Goldman Sachs, Fools or Knaves?

"Many Americans believe that any bonuses for top executives paid by rescued banks would constitute 'excess compensation,' a phrase used by Barack Obama. ... But the Wall Street bonus system has some serious flaws. The most important is the amount of moral hazard that the system creates. Great rewards to executives are paid for successful risk-taking, but the penalties for unsucessful risk-taking end up being borne by taxpayers. One remedy for this is to charge traders a cost for the capital they use based on the risk that they intend to put it into. Many firms just charge the firm's own cost of the capital, and therefore overstate the profits they record on the riskiest trades. This also ovestates the bonuses that should be paid on them. ... Public anger is hard to deny, but we shouldn't let it weaken an important industry', Roy Smith (RS) at the WSJ, 7 February 2009.

"Why did the union [Ken] Lewis lauded as the 'deal of a lifetime' spin so quickly into disaster? ... A 24-year veteran of Goldman Sachs, [John] Thain was viewed as a Wall Street wizard. ... Peter Kraus, whom Thain lured from Goldman to head strategic planning, got a guarantee of around $25 million, which he received even though he left the company after three months. ... But despite his earlier words, he did little to rein in Merrill's proprietary trading operation, which took supposedly low-risk positions in currencies, commodities, and especially bonds, and had been a reliable profit center for years. That decision would come back to haunt him. ... Merrill also bought protection from the so-called monoline insurers, such as MBIA and Ambac. But when those insurers were downgraded by the rating agencies, the protection Merrill had paid for was less valuable, and Merrill had to add to its reserves to make up the difference", my emphasis, Shawn Tully at Fortune, 16 February 2009.

RS, MBA Harvard, 1966, "former" Goldman Sachs (GSG) partner, now a finance professor at New York's Stern School. Is RS an idiot or a criminal? RS admits what I've said for decades: major commerical and investment bank cost accounting stinks, causing excessive trader compensation. Imagine, firms hire GSG and its competitors for "financial advice". Why? What do these guys know? Alternatively, RS and his fellow partners knew all along what they were doing and should be indicted for fraud, i.e., defrauding their outside shareholders. This is a disgace. Further, a "former" GSG partner was a our last TreasSec. Treasury is infested with these parasites, on 14 October 2007 I called for a 25-year moratorium on GSG personnel working for Uncle Sam, http://skepticaltexascpa.blogspot.com/2007/10/party-like-its-1929.html. That may not be long enough to purge our system of these parasites. What risk-taking is RS talking about? GSG executives are not capitalists, they are grossly overpaid hired help. Did RS scream about this at GSG? Did he tell GSG's shareholders? Why listen to RS now? Who is he protecting? Where were the compensation consultants like say Hewitt Associates and Pearl/Meyer while this went on? Who needs those guys either? See my 23 and 30 November 2008 posts: http://skepticaltexascpa.blogspot.com/2008/11/bank-accounting.html and http://skepticaltexascpa.blogspot.com/2008/11/more-good-news.html.

Get this, it's "public anger" that weakened Wall Street. This clown's arrogance is amazing.

Another Wall Street idiot. A GSG "wizard" would be a fool in any other industry. Thain thought monoline insurance had value, fool. He thought Merrill's trading business was "a reliable profit center". Under what kind of accounting regime? Wall Street must be the most poorly managed business on earth, except for its senior employees.