Goldman Sachs reportedly handing out massive bonuses this year

Suvro Banerji
AC360° Intern

Goldman Sachs, the investment bank has not only paid back the $10 billion in Troubled Asset Relief Program (TARP) money, but is also reportedly handing out massive bonuses this year. According to The Guardian, this is the largest bonus payouts in the company’s 140 year history.

In letters to Congress on June 16, Chief Executive Lloyd Blankfein made it clear that the company would ensure that “compensation reflects the true performance of the firm and motivates proper behavior.”

The big question…where did this money come from? The Wall Street Journal reported that a huge chunk of the company’s recent profit came from ‘its fixed-income business, a less-risky arena than the illiquid derivatives and others products it loaded up on amid the credit bubble and Goldman has reduced its overall leverage from a year ago.’ Also, insiders say the company has benefited because competitors like Lehman Brothers went bankrupt.

The Guardian also predicted that the company’s second-quarter earnings will see a ‘further jump in profits’. Warren Buffett who made a $5 billion investment in the firm, has reportedly made a $1 billion gain already.

Critics argue that big executive bonuses similar to this have destabilized the financial system in the first place. They fear if such actions continue in the financial industry, it may have a negative impact on the efforts of regulators trying to stabilize this economy and could potentially lead the markets into a ‘double-dip recession’- a slump followed by a brief recovery and then a renewed slump.

"The investment banks more than any other institutions created the culture of excessive leverage, excessive risk and excessive bonuses that led to the downfall of the financial system,” UK Liberal Democrat treasury spokesman Vince Cable told the The Guardian. “Now they are cashing in and the same bonus culture has returned. The result must be that we are being pushed to the edge of another crash.”

Can Goldman and other investment banks lead Wall Street back to long-term profitability, or are they already headed back to the same practices that put some of them and thousands of Americans out of business?