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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

Saturday, November 20, 2010

Goldman Sachs: Large Contributor to Inequality

Here we go again: it's payday for the 2010 season and Goldman Sachs is sucking in ever more wealth for the socially useless work of moving money around the globe and making huge windfalls in the process.

The Telegraph in the UK describes Goldman Sachs's work and pay here.

The following article is an interesting and relevant one that describes the inequalities of wealth and income distribution and the power created by organizations such as Goldman Sachs. It comes complete with charts and graphs that show the trends in wealth in the US.

The following excerpts are from William Domhoff's blog:

Wealth, Income, and Power

by G. William Domhoff - Who Rules America?

September 2005 (updated November 2010)

. . . .It's even more revealing to compare the actual rates of increase of the salaries of CEOs and ordinary workers; from 1990 to 2005, CEOs' pay increased almost 300% (adjusted for inflation), while production workers gained a scant 4.3%. The purchasing power of the federal minimum wage actually declined by 9.3%, when inflation is taken into account. . . .

If you wonder how such a large gap could develop, the proximate, or most immediate, factor involves the way in which CEOs now are able to rig things so that the board of directors, which they help select -- and which includes some fellow CEOs on whose boards they sit -- gives them the pay they want. The trick is in hiring outside experts, called "compensation consultants," who give the process a thin veneer of economic respectability.

The process has been explained in detail by a retired CEO of DuPont, Edgar S. Woolard, Jr., who is now chair of the New York Stock Exchange's executive compensation committee. His experience suggests that he knows whereof he speaks, and he speaks because he's concerned that corporate leaders are losing respect in the public mind. He says that the business page chatter about CEO salaries being set by the competition for their services in the executive labor market is "bull." As to the claim that CEOs deserve ever higher salaries because they "create wealth," he describes that rationale as a "joke," says the New York Times (Morgenson, 2005, Section 3, p. 1).

Here's how it works, according to Woolard:

The compensation committee [of the board of directors] talks to an outside consultant who has surveys you could drive a truck through and pay anything you want to pay, to be perfectly honest. The outside consultant talks to the human resources vice president, who talks to the CEO. The CEO says what he'd like to receive. It gets to the human resources person who tells the outside consultant. And it pretty well works out that the CEO gets what he's implied he thinks he deserves, so he will be respected by his peers. (Morgenson, 2005.)

The board of directors buys into what the CEO asks for because the outside consultant is an "expert" on such matters. Furthermore, handing out only modest salary increases might give the wrong impression about how highly the board values the CEO. And if someone on the board should object, there are the three or four CEOs from other companies who will make sure it happens. It is a process with a built-in escalator.

As for why the consultants go along with this scam, they know which side their bread is buttered on. They realize the CEO has a big say-so on whether or not they are hired again. So they suggest a package of salaries, stock options and other goodies that they think will please the CEO, and they, too, get rich in the process. And certainly the top executives just below the CEO don't mind hearing about the boss's raise. They know it will mean pay increases for them, too. (For an excellent detailed article on the main consulting firm that helps CEOs and other corporate executives raise their pay, check out the New York Times article entitled "America's Corporate Pay Pal", which supports everything Woolard of DuPont claims and adds new information.). . . .

You can read the article in its entirety here

The Board of Directors for Goldman Sachs can be found here. Are you surprised by the incestuous relationships amongst the Board Members?


Anonymous said...

We know the SEC knows who their daddy is.... but the Feds might not....we'll see?

Goldman to Feds...we're your daddy...

Report: Feds conducting big insider trading probe

One focus of the criminal investigation is whether independent analysts and consultants who work for companies that provide "expert network" services to hedge funds and mutual funds passed along nonpublic information, the Journal reported. Such companies set up meetings and calls between current and former managers and traders who want an investing edge.

Prosecutors and regulators are also examining whether bankers from Goldman Sachs Group Inc. leaked information about transactions, including health-care mergers, to the benefit of certain investors, the Journal reported, based on anonymous sources. Goldman declined to comment to the newspaper.

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