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America Must Rescue the Bonuses at Goldman Sachs: Michael Lewis
From: David Farber <dave () farber net>
Date: Wed, 24 Sep 2008 11:53:20 -0400

There are bonuses and then there are bonuses. Wall St and its affiliated companies pay modest salaries and large bonuses for all. BUT some of the people were responsible for the mess (the top especially) and should get small sums if at all. Pay them in options that vest in 5 years . djf

America Must Rescue the Bonuses at Goldman Sachs: Michael Lewis
2008-09-24 13:23:15.460 GMT

Commentary by Michael Lewis
    Sept. 24 (Bloomberg) -- Anyone who caught even a sliver of
yesterday's hearings in the U.S. Senate on the proposed Treasury
bailout of the mortgage-backed securities market knows that the
current financial crisis is far from over. Suddenly all sorts of
previously unthinkable catastrophes seem possible.
    The total collapse of the global financial system is one
thing -- everyone at Davos in January saw that coming. But the
shrinkage of the Goldman Sachs Group Inc. bonus pool is another.
Whatever else the Treasury achieves it must know that if the
employees of Goldman suffer any sort of pay cut, it will be
judged to have failed. And our country may never recover.
    Last year Goldman paid its employees $20 billion, 44 percent
of the firm's revenue. Chief Executive Officer Lloyd Blankfein
took home $68.5 million, and many otherwise ordinary human beings
took home $10 million or more.
    This inspired young people everywhere, many of whom may have
privately wondered whether it was still worth their time to
become investment bankers. Torn between a future in, say, the law
and the manufacture of mezzanine CDOs they sucked up their
courage and plunged onto Wall Street. And thank God for that: We
needed the best and the brightest to get us into this mess, and
we'll need the best and the brightest to get us out of it.
    Therein lies the problem: If they see Goldman's salaries and
bonuses declining, who among the best and the brightest will be
induced to join Goldman?

                      Goldman's Pain

    To its credit the government has thus far done pretty much
all it can to prevent any suffering inside the firm. Its extreme
sensitivity to Goldman's pain is the only way to explain its
actions thus far. But its approach has been crude; it has been
using a sledgehammer to do a scalpel's job. For instance, by
banning the short-selling of shares in the amazing number of Wall
Street-related companies that America apparently can't live
without (Moody's Corp.?), it may have prevented Goldman from
being driven out of business. Certainly, the ban caused Goldman's
share price to fall less than it otherwise would have.
    But this wise policy ignores the fact that Goldman Sachs,
perhaps more than any other financial firm, makes a lot of money
from the short-selling of Wall Street-related stocks -- by
enabling its hedge-fund clients to do it.

                       Bold Strokes

    Goldman needs any revenue it can get its hands on right now.
A wiser policy would have been to disallow the short-selling of
Goldman's shares alone, and let the other 925 financial-related
companies collapse. Goldman was already well-positioned to devour
little pieces of Lehman Brothers Holdings Inc. and American
International Group Inc. If other firms were allowed to suffer a
bit more, Goldman would consume their juiciest bits too, and
become stronger for it. (Come to think of it, Goldman should just
get it over with and buy Moody's so it can rate its own
securities.) Perhaps its share price might cease to fall.
    This points to what amounts to a character flaw inside the
Securities and Exchange Commission: fear of the bold stroke.
Clearly it wasn't enough to ban the short sale of Goldman's
shares, as those shares resumed their downhill journey. What's
needed is a broader ban on pessimism of any sort. Worrisome
newspaper articles, whispered conversations, mildly skeptical
thoughts, anything that might adversely affect Goldman's share
price: all these, too, must be outlawed.

                     Paulson's Payday

    Lately, for instance, I have heard several hedge-fund
managers gossiping about Treasury Secretary Hank Paulson. One of
the things they say is that, in leaving Goldman for government
service, Paulson made the greatest trade of his life. Not only
was he required to sell his half-billion dollars in Goldman stock
near the high, but also, as Treasury Secretary, he was exempt
from capital-gains taxes. By getting out of Goldman while the
getting was good, the guy may have doubled his net worth.
    These hedge-fund managers are the very same people who just
a few days ago were shorting Goldman's shares and now have
nothing better to do with their time than gossip about an
esteemed Goldman alumnus. Shame on them. Their idle chit-chat is
just the sort of negativity our government needs to ban.
    But I don't want to dwell on the government's failure. As I
say, so far they've done a pretty good job making sure no one at
Goldman Sachs suffers so much as a scratch on his person. I want
to look to the future.

                        Poker Game

    The Treasury has proposed using $700 billion of taxpayers'
money to buy the shaky investments created by the likes of
Goldman Sachs and sold to customers. This is good, for many
obvious reasons, and one less obvious one, too. Obviously, it has
slowed the market's desire to put Goldman out of business. It
also offers Goldman a place to stuff its bad investments at
prices well above market levels.
    But the Treasury plan also creates this wonderful hidden
opportunity for Goldman Sachs to make a killing, and thus
preserve its bonus pool for a long time to come.
    Think of Wall Street as a poker game and Goldman as the
smartest player. It's sad when you think about it this way that
so much of the dumb money on Wall Street has been forced out of
the game. There's no one left to play with. Just as Goldman was
about to rake in its winnings and head home, the U.S. government
stumbles in, fat and happy and looking for some action. I imagine
the best and the brightest inside Goldman are right this moment
trying to figure out how it uses the Treasury not only to sell
their own crappy assets dear but also to buy other people's
crappy assets cheap.
    At any rate, it won't take long for Goldman Sachs to figure
out how to make that $700 billion work for Goldman Sachs. This
you can trust them to do. After all, Warren Buffett just did.

    (Michael Lewis is a Bloomberg News columnist and the author
of ``The Blind Side,'' ``Moneyball'' and ``Liar's Poker.'' The
views he expresses are his own.

    Click on {LETT <GO>} to send a letter to the editor.

For Related News: NI LEWIS <GO>

--Editors: Robert Friedman, James Greiff

To contact the writer of this column:
Michael Lewis at mlewis1 () bloomberg net

To contact the editor responsible for this column:
James Greiff at +1-212-617-5801 or jgreiff () bloomberg net

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