After record profit, Goldman Sachs CEO tells staff: Beware lavish spending, please
UPDATE Wednesday afternoon: Goldman Sachs says the government is investigating its pay practices and credit-derivatives trading. It made $100 million in trading revenue on 46 days in the second quarter. Read more here.
Wake up and good morning. This story puts a new twist on the old saying, "You can fool some of the people some of the time...." Because, if you're Wall Street wonder Goldman Sachs, you can now apparently snooker all of the people all of the time.
A terrific New York Post report this week says a politically sensitive Goldman Sachs CEO Lloyd Blankfein (in blue tie in AP photo) warned his employess to avoid making big-ticket, high-profile purchases "as the gold-plated Wall Street firm hunkers down amid a firestorm of public and political anger" over outsize bonus payments. Says the Post story:
"A source within the bank said Blankfein first began calling for an end to the conspicuous consumption late last year, but has stepped up his campaign in recent weeks as the White House has sought to rein in compensation."
Ordering Goldman Sachs employees to tone down conspicuous consumption is the equivalent of telling them to buy His & Her Bentleys rather than Rolls Royces, vacation at 5-star resorts rather than private chateaus or have Jeeves the Butler give up his personal trainer. There's a very good reason Tom Wolfe, author of the blistering Wall Street satire The Bonfire of the Vanities, created the term Masters of the Universein describing overindulged Wall Streeters gorging on their gargantuan bonuses.
This is precious. As the Tampa Bay area unemployment ranks swell over 11 percent, as retirement accounts tank by 20-plus percent and home values wither to 2003 prices, and soon after Goldman Sachs took a multibillion-dollar handout from taxpayers, CEO Blankfein whispers: Spend, but discreetly.
Goldman accepted $10 billion in rescue funds from the U.S. Treasury to help it stay afloat last year amid a crisis of confidence on Wall Street but quickly repaid the money thanks to record revenues. Now Goldman, betting big on the market, has posted the biggest profit in its history during the second quarter as revenue from trading and equity underwriting reached all-time highs.
Again, from the Post story:
"This is a sensitive time for us, and [Blankfein] wants to make sure that we're not being seen living high on the hog," said one Goldman exec. Indeed, the exec said that senior managers were ordered to tell their staffs that just because Goldman made a record second-quarter profit... they shouldn't bank on getting a fat bonus just yet. Blankfein was quoted as reminding staff that bonuses are based on full-year results, and that the year is far from over."
Is Goldman simply better than the rest, just awash in smarter Masters of the Universe? Or did it bet and happen to win at riskier investments -- not exactly the strategy the United States is looking for -- after the mortgage securities debacle? Or did Goldman benefit because Bush Treasury Secretary Henry Paulson (left, in AP photo) happened to be a former CEO of Goldman Sachs? Or, perhaps, is Goldman hitting home runs because most of the other Wall Street competitors are out of business, licking their wounds or effectively neutered under new owners? Let's see how the rest of this year plays out.
-- Robert Trigaux, Times Business Columnist