Goldman Sachs just announced a compensation pool- which translates into year-end bonuses and executive pay – of $16.2 billion for 2009. That’s up 47% from the previous year. The news come amid a backlash of criticism from investors and lawmakers alike who say Goldman and other Wall Street players continue to reap the benefits of a financial crisis that they, in large part, created through excessive risk taking and the marketing and selling of complex, highly leveraged financial instruments. In the meantime, Main Street is left to do the clean up work – paying for their errors in judgment via federal bailouts.
Goldman Sachs in particular has taken public heat lately, following news reports on the way the investment bank allegedly packaged and sold risky securities to investors as sound investments and then made bets that those same securities would fail. Goldman wasn’t the only investment firm using this “shorting” strategy, but it certainly made some huge profits as a result of it.
The products in question are known as synthetic collateralized debt obligations, and they ultimately produced billions of dollars in losses for individual and institutional investors. Among those investors: pension funds and insurance companies across the country.
Goldman’s shorting tactics are now the subject of an investigation by Congress and its newly established Financial Crisis Inquiry Commission. So far, some of the most interesting insight has come from Phil Angelides, chairman of the Commission. When folks like Goldman Sachs Chairman and CEO Lloyd Blankfein and JPMorgan’s Jamie Dimon gave their explanation for the near-collapse of the nation’s financial markets, they described what amounted to a “perfect storm.” Angelides, however, cut to the chase, saying:
“Was it a perfect storm or a man-made storm?”
The White House is calling for tougher regulations and oversight of the nation’s banking industry – an idea that is long past due. An independent consumer financial protection agency is part of the proposed overhaul plan. Even more important, speculation and other risk taking on the part of commercial banks and financial institutions – something that previously put the nation’s entire economy in peril – would be drastically limited.