Goldman Sachs Responds to Outcry

Goldman Sachs Employees
In Government..Past and Present :
Goldman Sachs'- The Great American Bubble Machine - expertise in reaping the benefits of generating inflated speculations paid off with a spectacular year, while the rest of us struggled to either keep the jobs we have or replace the jobs we lost.

Despite, our plight, and despite our sacrifice to bail Goldman Sachs out, the firm planned to distribute the biggest bonus payout in its 140-year history. This, of course, outraged Americans everywhere. After all, Goldman, at the mercy of we, the taxpayers, received $10 billion in TARP funds and an additional $12.9 billion in bailout money (as a counterparty to AIG's worthless credit default swaps) not to mention access to as much free credit as they need, amongst other windfalls, that the average American can only imagine in their wildest dreams. Yes, they paid back the $10 billion, but that's a drop in the bucket, considering the ocean of advantages they received. Not to mention, by paying the money back, they escaped the executive compensation limits, and the constraints that existed until the bailout money was paid back.

Well, it appears Goldman has responded to their largest shareholders who would like to see Goldman's profits lining their pockets, rather than the pockets of Goldman employees, and to the public outcry against the the biggest bonus payout in the firm's history. Goldman's 30 most-senior executives will be paid in the form of stock, rather than in cash.

“– The firm’s entire 30-person management committee, which comprises all global divisional and regional leadership, will receive 100 percent of their discretionary compensation in the form of Shares at Risk, which are subject to restrictions for five years. Discretionary compensation represents the vast majority of senior management’s compensation and is directly tied to the firm’s overall performance.”

“– Shares at Risk cannot be sold for five years, in addition to other restrictions.”

“– The five-year holding period on Shares at Risk includes an enhanced recapture provision that will permit the firm to recapture the shares in cases where the employee engaged in materially improper risk analysis or failed sufficiently to raise concerns about risks. Enhancing our recapture provision is intended to ensure that our employees are accountable for the future impact of their decisions, to reinforce the importance of risk controls to the firm and to make clear that our compensation practices do not reward taking excessive risk.”

“– The enhanced recapture rights build off an existing clawback mechanism which goes well beyond employee acts of fraud or malfeasance and includes any conduct that is detrimental to the firm, including conduct resulting in a material restatement of the financial statements or material financial harm to the firm or one of its business units.”

“– Shareholders will have an advisory vote on the firm’s compensation principles and the compensation of its named executive officers at the firm’s Annual Meeting of Shareholders in 2010.”

Links:

Goldman Sachs Announces Changes to 2009 Compensation Program

Goldman Sachs Alters Its Bonus Policy to Quell Uproar

$994,795 is what Goldman's employees contributed to President Obama's campaign, making them #1 amongst Obama's contributors.

Top 5 AIG executives may quit over pay: - Five top executives at troubled insurer American International Group (AIG) said last week they will quit if their compensation is cut significantly by the US pay czar, says a media report.

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Goldman Sachs Takes Advantage of Taxpayers Underpinning Financial System

Goldman's big profits and megabonuses, came as the US federal budget deficit hit $1.4 trillion - the highest since 1945. However that doesn't seem to concern Lloyd Blankfein - who, in 2007, when the economy was melting down, as chairman of Goldman Sachs, was paid a bonus of $67.9 million, and whose bonus this year could top that number - spoke at a Fortune magazine breakfast a few weeks ago, and he said, re. accepting TARP funds:

“If I had known it was as pregnant with this kind of potential for backlash, then of course I would have really not have liked it.”

These huge payouts, almost 50% of Goldman's revenue, would not be possible without the billions of dollars from taxpayers that have propped up the financial system. In addition, as George Soros said, "Banks are actually getting hidden subsidies of enormous amounts because of their ability to borrow at effectively zero, and buy 10-year government bonds at 3.5 per cent. So those earnings are not the achievement of risk-takers. These are gifts, hidden gifts, from the Government, so I don't think those monies should be used to pay bonuses."

Oh, and speaking of getting paid for nothing, Goldman Sachs continues to get paid for swaps on redeemed bonds.

New Jersey taxpayers are sending almost $1 million a month to a partnership run by Goldman Sachs Group Inc. for protection against rising interest costs on bonds that the state redeemed more than a year ago.

How much longer should we allow these superbanks to feed off the American public?
As long as we allow the existence of financial institutions that are too big to fail, the banks will continue to suck the life out of each and every one of us.

There are people who want to change things, for instance, Paul Volcker, who wants to break up the giant banks, so why isn't President Obama listening to Paul Volcker?

"People say I'm old-fashioned and banks can no longer be separated from nonbank activity. That argument brought us to where we are today." -- Paul Volcker

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From Golden Parachutes to Golden Coffins.

We've all heard of "golden parachutes," that guarantee top corporate executives benefits that may include severance pay, cash bonuses, stock options, etc, totaling millions of dollars. But, have you heard of "golden coffins," that guarantee big fortunes to the heirs of top executives?

That's right. As the rest of us struggle to pay for their "sins" - who stole not only our futures, but the future of our offspring - they are arranging for "giant posthumous severance payouts, supercharged pensions or even a continuation of executives' salaries or bonuses for years after they're dead."

Take CEO, Verizon's Ivan Seidenberg, for example. His heirs will get up to $35 million in bonus after the golden lid of his coffin shuts for the last time.

"The ultimate in pay that isn't based on performance," the Wall Street Journal notes.

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Where are the Investor Activists?

Wall Street executives will receive 10% of the $700 billion US government bail-out package in pay and bonus deals...that's $70 billion we, the taxpayers will fork over to those who have already profited beyond what most of us can imagine, as a reward for hijacking our financial system.

“We support the bill, but we are opposed to provisions on executive pay,” said Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable, a trade group. “It is not appropriate for government to be setting the salaries of executives.”

Where is the remorse? Well, apparently, remorse is not written into their "contract", in fact, it's not part of the Wall Street vernacular at all. The words, accountability, merit, responsibility, ethics, morality, etc. are also excluded. Compensation consultant committees under the supervision of the board of directors determine what CEOs and top executives earn. Earning almost 600 times what the average worker takes home, these lucky men constantly receive pay increases and bonuses whether or not they do their job or not, because their raises depend not on how they perform, but on what their peers earn.

When compensation is paid out in the form of stock options, the temptation is to raise the stock price. Companies often apply special financial engineering to inflate profits and deflate losses on their Profits & Loss statement (P&L). The pressure is on to grow, merge or do anything to blur the numbers ...just bring in those returns!

Performance measurements are half the problem. Stock price is not a reliable gauge of a company's value simply because it's too easy to manipulate.

This week, Dupont, the chemical giant, slashed employee pension benefits by two-thirds. Furthermore, new Dupont workers won't get a guaranteed pension at all -- and no health care after retirement. It's part of Dupont's new "Die Young" program, I hear. Dupont is not in financial straits. Rather, the slash attack on its workers' pensions was aimed at adding a crucial three cents a share to company earnings, from $3.11 per share to $3.14. -- Greg Palast, September, 3 2006

So, what are better performance measurements? According to John Bogle, cash flow, dividend growth, operating earnings (earnings from the business rather than reported earnings which are earnings after the writeoffs) earnings per share, book value, etc are much more accurate.

Consider this. 65% of all company mergers do not work out, causing their book value to take a dive, however, there are no requirements to include that information in their P&L. So, if 65% of mergers fail, why do we have so many mergers? Because not only are most of us ignorant of this information, mergers are a great way to fudge the numbers, making it much harder to assess which companies are good for investing over the long run...the reason most of us invest to begin with.

Where are the investor activists and why aren't they protesting?

At one time, not too long ago, almost all the stock in America was owned by individuals and only 8% of stock owned by financial institutions. Now, 75% of stock is owned by institutions, yet institutions act much more like speculators rather than investors. So, why should they care... they "invest" short term and more than likely will not hold the same stock the following year.

We no longer have an ownership society. We have an agency society where agents or financial intermediaries are holding most of the stock, certainly the lion share of stock in the nation. The agents are not adequately representing their principles. We have corporate trustees and mutual fund managers who are acting too much in their own interests and not in the interest of the underlying pension beneficiaries and the fund shareholders. - John Bogle

In the end, Wall Street takes 75% of the return, over the lifetime of an investment, and put up ZERO percent of the capital and take ZERO percent of the risk, meanwhile, investors who put up 100% of the capital and take ALL the risk take home 25% of the return!

Now that half of all Americans are invested in the market, we can't afford to let this con game continue. As long as we stay within the Constitutional framework of our country, we the people can make up and enforce the rules that serve us. We can start by following the same procedures we use to rid our pets of ticks, and rid our financial system of the greedy parasites who have been given full permission to leech off we the taxpaying public.

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