Friday, December 11, 2009
Goldman Sachs has cracked under the threat of regulation (and, I speculate with good reason, direct pressure from the White House) and announced it will pay the bonuses of its top people in Goldman stock that vests over years rather than in cash. Meanwhile, Citigroup is putting together a complex deal to pay off its TARP financing, a task easier said than done for that troubled bank. Both announcements have much to do with our government's recent passion for telling businesses what they should pay their employees.
It occurs to me that if I were of a regulatory bent -- which I am not -- and wanted to (1) structure incentives in the financial services industry to promote the repair of weak too-big-to-fail banks, (2) harness the superior brains at Goldman for good rather than evil*, (3) score huge political points with the left, and (4) laugh my ass off, I would order Goldman to pay its bonuses for the year in restricted Citigroup stock. Get those guys working for Citigroup's balance sheet rather than against it and you solve a lot of problems all at once.
I kill me.
*That was a joke. Just pandering to the populists. I'm still the corporate tool I've always been.
Heh, Citi. Nice concept: "communitariansim" at the highest levels of Wall Street.
I am not sure the larger GS shareholders will be in love with that idea.
Not to state the obvious, but the 2009 bonuses to be paid in GS stock will be worth more if the stock goes up, as the linked NYT article states. Everybody in that senior group of 30 has enough dividend and interest income (not to mention a decent base salary in the mid-six digits) to survive quite nicely for the next few years. When the bonuses are ultimately converted to cash (notwithstanding the claw back provisions), perhaps during the next White House administration, it will hardly be a blip on the radar screen -- and I predict that the group of 30 MDs will have at least doubled its money (and it is possible that in 2014 that there will be a more favorable tax treatment for that liquidating bonus). In the meantime, the people who will suffer the most from this decision are ultra-high-end Realtors!
Still, a remarkable thing for GS to keep its head down in the wake of "populist outrage" and political pressure.
Hm. What effect will this have for Goldman employees that leave the bank for an appointee position in the Obama administration? If they cannot sell their stock, they might be unable to serve.
(i.e. bet 'cha there's a back door in the law)
No such plan is necessary! If I understand today's paper, 12 executives (so far) who would otherwise have their pay capped at $500K have been "granted" waivers.
Considering the ethical standards of this administration and it's lack of transparency, waivers are probably available on a graduated price scale. If interested, I'd check with Rangel, Dodd or Biden's son.
Once upon a time you could defend Goldman and its pay as the ultimate example of Darwinian capitalism. No longer. We have crony capitalism, folks. For once, I agree with Tim Geithner: Goldman would have failed in October 2008 without government intervention.
Goldman continues to make its money on credit derivatives and flash trading, etc, etc These are reallly dubious, and have proven so. Traders like Goldman love market volatility -- expect more if it. There's a reason Goldman partners are asking for NYPD handgun permits. "Bienvenidos a Argentina !"
Mad as Hell and Not Going to Take it Any More