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Wall Street May Give Out Record Bonuses

From a horrified Wall Street Journal:

Big Pay Packages Return to Wall Street

Compensation on Track to Soar as Earnings Recover From Crisis; ‘Like It’s 2007 Again’


JULY 2, 2009

Business is back on Wall Street. If the good times continue to roll, lofty pay packages may be set for a comeback as well.

Based on analysts’ earnings forecasts for 2009, Goldman Sachs Group Inc. is on track to pay out as much as $20 billion this year, or about $700,000 per employee. That would be nearly double the firm’s $363,000 average last year, and slightly higher than the $661,000 for the average Goldman employee in fiscal 2007, according to analyst estimates reviewed by The Wall Street Journal.

Morgan Stanley, the only other huge U.S. securities firm left as an independent company, will likely pay out $11 billion to $14 billion in compensation and benefits this year, analysts predict. On a per-employee basis, payouts are expected to exceed last year’s average of $262,000. Howard Chen, an analyst at Credit Suisse, projects that the company’s average pay will come close to the $340,000 paid out by Morgan Stanley in fiscal 2007.

Some of the most lucrative pay packages are being offered in businesses that are improving, such as junk-bond trading. Jobs and pay remain iffy in areas like asset-backed securities where markets remain frozen. Russ Gerson, who runs an executive-recruiting firm that fills jobs on Wall Street, says it is too soon to tell if the strong results from securities firms in the first and second quarters will translate into huge paychecks at the end of the year. "All this euphoria about bonuses is based on the expectation that the business is returning to normal and that we will be in a robust environment again. If the fourth quarter is significantly down, I would expect bonuses not to recover too much from 2008 levels," he said.

Whether the higher payouts occur will depend on whether Wall Street earnings continue to recover from last year’s bruising losses on troubled assets and bad trading bets. If the market’s resilience since early March fades or a new crisis erupts, then securities firms would likely set aside far less to pay their employees than they did in this year’s first two quarters. Firms can set aside money for compensation and then decide not to pay it later.

Still, the comeback in compensation so far this year shows how hard it is for Wall Street to break its old habits. Repaying last year’s capital infusions from the government freed Goldman, Morgan Stanley and other big financial firms from curbs on compensation. Meanwhile, non-U.S. banks that didn’t get Troubled Asset Relief Program funds are becoming increasingly aggressive

The recent increases in compensation reflect efforts by Wall Street executives to keep pay high enough to remain competitive but low enough to avoid the wrath of angry lawmakers. In at least one case, bank executives or their representatives have discussed pay with the Obama administration’s pay czar Kenneth Feinberg ahead of time, seeking to head off any public reprimand, according to a person familiar with the meetings.

A Treasury spokesman said Mr. Feinberg "has just begun his process for reviewing compensation at the seven firms receiving exceptional assistance; he has yet to approve any plans."

While Wall Street firms remain loath to cap pay levels, some are changing the mix of salary and bonus, partly in response to the financial crisis and added scrutiny from Washington. Some are boosting salaries and adding more stock, as well as so-called "clawback" provisions aimed at tying employee pay packages more closely to the long-term fortunes of their firms. As a rule, securities firms pay out about 50% of revenue in compensation…

Goldman, which has suffered less than most of its rivals since the credit crisis began in 2007, remains committed to using bonuses, increasingly from stock, to reward its top performers. Still, the firm is trying to carefully manage compensation, perks and other expenses that could be criticized

How is this possible?

Obviously, Mr. Obama will have to re-double his efforts to kill Wall Street, and capitalism in general.

Paging Mr. Feinberg.

This article was posted by Steve on Thursday, July 2nd, 2009. Comments are currently closed.

8 Responses to “Wall Street May Give Out Record Bonuses”

  1. ptat says:

    I am truly puzzled—does anyone know why Goldman Sachs is prospering so much while everyone else is dying?

    • tranquil.night says:

      Great question ptat! (and thank you p.r.!)

      Here’s a compendium on what I know on Sachs so far. Grabbed most of this research myself from various reports dating back through the year. Steve already posted the great video to which I linked here of Congresswoman Maxine Waters (D) ripping Geithner on the issue.

      “Maxine Exposes Goldman-Sachs Conspiracy”
      From S&L Mar. 24, 2009:

      The left’s ‘cookie jar’ Goldman Sachs (chief rival of AIG, Lehman Brothers, Morgan-Stanley) the facts:
      – $5 billion invested in September of 2008 by Warren Buffett and has already made a $1 billion return.
      – Strong holdings by Soros, including a 40% increase made between October – December of last year.
      – Has a company history of leaning left, endorsing global warming alarmism, making donations to Nature/Rainforest conservancy groups and other initiatives such as Jesse Jackson’s Organization.
      – Was blamed for the Depression using similar tactics in the The Great Crash, 1929 by economist John Kenneth Galbraith
      – Voluntarily received $9.8 billion in TARP for one of its faltering Hedge Funds (which it has vowed to pay back to escape the grasp of the regulators crushing their competition)
      – Paying $11 billion in bonuses this year (AIG incurred populist outrage and employee death threats over $1.2 billion)
      – On track for it’s best year ever (Lehman bankrupt, AIG 79% government owned; former CEO Maurice Greenberg “was bewildered by the situation and was at a loss over how the entire situation got out of control as it did.”)

      – Former Goldman board member Ed Liddy current government appointed CEO of AIG (His salary: $1. His personal investment in Sachs: $3 million)
      – Henry Paulson, architect of TARP, former CEO of Sachs.
      – Robert Rubin, Clinton Treasury Sect., architect of Community Reinvestment Act that brought forth the Sub-prime bubble, former CEO of Sachs.
      – Lil’ Timmy Geithner, President of the NY Fed who helped Paulson position Goldman on the throne, and who also helped cripple Bank of America with Merrill Lynch.

      It’s odd but I haven’t found a single source for facts like this other than some wacky conspiracy theorists. However, research just the surface of Sachs history and you see it’s littered with dirty business practice claims, high profile names in the government, and as you aptly noted – the fact that it is not only surviving but thriving while all of it’s competitors are nearly dead.

    • proreason says:

      Great work tn.

      The thing you didn’t mention is that Henry Paulsen (and Bernake) is the guy who rushed into Dubya’s office the day of the $5 Trillion “run on Money Market accounts” September 18, 2008 that triggered the panic that resulted in TARP. The $5 Trillion figure has been disputed. Little information is known about it, and it was probably only a few hundred million, and perhaps confined to funds at major capital market companies, and not a general run at all. Nevertheless, it was the trigger for TARP.

      The “Money Market run” was presented as the event that was going to end civilization if IMMEDIATE action was not taken. Action HAD to be taken within hours, and it does seem that Money Market trading was shut down by the government on the 18th for part of the day.

      During the prior week, Lehman Bros had been brought down by short-sellers, and the Fed mysteriously siezed it the weekend before the Money Market run. The Lehman Bros attack week was immediately after Sarah Palin made a huge impact at the GOP convention and McCain took the lead for the first time in Gallup. That Monday, market volume increased about 50% and Lehman Bros came under attack.

      The TARP episode was the one where McCain make a fool of himself by coming off the campaign trail to go to Washington only to vote as one of the robots agreeing to a bailout they knew nothing about. Obama basically remained neutral, but did humiliate himself in an unpublicized meeting where he conducted himself like the adolescent he is. The media, of course, never reported it.

      Within 3 weeks TARP had passed. During those 4 weeks, it appeared the stock market would crumble completely, and that extremely erratic action continued for a few weeks beyond the election. Note: George Soros has been convicted of market manipulation by Hungary for his activities during this period.

      It has alway been difficult for me to explain Paulsen’s actions, although it’s well known he is a democrat, particularly since Paulsen did nothing with the TARP money for weeks after it was first allocated.

      But tn seems to be onto the explanation.

      Sachs is part of the deal.

      (But anyone who suggests it is a nutty conspiracty theorist. The official version is that there were no events in this period that even merit investigation. Of course, civilization did almost fail, America lost $12 trillion in wealth, and a college sophomore who never had a job was elected the most powerful man in the world….and has since demonstrated his radical bonafides….but the events of that period that made it all possible…..simply not worthy of interest by any serious journalist).

    • tranquil.night says:

      Thank you p.r.

      The headline for the Huffington Post right now is an article in RollingStone of all places – and as I’m reading it, this just seems like it might be a breakout piece if it can hit the mainstream. I encourage anyone reading this post to read this article. Really.

      This all just keeps getting weirder and weirder.

      The Great American Bubble Machine
      Matt Taibbi on how Goldman Sachs has engineered every major market manipulation since the Great Depression

      Any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

      [On the housing and interest bust]

      It sounds obvious now, but what the average investor didn’t know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system — one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman’s later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry’s standards of quality control.

      [On TARP and Onwards]

      After the oil bubble collapsed last fall, there was no new bubble to keep things humming — this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.

      [On How Sachs Will Profit in the New America]

      Fast-forward to today. It’s early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs — its employees paid some $981,000 to his campaign — sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.

      […]And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion- dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an “environmental plan,” called cap-and-trade. The new carbon-credit market is a virtual repeat of the commodities-market casino that’s been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won’t even have to rig the game. It will be rigged in advance.


    • proreason says:

      Very interesting link, tn.

      Sachs sure has had it’s hand in a lot of evil financial affairs, and now again seems to be well positioned to make a new fortune in Cap and Tax trading.

      The author is a leftist, and conveniently omits the government’s domineering hand in the financial crisis. The lefties like to blame everthing on business, you know.

      But even given that prejudice, the account seems to make a lot of sense

      My basic position is and has been that October and November of 2008 was not a time of normal market gyrations. Something exceptionally strange was going on. I believe it was because big money and big nation states were interfering to get Obamy elected. I don’t know and it will probably never be public knowledge what happened…..but after reading this, it sure looks like Sachs and Sachs alumni were right in the middle of it.

      The author’s account makes perfect sense if you believe like I do that 9/2008 and 10/2008, the months that ruined America, were rigged, and that fortune’s were stolen to widen the gap between the comissars/aristocracy and us.

    • tranquil.night says:

      PR, those were my thoughts too, and it was just too weird that I saw this on Huffington and Rolling Stone.

      The framers did anticipate this and they tried to prevent it, but there’s no document or declaration that can stop evil; it’s the people that must. You aptly pointed out the facts: 12 trillion in wealth gone, a racist ideologue demagogue in the White House, and the most advanced, secure, and wealthy nation in the world on the brink in a matter of less than a year.

      It’s definitely not normal market gyration, and it’s absolutely not your run-of-the-mill recession/depression. It isn’t big business – it’s big businesses run by big liberals who love the idea of marrying big liberal business with big liberal government.

      And Sachs isn’t the only one that is going to be handed a monopoly. AT&T, Apple, GE, Disney, and all their supplementing media, energy and communication businesses all stand to benefit in the same manner.

      I’ll write it again – it’s not the dark side of capitalism; it’s not big business – it’s the exact opposite. It’s corrupt liberal statism.

  2. proreason says:

    Henry Paulsen was the CEO of Sachs.

    Tranquil_night is on this.

    It appears that Goldman Sachs could be a member of the ObamySoros Cabal.

    I’m interested to read more about that if anyone has links about it.

  3. ptat says:

    Many thanks to all for the wealth of info! S&L is so fine!! BUT, Now I know too much—it hurts! I was so blissfully ignorant…..

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