Goldmine $ach$, etc

An awful amount of ill-informed hyperbole has been heaped upon investment bank Goldman Sachs in the last couple of days. The company’s crime? Reporting better-than-expected profits for the second quarter of 2009. Such is the luck of financial firms in the post-sub-prime economic fall out: castigated for taking taxpayer’s money to ensure their survival, then pilloried for generating profits that will ensure that the money actually gets repaid. What’s a bank to do?

I do not, never have and probably never will work for Goldman Sachs so I have no personal affiliation with the firm, nor any interest in the success or otherwise of the company beyond that of any other passive observer. But as someone who works in the financial industry (which presumably puts me somewhere between Hitler and Josef Fritzl in the public’s affection) I do feel compelled to stick my two pence worth in.

Much of the reporting seems to focus on the fact that the company was, like many other banks, “bailed out” last year under the Troubled Asset Relief Programme (TARP), so they are somehow making money using state funds. Not so. Whilst it is true that Goldman was the recipient of $10 billion under this scheme, it is hardly a state secret that they neither wanted nor needed this cash injection in the first place. A famously private institution, the last thing they ever wanted was the US government as a major – and interfering – shareholder. They took the money because they were under political pressure to do so – it would have further unsettled already turbulent markets if some banks participated (and were therefore deemed as weak) while others remained self-sufficient.

In any case, Goldman paid back all the TARP funding in June (and had been lobbying to repay it months earlier) along with a fee of $426 million. So in actual fact, the US Treasury has recouped a hefty interest premium from lending money to a bank that didn’t want it in the first place. Not a bad return for the US taxpayer.

Of course the real opprobrium has arisen over how much of the firm’s profits have already been ring-fenced for staff compensation, with talk of $700,000 per employee by the end of the year. Obscene amounts of money? Yes, although no more obscene than the fees commanded by movie stars or footballers. In reality the vast majority of their employees won’t get as much of a sniff of anything like that amount; the real big bucks will – as is always the case – be paid to the star bankers, traders and salespeople who continue to drive record profits for their company. After all, equal distribution would amount to socialism; not something you’d expect to find at this relentless capitalist behemoth.

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Centrist. Atlanticist. Dry liberal. Anti-totalitarian. Post-ideological pragmatist. Child of The Enlightenment. Toucan.

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3 comments on “Goldmine $ach$, etc
  1. ph says:

    How is it that in a time of world wide recession an investment bank can make substantial profits. If banks fulfill the role that they should take, that of supporting other businesses, then if those businesses are in trouble so should the banks be. As for people in the financial world being figures of hate, then yes you are and should be. These folk have paid themselves vast amounts of cash, on the pretence that they are special, when in fact they were generally useless and had the social graces of tape worms. They then had the gall to clean out the tax-payer -with help from numpty Brown (what a hero he’s been). How many people in the UK will have diminished lives in the next decade, just so that bankers can still keep their big houses in Chislehurst. All done under a Labour government. p.s. glad you are back

  2. Citizen Sane says:

    Ah, ph, we meet again! Thanks, it’s good to be back and even better to know that some people still come back for more.

    An investment bank can make or lose money regardless of whether there’s a recession or not of course. Tougher to make money in a recession, sure, but not impossible or necessarily unlikely.

    I don’t entirely disagree with you, although it’s neither fair nor accurate to blame everyone who works in the financial world. The people who made the decisions that led to this almighty crisis number less than 1% of the people who work in the financial industry and most of them are personally wealthy enough to live very comfortably whatever the outcome, which is obviously disgusting. It’s even worse that “real” (i.e. deposit taking) banks became so embroiled in the mess which is why the government bailout and guarantees were unavoidable – the alternative would have been far, far worse. Brown is an arse but the action taken by the government was the right one under the circumstances.

  3. ph says:

    I agree the banks could not be left to burn. But once the fire has been extinguished, the attention should be turned on the arsonists who created the fire. This has not been done and it seems that they are being handed a whole new set of matches and petrol with which to have some more fun

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