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.