Congrats, Goldman, on That Enormous Profit, Now When Do the Rest of Us Get Something?

If you've seen the news today, you know Goldman Sachs exceeded its second quarter expectations for earnings, making $3.44 billion after dividends. As I wrote yesterday, this gigantic, much better than expected profit is largely from engaging in the same risks that got Goldman and other companies into trouble in the first place -- taking massive risks on things like volatile currencies. The same risks that has helped lead the country to economic collapse. Apparently the only thing Goldman learned from the financial collapse was that the government would bail it out if it kept taking big gambles, which isn't the lesson I was hoping it would learn.

And hey look, even more thrilling, it's been reported in late June that the company plans to pay its employee record bonuses. Congrats, guys.

Okay, Goldman. So as long as you're paying record bonuses to many of the same employees that engaged in these wildly speculative trading ventures, how about paying back the $13 billion you got from AIG by way of the U.S.Treasury? Or the unrevealed billions (likely many tens of billions) from the Federal Reserve?

Now I wouldn't be so irritable about all this if unemployment wasn't still going up, and most economists weren't saying it will continue to go up through 2010. I wouldn't be so irate if unemployed folks were getting jobs, home prices were starting to go up again, and as a result bankers also made money. I wouldn't be so completely pissed out of my mind if we didn't already know, based on the last eight years, that the trickle-down economics of making sure the biggest banks recovered first just didn't work for everyone else in this economy.

It is time for a movement to take on the big bankers and change the economy so that it produces jobs for the rest of us.

Comments

[NapaNose]

All I ask is for the same "starter set" of cash all these big ?banks? received. . give me $10-20 billion and I guarantee I can make a fortune from it and then pay back the principle. . and continue making money. . .what a shame the common man isn't "too big to fail". . .and what a shame, no one in power realizes the common man is also "too small to bail". . .

[MastersUniverse]

Through the efficient allocation of human capital, the best and the brightest are attracted into developing (i) derivatives of derivatives of derivates of derivatives of derivatives – for example Collateralized Debt Obligations cube, or (ii) complex trading models to arbitrage on minuscule price differentials. Disciplines with real scientific but no financial value, such as quantum physics, mathematics, aerospace are left for the faint-hearted.

Who would want to spend their life toiling away in the name of scientific research to benefit mankind when the alternative is to strike it rich by pressing a few buttons on a Bloomberg terminal? In the past 50 years, there has been a strong negative correlation between market performance and Space development, with many top rocket scientists being lured into investment banking during the roaring go-go era. These geniuses would develop highly sophisticated vehicles such as Jupiter V, not to go into space, but to hold Collateralized Debt Obligations. In the past 30 years, The Dow has gone up more than 1300% but astronauts are still driving the same Volvo 240 into Space.

http://www.mastersuniverse.net

[DiogenesOfAlaska]

I wonder when there will be some consequences due to access to central bank money (since the Bear Stearns failure), change into a commercial bank (since the Lehman Brothers failure) and bailouts (since the AIG failure).

Looks like some accountants, auditors, analysts, regulators and investors (in equity and CDSs) didn't exactly pay too much attention.

What's all this? Who is ever going to figure out the effect (joint or separate) of all these implicit unpriced government guarantees and interventions?

There may not be anything illegal about these bonuses at this time. But there's certainly nothing credible about them either. Of course by far the most likely reason for these profits is that they took highly profitable bets that would lead to meltdown in case they go sour - hence another round of the AIG game, in the greyzone, with unclear regulatory structure, high stakes in terms of precedents etc etc so that regulatory forbearance is basically won at the poker table.

It would be worth a ton of gold in terms of winning public approval if they would disclose valid reasons why this is NOT how they made those billions.

[Konnie]

heard matt tiabbi on npr at noon......­........ta­lking about his article in rolling stone...........
all i can say is: might as well lay down and enjoy being f%^ked cause we have been
and will continue to be well into the future....­..........­..

good for you?

[greyhound2]

If someone asked you for money to take to a Las Vegas casino to roll the dice and if they lose, you get nothing and if they win, you get your loan back but no share in the winnings. Most people are not that stupid. Goldman should immediately return the taxpayer money they stole.

[carlyt]

Doesn't seem right that Goldman can distribute that money before meeting its AIG obligations and maybe hiring back some of the 6000 people they laid off. There is a related post at http://iamsoannoyed.com/?page_id=588

[FoonTheElder]

Now when do the rest of us get something?!?

You just aren't understanding how this works yet, do ya! For 30 years, it has been socialism for big corporations and cold hard capitalism for everyone else. Both parties are the corporate capitalism parties. After all big corporations paid for the government, now they do as they see fit. It's pure class warfare and there's no question which class got trickled on and lost.

[williambanzai7]

GOLDMAN SACHS LANDS ON THE MOON

There are known knowns. There are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don’t know. But there are also unknown unknowns. There are things we do not know we don’t know.
Donald Rumsfeld

Known knowns:

40 years ago America's great triumph was winning the race to the moon.

"That's one small step for man; one giant leap for mankind."
Buzz Aldrin

In July 2009, having earned $3.44 billion in the second quarter, Goldman Sachs announced that it would be setting aside a compensation pool of $11.36 billion for the first half of 2009, or nearly $400,000 each, on average, for its roughly 29,400 employees and temporary workers.

That's one small step for mankind; one giant step for Wall Street's favorite corporate welfare queen.
WilliamBanzai7

Known Unknowns:

Why is it that a firm that is one of the primary causes of the financial meltdown and was one of the biggest beneficiaries of Hanks's bailout at the AIG Corral has been allowed to let its appetite for trading risk continue to run wild so that it is now in a position to handsomely reward all of the jerks who are responsible for untold American misery?

Unknown unknowns:

Does "moral hazard" mean anything in today's world of corporate welfare?

[Khaled Diab]

"It is time for a movement to take on the big bankers and change the economy so that it produces jobs for the rest of us. "

I agree with you Mike. I wrote an article for the Guardian some months ago arguing that we need what I called an 'equanomics' movement where "the success of an economy is judged by how well it improves citizens’ well-being, narrows the gap between them, and truly provides them with equal opportunities".

More on equanomics: http://chronikler.com/reflections/economics/introducing-equanomics/

[RJII]

I think the real problem is not who is and who isn't owned by these too bigs-- all sides will argue that till they are blue in the face. The problem at hand is that these companies are too big and their failure will cra.sh the us economy and de.str.oy many people's wealth directly and lives indirectly, at all levels.

It isn't just up to the POTUS, or congress only to deal with these entities. Its up to the people who claim to be so sick and tired. For instance, how come people still bank with Chase Morgan, BofA and such? Why are we not marching on these institutions front door with bri.cks and fl.ames to literally bu.rn them out. Imagine if this were France and these companies were running over its people like this.

Somehow, I don't exactly how, we should stablize the economy then go after total reform which will probably bring us to ground 0 anyway

[getsmart85]

Goldman and other financial institutions that generate a disproportionate amount of revenue and profits from trading (aka speculating) will be the demise of our middle class and eventually our democracy.

In addition to creating and trading financial instruments like mortgage backed securities, Goldman also trades commodities like oil, and copper. And now they are attempting to create a market for carbon emissions (aka cap & trade). By facilitating market inefficiencies, controlling legislation, and leveraging inside information, Goldman is conducting the biggest transfer of wealth from the middle class to a select few. And by controlling financial markets, they are making it nearly impossible for many companies to operate. How can an airline effectively operate when gas prices jump one day and plummet the next? How can a manufacturer survive when copper prices do the same? Yes, commodity contracts can be hedged. But in doing so, precious capital is shifted away from products and services. Ultimately, companies and their products cannot compete and they either down size or shut down. Unemployment increases and the middle class evaporates. Without industries that can support the middle class, people resort to either taking large risks, illegal activity, or lose hope.

To prevent or slow down the death spiral, a hefty tax needs to be placed on revenue and profits that are attributed to trading. We need to push congressmen and women to draft such legislation. Granted, it will be hard to pass, but the alternative is grim.

[FoonTheElder]

In most cases, they aren't actually trading the goods, but paper representing the price of the goods. When you have options outstanding that represent many multiples of the actual production of a good, then it is little more than a casino without the legal controls.

[kitkatborn]

Mike, I wish it didn't p!ss me off too but I don't think there is much we can do about it. Individuals seem to have no clout on Wall Street.

[jsgaetano]

Time to tax the living hell out of Goldman, so all their wealth can "trickle down" on us like so much pixie dust.

[jhNY]

Goldman Sachs owns your government, and both major parties, lock stock and barrel. They're not going to give back anything unless it's to their advantage to do so-- which so far it isn't.

Henry Paulson engineered the bailout under Bush. As he had been head of GS only 18 months before becoming Treasury Secretary, he knew something god-awful was coming well before he took office. And he knew he could get the federal government to bail out his pals, who after all, were their pals too.

Strangely, during the meltdown over the Fall, I can't recall any of our representatives questioning his fitness to fix something which he had obviously had a hand in designing. Which would only be like questioning the fitness of an arsonist to rebuild what he's burnt down.

Your descendants will be paying interest on his handiwork long after you've turned to dust.

Larry Summers and Geithner are both GS alums, so they haven't to date seen fit to do or say one damn thing that puts the gargantuan profiteering of GS at risk-- after all, the largest segment of corporate donations to the Obama campaign came from the financial sector, and the Democrats will need that money to get re-elected so that they can join their Republican brethren at the podium to moot or eviscerate any meaningful attempts to curb the ever-larger reach of GS, the titans of Treasury-guaranteed finance.

[fatnugly]

Geithner never worked for Goldman and come to think of it I don't think summers worked there either.

[Rule Of Law]

This is about as close as Summers comes to working for Goldman--

"Financial institutions including JP Morgan Chase, Citigroup, Goldman Sachs, Lehman Brothers and Merrill Lynch paid Summers for speaking appearances in 2008. Fees ranged from $45,000 for a Nov. 12 Merrill Lynch appearance to $135,000 for an April 16 visit to Goldman Sachs, according to his disclosure form."

And it's true that Geithner never worked for them either.

However, Hank Paulson (sec treas 4 bush)and Bob Rubin (sec treas 4 clinton) both did.

[BobLablah]

Well, if you were brave enough to assume some risk and buy Goldman stock when it cratered you have made a huge profit.

PS: You can't blame them for the AIG cash, Barry was the one who decided it was OK for AIG to give that cash to Goldman.

[RJII]

silly. the president can't come in and break legal contracts. he has bigger Shrub messes to clean up.

[BobLablah]

That's sarcasim, right? Barry has been forcing companies to do what he wants regardless of contracts since day one. Ask the bond holders at GM. Or the banks who didn't want tarp funds.

[therealredstateblues]

Can't break legal contracts for wall streeters, but no problem breaking legal contracts for autoworkers