Monday, November 17, 2008

Goldman Sachs Spins Gold from Top Brass Woes

Goldman Sachs, which has lost nearly 70% of its value this year and recently fired 3,200 employees, may be showing signs of late developing wisdom. Sunday they announced that the firm’s top seven executives had requested that they not be awarded any bonus for their work in 2008. Silk purse and sow’s ear come to mind, but kudos to the firm and its top executives for making a virtue of necessity and getting out in front of an issue that AIG got so horribly wrong. Given the grilling that US Treasury officials received last week over AIG executive bonuses during Congressional hearings about the $ 700 billion bail-out that it had authorized, there was no question that major investment firms and banks were going to have to seriously scale back or completely forgo annual bonuses. But GS, by getting out there early, and making it appear to be an act of voluntary contrition, have spun gold from thin air.

Fear not for Goldman Sachs top execs, nor for their families’ Christmas plans. While they will not rake in the average $50 – 100 million bonuses that the seven received at the end of 2007, they will probably be able to eke by with their $600,000 base pay salaries. Unfortunately for those who really did get out in front of the issue like Morgan Stanley chief, John Mack, who took no bonus in 2007 after a 4th quarter loss but has steered the company through a profitable, if dismal, 2008, there will be intense pressure to also say “no thanks” to an end-year bonus. But having taken money from the Government as part of the bail-out program, Morgan Stanley now finds strings attached to its limbs and the tune being called by the likes Representative Henry Waxman (D- CA), that paragon of self-righteous, grasping, interventionist, big-governmentalism.

But back to Goldman’s text-book stuntsmanship. The fact is that given the firm’s dismal performance and its acknowledged (however squirmishly) role in the financial crisis, there was no way that mega million bonuses were going to be passed out to top executives anyway. By “voluntarily” forgoing said bonuses early and loudly, they have not only, enhanced the GS image but they have relieved the pressure that Waxman and others of his ilk might exert over how the next tier of employees are paid, and retained. Issuing the news on Sunday delivered them top line heralding on traditionally slow news Monday and substantially increased the organic media bang of their announcement, delivering a lot of positive spin. Other banks and investment firms are going to have to make similar decisions. They can’t go first since Goldman Sachs has already stolen their thunder, but they can still gain kudos or mitigate further damage to their image and investor confidence with a very loud mea culpa. America loves when the mighty have fallen, but they love contrition and public confession almost as much. By acknowledging their roles in the financial crisis and showing their pain by giving up the mega million bonuses that they aren’t going to get anyway, the nation’s hedge fund managers and investment bankers can somewhat redeem themselves in the public eye.

The Bloated Plutocrat is indignant. “Giving up their bonuses! It’s a wonder they haven’t been pulled from their offices and lynched in the night by angry homeowners (or former homeowners) wielding pitchforks and torches. The problem with all these jumped-up bank clerks is that they expect millions just for showing up. At best they make conventional decisions during market up-turns and do limited damage during cyclical down-turns. At worst, they imagine that their ability to move markets is a good thing. They’re lucky to have their heads, let alone their base pay”.

The Bleeding Heart however felt that it was a sign of change in America’s financial institutions. “Change has come. Change has come in Congress and to the White House. And it looks like the unregulated robber barons on Wall Street can read the writing on the wall, finally. Fed on a banquet of tax cuts for the ultra-wealthy and habituated to the blind eye of regulators over the last eight years, I am surprised at their ability to see the shift in the wind and get with the program. Other financial institutions and recipients of bail-out funds had better follow Goldman Sachs lead or they will find themselves at the receiving end of a Congressional inquiry”.

Regardless of the motivation, Goldman Sachs announcement yesterday was well done, well timed, and has been well received.

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