128 Goldman Sachs to pay $23 billion in bonuses for 2009 (double the 2008 figure)

Michael Hudson interview in Australia with Phillip Adams on Late Night Live
October 12, 2009 http://www.abc.net.au/rn/latenightlive/stories/2009/2711969.htm

(1) Reviving the Local Economy with Publicly Owned Banks, by Ellen Brown
(2) Australia's big 4 banks were insolvent in 2008, before Gov't Guarantee - Ross Garnaut
(3) Bankers duspute Garnaut claim of insolvency (so why did the Gov't issue the Guarantee?)
(4) US Treasury & Banks' involvements in Foreign Policy, including wars
(5) Next Wave of Banking Crisis to come from Eastern Europe - F. William Engdahl
(6) Goldman Sachs to pay $23 billion in bonuses for 2009 (double the 2008 figure)

(1) Reviving the Local Economy with Publicly Owned Banks, by Ellen Brown

From: Ellen Brown <ellenhbrown@gmail.com>  Date: 15.10.2009 06:44 PM

http://www.yesmagazine.org/economies/reviving-the-local-economy-with-publicly-owned-banks

Reviving the Local Economy with Publicly Owned Banks

State and local leaders are considering creating publicly owned banks that can funnel credit to where it is needed most: directly into the local economy.

by Ellen Brown
posted Oct 14, 2009

The credit crunch is getting worse on Main Street, despite a Wall Street bailout now in the trillions of dollars. The Federal Reserve's charts show that "base money" is rapidly expanding - meaning coins, paper money, and commercial banks' reserves with the central bank. But the money isn't getting where it needs to go to stimulate economic growth: into the bank accounts of American businesses and consumers.  The Fed has been pumping out money to the banks, and their reserves have been growing at unprecedented rates, but the money supply in the real economy has been declining.

According to Ambrose Evans-Pritchard, writing last month in the UK Telegraph, U.S. bank credit and M3 (the broadest measure of the money supply) contracted over the summer at rates comparable to the onset of the Great Depression. In the summer quarter, U.S. bank loans fell at an annual pace of almost 14 percent. "There has been nothing like this in the USA since the 1930s," said Professor Tim Congdon of International Monetary Research. "The rapid destruction of money balances is madness."

Chartered banks are allowed to create credit on their books equal to many times their deposit base, but lately they haven't been doing it. In more normal times, one dollar in base money has been fanned by the banks into $8.50 in loans. Today, one dollar in base money produces only one dollar in loans. Although the Fed has been frantically pushing cash into the banks, it can't make them lend to consumers.

This is not because the banks are trying to be difficult. If they had prudent loans on which to turn a profit and the capital base to do it, they no doubt would. But their books have been choked with toxic assets, destroying their capital positions; and the "shadow lenders" who once took subprime loans off their books have gotten wise to the scam and gone away. Bankers who know the endangered state of their own books don't trust each other, so money is tight all around. And the Fed has already dropped interest rates as low as they can go, so it has no more leverage with which to entice borrowers.

Local Government to the Rescue?

The Fed may have played all its cards, but state and local governments still hold a few aces. Some local politicians are looking into the feasibility of opening their own publicly-owned banks, providing them with their own credit machines. A new publicly owned bank would have a clean set of books, untainted by the Wall Street addiction to gambling in complex derivatives; and its profits would go back to the local government and community, rather than being siphoned off in exorbitant salaries, bonuses, and dividends. A publicly-owned bank could funnel credit where it is needed most, directly into the local economy.

One legislator who is considering a publicly-owned bank is Bruno Barreiro, County Commissioner for Miami-Dade County in Florida. In a September 23 article titled "Capital Sources: Recession Steers Banks Away from Business as Usual", The Daily Business Review reported that Miami-Dade is planning to conduct a feasibility study proposing alternatives for becoming its own depository. Said the journal:

    "Barreiro notes that throughout the year, a portion of the county's $7.5 billion operating budget is deposited with outside financial institutions in return for an interest rate. However, he feels that given the instability of many banks, the county might be better off going into such a business on its own."

Brian Bandell, writing in The South Florida Business Journal on September 11, reported that Barreiro is concerned that bank accounts are insured by the FDIC for only up to $250,000. The county often has over $50 million in a single account. If the county were to open its own depository institution, it could safeguard against these losses.

However, said Bandell, Barreiro is not proposing to allow the institution to make loans. Rather, the state's money would be invested conservatively in Treasury bonds. The problem with that approach, said Miami banking analyst Kenneth Thomas, is that it would be a challenge to get good interest rates for the county's deposits without making loans. "There's a reason most other municipalities aren't doing it," he said.

In stopping short of making loans, the county could be missing a major business opportunity. The average interest rate on U.S. government bonds is currently 3.35 percent. If the funds in Miami-Dade's operating budget were deposited in the county's own bank, the money could serve as a reserve fund to support at least nine times that sum in loans. Assuming an average interest rate of 5 percent on these loans, the county could increase its revenues by over 1,000 percent (earning 45 percent interest instead of 3.35 percent). [A fuller explanation and references are available here.] 

Maximizing the Potential of a Publicly-owned Bank

Economist Farid Khavari, a Democratic candidate for governor of Florida in 2010, is proposing a Bank of the State of Florida (BSF) that would take full advantage of the potential of a bank charter. It would not only act as a depository for the state's funds but would actually make loans to Floridians at much lower interest rates than they are getting now. Among other benefits, the BSF could open up frozen credit markets, save homeowners many thousands of dollars in payments, produce major revenues for the state, and allow the state's own debts to be refinanced at much lower rates. All those benefits are possible, says Khavari, because of the "fractional reserve" banking system used by all banks when they make loans. As he explained in a July 29 article in Reuters:

    "Using the fractional reserve regulations that govern all banks, we can earn billions per year for Florida's treasury, while saving thousands of dollars per year for Florida homeowners…For $100 in deposits, a bank can create $900 in new money by making loans. So, the BSF can pay 6% for CDs, and make mortgage loans at 2 percent. For $6 per year in interest paid out, the BSF can earn $18 by lending $900 at 2 percent for mortgages.

    "The BSF can be started at no cost to taxpayers, and will be a permanent engine driving Florida's economy. We can refinance state and local projects at 3 percent, saving taxpayers billions and balancing state and local budgets without higher taxes."

The state would earn $15,000 per $100,000 of mortgage, at a cost of about $1,700; the homeowner would save $88,000 in interest and pay for the home 15 years sooner. "Our bank will save people about seven years of their pay over the course of 30 years, just on interest costs," Khavari said. "We should work to support ourselves and our families, not the banks…What we have now…makes everyone work for a few greedy fat cats."
Earlier Models

This sort of healthy public competition for the private banking monopoly has earlier precedents, going back to the colony of Pennsylvania in Benjamin Franklin's day. Before Pennsylvania founded its own bank, the province was having difficulty attracting settlers, because there was a shortage of money with which to conduct trade. The settlers could get credit only by borrowing from British bankers at a hefty 8% interest, and even those loans were hard to come by. The provincial government then got the bright idea of printing its own paper money and lending it to the farmers at 5% interest. When credit became cheaper and more freely available, the local economy flourished.

The only state that owns its own bank today is North Dakota. North Dakota is also one of only two states (along with Montana) on track to meet their budgets by 2010. It currently has the lowest unemployment rate in the country and the largest budget surplus it has ever had, tallying in at $1.3 billion. Why this cold and isolated farming state should be doing so well when other states are teetering on bankruptcy has been the subject of several TV commentaries, including a spoof by Conan O'Brien on NBC's Tonight Show, which attributed it to theft from tourists by local farmers. But North Dakota's real secret seems to be that it has escaped the Wall Street credit debacle. The state has generated its own credit through its own publicly-owned bank for nearly a century.

The Bank of North Dakota (BND) was founded in 1919, when a political party called the Non Partisan League succeeded in uniting farmers suffering from an earlier credit crisis. The BND's website states that the bank was originally formed to create additional competition in the credit industry, while providing a local source of capital for state investment and development. The BND avoids opposition from other banks by partnering with them in loan projects. According to the bank's website:

    "The primary deposit base of the BND is the State of North Dakota. All state funds and funds of state institutions are deposited with the bank as required by law…Use of the banks' earnings are at the discretion of the state legislature. As an agent of the state it can make subsidized loans to spur development…[It] underwrites municipal bonds for all of the political units in the state, and has been one of the leading banks in the nation in the number of student loans issued. The bank also serves as the state's ‘Mini Fed'…As a result of the banks' services, it enjoys widespread support among the public and the independent banking community."

Bringing the Model Current

The private banking system is in systemic failure, and the public is waking up to the fact. We have been fleeced by Wall Street; banks are not providing loans; and our savings are no longer secure. The publicly owned Bank of North Dakota has provided an alternative model that has worked remarkably well for nearly a century.

The BND has been around for so long, however, that skeptics can write off the state's remarkable success to other factors. A modern-day public bank that quickly turned its flagging local economy around could set a precedent that was irrefutable. If Florida were to establish a successful public banking model, it could blaze a trail out of the economic wilderness for local governments everywhere.

Ellen Brown wrote this article for YES! Magazine, a national nonprofit media organization that fuses powerful ideas with practical actions. Ellen developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and "the money trust." She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include Forbidden Medicine, Nature's Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health: Non-toxic Dentistry (co-authored with Dr. Richard Hansen). Her websites are www.webofdebt.com and www.ellenbrown.com.

Interested? In The New Economy, YES! Magazine introduces you to the activists, visionaries, and upstarts who are creating an economy that puts people first and works within the carrying capacity of Mother Earth.

(2) Australia's big 4 banks were insolvent in 2008, before Gov't Guarantee - Ross Garnaut

http://www.thesheet.com/nl06_news_selected.php?act=2&selkey=8987&stream=1

Debating bank solvency in the crash of 2008

14 October 2009 7:31am

The facts of the solvency, or otherwise, of one or more of the four major Australian banks at the peak of the financial crisis in October 2008 is a topic generating some heat over the last day or so.

Ross Garnaut and David Llewellyn-Smith in their book The Great Crash of 2008, and published in the last week, wrote as follows:

"In the early days of October 2008, money poured into the big four Australian banks from other financial institutions. But life was becoming increasingly anxious for them as well.

"One by one they advised the Australian government they were having difficulty rolling over their foreign debts. Several sought and received meetings with Prime Minister Rudd.

"The banks told him that, if the government did not guarantee their foreign debts, they would not be able to roll over the debt as it became due. Some was due immediately, so they would have to begin withdrawing credit from Australian borrowers.

"They would be insolvent sooner rather than later."

This is no clips job. Rather, it is Ross Garnaut's own investigations and reporting on the events of one year ago.

Garnaut, who worked as economics adviser to a prior Labor prime minister in the 1980s, remains well connected (for example, through his recent work on the review of policy on climate change).

A lot of the (guarded) reporting at the time of the crisis focussed on selected regional banks and also some foreign banks.

The subsequent (elective) guarantee on wholesale and retail liabilities was largely reported, at the time, on the basis of the issues facing those smaller banks, and also placed in the context of the worldwide rush to guarantee bank liabilities.

So, the Garnaut reporting is new, and relevant.

Then there's the question of whether Garnaut's reporting is accurate.

The Australian Bankers Association responded, in a media release yesterday, that "the evidence is that the Australian banks were not insolvent and the wholesale funding guarantee was introduced as a means of ensuring banks could maintain lending growth, not to restore the solvency of banks."

The ABA argued that the guarantee of wholesale liabilities "was introduced as a response  to similar guarantees introduced by other countries, starting with Ireland. This  development fundamentally changed international debt markets by creating a new AAA-rated security for investors.

"These developments overseas threatened to constrain the ability of banks in Australia to  rollover funding."

The ABA also noted that "there has never been any commentary or report from the  Reserve Bank of Australia, the Australian Prudential Regulation Authority, the Treasury, senior economic ministers, banking analysts, the International Monetary Fund, the World Economic Forum or other reputable commentators that Australian banks were insolvent.

"There is no doubt that the introduction of the Government's wholesale funding guarantee assisted banks in maintaining overseas funding at a reasonable price.

"We will never fully know the stress that the system may have come under without the guarantee."

Melbourne University Press is the publisher of The Great Crash of 2008.

Note: Ian Rogers helped steer David Llewellyn-Smith through sources of banking statistics during research for the book, and also helped fact-check the fourth chapter on financial innovation.

(3) Bankers duspute Garnaut claim of insolvency (so why did the Gov't issue the Guarantee?)

ABA disputes Garnaut claim of insolvency

Richard Gluyas | October 14, 2009

http://www.theaustralian.news.com.au/business/story/0,28124,26206268-20501,00.html

THE Australian Bankers Association has locked horns with Ross Garnaut over the eminent economist's claim that the Australian banking system was insolvent during the financial crisis.

Professor Garnaut said in an interview on the ABC's The 7.30 Report on Monday that the banks had started to have "great difficulty" in rolling over their wholesale funding during the crisis.

That meant they might not have been able to fund their liabilities without the federal government's wholesale funding guarantee introduced in October last year.

The ABA rejected this, arguing yesterday that no reputable commentator had ever argued Australia's banks were insolvent, and that the banks continued to fund their lending without any government guarantee for at least a year after the crisis began in August 2007.

Furthermore, even if they later became constrained, this did not amount to evidence of insolvency.

"Banks have many methods to manage this cashflow situation," the ABA said.

Among the available options, according to the industry lobby group, were liquidation of certain assets, such as those with high liquidity characteristics, and seeking additional sources of funding, such as retail deposits and capital raisings.

The banks could also have secured liquidity from the Reserve Bank by pledging high-quality assets as collateral, cutting lending to business and household customers, reducing dividends and cutting costs.

The banking industry is extremely sensitive to any suggestion it was bailed out by the deposit and wholesale funding guarantees, as the government is looking to extract some kind of social dividend in return for its support.

It has already put strong pressure on the industry to minimise increases in variable rate mortgages, and to introduce hardship packages for those affected by the financial crisis.

The ABA said most domestic banks had maintained their credit ratings during the crisis, including the big four with their AA ratings.

Profitability had also held up well, as had credit growth and lending to small business.

(4) US Treasury & Banks' involvements in Foreign Policy, including wars

From: WVNS <ummyakoub@yahoo.com>  Date: 15.10.2009 11:42 AM

Assistant Secretary Details Banking Industry's Key Role in Foreign Policy

Asst. Treasury Sec.: Banks Back US Intervention
by Jason Ditz
October 12, 2009
http://news.antiwar.com/2009/10/12/treasury-department-at-the-center-of-us-invention-abroad/

When covering America's interventionist foreign policy, certain departments and agencies come up a lot. The Defense Department, certainly. The CIA, usually. The State Department, the NSA, the list goes on. Rarely does the Treasury Department come up, but maybe it should.

Speaking at a conference for the American Bankers Association, Assistant Secretary of the Treasury David S. Cohen went into excruciating detail about his department's role in ensuring that the American banking industry is on the front lines of fights the world over.

And it really is the world over. From propping up Mexico's government in what he called "a courageous fight against the drug cartels" to preventing Iran from "developing nuclear weapons," there appears to be no overseas endeavor in which Secretary Cohen doesn't envision a massive role for the Treasury Department, and for the ostensibly private organizations that make up the banking industry.

Though Cohen made some interesting revelations with respect to Afghanistan, including the somewhat surprising claim that the Taliban is much better financed than al-Qaeda, the bulk of his speech detailed a chilling ambition to see the banking industry pulled ever deeper into the war at home as well as abroad, and his claim that "routine suspicious activity" could be the centerpiece of uncovering international terror networks suggest that the average person's financial transactions will be under ever-increasing scrutiny.

(5) Next Wave of Banking Crisis to come from Eastern Europe - F. William Engdahl

From: WVNS <ummyakoub@yahoo.com>  Date: 14.10.2009 07:15 PM

Next Wave of Banking Crisis to come from Eastern Europe
By F. William Engdahl

http://www.globalresearch.ca/index.php?context=va&aid=12339

European banks face an entirely new wave of losses in coming months not yet calculated in any government bank rescue aid to date. Unlike the losses of US banks which derive initially from their exposures to low-quality sub-prime real estate and other securitized lending, the problems of western European banks, most especially in Austria, Sweden and perhaps Switzerland arise from the massive volumes of loans they made during the 2002-2007 period of extreme low international interest rates to clients in eastern European countries.
The problems in Eastern Europe which are just now emerging with full force are, if you will, an indirect consequence of the libertine monetary policies of the Greenspan Fed from 2002 until 2006, the period where Wall Street's asset backed securitization Ponzi Scheme took off.

The riskiness of these eastern European loans is now coming to light as the global economic recession in both east and west Europe is forcing western banks to pull back, refusing to renew loans or `rollover' the credits, leaving thousands of borrowers with unpayable loan debts. The dimension of the eastern European emerging loan crisis pales anything yet realized. It will force a radical new look at the entire question of bank nationalizations in coming weeks regardless what nice hopes politicians in any party entertain.
Moody's Rating Service has just announced it `might' downgrade a number of western European banks with large exposures to eastern Europe. On the report, the Euro fell to 2 and a half month lows against the dollar.

The Moodys report mentioned especially banks in eastern Europe owned by western European banks including specifically Raiffeisen Zenetralbank Oesterreich and Sweden's Swedbank. The public Moody's warning will now force western banks with subsidiaries in eastern Europe to dramatically tighten lending conditions in the east at just the time the opposite is needed to keep economic growth from collapsing and thereby setting off chair-reaction loan defaults. The western banks are caught in a devil's circle.

According to my well-informed City of London sources, the new concerns over bank exposures to eastern Europe will define the next wave of the global financial crisis, one they believe could be even more devastating than the US sub-prime securitization collapse which triggered the entire crisis of confidence.

As a result of the Moody's warning, west European banks will now likely be selective in supporting their subsidiaries. Moody's report noted that `banks in countries that are associated with higher systemic risks might face reduced support.' Western European governments may also establish rules to ensure banks receiving state support are forbidden to aid foreign subsidiaries. This is already the case with Greek banks and the Greek Government. The result is to make a bad situation far worse.

The size of risks are staggering

The amount of loans potentially at risk involve mostly Italian, Austrian, Swiss, Swedish and it is believed German banks. Once the countries of the former Soviet Union and Warsaw Pact declared independence in the early 1990's west European banks rushed in to buy on the cheap the major banks in most of the newly independent east countries. As US interest rate cuts after the stock crisis in 2002 pushed interest rates around the world to new lows, easy credit led to higher risk lending across borders in foreign currencies. In countries such as Hungary Swiss and Austrian banks promoted home mortgage loans denominated in Swiss Franc where interest rates were significantly lower. The only risk at the time was if the Hungarian currency were to devalue, forcing homeowners in Hungary to repay sometimes double the monthly amount in Swiss Francs. That is what has happened over the past 18 months as western banks and funds have dramatically reduced their speculative investments in eastern countries to repatriate capital back home where the mother banks had serious problems caused by the US banking catastrophe. In the case of the Polish Zloty, the currency has dropped in recent months by 50%. The volume of mortgages existing in foreign currencies in Poland is not known but London estimates are that it could be huge.

In the case of Austrian banks, the country faces a rerun of the 1931 Vienna Creditanstalt crisis which in chain-reaction spread to the German banks and brought Continental Europe into the economic crisis of 1931-33. At the recent EU Finance Ministers' meeting in Brussels, Austrian Finance Minister Josef Pröll reportedly pleaded with his colleagues to come up with aEuro150 billion rescue package for the banks in eastern Europe. Austrian banks alone have lentEuro230 billion there, equivalent to 70% of Austria's GDP. Austria's largest bank, Bank Austria, which in turn is owned by Italy's Unicredito along with the German HypoVereinsbank, faces what the Vienna press calls a `monetary Stalingrad' over its loan exposure in the east. In a botter historic irony, Bank Austria bought the Vienna Creditanstalt in recent years in its wave of mergers.

According to estimates published in the Vienna financial press, were only 10% of the Austrian loans in the east to default in coming months, it `would lead to the collapse of the Austrian financial system.' The EU's European Bank for Reconstruction and Development (EBRD) in London estimates that bad debts in the east will exceed 10% and `may reach 20%.'

German Finance Minister Peer Steinbrück reportedly flatly rejected any EU rescue funds for the east, claiming it was not Germany's problem. He may soon regret that as the crisis spreads to German banks and results in far greater costs to German taxpayers. One of the most striking aspects of the present crisis which first erupted in summer of 2007 is the increasingly evident incompetence of leading finance ministers and central bankers from Washington to Brussels to Paris and Frankfurt and Berlin to deal resolutely with the crisis.

The London office of US investment bank, Morgan Stanley has issued a report estimating the total of western European bank lending to the east. According to the report Eastern Europe has borrowed a total of more than $1.7 TRILLION abroad from mainly west European banks. Much of that has been short-term borrowing of less than a year. In 2009 eastern countries must repay or roll-over (renew) some $400 billion, fully 33% of the region's total GDP. As global recession deepens the chances of that are fading by the day. Now western banks are refusing to roll-over such loans, under political pressure and financial pressure back home. The credit window in the east, only two years ago the source of booming profits for the west European banks, have now slammed shut.

Even Russia which a year ago had more than $600 billion foreign exchange reserves, is in a difficult situation. Russian large companies must repay or roll-over $500 billion this year. Russia has bled 36pc of its foreign reserves since August defending the rouble.

In Poland, 60% of all mortgages are in Swiss francs. The Polish zloty has just fallen in half against the Swiss franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this same story. As an act of collective folly – by lenders and borrowers – it matches America's sub-prime debacle. This crisis, for European banks comes atop their losses in US real estate securities. In is the next wave of the crisis that is about to hit. Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. Europeans account for an astonishing 74% of the entire $4.9 trillion portfolio of loans to emerging markets. They are five times more exposed to this latest crisis than American or Japanese banks, and they are 50pc more leveraged according to the IMF.

Whether it takes months, or just weeks, Europe's financial system now faces a major test and the situation is complicated by the fact that when the rules of the European Central Bank were finalized in the late 1990's, governments could not agree to surrender total national central banking powers to the new ECB. As a result, in this first test of the ECB in a systemic crisis, the bank is unable to act in the same manner as say the Federal Reserve and fiull the role of lender of last resort or to flood the markets with emergency stimulus.
By some estimates the European Central Bank already needs to cut rates to zero and then purchase bonds and Pfandbriefe on a huge scale. It is constrained by geopolitics – a German-Dutch veto – and the Maastricht Treaty. The EBRD estimates that eastern Europe needs at leastEuro400bn in help to cover loans and prop up the credit system.

Europe's governments are making matters worse. Some are pressuring their banks to pull back, undercutting subsidiaries in East Europe. Athens has ordered Greek banks to pull out of the Balkans. The sums needed are beyond the limits of the IMF, which has already bailed out Hungary, Ukraine, Latvia, Belarus, Iceland, and Pakistan – and Turkey next – and is fast exhausting its ownEuro155bn reserve, forcing it to sell its gold reserves to raise cash.

The recent IMF $16bn rescue of Ukraine has unravelled. The country – facing a 12pc contraction in GDP after the collapse of steel prices – is going towards default, leaving Unicredit, Raffeisen and ING facing disaster. Latvia's central bank governor has declared his economy "clinically dead" after it shrank 10.5pc in the fourth quarter. Protesters have smashed the treasury and stormed parliament.
Perhaps most alarming is that the EU institutions don't have any framework for dealing with this. The day they decide not to save one of these one countries will be the trigger for a massive crisis with contagion spreading into the EU.

Clear at present is that for small-minded political reasons, Berlin is not going to rescue Ireland, Spain, Greece and Portugal as the collapse of their credit bubbles leads to rising defaults, or rescue Italy by accepting plans for EU `union bonds' should the debt markets boycott Italy's exploding public debt, hitting 112% of GDP next year, just revised up from 101%.

F. William Engdahl is author of A Century of War: Anglo-American Oil Politics and the New World Order (Pluto Press), and Seeds of Destruction: The Hidden Agenda of Genetic Manipulation (www.globalresearch.ca ). His new book, Full Spectrum Dominance: Totalitarian Democracy in the New World Order (Third Millenium Press) is due out at end of March. He may be contacted through his website: www.engdahl.oilgeopolitics.net.

(6) Goldman Sachs to pay $23 billion in bonuses for 2009 (double the 2008 figure)

From: Paul de Burgh-Day <pdeburgh@harboursat.com.au> Date: 14.10.2009 07:27 PM

Goldman Sachs 2009 bonuses to double 2008's

$23 billion could send 460,000 to Harvard, buy insurance for 1.7 million families

http://rawstory.com/2009/10/goldman-sachs-2009-bonuses-to-double-2008s-23-billion-could-buy-115-million-iphones-or-send-460000-to-harvard/

By John Byrne

Tuesday, October 13th, 2009 -- 8:07 am

Yesterday, we brought you the insurance company that wouldn't insure a 17-pound infant because he was too heavy. Today, we bring you the investment bank that manages to double its bonuses during the worst recession since the Great Depression.

On Thursday, Goldman Sachs will announce the firm's bonus payments for 2009. Analysts expect the bonus pool to mushroom to $23 billion -- double the bonus pool paid to employees in 2008. Earlier this year, Goldman Sachs said that it had put aside $11.4 billion for bonuses during the first half of the year.

"The absolute size of compensation payouts will rise significantly," Keith Horowitz, an analyst at Citigroup, wrote in a note to clients two weeks ago, highlighted by Andrew Sorkin in The New York Times' dealbook column Tuesday.

How much is $23,000,000,000?

For one thing, it's enough to send 460,000 full paying students to Harvard University for one year, or 115,000 for four years.

It's enough to pay the health insurance premium for the average American family ($13,375) 1.7 million times.

It's enough to upgrade 191 million computers to Windows 7 operating system (priced at $119.99), or to buy 115 million iPhones at $199.99 (provided the recipient was willing to sign a two-year contract).

Or, apparently, it's enough to reward the employees of Goldman Sachs for a bonanza trading year, at a firm where average employee compensation was recently $622,000 -- and likely to be greater this year.

The $23 billion figure could leave some American taxpayers woozy -- the US government bailed out Goldman Sachs with a multi-billion payment last year, which the firm has since repaid.

But while Goldman is likely to pay its biggest bonuses ever to employees, the firm pays very little in taxes worldwide. In 2008, the company was said to have paid just $14 million in taxes worldwide, and paid $6 billion in 2007.

The firm's corporate tax rate? About 1 percent. According a prominent tax lawyer, "They have taken steps to ensure that a lot of their income is earned in lower-tax jurisdictions."

Sorkin says Goldman's CEO is trying to hold off criticism by making a big charitable donation.

"Now there's talk inside Goldman that it is considering making a huge charitable donation  -  perhaps more than $1 billion  -  as a way to help deflect the criticism," Sorkin says. "Such a donation would be a welcome gesture that would no doubt benefit many needy organizations. But it would most likely be seen for what it is: a one-time move to draw attention away from where most of the money is really going. A large charitable donation also raises questions about the company's fiduciary duty to its shareholders; it could be seen as giving away profits that ostensibly belong to them."