To put that $23 billion bonus pool number in perspective, it is the most Goldman Sachs has accumulated for bonuses in its history -- twice as much as in 2008. And it is doing so while memories are still fresh that just a year ago taxpayers had to step in when Wall Street, and even Goldman, were facing a run on the bank.
It's miraculous. Wall Street implodes and takes down the rest of the economy bringing us to the gates of the Great Depression II, and Goldman Sachs makes more money than ever before, even more than during the height of the largest bubble in world history. Happy days are here again.
Where did all that money come from? We are owed a detailed explanation for how Goldman Sachs (with JP Morgan not far behind) made a killing while the rest of the economy was getting killed. More importantly, it would be good to know what value their well-rewarded labor contributed to the real world.
Here's what we do know: Goldman Sachs, like all the other major banks and investment houses, was in serious trouble when the fantasy finance boom collapsed. The entire financial sector was on life support as the value of their assets plummeted. Goldman had hedged $13 billion of its risky bets by buying insurance (credit default swaps) from AIG. Had AIG gone under Goldman Sachs would have received pennies on the dollar and perhaps would have also gone over the bankruptcy edge.
But we, the taxpayer, bailed out Goldman first with $10 billion in TARP and then indirectly when we saved AIG so it could pay off its bets in full. Goldman got par value --- they got the entire $13 billion. How sweet it is!
Even though Goldman Sachs has repaid the $10 billion in TARP money it still is benefiting from $53.6 billion in taxpayer support in the form of asset and liquidity guarantees. (See Nomi Prins's excellent accounting.)
So what? They're smart. They're good at what they do. And they're not failing. So shouldn't we just let them bask in their well earned bonus money?
No. In a saner world we would take this opportunity to cure several problems:
- Goldman Sachs and the other major Wall Street institutions are still too big to fail. In fact they are even bigger than before. They should be broken into much smaller entities that are small enough to fail. The free market won't get us there. We need Teddy Roosevelt type trust busting.
If we choose to recapture some of this booty, we then can deal with our most pressing problem: how to find enough sustainable work for our people.
Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.