June 26th, 2009
12:23 PM ET

Has Goldman Sachs survived the recession?

[cnn-photo-caption image=http://i2.cdn.turner.com/money/galleries/2009/fortune/0901/gallery.bestcos_toppay.fortune/images/goldman_sachs_f.jpg caption="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?

Filed under: Economy • Wall St.
soundoff (5 Responses)
  1. Annie Kate

    If Goldman Sachs needed some of the TARP money to stay in business how did they recover so quickly, pay it back so soon, and be in a position to give out the biggest bonuses yet? I would have thought it would take longer to get to this place than they have had. Did they really need the TARP money or just more time to get their house in order??

    June 26, 2009 at 8:43 pm |
  2. Karen

    it was bailed out by the treasury and Warren Buffet. Its that simple.

    June 26, 2009 at 4:57 pm |
  3. earle,florida

    Goldman Sachs certainly could have gone the way of Bear Sterns, Lehman Brothers,and Merrill Lynch! But as fate would have it,Secretary of the Treasury," Hank Paulson" made sure his past employer was given a free pass,period! As Fed Chairman Bernanke testified yesterday under intense questioning, the unannounced meeting of the countries top financial (ten,or twelve) institutions were brought into a small room to sign an (late 2008) affidated,in which only one participant was hesitant to sign,but eventually signed-off. This meeting took less than an hour to complete,and everyone present was happily on their way. The question that should be asked is,where is Goldman getting their money? Venture Capitalist (VC's),Private Investor's,Foreign Investment Interest (ie.,countries,etc.),and how does this one company come out of this financial meltdown disaster unscathed,...? This concerns me! PS. Fed Chairman Bernanke was present but was unaware of the meetings context,which tells me he was out-of-the-loop also?

    June 26, 2009 at 3:53 pm |
  4. Marie Petrucci from Boston MA

    Why doesn’t all Michael Jackson’s friends in the music industry keep his show in London going and sing one of their a songs from mikes era ,l His friends like: Cher,Rolling Stones, Paul Mac., Madonna ,Smokey, ect. I know Michael would like this idea..
    It would be the best memories for Michael- his friends doing his Last and final show.

    June 26, 2009 at 2:34 pm |
  5. Sadie

    I just want to ask you please don't drop Iran story, last night your TV show was all about Jackson. It is a sad story but not as sad and important as all the young people fighting for their freedom.

    June 26, 2009 at 2:33 pm |