Monday, July 20, 2009

Banks and bonuses: Going overboard | The Economist

Banks and bonuses: Going overboard The Economist

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Goldman Sachs' (see my associated commentary on the company in the post below) "shareholders received $4.4 billion of profits during the first half of this year while staff were allocated $11.4 billion in pay and bonuses, equivalent to about half of the firm’s net revenues."

The article asks, who is really in charge of these so-called investment banks? Is it the shareholders or the employees? Goldman counters that they have to pay top dollar for their talent. As discussed in the previous two posts, where there is a compensation misalignment, profit will be made through deception, fraud, and criminal enterprise. The dominant philosophy of unbridled greed that has become the mantra of Wall Street bankers over the past two decades has not stopped and it continues to be as pervasive as ever.

The article questions:
Banks pay low dividends, and when they get into trouble the capital that shareholders have retained in the firm typically gets wiped out. Employees have taken money out of their firms each year. It may be time for the owners of banks to mutiny over the bounty.
In other words, the public always gets soaked and institutional investors get shafted, but the big-boys at Goldman Sachs smirk as they dream of yet another weekend at the Hamptons paid through casino-capitalism.

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