Goldman Sachs Still Rewarding Failure

Jan 31 2011 Published by under Uncategorized

Goldman CEO Lloyd Blankfein

The recent history of Goldman Sachs Group Inc. is hardly the stuff of an American fairy tale; more of a Grimm Brothers nightmare. We like to think in America that success brings rewards and that failure, well, doesn’t. It doesn’t work that way on Wall Street, as we all learned to our disgust in 2008 (and since).

The management of this particular company, to use the vernacular, “screwed the pooch,” or rather the American people and their own shareholders. CNNMoney looks at the year they had:

  • Profits plunged
  • Shareholders doled out $550 to settle a fraud investigation
  • Stock ended the year almost where it began (just a tad below, actually)
  • At Goldman, profit tumbled 38% from a year ago in 2010, on a 13% revenue decline.

Not a great year by any means. Not really the performance you’d think deserves a reward. Well, no surprise, Goldman Sachs disagrees.

For running their company into the ground and as a reward for their part in destroying the economic hopes of millions of Americans – oh and greedily gobbling up billions of dollars in bailout loans in 2008 and 2009 ($12.9 billion – the largest recipient of funds from AIG – $4.3 billion of which went straight to foreign banks) – CNN Money reports Goldman Sachs has done the following:

  • Goldman said in a filing Friday afternoon that CEO Lloyd Blankfein will make $2 million this year, and his top lieutenants will each make $1.85 million. Top Goldman brass had been making $600,000 annually in salary since the firm’s 1999 initial public offering.
  • All 470 of Goldman’s partners will get higher salaries.
  • The top five officers will also get $12.6 million each in bonuses, paid in restricted shares that can’t be sold for five years. That’s up from $9 million each last year.

The pay increases to Blankfein, Chief Operating Officer Gary Cohn, Chief Financial Officer David Viniar and Vice Chairmen Michael Evans and John Weinberg triples their salaries. The pay increase will be effective January 1. The filing gave no reason for the raises.

Jail sentences would have been fairer, don’t you think? At the least, as CNNMoney points out, “You might be tempted to nix raises or withhold bonuses to send a responsible message about linking pay to performance. But if so, you wouldn’t be Goldman Sachs (GS).”

Hard to disagree with CNNMoney’s response: “Is this a great country or what?”

The LATimes reports that “Median total compensation for big public company CEOs was $7.5 million in 2009, according to Equilar, while median U.S. household income is closer to about $50,000.”

Yeah, all that wealth is really trickling down isn’t it? And the Republicans want to keep giving these guys breaks because it’s the wealthy who are the true victims of the Recession.

If that’s victim-hood, I’m sure more than a few Americans can be found who’d be willing to volunteer to share their hardships.

This doesn’t bode well for the future. We don’t need to see a repeat of the federal deregulation of Wall Street when so soon after the Great Recession, which for millions of Americans is still having a deleterious effect. If already companies like Goldman Sachs are marching toward a return to obscene bonuses for their chief executives, what further abuses can Americans expect?

CNNMoney concludes that

It is early yet to say that will be the case here. Even with the raises, Goldman’s 2011 payouts stand to be just a fraction of the go-go days, when Blankfein, president Gary Cohn and finance chief David Viniar each regularly racked up $40 million or more in bonuses and stock awards in a given year.

But already in 2009 the New York Times was asking, “Is the huge compensation pool at Goldman Sachs a sign that the financial industry is stabilizing or that its bankers have returned to bad practices?”

It’s a good question, and in light of the Republican victories in 2010, hopes for 2012, and their avowed agenda, the answer is one we should fear all the more.

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