http://www.thedailybeast.com/blogs-and-stories/2009-10-14/wall-streets-bonus-hypocrisy/Firms like Goldman Sachs are about to announce billions in year-end bonuses. Charlie Gasparino on how banks are rewarding themselves while still gambling with America’s money.
Goldman Sachs is trying to downplay how much bonus money it’s scheduled to set aside for its employees this year, a full twelve months after the firm received federal bailout money. But this is also the same firm that amazingly contends it wasn’t rescued by the Feds, that the AIG bailout—despite the fact that it held the firm’s insurance products on its books—would have no effect on its own finances, and that last year when the financial world was imploding, everything was pretty mellow down at Goldman’s headquarters in lower Manhattan.
Firms are making money not because they’re good at what they do, but because they have been given so many subsidies that it’s impossible not to.
I’m struck by this not just because of the utter hypocrisy involved, but also because Goldman isn’t alone in trying to spin the fact that every firm that faced sudden and assured death last year without billions of dollars in government cash, guarantees on bad debt, relaxation of accounting rules that make their bad bets look better than they should, not to mention that monster AIG bailout, is getting ready to hand to its executives major year-end bonuses. Again.
In the coming days, as Wall Street banks report strong earnings and boat loads of money for year-end bonuses, you’ll be hearing a lot about how paying people at the firms is necessary for the banks to retain talent and survive; that the firms made the money fair and square and that a return to profitability is a good thing. It means the firms are stabilizing. The banking crisis is over.
The banking crisis may be over (I prefer the description “abated” because the banks still hold trillions of toxic assets that could further implode depending on how high unemployment rises) but the fact that the firms have recovered so quickly isn’t so much a testament to their CEOs’ market brilliance and business acumen, but rather the size and scope of the government/taxpayer subsidy that was designed for the banking system to survive, but now that the firms have survived, is being used to enrich some of the same risk-takers who plunged the nation into the financial crisis, and the Great Recession, just one year ago.
Obviously saving the banking system was a good thing. Goldman Sachs and Morgan Stanley may be too powerful, the management of Bank of America and Citigroup too stupid, but having them in the market trading stocks and bonds is necessary to prevent asset prices—and that means everything from 401(k)s to public pension funds and shares of individual companies held by Main Street America—falling to close to zero. That was the worry this time last year when the firms received all that bailout money. When assets prices fall to those levels start talking Great Depression instead of Great Recession.
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