All morning long, the lead story on the Wall Street Journal's home page has been "Goldman Holders Miffed at Bonuses." According to reporter Susanne Craig, some of Goldman's largest shareholders have been privately expressing to Goldman management that a record-large bonus pool might not be in the best interest of the real owners of the investment bank, i.e., the institutions and investors who own Goldman's stock.
In an opinion piece, also in the Journal, Michael Corkery approves of the basic principle:
This is how it is supposed to work. Rather than the federal government dictating what a company should pay its employees, shareholders are having their say.
Ever since Goldman Sachs' 1999 IPO, I've been wondering how the investment bank's big-money culture would square with the trope that a public company's first responsibility is to its shareholders. Up until now, Goldman's shareholders have accepted the basic bargain -- Goldman's stock returns far outpace the market. This success is supposedly attributable to Goldman having the smartest employees. And so the argument goes: If you don't pay the smartest employees an average of over $700,000 per person per year, they will skedaddle.
But it seems as if what looks to be "the biggest employee payout in the firm's 140-year history" is inciting some grumbling even among those who typically could not care less about outsize Wall Street compensation levels.
Corkery is skeptical that the big institutional investors will make good on the only threat they realistically have, which is to sell their stock. But there's an interesting subtext to the whole question of shareholder rights that is ironically highlighted by the Goldman dilemma.
Oftentimes, when we hear that a public company's first responsibility is to its shareholders, this is used as an excuse to shaft workers. What's the easiest way to cut costs and get a quick stock price boost? Lay off employees! It's one of the harshest truths of capitalism -- the people who do the actual work generally get the smallest piece of the pie and are most vulnerable to economic downshifts. The principle that shareholders should come first has propelled countless mergers and acquisitions with disastrous results for the employees of the companies that get sliced and diced in Wall Street's endless parlor games.
For Goldman critics, it might be satisfying to see big shareholders muttering grimly about the impropriety of massive bonuses. It also could be rewarding to see shareholders exert more force in restricting the runaway compensation of top executives, although I'm not going to hold my breath waiting for such "say-on-pay" ideals to ever become common practice. But I'd caution against seeing this episode of dissatisfaction as some great triumph of shareholder democracy over the lords of Wall Street. What the investors really want is more money for themselves -- a fat dividend payout, or higher earnings per share that would be reflected in a higher stock price.
And what that usually means is: Screw the worker. In this case, we're all OK with it, because these are Goldman employees, and everybody is mad at Goldman. But as a general rule, keeping stock prices high by keeping the clamps tightly down on workers is not ideal, from an egalitarian point of view.
The headline of a very long story about Goldman Sachs and its CEO, Lloyd Blankfein in the London Times is calculated to provoke: "I'm doing 'God's Work.' Meet Mr. Goldman Sachs."
The passage evokes memory of last week's outburst by banking executives defending the Christian righteousness of profits.
So, it's business as usual, then, regardless of whether it makes most people howl at the moon with rage? Goldman Sachs, this pillar of the free market, breeder of super-citizens, object of envy and awe will go on raking it in, getting richer than God? An impish grin spreads across Blankfein's face. Call him a fat cat who mocks the public. Call him wicked. Call him what you will. He is, he says, just a banker "doing God's work"
But that's hardly the most inflammatory section in John Arlidge's piece. Far more disturbing than the call to a higher authority is Blankfein's dark twist on the old "what's good for General Motors is good for the United States" theme.
Does Blankfein not acknowledge that it is maddening for most of us to watch Goldman gobble up so much cash while we struggle? Quite the opposite. He insists we should be celebrating his bank's success, not condemning it. "Everybody should be, frankly, happy," he says. Can he be serious? Deadly. Goldman's performance, he argues, is the firmest indication of a nascent economic recovery that will benefit not just him and his firm but all of us. "The financial system led us into the crisis and it will lead us out."
... "I've got news for you," he shoots back, eyes narrowing. "If the financial system goes down, our business is going down and, trust me, yours and everyone else's is going down, too."
Let us make as much money as God, in other words, or else.
It has come to this: desperate bankers are appearing in churches in order to make the claim that Jesus would have had no problem with million-dollar bonuses and subprime mortgage-backed securities.
OK -- maybe, that's a slight exaggeration. But what else is one to make of that news, reported by Bloomberg, that Barclays CEO John Varley told the "packed pews" of St. Martin-in-the-Fields on London's Trafalgar Square last night that "profit is not satanic."
The 53-year-old head of Britain's second-biggest bank said banks are the "backbone" of the economy. Rewarding high-performing bankers with more pay doesn't conflict with Christian values, he said. Varley was paid 1.08 million pounds ($1.77 million) and no bonus in 2008.
Varley's comments came just two weeks after Goldman Sachs International advisor Brian Griffiths told an audience at St Paul's Cathedral that "the injunction of Jesus to love others as ourselves is an endorsement of self-interest."
It is tempting to make some comments here about having the money-changers getting expelled from the temple, but that would be too easy. There's also that little problem about rich people encountering difficulties getting into heaven, but the Conservabible has already fixed that.
What the bankers are somehow missing, however, is that part of the gospel in which Jesus preaches: If we the taxpayer bail you out, saving your bank and your job, we also have a right to condemn you to eternal damnation when you get a big fat bonus, while we stand in line for our unemployment checks. Is that really so hard to understand?
In my blog-reader, a New York Times DealBook summary of the results of the New Jersey gubernatorial election, "Attacking Corzine's Wall St. Ties, Christie Wins Race," is tagged with the byline "By DealBook on Goldman Sachs."
Jon Corzine left (or was forced out by Hank Paulson) Goldman Sachs ten years ago. But in today's through-the-looking-glass political climate, where Republicans are making inroads attacking Democrats for being too close to Wall Street, the stain of any association with the investment bank that everyone loves to hate cannot be washed away. (Bloomberg's astoundingly poor showing in his victory might be another sign of populist revulsion against moneybags candidates.)
By all accounts, Corzine ran a lousy campaign. But his resumé did not do him any favors. The people have spoken: For at least a few years, other Goldman Sachs alums considering a future in electoral politics are advised to be cautious.
BONUS: Felix Salmon, back from vacation, comes on strong with a magnificent history of the recent adventures of ex-Goldman CEOs.
Goldman Sachs dismissed Matt Taibbi's "vampire squid" assault in Rolling Stone last August as a "witches' brew of conspiracy theories" and continued merrily going about its business of making insane amounts of money while everyone else was lining up at the soup kitchen. But the investment bank will have a harder time shrugging off the punches landed by McClatchy Newspapers' Greg Gordon in a major broadside delivered this morning: "How Goldman Secretly Bet on the U.S. Housing Crash."
Gordon's piece wraps up a grab bag of Goldman criticism into one package, but the key assertion is one that is likely to have Goldman lawyers on DefCon 1 high alert.
In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.
At the very least, it looks very bad for an investment bank to be selling bonds to pensions funds that its executives knew were toxic waste -- to the point that the bank was actively placing bets that the subprime market in mortgage bonds was due for a crash. The key question is: Was Goldman's behavior illegal? Goldman spokesperson Michael DuVally -- a very, very busy guy these days -- says no.
DuVally told McClatchy that Goldman "had no obligation to disclose how it was managing its risk, nor would investors have expected us to do so ... other market participants had access to the same information we did."
But a host of securities experts say, well, maybe, citing the Securities Act of 1933, which "imposes a special disclosure burden on principal underwriters of securities, which was Goldman's role when it sold about $39 billion of its own risky mortgage-backed securities from March 2006 to February 2007."
Numerous lawsuits filed by pension funds and other institutional investors who were burned by Goldman are now making their way through the judicial system. It will be years before there is any closure on the issue of Goldman's guilt. It would be nice if there was a Elliot Spitzer-type still around who could add some political juice to the process (The People versus Goldman, coming soon to a federal court near you -- Andrew Cuomo, are you listening?) But maybe this is a mess that will be ultimately resolved "within the family," so to speak. Some of the biggest pension funds in the country bought into Goldman's junk. Unlike you or me, they can afford the type of legal counsel that Goldman has to pay attention to.
I recall that September day like it was yesterday -- the explosion so stunning, so memorable. It wasn't 9/11/01, it was 9/29/08 -- a moment when a rare blast of populist democracy briefly singed the economic terrorists who hold the Capitol hostage.
It had been a dark and stormy month of financial collapse, culminating in an attempted power grab. Pushed by his fellow Wall Street Ponzi schemers, Treasury Secretary Henry Paulson -- a former Goldman Sachs CEO -- was threatening Armageddon unless Congress ratified his pamphlet-size decree for a no-strings-attached bank bailout. The straightforward proposal, backed by President George W. Bush and President-to-be Barack Obama, would have turned Paulson into King Henry -- a despot allowed to autonomously dole out $700 billion to any of his business cronies.
This was too outrageous even for a rubber-stamp Congress that had long been ceding power to both the executive branch and the corporate boardroom. And so rank-and-file House Democrats and Republicans, backed by an angry public, overrode their leaders and voted down the measure.
Admittedly, the conflagration was brief. After a few days of industry lobbying, the House ultimately passed the Troubled Asset Relief Program bailout -- but one with at least some mild restrictions. For a time, 9/29’s fleeting blast of defiance appeared to establish a maximum limit to robbery and presidential authoritarianism.
For a time.
Today, the episode -- if considered at all in Washington -- seems merely to have set minimum standards for chicanery. As evidenced by two little-noticed sections of the Obama administration's Wall Street "reform" bill, presidents and their bank benefactors are back to thinking they can pilfer whatever they want -- only now they have learned to camouflage their demands by burying them in the esoterica of lengthier bills.
Finding this latest giveaway means digging all the way down to Sections 1109 and 1604 of the White House's mammoth proposal. These passages look like typical legislative asterisks -- perfunctory "oh, by the ways" inserted by some overeager law school intern in the Treasury Department's basement as a matter of meaningless parliamentary etiquette.
They are anything but.
At a recent hearing, Rep. Brad Sherman, D-Calif., called the language "TARP on steroids," noting the provisions would deliberately let the executive branch enact even bigger, more unregulated bailouts than ever -- and by unilateral fiat.
Whereas the original TARP included some oversight language and power to limit Wall Street bonuses, TARP on steroids includes no specific oversight or executive pay constraints. Whereas TARP permitted the government to underwrite both small and large banks, TARP on steroids allows taxpayer cash to go only to the behemoths (which, not coincidentally, tend to make the biggest campaign contributions). And whereas TARP limited the Treasury secretary's check-writing authority to two years and $700 billion, TARP on steroids would let him spend as much as he wants for as long as he wants.
This last point is what poker players call "the tell" -- the inadvertent tip exposing a scam. Treasury Secretary Tim Geithner's tell came when he publicly said the Obama administration would oppose amendments limiting the new bailout power -- even if the limit was a $1 trillion cap.
The former financial executives inside the Obama administration have labeled their bill the "Financial Stability Improvement Act," and some might say that's like Bush officials oxymoronically calling their own anti-environment initiatives a "Clear Skies" agenda. But that's not a totally fair comparison because there’s an underlying consistency here: While these new "financial stability" powers may destabilize the nation's finances, they would more than stabilize Wall Street’s larcenous profits.
That thievery, of course, has been the big problem all along -- and now, only another 9/29 can prevent it from getting worse.
© 2009 Creators.com
