Of Goldmans, Bonuses and Taxpayers
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New York, USA, 16 July 2009. As Goldman Sachs announces $3.4 billion in profit for the second quarter, people are wondering if it will return to its old practice of massive bonuses and huge pay, and whether or not such excesses will be at the taxpayers’ expense.
It has allocated more than $11 billion in benefits and pay during one of the worst half-years in living memory. This is more than was paid out in 2006 or 2007, which were far from being bad years. [br]
So how does all this add up? To begin with, Goldman Sachs has paid back the government loans and bailout money it received. While it might have met its quarterly targets and pulled itself out of the hole it was in, it just doesn’t seem right. At least not yet.
People are still unhappy that the firm took a $12 billion bailout and then turned around and gave out $14 billion in bonuses, late last year.
And it’s not like the global financial crisis has come to an end – far from it. The apparent recovery of Goldman Sachs isn’t exactly representative of the economy, either. People are still losing their jobs and investment portfolios are still way down. Goldman Sachs got away with a painless recovery, thanks to taxpayer dollars from the bailout – from the taxpayers.
Once again, the moral hazard rears its ugly head. Goldman Sachs has proven it can take big risks the wrong way and get bailed out, or make the right risks and get very rich.[br]No amount of bad choices the firm takes will deter it from making those choices again. Its investors will never learn to follow old-fashioned, tried and true investment fundamentals.
Some analysts are suggesting that Goldman Sachs is embarking on misguided investment strategy which could very well wreak havoc should markets suddenly collapse.
And that is a scary proposition, considering our system may not be able to deal with new bailouts again, now. The public definitely isn’t having it.
What kind of recovery in the markets can we expect if investors are unsure about putting their money in US equities if it appears that we are not prepared to hand out punishment for bad risk taking?
Hiroko Mirafiori, EconomyWatch.com
