It’s Time to Leave Goldman Sachs Alone
On Thursday, after a showering of criticism of its huge executive pay packages from the media, the investment banking firm Goldman Sachs Group Inc. announced that it would not pay year-end cash bonuses to its 30 top executives. The bonuses will be dole out in the form of Goldman Sachs stock, and the executives will be prevented from selling the shares for five years.
The company also said it would give shareholders a formal voice regarding executive pay.
Critics say the move to discourage its employees from taking excessive financial risks. This would reduce the personal financial incentive to take the risks critics say lead to last year’s mortgage meltdown and the global financial crisis.
But wait. Are we saying the federal government has the right to dictate to investors and financial institution how risky they can play the market?
One thing everything must remember. Goldman Sachs has paid off its debt to the federal government.
In June, the firm paid back the $10 billion in Troubled Asset Relief Program (TARP) funds. Goldman paid $318 million of dividends to the federal government on the bailout money. It said this represents a 23 percent annualized return on the initial $10 billion investment, which took the form of preferred shares. In July, Goldman Sachs paid the Treasury Department $1.1 billion to redeem warrants acquired by the federal government in 2008.
In the summer, the Treasury Department was pleased with the transaction. A Treasury official told Steve Eder of Reuters that Goldman’s involvement in TARP was a deal for taxpayers.
“In just nine months, the taxpayers have been repaid the full $10 billion that the government originally invested, along with $318 million in dividends,” the official said. “And Goldman is repurchasing the warrants for $1.1 billion.”
But as last Thursday, it’s all bad once again. Dan Pedrotty, the AFL-CIO’s director of investments and a critic of corporate pay practices, told Walter Hamilton and Martin Zimmerman of The Los Angeles Times that Goldman Sachs’ latest move “is as much a PR move as it is a move to change their pay structure. You still have this bottom-line issue that a firm that was just recently bailed out by the American taxpayer is paying out enormous sums of money.”
But isn’t that what they are in business to do? To make money? That’s why we bailed them out, so that they could survive and make money. We certainly didn’t want to invest $10 billion to see them crash and burn. Had Goldman Sachs lost money this year, then the argument would be about why we had invested so much in a losing proposition.
Leave Goldman Sachs alone. They have paid back the government with interest. Let them do what they are built to do, and keep the government out of its board room.