting and settlement of financial derivatives and other “qualified financial contracts” (QFCs) is precisely what Title IX of the Bankruptcy Act of 2005 was written to facilitate. In effect, the Federal Reserve and the Treasury decided to ignore existing law and provide a bailout to the benefit of Bear Stearns’ bondholders at public expense.
4) For Bear Stearns to “fail” means that it may not fully repay its own bondholders, but it has never meant that Bear Stearns’ customers and counterparties would be hurt – their accounts and contracts are precisely what J.P. Morgan is eager to purchase and can easily transfer. The misuse of public funds is assisted by blurring the distinction between “failure” of Bear’s customer and counterparty obligations (which nobody wants and is neither likely nor necessary), and the “failure” of Bear Stearns’s stocks and bonds to be successful investments. Why should investment losses be bailed out at public expense?”
http://www.hussmanfunds.com/wmc/wmc080331.htm
No one is required to take John Hussman’s opinions at face value, but this advice seems sound to me, and it was offered before the TARP bailout. Publicly, the fate of the bondholders — at it really is all about the bonholders (why?) — was never discussed. Hussman may be wrong, but is he also not “serious”? I don’t think so. These ideas merit discussion because they are germane, not just to the decisions made last fall, but to how things are handled going forward. I.e., will we provide more bailout money to Citi (or talk to the bondholders)? Will we strong-arm FASB again (or talk to the bondholders)? Will we allow Goldman et al. to continue paying huge bonuses (or talk to the bondholders about the 13B from AIG)?
October 25th, 2009 at 9:26 am
Actually, clawback, I didn’t say anyone is “screwing” anyone. That is your perception. As frustrated as I get that the current government is more influenced by groups with more money, that is the world we live in today. You want to change that, you are going to have to do more than just listen to Glen Beck and go to tea parties with other Kool-Aid drinkers. Just as it is your misguided perception that we would have a functioning market, economy, or anything else if we all did nothing and let the big, bad banks fail. That is lunacy. The crisis first had to get stabilized before applying real remedies. Sometimes medicine is distasteful.
However, now that we are at a relatively stable place in this long term crisis, I am all for breaking the big banks into their parts. In fact I think it should be a high priority. However, let me point out that this will have no effect on GS, which is what this was supposed to be about. You see, they are one of the only ones out there that is not a roll-up of other organizations. But it would make BAC, JPM, WFC and C much smaller; which is a really good outcome.
October 25th, 2009 at 9:30 am
Clawback: Thanks for bring up Hussman…I love his weekly comments. He’s like a more academic, PC version of Barry, who we love more for his opinions.
You reminded me to read his Monday column and it is a gem:
“In reviewing the status of the market late last week, the condition of the data was something of an anomaly in that regard. On the valuation front, stocks are presently overvalued, but to levels that we’ve observed at least several times in history. The anomaly relates to market action, where we can no longer find a single historical instance where stocks were more overbought on the combination of short- and intermediate-term measures we respond to most strongly. Indeed, only one instance comes close, which is November 28, 1980. ”
http://www.hussmanfunds.com/wmc/wmc091019.htm
October 25th, 2009 at 10:06 am
Oh, and by the way clawback, GS being a BHC allows the govt. to regulate GS more than if they weren’t.
I find it interesting that a person who supposedly holds such conservative beliefs as yourself would want continued interference by the govt. in GS business. That sounds so socialistic. I would think you would want a “hands off” approach asap…
I also realize people are angry at the government, but not enough to do something; or perhaps so frustrated because they really don’t see Republican or Democrat as a viable solution, but instead interchangeable grifters.
Other issues: earlier yesterday you wanted a chain of what would have happened had TARP not happened. This is more an IT question than a financial question, but I will take a shot at it… “The Market” is very much like “The Internet” except it is much, much more fragile. It is like a poorly designed internet. The internet was designed or conceived by the DoD as a “web” so if one or more nodes went inoperable, communication was rerouted other direction and got to its destination. Unfortunately, “The Market” was most made of the IT equipment from the following companies: BSC, LEH, MER, GS, MS, C…I am probably missing a few, but these were Prime Brokers and those six touch almost every single trade made on all the exchanges in America, and frankly touch a lot of the trading elsewhere in the world. So, for fun, lets just say each entity was responsible for 17% of the total trading done everyday, everywhere, anywhere… BSC goes bye-bye, but not really because they were smart and kept it going through JPM. But LEH…LEH they let go. Why? Maybe to “teach a lesson”, maybe b/c Paulson hated them, maybe to effect the election, who knows… But what we got from that was what happens when 17% of the trading volume is disrupted, plus all the other garbage that people know now, but didn’t then. Now, in a very short time, the market did what we all lived through…tell me how many of the others do you want to fail?
October 25th, 2009 at 10:42 am
carlos,
IMHO, the eruo is going higher due to simple fact they fired there bankers and have gone thru 40 or so economic calmaities thru-out history, while we make our richer, thus, while euro is in the same boat as us, on there side there actions are reasonable for the situation, ours are basically stupid, thus more folks are moving to there side of the boat, i basically see two camps of folks, A, oh give us 5-10 years and all will be splendid B, stop the insanity………………..obviously I’m B, just not enough profit too support debt, plain and simple, when does it matter, who knows………………the question becomes how much debt can you destroy without disrupting or destroying xyz people, ie, collateral damage………wall st. took on 40-1 leverage because by securitizing debt and using derivatives, they were hedged, it could never happen to them, and it did………….and there actions are lend to no one and build up 1 trillion in cash………makes a man go hmmmmmmmm, after being bailed out………..hmmm, so they factually know the numbers and have passed the numbers onto someone else, and they will not loan this someone else money, and are hoarding there own, must be some potatoe………….or perhaps the same one foreclosures………….gotta love oil the higher it goes it tells us all is well, lol………………..change does not happen until it is forced upon folks thru massive pain, and panic and pain are not the same, the banks experienced panic and record bonuses, that will change nada
October 25th, 2009 at 11:06 am
Imagine … ditto ya dan at 1:03pm
“Imagine sitting at a [b]lackjack table with a Goldman employee dealing the cards and Goldman employees sitting next to you doubling down in the hopes of a 21….and that all of them get to play their respective roles with access to the Federal Reserve’s discount window.”
hue at 2:33 pm – “consider that Buffett was a loan shark to two companies last fall during desperate times, *GE and GS*. his warrants with GE, which *makes real* and financial products are losers. but his bet on GS, which only *peddles financial* products are Gold. is it better to be live or memorex”
you should know Hue “resistance is futile .. you will be assimilated”
ps OffT – my microwave only needs a new display lcd (coffee got cold) .. but no parts available .. junk it and buy a new one (or check the street during clean-up days) .. probably made with steel case pressed from a foreign land because UBS thinks Brazil is good for your investment needs – who is buying/dismantling a local plant – deemed a MIC strategic operation by one of its blue collar tools .. resistance is futile
back OnT – exchange at 3:34pm – it does suck to be a businessman .. free speech is out the window
pss – enjoyed the highlite here and the original … that Schools Out ? ..
http://www.ritholtz.com/blog/2009/10/animating-xkcd/#comments
was that balloon dad chasing the tornado?
October 25th, 2009 at 11:24 am
psss (had to go over to the other machine / that can do FlashPlayer for this tidbit)
on the topic of time frame – when it was known a Buffet melt down was coming – captured this at PBS by blogger James Bothwell Oct 24, 2009 14:07:
“While generally quite laudable, this Frontline report commits a serious error of omission. The first explicit government warning about the systemic risks posed by financial derivatives was in fact issued in 1994, two years before Ms. Born became chair of the CFTC, in a well-known, definitive GAO report entitled, Financial Derivatives: Actions Needed to Protect the Financial System (May 18, 1994).
The report, based on an in-depth 2-year study of the derivatives market, analyzed the significant and growing risks posed by these products and recommended that Congress and financial regulators take a series of specific actions to monitor and control these risks because they threatened the stability of the entire financial system.
The GAO report was the subject of a number of high-profile congressional hearings and received widespread coverage in a series of speeches and presentations by James L. Bothwell, the GAO director and principal author of the study, throughout the 1994-96 period. As the incoming chair of the CFTC, Ms. Born would certainly have been briefed about the GAO findings and recommendations in 1996.
So give credit where credit is due. While Ms. Born certainly deserves credit for supporting and attempting to implement the GAO recommendations, she is certainly not the one who performed the analysis, or was the first to sound a clarion warning about the risks of derivatives in Washington, or the first to fight to control these risks. That credit belongs to the GAO. To its credit, the Columbia Journalism Review got the story right this past Spring. See the following links: http://www.cjr.org/the_audit/derivatives_echo_chamber.php
http://www.cjr.org/the_audit/audit_interview_james_l_bothwe.php “
October 25th, 2009 at 11:32 am
on time-lines (not to steal this thread) another from The Warning thread by KG Oct 24, 2009 09:56:
“History as I see it:
1950’s- U.S only post war major manufacturing power left standing
1960’s- let the good times roll- no competition – high paying union jobs and lucrative benefits
1970’s- Rest of world plays catchup. Arabs use oil as strategic weapon.
1980′ Massive transference of wealth to middle east (petro dollars) and Rise of China as industrial power creates global imbalance which is another way of saying we pay ourselves way too much.
1990’s- We are in trouble-What to do about it:
1- Marginalize unions- can’t compete in global economy
2- Begin the erosin of standard of living (freeze wages)
2000’s
3- Pass legislation to legalize Credit Default Swaps (Commodity futures modernization Act)(Graham Leach Bliley)
4- Purchase afore mentioned insurance(counterparties-who are they?) and let the economy implode-We’ll collect
5- Send this money to Switzerland and put Senator Graham there to watch it. (He’s a VP at UBS)
6- Return when the dust settles- What a plan!
The rest is history”
October 25th, 2009 at 1:51 pm
me at 11:32am above reposting KG from PBS .. should have noticed / because did it myself too .. Graham =
http://en.wikipedia.org/wiki/Phil_Gramm
October 25th, 2009 at 3:41 pm
Interesting comments. I think the main street gets it. It’s just that Wall Street and the Pols. don’t get it.
This link and comments should be forwarded to all everyone in the U.S. Congress and the Senate.
The outrage on the main street is real and justified. Most of these comments make amply clear this status quo is not working…….
October 25th, 2009 at 4:21 pm
Wow, it’s easy. The other 50% of the bonus money could go to the owners (shareholders). What a concept.
What I don’t understand is that we supposedly have to pay these guys so much money because they are so smart, however none of these rocket scientists can come up with a compensation scheme that would be fair for everyone. And why is that? Because they all want their money before their deals blow up.
How about some suggestions.
– Bring back Galss-Steagall. The legislation is already written.
– Clean house in the Obama administration. (I’m a lifelong democrat and big supporter of the president). We need to get rid of all the Ayn Rand disciples that worked with Greenspan to gut the regulatory framework. Yes, that means Summers, Geihtner, et al. Say what? They name a disciple of Greenspan, an economist to boot, to head up the new regulatory framework at the fed. Sometimes I think some folks are trying to destroy the country.
October 25th, 2009 at 4:21 pm
[...] Joe Nocera, “Goldman makes its money primarily by taking trading risks, and so long as that is the case, American taxpayers are going to question why they should have to be on the hook if Goldman suddenly runs into serious trouble.” (NYTimes also Big Picture) [...]
October 25th, 2009 at 4:40 pm
JasRas wrote:
“I find it interesting that a person who supposedly holds such conservative beliefs as yourself …”
Given your track record so far (Glenn Beck, Tea Bagger…) maybe you should just stop supposing altogether. Like supposing that because Goldman converted to a BHC it’s actually being regulated as a BHC (LOL). Or supposing that yet another meltdown metaphor (the internets) in any way amounts to a coherent narrative of what might have happened. Never mind the many, many alternatives between TARP on the one hand, and doing nothing on the other. Heck, maybe you just don’t read very well, because almost everything you wrote at 10:06 has been addressed by myself and others.
October 25th, 2009 at 11:11 pm
@ Clawback
You’ve addressed most of what I commented on already? I think not. Maybe others have tried but, your a nutter whose comments mainly cut at other’s attempts at contributing. I see nothing from your comments on this thread but negatively charged rhetoric that is delusional at best. Credit would have been fine?! Other sources were stepping in?! Really? I don’t think so. You have no clear idea how the markets work mechanically, or you wouldn’t say some of the things you do. It seems you have the perception that markets can exist without infrastructure, like it is some mystical fairyland. I guess that doesn’t surprise me.
All I’ve done is point out reality. Deal with it. Life is unfair. Goldman Sachs works well to get what it wants within the confines of the law, and when it wants a law changed, it does what every company in this country does and tries to get it changed. It is simply more successful because they network better than any entity out there. And it is terribly unfair to you, to me, and to everyone else, but it isn’t illegal. And it goes on whether Republicans or Democrats are in power, so it isn’t a party related issue.
You want it to be more fair for you, do something about it. Dylan and Glenn aren’t going to do it for you. As great as their shows might be, they are only on the air because they sell ads. Ask Glenn to run for office if he wants to make a real difference. I doubt he would because it would be too much of a pay cut and it is easier to be a critic than to lead. The problem is that there isn’t a soul out there who can be elected that won’t be corrupt after their first stint in D.C. Doesn’t matter which side of the aisle you stand on, red or blue, they all come away sell outs.
My biggest mistake was assuming I was exchanging thoughts with a person not capable of doing anything but flame people. Clawback, you are simply way to hostile to be reasonable. Go put your tin foil hat on and try to communicate with Tom Cruise about the aliens, because you are about that far out there when it comes to anything coherent or sane.
October 25th, 2009 at 11:41 pm
JasRas,
Dude.
I was annoyed by your non-sequitor comments, and I said so, but it’s nothing personal. Really. It isn’t my intention to upset anyone on a personal level. And I’m not happy that you’re so upset. Now, you’re throwing a lot of adjectives and invective my way, but I honestly don’t know where it’s coming from (I don’t watch Glenn Beck. I am not a conservative, etc). I’ll maintain my arguments are reasonable, but obviously we’re talking at cross purposes here. I’m sure you’ve got better things to do than get angry about this stuff, so let’s just leave it at that.
October 26th, 2009 at 12:15 am
Clawback:
Done. I’ll put away my thesaurus and dictionary. Really? Non-sequitor? I thought I was pretty logical
Reality sucks, man. I read a lot of stuff by some pretty smart people–I don’t think I said anything that was my idea, only others’ that I agree with.
I looked at all your comments and thought you had been lashing out at a variety of people and was not encouraging the sharing of thoughts but simply taking pot shots with not much for ammo. So I took it upon myself to engage you as you had I.
I initially tried bring things back around to the bonuses, but was derided for doing so.
You gave someone a hard time because no one can say what would have happened had TARP not happened. Factually, no one really knows, but the implication seemed to be that bad stuff wouldn’t have happened.
Hey, I just want to contribute without someone flaming me. I want to add to the thoughts being shared. I usually do with no problems…
I really think we can all spend a lot of time being angry about these things, and there is a lot of anger other than mine in these threads. I just think some thought needs to be placed out there that a lot that angers us is not illegal. It might be despicable, but not against the laws of the land. If we are to affect change, anger has to be turned into action; be that finding politicians that will change things, or how we act.
There are some really good posters on this blog, some have been leaving comments for years. If you read my comments and they don’t make sense, let me know and either I can try to explain them better, or you can correct an ill-conceived idea, but let’s not lash out.
I like Hussman too. Thanks for the link earlier in the day.
No mas. Guten Nacht
October 26th, 2009 at 12:40 am
“I just think some thought needs to be placed out there that a lot that angers us is not illegal. It might be despicable, but not against the laws of the land. If we are to affect change, anger has to be turned into action; be that finding politicians that will change things, or how we act.”
Absoluterly. Let’s do it.
October 26th, 2009 at 10:35 am
As long as Goldman derives income from the government guarenteed paper they issued they are still being supported by the government. It would be difficult to not make at least 10 points a year given that cost of capital versus their trading desks returns. They went to the well and drank the water all the time saying they didn’t need the water. Remember the cost they paid to Buffet for capital they claim they did not need. Remember they took the AIG money claiming their swap positions were not upside down. Only time will tell us what really happened but in the light of a new day I suspect we will find that Goldman was in the same boat as the rest of the street bailing as fast as they could.
October 26th, 2009 at 12:51 pm
“That is the key disagreement I have had with those folks furious about the bonuses: The firms that paid back the TARP — do we never allow them to resume control of their businesses?”
This is a disingenuous straw man. Few people are saying we “never” allow them to resume control or that we make them into nonprofits.
You’re normally a reasonable guy, and I think a lot of what you say IS true, but I can’t help wondering if you are having some kind of emotional reaction to this. What you said above is a complete misrepresentation of people who disagree with you, and beneath you and the importance of this argument.