A few short months ago Goldman Sachs was deemed too big to fail, and allowed to sink its fangs into the public vein. Not only did it receive direct assistance from lowly tax-payers like you and I, the gaggle of Goldman alumni that run the Treasury Department and implemented the Troubled Asset Relief Program funneled tens of billions to insurance giant AIG to assure that it could cover about 13 billion in Goldman's losses. Goldman paid back the TARP loans -- because caps on executive pay are a form of socialism, of course -- but is still making hay on the public dime, specifically on the sale of $28 billion worth of subsidized debt courtesy of the FDIC.

But today, as the New York Times put it, "up and down Wall Street, analysts and traders are buzzing" about the fact that Goldman is reporting "blowout profits" to the tune of $3.4 billion in the 2nd quarter. In a masterful bit of understatement, the Washington Post notes that "the New York investment bank profited from turmoil in the financial markets, the absence of former rivals and the continued support of the federal government."

http://www.alternet.org/blogs/peek/141295/%27blowout_profits%27_for_goldman_sachs_capitalism_ain%27t_supposed_to_be_like_this/

and, from Crikey .....

Today's Crikey editorial comes to you from subscriber and inbox regular Julian Gillespie.

Goldman Sachs (global) released their Q2 figures overnight -- what a uniquely perverse series of figures they had to crow about. Goldman Sachs apparently profit well from most other economies' recessions.

The telling point; the outlier set of figures if one reads the fine print on compensations and annualises the data to date -- for their 29,400 employees the average take-home pay is USD$772,925 per employee -- just $2000 shy of $1 million Aussie dollars per person.

But of course the average dog-body-do-most-of-the-work employee won't be able to tell hubby or wife as much, as most of the annualised comp of about USD$22,723,995,000 (yes, billions) will be going into the accounts of just a few cream ladlers from the same club that brought us this fantastic tax payer funded GFC -- the directors and senior managers who run every other non-Goldman Sachs person's pension fund into the ground.

Houston, we have a problem.

We couldn't have put it better ourselves.

and ......

The devil in the Goldman detail

Glenn Dyer writes:

US bank Goldman Sachs duly reported record earnings for the second quarter, but instead of racing away once again, Wall Street was far more circumspect. Share prices edged higher but Goldman's went nowhere after the big run on Monday.

It was a well-timed 'update' from analyst Meredith Whitney that actually left a lot unsaid from reports. It missed much of the downside for ordinary Americans of having a culpable bank and its management doing well after it was saved by the US Government late last year.

Goldman's management showed no humility or recognition of being given a second chance by the Government and taxpayer (more like tax pauper) support in announcing second-quarter profits of $US3.44 billion, 65 per cent higher than last year's second quarter. Goldman was given $US10 billion in Federal funds in the December quarter and the implicit support of the US taxpayer as it and its peers went close to failure after Lehman Brothers failed, Merrill Lynch was bailed out and Washington Mutual collapsed in September.

No, instead of being humble and thankful for the second life, a close look at the results in fact shows us that Goldman is back to its old pre-crunch trading tricks.

The detail in the Goldman results tells us why there's no clear answer from the report about whether the US banking system is returning to health.

As the Financial Times Lex column warned, "Do not be deceived...Trading in fixed income, currency and commodities generated half the bank's record net revenues, almost tripling from last year's second quarter. This client-driven trading is part of Goldman's DNA but cannot last.

"Trading margins remained at the historically wide levels of the first quarter (helped by competitors' demise), while a broad-based recovery in markets induced clients to resume trading. Meanwhile, another stand-out area -- underwriting equity and debt sales -- owed much to capital raisings by beleaguered peers."

And ratings agency Standard & Poor's was short and to the point, saying its ratings its rating on Goldman Sachs Group Inc. "was not affected by the bank's "very strong" second-quarter earnings report.

"Although Goldman Sachs may well continue outperforming its close peers, we don't consider its first-half results to be sustainable," S&P said. "Moreover, we continue to have concerns about the confidence and sensitivity of securities firms with sizable trading operations and high reliance on wholesale funding, despite this strong recent showing."

So while it can fool some in the markets, including analysts and fevered fund managers, the hard heads are still sceptical. But no sign of that among the managers at Goldman; there was lip service to the fragile markets, but that was all.

Half of Goldman's revenues came from trading and principal investment: that is Goldman rising its own money in betting against and with markets in fixed interest, commodities etc: in other words it was engaging in risk taking and speculation. That paid off because at the moment the Fed is funding these banks (as are the Bank of England and the European central Bank) with cheap money to try and keep lending alive.

When you can borrow your money at cheap rates of less than 1% and then invest it up the yield curve in terms of returns, making money is easy. When you gear up and use leverage, which is what Goldman is doing, more money rolls in, especially if everyone in the markets know believe you are too big to fail. It was what Goldman and its mates were doing with gay abandon before the credit crunch hit and almost killed them off, but without that implicit Government backing.

Total revenue in the June quarter was $US13.8 billion, compared with $US9.43 billion in the first quarter and $US9.42 billion in the second quarter a year earlier. The company's second quarter ended in May until Goldman Sachs changed its fiscal year last quarter.

Half that: $US6.8 billion, came from those trading activities of fixed-income, currencies and commodities, the company's biggest business. That was up from the first quarter figure of $US6.3 billion and around $US2.3 billion in the first quarter of 2008 (to May). Equities trading revenue hit $US3.18 billion in the quarter compared with $US2 billion in the first quarter and $US2.49 billion in last year's second quarter.

Revenue from equity underwriting jumped to $US736 million from $US48 million in the first quarter and compared with $US616 million a year ago. And guess where much of that increase came from? Underwriting and managing share issues by rival banks told to raise capital by regulators. That's easy money.

Now taxpayers and US banking regulators are actively supporting this in a desperate attempt to keep the banks alive. If the Fed was to put up the cost of money or cut back on its availability, some of the banks would head straight towards the cliff once again, with rivals Citigroup and Bank of America in the lead.

Goldman Sachs is just an investment bank masquerading as a "commercial bank" so as to be able to access cheap money from the Fed and all the support that goes with being overseen by banking regulators and not an investment bank whose overseer is the Securities and Exchange Commission. If Goldman Sachs was an investment bank its cost of funds would soar, making much of the profit making trading much harder to achieve.

The support of the Fed now carries with the implicit guarantee of the US Government: having done it once, people dealing with Goldman Sachs now assume that it will happen again if Goldman Sachs stuffs things up, as it did last year, along with its peers.

So Goldman Sachs and its traders can dust off their risky computerised trading schemes and make hay, with the full knowledge that they are too big to fail and the poor benighted American tax pauper will help them once again if they get into trouble. That's called "moral hazard" and there was no recognition of that in the comments from Goldman's senior managers after the results were released.

It's also paying its employees more money. The company set aside $6.65 billion for compensation and benefits in the period, or 48 percent of revenue, compared with $4.71 billion in the first quarter. The number of employees fell 1 per cent to 29,400 from 29,800 at the end of March.

But that could hit a huge $US22 billion for the 2009 year if it manages to keep up the pace of earnings growth. It has already allocated $US11.3 billion for compensation for the six months to June.

No wonder that Rolling Stone article hurt at Goldman Sachs: the description of the bank as a "great vampire squid" is going to stick in people's minds from now on after the trading profits in the first half of 2009. There's a feeling among many in the markets that Goldman Sachs are a bunch of ungrateful chancers.

So what's wrong with Goldman posting $3.44 billion in second-quarter profits, what's wrong with the company so far earmarking $11.4 billion in compensation for its employees? What's wrong is that this is not free-market earnings but an almost pure state subsidy.

Last year, when Hank Paulson told us all that the planet would explode if we didn't fork over a gazillion dollars to Wall Street immediately, the entire rationale not only for TARP but for the whole galaxy of lesser-known state crutches and safety nets quietly ushered in later on was that Wall Street, once rescued, would pump money back into the economy, create jobs, and initiate a widespread recovery.

This, we were told, was the reason we needed to pilfer massive amounts of middle-class tax revenue and hand it over to the same guys who had just blown up the financial world. We'd save their asses, they'd save ours.

That was the deal.

http://www.lewrockwell.com/taibbi/taibbi10.1.html

Morgan Stanley is setting aside a huge sum to pay out bonuses despite posting its third consecutive quarterly loss and admitting it is disappointed with key departments.

The US bank's latest results show it is allocating $3.9bn (£2.36bn) for paying out to staff, 72% of its net revenues. That dwarfs the percentage of revenue set aside by arch rival Goldman Sachs, where workers are on track for large bonuses after record results last week.

Morgan Stanley extinguished the tentative flames of optimism among US banks today when it posted a loss of $159m for April to June and said it was not satisfied with its performance in fixed income trading and in asset management.

News of the bank's loss unsettled traders on Wall Street, whose view of the banking sector's prospects was brightened last week by Goldman's surge in profits and further upbeat news from JP Morgan, Citigroup and Bank of America.

Goldman said last week that it was dedicating 49% of its revenue to paying its staff, amounting to a compensation fund of $6.65bn.

Further reading of Morgan Stanley's results showed its compensation pot was not only much bigger as a percentage of net revenues of $5.4bn, but that it had jumped 26% from $3.1bn a year ago.

"It was a very good quarter to be a Morgan Stanley employee," said analyst Brad Hintz at Sanford C Bernstein & Co. "I'm not so sure it was so good to be a Morgan Stanley shareholder."

http://www.guardian.co.uk/business/2009/jul/22/morgan-stanley-to-pay-big-bonuses

http://www.lewrockwell.com/spl/goldman-sachs-are-scum.html

from Crikey .....

Corporate Australia's hypocrisy on CEO payouts

Adam Schwab writes:

If the submissions were not being made by some of the bluest chip organisations in Australia, one could not help but laugh. That a professional body or company would, with a straight face, mount an argument against the Federal Government's proposed changes to executive termination laws is remarkable.

As background, in June, the Government formally introduced legislation which seeks to prevent public companies from making executive termination payments which exceed one year's fixed remuneration. Critically though, those corporations are still able to pay executives an unlimited "golden handshake", so long as the payment is approved by a majority of voting shareholders. This is understandable given it is the shareholders who foot the bill for any executive termination payments, rather than the directors, who merely authorise the payment.

Under existing laws, companies are able to pay departing executives up to seven times average total remuneration over the past three years (including short and long term bonuses) without shareholder approval. This perverse situation would have allowed Telstra to make a termination payment to former CEO, Sol Trujillo of more than $70 million, or Macquarie Bank to pay former boss, Alan Moss, a golden goodbye of more than $180 million.

However, despite the compelling logic of the new laws, large corporations and lobby groups (who appear to be more concerned about ensuring their executive are well paid, than their shareholders are receive adequate returns on equity) have gone on the attack.

The Australian reported that "Rio Tinto Australia's managing director Stephen Creese said there was a risk that long-serving employees who were not executives, would get unfairly caught up in the new crackdown and would not receive accrued benefits." Creese's concerns may be slightly unwarranted given the vast majority of Australian employees receive termination payments equivalent to one week for each year of service. In fact, most executives actively seek to reduce termination or redundancy payments for ordinary workers, at times, taking such matters to industrial courts. (It is only when it comes to executive termination payments where corporations seem to suddenly adopt a very generous stance).

Similarly, the Financial Review reported that Origin Energy submitted that it was "particularly concerned with the setting of the limit at the proposed one-times level as this would have the effect of imposing additional time and cost barriers in Australian companies seeking to recruit externally." The mysterious "time and cost barriers" referred to by Origin remain mysterious. Many termination payments are undertaken on an ex-gratia basis, for example, the payment to former Oxiana CEO, Owen Hegarty (of $8.35 million) was made by the board after Hegarty's resignation. Further, if discussing termination payments with potential executives is such a timely and difficult exercise shareholders would be well vindicated in questioning whether such a candidate is appropriate to head their company. What kind of CEO demands a payment for failure before they have even started on the job?

The AFR also noted that the Hay Group claimed that a one-year threshold is not required due to a "downward trend" in executive payouts over five years. It should come as no surprise that a firm of remuneration consultants supports higher remuneration for executives (Hay obviously knows where their fees are coming from). The only problem is that Hay's claims are completely incorrect. In the past five years, executive pay has continued to skyrocket. Even in 2008, with equity prices and corporate profitability slumping, Australian executives managed to increase their remuneration. Over the past two decades, CEO salaries have increased by 564 percent, from 18 times average full-time earnings to 63 times. That is before termination payments are considered.

In the last three years, former PBL executive, John Alexander (the man accused of "killing Channel Nine") received a termination payment of $15 million. Former ASX boss Tony D'Aloisio (who is now head of Australia's corporate watchdog, ASIC), received $7.8 million, Mike Tilley collected $6 million at Challenger while Andrew Scott took away $3 million, despite overseeing billions of dollars of wealth destruction at Centro.

Under existing laws, all those termination payments were made without recourse to shareholders. Any company which opposes the long-awaited changes is simply proving what has long been suspected -- that directors are placing the interests of executives before their fiduciary obligations to shareholders.

New Zealand's conservative Prime Minister, John Key, a former investment banker, summed up the state of the world financial system brilliantly during a recent visit to Sydney: "Six months ago, The Wall Street Journal came to interview me and asked me if capitalism was dead. Now Goldman Sachs is paying record bonuses."

After a near-death experience, the world financial system is returning to business as usual - only worse.

The big investment banks, and Goldman Sachs is the biggest of them, have feasted on public money and, now, restored to strength, are throwing themselves back into the markets as recklessly as ever - only more so.

The big US investment banks are not just symbolic of the greed and excess of the pre-crisis craze. They were instrumental. They created, sold and traded the derivatives the world later came to know as "toxic assets''. But now, after restoring themselves with emergency government loans, they have repaid the US Treasury and rushed back into the markets. Goldman reported a record profit for the three months to the end of June of $US3.4 billion ($3.9 billion).

And the company - where average employee pay is $US700,000 - set aside a record $US11.4 billion for staff bonuses for the first half of the year alone. Guess where the firm made its biggest profit? From trading all the Treasury bonds the US Government issued to pay for the $US787 billion stimulus it injected into the economy to save it from the financial crisis.

http://www.smh.com.au/opinion/society-and-culture/greed-is-god-again-and-we-have-learned-nothing-20090921-fyjr.html

On Thursday, Goldman Sachs will announce the firm's bonus payments for 2009. Analysts expect the bonus pool to mushroom to $23 billion -- double the bonus pool paid to employees in 2008. Earlier this year, Goldman Sachs said that it had put aside $11.4 billion for bonuses during the first half of the year.

"The absolute size of compensation payouts will rise significantly," Keith Horowitz, an analyst at Citigroup, wrote in a note to clients two weeks ago, highlighted by Andrew Sorkin in The New York Times' dealbook column Tuesday.

http://rawstory.com/2009/10/goldman-sachs-2009-bonuses-to-double-2008s-23-billion-could-buy-115-million-iphones-or-send-460000-to-harvard/

The heads of the nation's top companies got the biggest raises in recent memory last year after taking a hiatus during the recession.

At a time most employees can barely remember their last substantial raise, median CEO pay jumped 27% in 2010 as the executives' compensation started working its way back to prerecession levels, a USA TODAY analysis of data from GovernanceMetrics International found. Workers in private industry, meanwhile, saw their compensation grow just 2.1% in the 12 months ended December 2010, says the Bureau of Labor Statistics.

CEO pay soars while workers' pay stalls