It's called Anti-Greed

Commentary

When the very people responsible for the financial mess profit to the tunes of millions per person, and $11 billions collectively, the anger over the injustice is very simple and basic, it is called anti-greed; it is called common sense against injustice. When thse same people cannot be the simple reason, and called it "out of proportion to reality" perhaps they are the ones who are not seeing clearly, blinded by their own greed. They see clearly the reaction of people's anger, but they don't see the immorality of the bonuses because they believe, really believe, that they are entitled, indeed deserved, to be paid the huge sums.

The argument repeated so often that the executives are paid outrageous bonuses in order keep the talented people from being hired away by other firms, is equally ridiculous. First of all, there are only so many firms with the resources to pay that kind of money. Second of all, it is a simple matter to enact financial regulation to limit, like professional hockey players' salary cap, so that nobody can be hired away with high salary or bonuses. In fact, to ensure compliance, there can be a special tax provision to increase the top tax bracket to a higher rate, say 90&. That will help pay for health care reform and pay down the national debt.

When taxpayers bored the burden of rescuing these companies during the crisis, the bonus should go to them, not the executives. Retaining talents? Rewarding hardwork? These outrageous bonuses are simply rewarding them for gambling with other people's money, and crafting ways to avoid responsibilities by off-loading the crash on others.

There need to be another option: use the record profit to pay down the national debt. If these companies were bailed out of extinction by the nation, it is only fair for these companies to bail out the nation as it faces record national debt. It is only fair.

Excerpts

How worried are Goldman Sachs executives about their ability to manage the coming media tsunami when bonus season comes around?

Paranoia might not be too strong a word to describe the mind-set. People inside Goldman tell me that some senior executives say they believe the onslaught of negative stories detailing Goldman’s manifold ties to upper levels of government, charges that it somehow fraudulently profited from the subprime crisis, and now the press about the firm’s record earnings is so out of proportion to reality that the coverage contains an element of anti-Semitism—subtly playing off the racist myth of a conspiracy of Jewish bankers controlling the world for their own benefit. (Goldman was founded by a Jewish immigrant, and after years of being run by Gentiles Jon Corzine and Hank Paulson, is once again run by a Jew, Lloyd Blankfein.)

“Blankfein is scared to death about what might happen when the bonus numbers hit,” one executive says.

Blankfein, I am told, isn’t paranoid but really concerned about being placed in an untenable position for any CEO who needs to retain talent. If he doesn’t pay his people, many will simply jump ship to other firms—including private-equity firms—that will. If he does, he faces endless negative coverage about how Goldman is making its partners rich at the expense of taxpayers who bailed out the firm last year.

This quandary has resulted in some very serious discussions at Goldman to attempt to spin the bonus issue in the best possible (or least damaging) way. The Daily Beast has learned that Goldman is considering “a menu” of options: One possibility is to pay the vast majority of the bonus in stock. On Wall Street, executives receive a combination of stock and cash, with the cash portion comprising 65 percent of the total bonus. Goldman may just flip that around.

Another option, according to people close to the matter, is for Goldman to pay much smaller bonuses and just hand out larger salaries, meaning there won’t be a massive media event that occurs every year once all the bonuses, including Blankfein’s—which hit nearly $70 million for 2007, just months before Goldman’s bailout—are announced.

A third option, these people say, is for Goldman to forgo bonuses for the most part and just buy its stock in the open market. Because most of its executives have large pieces of their net worth tied up in shares of Goldman, the wealth effect would be bigger and less sensational than paying all those huge bonus packages at the end of the year.

Blankfein, of course, has a good reason to be worried. Brand and image is more important now than ever before, and the CEO’s internal research shows that Goldman is taking a beating like never before. Some of the criticism of Goldman is of course, absurd, like it committed securities fraud simply by shorting the housing market back in 2007.

Some of it isn’t: that the firm is now embracing the same type of risk that led to its near implosion back in 2008.

It almost doesn’t matter—it’s all starting to stick, and Goldman has suddenly replaced Citigroup, Merrill, and even Lehman as the leading culprit of Wall Street greed and abuse committed during the financial crisis. In the good old days, Goldman could just ignore the chattering class, make a lot of money, and tell the rest of the world to screw off.

No longer. The firm, like the rest of the former bastion of capitalism known as Wall Street, is protected by the federal government as a commercial bank. Goldman was bailed out with the rest of the financial system late last year, and while government bureaucrats don’t run Goldman like they run Citigroup, they are watching the firm like never before. And one thing government bureaucrats don’t like is bad publicity, even if it’s in fringe media publications.

That’s why Goldman has been looking for months for the right person to fill the job of “brand manager.” It’s the reason senior executives at the firm meet almost daily on how to repair the firm’s image. It’s the reason Blankfein “looks like shit,” according to one Wall Street CEO who considers himself a friend of the Goldman CEO and who says Blankfein has “become obsessed with the firm’s image problems.” And it’s the reason Goldman is weighing a menu of options that could soften what senior executives believe will be an onslaught of negative media attacks when the firm doles out bonuses to its best people at the end of the year.

“Blankfein is scared to death about what might happen when the bonus numbers hit,” one executive says.

Of course, there might not be any bonus money to hand out. The markets could implode over the next two months. The Fed could stop subsidizing Wall Street’s risk-taking and revoke Goldman’s charter as a commercial bank, meaning it is no longer Too Big to Fail and will have to pay more to finance trades and roll the dice in the bond markets. Goldman also could try to corner the market of drug stocks, betting President Obama’s health-care plan will fail, and guess what, the American people suddenly change their mind and embrace socialism and learn to love “the public option,” making Goldman’s trade an even worse bet than subprime debt back in 2007.

But barring any of this, Goldman will have a piggy bank of more than $11 billion to dole out in bonuses at year’s end, not exactly what most businesses would consider a problem, unless, of course, you’re Goldman and you’ve undergone the longest media-induced proctology exam in the firm’s long and storied history.

Spokesman Lucas Van Praag declined to discuss the specifics of the “menu” of options the bank is considering, but he said any stock-buyback program won’t be tied to bonuses.

What was interesting about Van Praag’s “denial” was that he won’t deny Goldman is weighing some large stock buyback. “I can’t comment on that,” he said before adding that analysts had been calling on the firm to do a stock buyback for some time.

One thing is certain: Goldman’s top executives might be getting much richer at the end of this year, but the firm’s reputation is sinking and may well sink further.

Consider this: Goldman produced record earnings in the second quarter, and if it just cranks out mediocre profits for the remaining two, Blankfein would be on course to receive a bonus of $50 million or more, according to people inside the firm.

This after Goldman was rescued from extinction (this is where I agree with the conspiracy theorists) nearly a year ago, when the financial crisis became most acute, with a $10 billion capital injection from the federal government, not to mention the tens of billions of dollars that flowed right to Goldman’s bottom line when the federal government bailed out AIG and honored all those insurance contracts Goldman held on its own portfolio of risky debt.

Of course, the flacks at Goldman would tell you that Goldman was among the first to repay its loan, and amazingly, they continue to spin that the firm wasn’t really bailed out when the Feds bailed out AIG. (Their rationale is too nonsensical to explain; trust me on this one, they’re full of shit.) Where they’re less full of shit on is the difficulties they face in dealing repairing the firm’s image.

The normally tight-lipped Van Praag put it this way: “We are obviously cognizant of the environment and the atmosphere that we’re operating in, but we also recognize that we have to pay our people to keep the firm competitive, which poses some issues for us.”

Van Praag also concedes that the recent attacks on the firm have hit home, particularly for Blankfein, after The New York Times reported that former Treasury Secretary (and former Goldman CEO) Hank Paulson spoke to Blankfein far more than any other CEO during the height of the financial crisis last year, suggesting that Goldman received preferential treatment. “Is Lloyd worried about our image? Nobody likes negative publicity. It’s unpleasant,” the spokesman says.