Are we seeing once again the same game being played that WaMu played in the spring of 2007 - and which started me writing Tickers?
In his lawsuit (PDF), Brown states that Goldman Sachs gave out $4.82 billion in bonuses in 2008, despite earnings of only $2.32 billion that year. The lawsuit alleges that the company spent 259 percent of its income in the first quarter of 2009 on compensation.
Uh, that's kinda interesting. It is somewhat like WaMu, no?
If you remember back in 2007 I wrote one of my seminal Tickers - one of the first - that spoke to Washington Mutual paying out funds they didn't really have in cash in dividends. That is, they were booking "capitalized interest" (negative amortization on Option ARM loans) as "earnings" and then paying part of that - plus all of their cash earnings - out to shareholders in the form of a dividend.
The problem with such a game is that non-cash "earnings" aren't money and while they look good on the balance sheet if they don't materialize later on you're sunk! My call at the time was that they wouldn't materialize and WaMu would indeed be sunk, and it was.
This is a bit different, in that nobody is (yet) claiming that Goldman doesn't have the money. What's being alleged here is that they have effectively pilfered the public Treasury and then paid that out as bonuses, rather than doing with it as Treasury intended and their shareholders were entitled to, which is to use the capital to rebuild the firm's foundation and strengthen it against future potential losses.
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