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Will Goldman Sachs Be Bulls, Bears, or Pigs?

Posted by Larry Doyle on August 21, 2009 4:46 PM |

There is no doubt that Goldman Sachs is currently the preeminent shop on Wall Street. JP Morgan is a respectable second. I am not sure if there is a close third.

Despite Goldman’s resurgence, they have a major problem — that being their public image. What are some of Goldman’s issues? They include:

1. the firm’s close ties with Washington insiders . . .

2.their agggressive trading and risk profile . . .

3. the proprietary nature of their business . . .

4. the mere fact that they have made so much money (with the assistance and in the presence of Uncle Sam), while the economy continues to suffer . . .

Charlie Gasparino of CNBC addresses a number of these points as well as the fact that Goldman will likely face the public’s wrath when they pay out billions in bonuses come year end. The Goldman execs exacerbate the situation by playing the ethnic angle as Gasparino writes, Goldman Execs Blame Anti-Semitism. In my opinion, Goldman makes a huge mistake playing that card.

The fact is the public sees Goldman specifically and Wall Street in general benefitting from taxpayer dollars injected into the system along with a host of Fed and Treasury programs. While Goldman has paid back its TARP funds, they have still benefitted from financing backed by the FDIC. Moreso than direct benefits to the firm, Goldman has clearly benefitted indirectly from the gamut of Uncle Sam’s largesse.

Uncle Sam clearly has a large amount of ‘skin in the game.’ Goldman can address its image and burgeoning reputation problem by increasing its own ‘skin in the game.’ How can they achieve this? They should compensate employees in stock to a much greater extent and have that stock vest over a longer time period.

Typically, senior executives, traders, and bankers are paid approximately 35% in stock and the stock would vest over a three year time frame. As such, individuals would typically have one year’s worth of compensation tied up in the firm.

Let’s see Goldman pay people 65-70% in stock and have it vest over a 5 to 6 year time frame. If Goldman is concerned about losing people, that pay structure would serve as a real disincentive for other firms to hire Goldman people. Make no mistake, Goldman employees would NOT be happy to be paid in this format . . . BUT there would be plenty of people on Wall Street who would take that pay structure right now to work at Goldman Sachs.

Goldman has the opportunity through this bonus cycle to display whether they are bulls, bears, or pigs.


  • Randy Bowman

    There continue to be some interesting comments on Goldman but I don’t quite get all the fuss. Why would we need to wait on the bonus announcements to determine Goldman’s animal characteristics?

    Isn’t it already self-evident to anyone who looks beyond the facade of the sound-bites from Goldman’s highly paid PR people that their behaviors categorize them clearly as pigs of the first order? If not, what on Earth would they still need to do to finally call dibs on that title?

    Would they need to get caught at manipulating the markets through high frequency trading software and co-located servers at the exchange that allow them to front-run the rest of the players in the market? Hmmm?

    Would they perhaps have to go so far as to either heavily short a competitor or assist well-heeled clients of theirs to do the same (perhaps even on a naked position basis) and thus help to assure the systematic elimination of the competition in their marketplace? Would that be enough?

    What about if they were sneaky enough to place alums in key high level government slots through-out time just in case they needed to assure themselves of favorable treatment above and beyond that accorded to their peers or whatever? Ahh, but surely they haven’t really engaged in such surreptitious behavior, have they?

    Perhaps you really can’t classify their behaviors as piggish after all. I mean nobody in our government seems willing or capable of doing anything meaningful about it.

    After all, what’s a little political anguish caused by an occasional hue and cry from the citizenry? If you are a Congressman, is it really all that big of a deal, especially when compared to having all that money, support and power to roll around in and get comfy?

    Here’s the bottom line as I see it: When we are content to elect a small group of unsupervised people as our legal representatives to consider the most important issues of the day and make decisions without consulting us or else without seriously paying attention to our needs and wants and we fail to put in place a simple and near immediate process to remove them from the golden trough at which they are feeding.. then we deserve what we get and that includes pigs of every size and type who show up to partake of the free vittles, namely the personal wealth of us, the citizenry.

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