Can't believe this story got by me. Man, the cajones of these Wall Street jerks! They're giving huge bonuses with our taxpayer money. The average Goldman 2008 payout in comp and benefits: $400,000.
With "punishment" like that for their greed and stupidity, we can be sure that more Wall Street scams and scandals are in our future. These guys never learn, because these hotshot bankers never get burned; they always get their six-figure salary and bonus. Merry Christmas to all the "little people!"
Mean Street: The Chutzpah of Goldman Sachs
By Evan Newmark
December 16, 2008 | WallStreetJournal.com
You have to admire Lloyd Blankfein's nerve.
Goldman's yearly profit is down more than 80%. Its shares are down about 70%. It has been forced to accept billions in capital from Warren Buffett and, of all indignities, Washington D.C.
And Blankfein has just paid the average Goldman employee about $395,000 — nearly eight times what the American median household earns in a year.
But that's not the nervy thing. It's that in a year when Wall Street has utterly destroyed itself, Blankfein sees no need to change the Goldman business model.
That's what even Bernie Madoff might call chutzpah.
First, to the issue of pay. The perception of Goldman's management and Wall Street analysts will be that Goldman was "tough but fair" on year-end bonuses.
After all, didn't Goldman's senior executives forfeit any 2008 bonuses? And didn't Goldman's comp expense fall from over $20 billion in 2007 to under $11 billion this year? And won't bonuses for many at Goldman be down 40% or 50%?
But these bonuses are marked down from 2007, a record year for Wall Street. The "average" Goldman employee will still receive almost $400,000 in comp and benefits. And hundreds of bankers and traders at Goldman will still pocket multi-million dollar pay packages.
This should not be a surprise. Wall Street bankers, shareholders and the analyst community expect high compensation — annus horribilis or not. Washington politicians may carry on, but this is the way the "free market" works.
It was funny to listen to the discussion of bonuses on the investor conference call with Goldman CFO David Viniar. One analyst fretted "are they happy?" when inquiring about the morale of Goldman's ranks.
And when another analyst opined that a 48% comp to net revenue ratio seemed at the high end given this year's utter financial destruction, Viniar shot back that Goldman paid a lower ratio than its Wall Street competitors.
Forget that most of these competitors don't exist anymore. But this is classic Wall Street thinking. Senior execs target comp at close to 50% of net revenues because that's what's worked well in the past.
It hasn't necessarily worked well for shareholders — but that's another matter.
The 50% comp target is symptomatic of Goldman's current "no change to the business model" mindset.
Goldman's view is that it is the victim of rotten markets. And that's understandable — because the markets have been rotten, especially for any institution forced to mark assets to market and delever a trillion dollar balance sheet at the same time.
Bear, Lehman and Merrill Lynch couldn't manage it. But Goldman certainly did. In fact, it turned a profit in 2008. Did anybody else?
So as Lloyd Blankfein surveys the new Wall Street. He sees a lot less competition. He sees depression-level markets that will probably rebound from their lows. He sees commercial banks that will be buried in consumer loan and mortgage writedowns.
And he knows that greed can quickly replace the fear and outrage that now grips the minds of investors.
So maybe Blankfein thinks with some justification: Why should I change the business model? Why shouldn't I pay my people? And how quickly can I repay the loan from the Treasury to get Washington off my back?
Blankfein might just convince the market of Goldman's business model. Despite the lousy results, Goldman shares closed up 14% today at $76. Funnily enough — that's the same price as the high for Goldman's shares on the first day of its IPO in 1999.
Perhaps Blankfein can laugh at the irony, but I'm not sure too many of his shareholders would.
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