Wall Street Bonuses Could Mean Headache for Obama

(AP)

The American economy continues to struggle, but these are flush times for the employees of Wall Street giant Goldman Sachs.

The company this week posted a $3.2 billion third-quarter profit, well above Wall Street estimates. In the second quarter of this year, Goldman made even more: a record $3.44 billion. On an average single day this quarter, according to the Guardian, the company made about $35 million.

And with Goldman, like other Wall Street banks, setting aside roughly half its revenue for employees, that means massive bonuses for the 31,700 people who work there. Goldman's bonus pool through September 30th now stands at 16.7 billion; the average employee compensation this year is expected to approach $700,000. Top executives will each make millions.

There was a time, not too long ago, when this sort of news was greeted with a collective shrug. But that was before the economic collapse and the taxpayer bailout of many the very Wall Street companies that were partially responsible for it.

The Obama administration got a taste of the populist backlash to outsize Wall Street pay earlier this year, when a firestorm erupted following revelations that employees of the division that imperiled insurance giant AIG, a company that received a massive $170 billion government bailout, were being paid $165 million in bonuses.

To fend off a new round of criticism, Goldman can point to the fact that it has paid back the $10 billion bailout it got from the federal government last year, with interest. But the company was also a major beneficiary of the AIG bailout, as government funds were used to pay billions to Goldman and other companies that had taken out insurance with the company on their failed investments. And it has benefitted from support from the Federal Reserve and government backing on $30 billion of debt.

(AP Photo/David Karp)

The company is aware of its public relations problem: CEO Lloyd Blankfein (left) has instructed employees to avoid conspicuous displays of consumption, and the company announced Thursday that it would donate $200 million to charity. (While that's clearly a lot of money, it's also less than Goldman made in the average week this quarter.)

On Thursday, the company's chief financial officer, David Viniar, told reporters he hoped the bonuses would not attract too much attention. "I would prefer people to focus on the business rather than the bonuses," he said. "I think it's too big a focus, I don't know when it will die down."

"We're very aware of what's going on in the world but we have to trade that off with being fair to our people who, we believe, have performed admirably throughout this crisis," Viniar added.

Part of the animus directed at Goldman and its peers comes from how they are making their money: Not from lending, which the bailouts were meant to help spur, but instead through speculation on stocks and bonds and fees collected from companies. It appears, at least at present, that the success of many large banks has little to do with the fortunes of the average American.

(AP Photo/Gerald Herbert)

That's not good news for the Obama administration, which, like the Bush administration before it, has insisted that the Wall Street bailouts were ultimately about propping up Main Street. The ties between the administration and the firms is a close one: The Associated Press reported last week that Treasury Secretary Timothy Geithner (left) is regularly on the phone with Goldman representatives, as well as executives from JPMorgan Chase (which took in $3.6 billion this quarter) and Citigroup (which managed a $101 million profit despite heavy losses in its consumer business). He reportedly has been known to speak to officials from those three banks several times a day.

And in a decision that will further convince critics that Washington's ties to Goldman are too close, on Friday it was revealed that the Securities and Exchange Commission had tapped a young Goldman executive, Adam Storch, to be chief operating officer of its enforcement division.

Meanwhile, administration officials continue to struggle in their efforts to bring more regulation to a Wall Street they have said publicly is prone to encourage profit- and compensation-driven decisions that imperil the economy. Though President Obama appointed a so-called "pay czar," Kenneth Feinberg, to address compensation at bailed out companies, he has limited authority – and may well be powerless to stop AIG from paying out another $198 million in bonuses next March.

On Friday, Feinberg did give the administration something to point to, pressuring outgoing Bank of America CEO Ken Lewis, whose company lost $2.2 billion this quarter, to give up his 2009 compensation, valued at more than $2 million. The move was immediately condemned by many on Wall Street as government overreach. (Feinberg can take perhaps solace in the fact that, according to the Wall Street Journal, he "will leave the firm with pension, unvested restricted stock and other benefits currently valued at $69.3 million, according to company filings, plus tens of millions more in shares he acquired or was awarded during his 40 years with the company.")

Indeed, executives at Goldman are "perplexed by the resentment directed at their bank," the New York Times reports. They argue that they have simply made good decisions and expanded their position, and ultimately deserve the levels of compensation they became accustomed to before last year's collapse.

"...our market shares have improved, and I think we're getting a bigger share of a smaller pie," Viniar said Thursday.

Laura Berry, executive director of the Interfaith Council on Corporate Responsibility, has a somewhat different take. In a statement this week, she said, "we have a responsibility here to act as the conscience of Wall Street, especially when it fails to do so on its own."

"How is it possible that the year after billions of taxpayer's dollars helped companies like Goldman Sachs return to financial health, this company shows absolutely no restraint?" she asked. "Goldman Sachs is poised to become the poster child of the company that drives income disparity in the United States."

[donschott]

The investment banks deserve every penny for their foresight in seeing the derivative market imploding and Moody's and S&P salting their ratings for a few bucks under the table. This is the change you can believe in-- change right from your pocket. It is criminal that no one is the Press is calling for Geithner's head when he has gold all over his hands and was head of the NY Fed when they manufacured the too big to fail crisis.
Bush was an idiot, but Geithner, Dood and Goldman Sachs were at the helm. No one in the press seems to even consider that the first quarter profits were the short side of the millions who lost millions due to the derivative "crisis." God Bless Obama and his money machine.

[robham777]

These bonus payouts will be a bitter pill indeed for main street. Just for fun I hope the IRS will do across the board audits of the upper echelon of the financial sector.

[aubfmet]

Any bailout money should have strings attached - retroactive.

[pensacola8-2009]

It is illegal to legislate retroactively. It is considered a form of EX POST FACTO which means changing the legal treatment of an event after it has occurred, which applies to criminal law, taxation and legal disqualifications of any awarded position of employment.

[gottabfunny13]

Here's the thing,

Goldman Sach's only took bailout money from the government because the government forced them to. How bad would it look if every major financial firm needed money and Goldman Sach's didn't? (which they didn't) Where do you think the investors would flock to? With that said, the government charged 20 percent intereston the "bail out" money and made billions. Enjoy the bonuses men and women, you deserve it! The only people who complain about Goldman Sach's employees receiving bonuses are the ones who are frustrated with their own lives/jobs. You want change? Then man up and work for it, quit complaining!!!

[toldyouso21]

Liar, Goldman Sachs had to have the money to survive, the mantra was "let Lehman Brothers die, save Goldman Sachs. Only Wells Fargo and Bank of America took money that they did not necessarily need (though by years end BoA did need the money) Goldman Sachs was first in line with their little grimy hands out. The barbarians are through the gate, when will the rest of Americans rout them?

[SocietysNightmare]

Looks like President Obama is about to be thrashed in the court of public opinion. Shame. Wall Street knows how to make money. That is what they do. But John Q. won't like hearing about an investment firm handing out huge bonuses. Especially with elderly people struggling on fixed incomes. It will be interesting to see how President Obama deals with the pressure.

[pensacola8-2009]

Most of Obama's supporters know that without incentives, there won't be any healthy capitalism taking place, especially when it is needed for economic recovery.


When I locate an executive, I simply charge them 10 times the price I charge everyone else. They always pay to keep my silence.

[spaceatoms]

As ironic as it may seem, we are right back to before the bailouts with big industry posting big bonuses and not acting responsibly. A Wall Street gain does not create jobs, it creates wealth!

[stuart-johns2]

Wall Street Bonuses Could Mean Headache for Obama
================

Wall Street is a headache for America period.

[the74blaster]

I say tax their bonus' at 90 % to help pay for the bailouts they recieved from the tax payers!

Anything less is slap in the face to us!

[ffoulkes-2009]

They already repayed their bailout.

[endurorob_5]

If the company made the profits legally i is their business how and if they dispense bonuses to the employees. It's their money.

[curse914]

Goldman was taking money from the Feds "discount window" and using those tax dollars to purchase oil futures; thus driving up the cost of fuel. Goldman was dutch dooring the public; this paper entity needs to be immolated.

[burneb]

Remember that Goldman Sach repaid their TARP money, with interest, so their obscene bonuses are NOT a ripoff of the taxpayers (AIG is very much a different story). Mostly they have outperformed their competitors, at least in profit-making.

But NO large organization has employees truly worth bonuses AVERAGING of over half-million dollars apiece. It is their CUSTOMERS who are being ripped off.

[toldyouso21]

Actually they ARE ripping us off. It would be like someone getting a loan from a bank to buy a house then using that money instead to buy hundreds of thousands of lottery tickets. ONe of the tickets hit, and they pay the bank back--based on the law --since they did not use the money for what it was intended--they could still go to jail and often do go to jail for defrauding the bank.

the government lent the TARP money to encourage lending. Sachs did not lend, they speculated--the very thing that got us in economic hell in the first place, then as they profited, they paid back the TARP money--money which they used to float their expenses while they used their own money to speculate (or vice versa) This is fraud and the bonuses should not only NOT be given out, criminal charges should be looked into.

It should not be acceptable for taxpayers to keep the greedy afloat or to help finance their ventures under false pretenses.