Friday, January 8, 2010

Simon Johnson On Goldman Bonuses

Simon Johnson says that Goldman will announce more massive bonuses soon:

For critics of the company and its fellow travelers, the timing could not be better.
He goes on to list some reasons why Goldman will go ahead and announce these bonuses, even as it gets more and more obvious how much it is angering the public who saved their asses. Here's reason number three:
The most important reason is also Goldman’s greatest weakness: throughout the organization, people really think they are worth the money.  But remember these facts and keep track of how many times you hear them repeated: Goldman Sachs essentially failed in September 2008; it was saved by extraordinary and unprecedented government efforts at the end of September and subsequently (particularly through its conversion to a bank holding company, which gave access to the Fed’s discount window); partly this treatment was shaped by the special favor with which Hank Paulson viewed Goldman (documented in nauseating detail in Andrew Ross Sorkin’s Too Big To Fail); and the strategy of allowing Goldman to recapitalize through taking huge risk with an unconditional government guarantee in 2009 only makes sense if they use the proceeds to boost their capital – not if they pay out massive bonuses.  In any reasonable economic analysis, the entire bonus pool at Goldman should be paid – with gracious thanks – to the government.
Read the rest of it to see why Johnson thinks this will never happen, and how these bonus announcements could become the rallying point for real reform in 2010. 

This will become big news right after the story about Geithner ordering AIG to cover up to the money trail blows up.

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