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Fraud*
According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia

Monday, August 3, 2009

Goldman Sachs and other banks pay out more in bonuses then they earn

In this recent article, Some U.S. bank pay "unmoored" from performance: Cuomo
By Grant McCool of Reuters, Jul 30, 2009 7:22pm
the reporter makes the comment,
..."bonuses for Goldman Sachs Group Inc, Morgan Stanley and JPMorgan Chase & Co were "substantially greater" than the banks' net income."

Goldman earned $2.3 billion, paid out $4.8 billion in bonuses and received $10 billion in TARP funding,...

The article begins:

NEW YORK (Reuters) - Bonuses paid to executives at nine banks that received U.S. government bailout money in 2008 were greater than net income at some of the banks, the office of New York Attorney General Andrew Cuomo said on Thursday.

Cuomo, in a report on months of investigation into compensation paid by the banks, said employee pay "has become unmoored from the banks' financial performance."

Read Complete Article...click here

How is it any company can pay out more in bonuses then they earn? One way is to use taxpayer money. New York's AG, Cuomo is on the right path in this investigation but the outcome of his efforts are yet to be seen or heard.

But Goldman Sachs is not alone in this. Yet it is very possible from reading Michael Lewis' book "Liars Poker" that they may have invented the concept of overpaying people and then found ways to justify it which in turn they possibly shared with the others in their "club".

Is it a coincidence that Paulson was appointed as Secretary of the Treasury? And is it a coincidense that under his watch the system collapsed yet they are unscathed?

Here are some statistics from his report:

(Bold emphasis mine not reporters)
...at least 4,793 bankers and traders received more than $1 million in bonus payments, according to the report.

...nine banks received a total of $125 billion last October in taxpayer money under the Troubled Asset Relief Program (TARP) to help them survive the financial crisis, Cuomo has pressed them for details on billions of dollars paid to executives amid huge losses.

Morgan Stanley earned $1.7 billion, paid $4.475 billion in bonuses and received $10 billion in TARP funding, while JP Morgan Chase earned $5.6 billion, paid $8.69 billion in bonuses and received $25 billion in TARP funding.

The latter bank paid out 1,626 bonuses of $1 million or more, the most of all the banks studied in the report, while Goldman, which had the highest average compensation per employee, paid out 953 bonuses of $1 million or more.
While Cuomo is a proponent of nationalizing compensation and bonuses, I am not. To set this standard would, in my estimation, destroy the very fiber of a capitalist system and destroy our economic system forever.

We do not need more Federal regulation or interference - especially from the Executive or Legislative branches - we do need more involvement from our Judicial branch and our law enforcement.

What we have here is "white collar" crime the proportion of which has never been seen in the history of the world. Multi billion dollar scams by people in expensive designer clothing, sitting in multi million dollar offices enjoying a world class lifestyle even many monarch's and heads of state don't enjoy.

"Thus, when the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well.

"Bonuses and overall compensation did not vary significantly as profits diminished."
What is really interesting here is that the retail and envestment banking industries are suppoesed to be very heavily regulated and monitored but have not been. The question still remains, how did Madoff get away with his venture for so many years without ever being noticed or investigated by the regulatory agencies? Could it be that there is a conspiracy amongst all of them?

If you throw enough money out there for people to put their hands on they tend to look the other way. No, I am not saying there were bribes (but ...). What I am saying is that given a lot of inside information, many people could have and probablly did increase their investment portfolio's and as such would certainlly not want to change things.

Of course, as always, this is just my opinion. It is however still difficult to understand how losing companies can thrive, multiply and survive.

While Citigroup Inc and Merrill Lynch, bought by Bank of America Corp, lost more than $27 billion each, Citigroup paid $5.33 billion in bonuses and Merrill paid $3.6 billion, the report said. The two banks received a combined $55 billion of TARP money.

A spokesman for Bank of America said bonuses were paid to 200,000 bank employees and 30,000 Merrill legacy employees.

How does this work and why does it not work for any other business in this country. 230,000 employees receiving bonuses from BROKE companies and even more confusing is how "broke" companies buy other "broke" companies creating an even large "broke" entity that pays out even more in bonuses.

Wait a minute, I and many of my friends have "broke" companies. How do we buy some other "broke" companies and pay ourselves billions of dollar?.

This, if it can be done, certainly seems like a solution to much of our economic problems.

Mr. Cuomo, nationalization is not the answer, sir. Law enforcement is. We certainly have all the laws we need in place - and even then some - that would have avoided and will avoid much of what has happened and is continuing to happen. But I do congratulate you for your efforts in exposing "the truth". You, sir, have the legal power to do something about this injustice. Many of us are just as outraged and would stand behind you.

What this new breed of highly honored "banksters" have done is to destroy the American economy and the American way of life for ever. They have betrayed not only their own countrymen but people and nations around the globe. I believe there is a word for this type of action.

4 COMMENTS:

Anonymous said...

I don't know why the focus should be solely on the financial industry. Regardless of industries, almost no CEO is worth even $20-30million per year in salary and bonus, let alone $200-300million some have managed to collect.

When a company succeeds thanks in part of the CEO's long term visions and executions (and not cost cutting measure), the bonus should be shared by a larger number of people, and more should trickle down.

Over the years, we have been brainwashed into believing that executives deserve their outrageous payouts, and that such princely sums are needed to "attract talents". And they've done a mighty good job, because now we have even poor people and republican populations agreeing with this, and effectively speaking out against their own interests! Unfortunately, this fear mongering is nothing more than a racketeering.

Beautiful Lady in Red said...

You are correct, in my opinion, and wrong: we are witnessing the most massive fraud.... in history...?

We do need new legislation. We need to prohibit commissions and bonuses. The banking industry needs to be compensated like teachers and priests. Instead of a sacred trust, we will always be scammed -- in new ways -- by the people who populate the industry today. We attract the wrong mentality: the greedy, looking for an edge to make more money for themselves. They are completely unconcerned about client funds, the good of society, creating value, etc. etc.

We can never put enough bandaids on the problem to circumvent the ingenuity of the devious minds we are dealing with today.

There are plenty of smart talented *good* people who might nurture this industry, sans the greed mentality.

Jane Jacobs' little known book, "Systems for Survival" discusses the mentalities we need for different professions.

We need to re-impose Glass-Stegall and rescind G-L-B. We need to audit the fed. We need to sweep Congress clean, top to bottom.

The corruption is deep and the changes needed are fundamental: no commissions, no bonuses. Straight salary. How many little old ladies have been scammed out of savings by fast talking brokers -- "invest for the long haul" wink, wink -- only to boost his own paycheck with no interest, understand or *sense of responsibility* that, one day, she would need the money upon which to live?

99 per cent of them...? smile. Higher?

Beautiful Lady in Red said...

You are correct, in my opinion, and wrong: we are witnessing the most massive fraud.... in history...?

We do need new legislation. We need to prohibit commissions and bonuses. The banking industry needs to be compensated like teachers and priests. Instead of a sacred trust, we will always be scammed -- in new ways -- by the people who populate the industry today. We attract the wrong mentality: the greedy, looking for an edge to make more money for themselves. They are completely unconcerned about client funds, the good of society, creating value, etc. etc.

We can never put enough bandaids on the problem to circumvent the ingenuity of the devious minds we are dealing with today.

There are plenty of smart talented *good* people who might nurture this industry, sans the greed mentality.

Jane Jacobs' little known book, "Systems for Survival" discusses the mentalities we need for different professions.

We need to re-impose Glass-Stegall and rescind G-L-B. We need to audit the fed. We need to sweep Congress clean, top to bottom.

The corruption is deep and the changes needed are fundamental: no commissions, no bonuses. Straight salary. How many little old ladies have been scammed out of savings by fast talking brokers -- "invest for the long haul" wink, wink -- only to boost his own paycheck with no interest, understand or *sense of responsibility* that, one day, she would need the money upon which to live?

99 per cent of them...? smile. Higher?

Anonymous said...

Earnings: A company's profits after paying all expenses, but before paying dividends.

Earnings are calculated after employee compensation. That is how they pay out more in compensation than they report in earnings.

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