NYT’s Sorkin Is Confused on Goldman Bonuses

Clueless paragraph of the day:

But we can’t have it both ways, either. At one moment, many in the nation crossed their fingers hoping Goldman and the rest of Wall Street would be saved to halt the country’s downward spiral. But when the banks finally get up on their feet, we want them to fall flat again. Mr. Blankfein can’t win.

That’s Andrew Ross Sorkin in his New York Times column, writing about the $23 billion in bonuses Goldman Sachs is on track to pay out end of year. The latter half of the argument is made out of straw, which Felix Salmon takes care of over at Reuters:

It’s true that we didn’t want Goldman Sachs to fail. But that’s got nothing to do with some kind of national wish for Lloyd Blankfein’s continued success, and everything to do with the fact that Goldman Sachs is too big to fail. Had the natural order of capitalism been allowed to work its course, then AIG and Morgan Stanley and Goldman Sachs and Citigroup and Bank of America and the rest of the financial system would have essentially imploded. Needless to say, that would not have been good for the economy as a whole. But just because we need these banks to exist does not mean that we want these banks to make enormous profits.

(Here’s where I say that Goldman is one of the funders of The Audit and that Yvette Kantrow of the Deal thinks we’re in the tank for them).

You know the column is going off the rails when you see rhetorical questions like these, ones that are very easy to answer, but aren’t and are instead weaseled around:

So should we be upset about the bonuses? Is this a problem?

Yes, this is a real problem. And not just for Goldman, either. A mere blink after contributing mightily to the financial crisis by buying predatory loans and selling defective securities, just like its Wall Street brethren, a year after getting saved from probable bankruptcy by the taxpayers, along with the rest of the financial system, Goldman is going to pay out a record bonus pool (and with fewer employees!), and it’s still too big to fail.

This is another kind of problem:

Excluding the eye-popping bonus numbers, no Goldman Sachs executive made more than $225,000 in cash last year.

Why in the name of Marcus Goldman would you exclude those eye-popping bonus numbers? Because they’re comprised of stock, something Sorkin uses to partially excuse the huge bonuses.

So even though many of Goldman’s executives may make tens of millions of dollars, it is only on paper so far.

This ignores an obvious point: Those tens of millions of dollars on paper are as likely to go up as they are to go down. I mean, would you want to bet against Goldman stock? I didn’t think so.

Another excuse:

And Goldman may impose a clawback provision that would require employees to give up some of their compensation if trades go the wrong way, similar to ones that Morgan Stanley and several others have already proposed. That’s the good news.

It “may” put into effect something that would never be used. I mean, think about it. Even if shareholders revolted over some future debacle, Goldman and Morgan Stanley and other clawbackers will just say they have to retain their talent.

The only thing conceded here that might be black-and-white bad is the PR:

The bad news is the absolute number. It is far greater than any other bonus figure on Wall Street. Goldman says that its compensation program is based on pay for performance, and it is hard to argue that it has not performed well.

But, wait. Maybe it is a problem after all:

“It’s hard to explain this as a defensive effort to keep their employees from being raided,” said Lucian Bebchuk, a professor of law, economics and finance at Harvard Law School. “The outside opportunities for their people are less attractive in 2009 and 2010 than they were in 2007.”

Indeed, it is possible that Goldman’s bonus largess is creating a vicious circle: other, perhaps lesser firms, are probably going to pay even higher bonuses to try to compete with Goldman.

And therein lies the rub: While Goldman may have the Midas touch, the rest of Wall Street never seems to be able to keep up. And the only way for rival firms to compete with Goldman is take to outsize risk.

And, well, we’re familiar with how that story goes.

So now Goldman’s gilded paychecks are bad? So, what do we about it?

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.