Fallout: The Financial Crisis

Goldman’s good year good for bonuses?

Amy Scott Jun 22, 2009
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Fallout: The Financial Crisis

Goldman’s good year good for bonuses?

Amy Scott Jun 22, 2009
HTML EMBED:
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TEXT OF STORY

Kai Ryssdal: The weather’s going to be a lot colder before Wall Street gets around to handing out its bonuses for calendar year 2009. There are reports today though the checks are going to be plenty big. Despite the recession and all the turmoil on Wall Street, a report in Britain’s Guardian newspaper says Goldman Sachs is looking at a record profit for the year. Record bonuses logically follow from that. And other investment banks that somehow survived the meltdown are raking it in too. Our New York bureau chief Amy Scott explains how that can possibly be.


AMY SCOTT: So let’s get this straight. Investment banks got us into this mess by taking excessive risks on sub-prime loans. And now they’re rolling in profits?

Analyst David Williams with Fox-Pitt Kelton says trading desks thrive in volatile markets. And when corporations and governments have to raise trillions of dollars, investment banks take a cut.

DAVID WILLIAMS: While the real economy is obviously suffering, there is an awful lot of activity taking place in the financial marketplace.

With several investment banks either merged or out of business, there’s also less competition these days. One bank taking a larger slice of the pie is Goldman Sachs. Goldman declined to comment today on that talk of record bonuses at the firm this year.

Greg Larkin with Risk Metrics Group says Goldman was less involved in sub-prime than other banks. And the firm wants to hold on to top performers.

GREG LARKIN: There are people that are good traders out there. There are talented bankers, there are talented financial analysts. And I think Goldman has the responsibility to be a place where those kinds of people want to work.

Now that the banks are making piles of money again, some corporate governance advocates worry they’ll forget about reforming the way bankers are paid. Bonuses are typically based on a single year’s profits.

Paul Hodgson tracks executive compensation at the Corporate Library. He says bonuses should reward long-term performance.

PAUL HODGSON: If firms had been thinking about long-term value growth rather than registering yet another year of record earnings, then undoubtedly I think the risks that were taken would not have been taken.

And Hodgson says Bear Stearns and Lehman Brothers would still be here today.

In New York, I’m Amy Scott for Marketplace.

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