(Republished to clarify time period of data in fifth paragraph)
Patriotism, as Dr Johnson once observed, is the last refuge of a scoundrel. So when you hear words like “duty” drip from the lips of a senior executive at Goldman Sachs, you instinctively count the spoons.
You’d be right to do so too. Chief financial officer David Viniar’s observation that Goldman has a duty to repay the money it received last autumn from the U.S. government as part of the Troubled Asset Relief Program may be marginally less cynical than the apercu flung out recently by his boss, Lloyd Blankfein, that investment bankers should be paid less and shouldn’t be rewarded for failure.
But not much less.
And my, do Blankfein’s comments seem cynical in light of the bank’s first quarter results. After all, Goldman accrued 50 percent of its quarterly revenues (yes, that’s revenues) against payments it plans to make to its employees. That is broadly the same proportion that it paid out to them throughout the boom. No question, then, that Goldman’s bankers should do without to pay back the TARP money. With breathtaking cheek, Goldman has also used taxpayers’ cash to bail out Jon Winkelried, one of its wealthiest and most senior executives, after he lost too much money in its own hedge funds. And as for clawing back past rewards that turned out to be excessive — well what about that $70 million you got in 2007, Blankfein?
But no senior Goldmanite ever says anything without a purpose. And so it is with Viniar. Goldman may have been through the wars like its rival investment banks — but it has survived. Because of its controversial hedging strategies (especially the enormous payments received from the taxpayer via AIG) it has thus far weathered the crisis better than rivals. Indeed it has been able to exploit a profitable niche borrowing money cheaply from the Fed and punting it on its own account. In the latest weekly data, for instance, the volume of Goldman’s principal equity program trades was 4.2 times the business it did for customers, according to the NYSE.. So much for serving the client. Meanwhile, along with its fellow survivors it has enjoyed the reduction in competition the slump has brought. It would like to make this reduction permanent.
“Mighty” Goldman is actually quite vulnerable to the changes that have taken place in the banking world. A large chunk of its shares are still held by employees, whose loyalty to the firm is unlikely to extend to bailing it out — even were they financially able to support a firm with $850 billion of liabilities. This is not a sound basis upon which to build a diversified financial services firm.