Take a look at the article below, it’s pretty good. I want to share it with everyone and discuss, but I am not going to talk about the good or bad of GS. Maybe you can.
From Economist.com “Heads I win, tails you lose”
“Much of the outrage over bonuses is unjustified. People who create wealth are entitled to be rewarded for their efforts”.
I agree but the statement is too general. First of all, how do you measure wealth creation? Is it calculated with higher revenue or with creation of good for the overall benefit? Also is it the company’s wealth or the shareholders? My take is that bonus payouts should be approved by shareholders through proxy voting and bond covenants should define acceptable ranges for packages. After all, the capital received from the issuance of a bond is used for operating and investing activities.
“The best solution would have been for the Government to have taken an equity or equity-related stake in every financial firm it helped when it bailed out the system last year”
I don’t disagree with the statement but it’s too easy to say now what could or would have been a better course of action a year ago. A decision needed to be taken promptly and the shape of the crisis was something that was never seen before. Of course now, few months after a huge bank rally, “the government missed out on much of the profit it could have made from a stake in the better firms that were saved”. It was almost impossible to distinguish a “good” bank from a “bad” bank a year ago.
“This doesn’t look like a good outcome for Citi’s part-owner, the taxpayer” Commenting on the forced sale of Phibro.
I cannot agree more. The US Government does own more than 30% of Citigroup, which makes it an influential party, but it shouldn’t get involved with buying or selling of assets. But this is not all, the Government’s involvement can make things worse for Citigroup as it may force to sell Mexico’s Banamex Bank, a key element of the Company’s retail business, which contributed with $900M in profits for 2008. There is a law in Mexico that prohibits a foreign Government to own more than 10% of any bank that operates inside of Mexico. This would be a big loss for Citigroup as these bank deposits represent cheap funding, making them one of the least toxic assets. This can be good material for the next post.
Full and fair disclosure
Do you have any beneficial interest in the security or product reported. NO
Do you have any compensation agreement with a third party regarding the performance of the security or product reported. NO
Do you have any outside relationships that might give the appearance of a conflict (e.g. board memberships, trustee positions) with the company reported. NO