Another shameful bonus at Goldman Sachs?
It's hard to imagine a more tone-deaf move, but Goldman's chief executive is reportedly set to receive a $100 million bonus.
By Paul Ausick
The CEO of Goldman Sachs (GS), Lloyd Blankfein, may be about to receive an annual bonus of as much as $100 million. Blankfein's potential payout puts him at odds with the Obama administration, and the president himself, who has called investment bank bonuses shameful.
The $100 million bonus would exceed the payout Blankfein received in 2007 of $69.7 million. Goldman made more profits in 2009 than it did two years ago, so it's likely that the CEO expects a bigger reward.
Payment will be in Goldman shares, though, not cash. But that's as far as the bank is willing to go in accommodating the government's request for prudence in bank bonuses.
It's hard to imagine a more tone-deaf move on Goldman's part. The bank made record profits this year and is among the host of banks that is fighting the Obama administration's proposals to reform the financial system.
Regulating the banks' proprietary trading desks is the single-biggest threat to the big banks' continuing high profitability. The administration has proposed essentially re-instating the prohibitions of the Glass-Steagall Act against banks mixing their depository and investment banking activities. The banks would have to split up their operations, something no one wants to do. Current profitability is too great.
The other thing banks don't want to do is rein in their risk-taking. Right now, the federal government has proved that there are banks that are too big to fail and that the government will virtually guarantee the value of the big banks' assets. Goldman is one of those banks.
With that implicit guarantee, big banks can afford to take on more risk and earn potential higher profits in the short term. Those profits then are the basis of the bonuses paid to bank executives.
What the banks should fear is that moves like paying Goldman's CEO so much money makes ordinary mortals very mad. Not only that, some of the banks' best political allies will have a very hard time answering questions come election time about what they will do to put a stop to the banks' greed.
Money generated by trading derivatives and other investment vehicles provides virtually no tangible benefit to the population at large. That is especially true now, when consumer credit has all but dried up.
The banks are betting that something else will come along to draw public attention away from financial system reform before the November elections. They are also betting that the Obama administration will not come out of that election with anywhere near the popularity it had in 2008.
Executive pay is only the tip of the iceberg, and the banks want to keep the rest of the ice hidden and difficult to figure out. Complexity and time are the banks' best friends. If Obama puts the administration's case simply and clearly, he could drum up massive public support. But he has to move quickly, something that government is not really good at doing.
President Obama is playing hardball with big financial firms, giving a select group of regional banks a big advantage. Get the names of "Four Banks Thrilled About Obama's Bank Plan" here.
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