God's work gives big bonuses, but we pay
November 18, 2009
 By Ann Crotty
As the major contender for the current title of master of the universe, Goldman Sachs chief executive Lloyd Blankfein seems a nice enough guy.
And I'm pretty sure that when he recently explained that he was making oodles of money just "doing God's work" he was actually being ironic; trying to make light of the huge discomfort that comes with being a critical, and enormously generously remunerated, cog in a financial system so flawed it needed a bailout to the tune of hundreds of billions of dollars by US taxpayers.
Blankfein has been under considerable pressure in recent weeks over the record-breaking profits Goldman Sachs notches up while the broader economy flounders.
In the face of growing public hostility Blankfein explains that the eye-watering bonuses paid to every Goldman employee are justified by the fact that the Wall Street titan's earnings are significantly higher than other financial firms and that in fact Goldman is far more profitable than companies in almost any category of business you'd care to mention.
That is a straightforward enough claim, easy to prove one way or another. And if you believe that the only true measurement of an employee's value in any one year is the profit she or he generates for shareholders in that year, then it perhaps follows that Goldman staff are getting what they deserve.
But surely where you have to draw the line is when Blankfein justifies the remuneration packages by stating that the "people of Goldman Sachs are among the most productive in the world".
It is likely that in this context Blankfein was using the Collins dictionary definition of productive, the rather limited one of "yielding favourable results". The problem is that a large portion of his audience, and a large portion of taxpayers worldwide who are bailing out the financial system, are more inclined towards the Oxford definition, which is "of, or engaged in, the production of goods; producing much; producing commodities of exchangeable value".
Of course the Oxford definition has to be relaxed a little because services rather than goods account for a large portion of modern economies. But no amount of relaxing it will accommodate Blankfein's exaggerated claim. If that claim was accepted then we may as well talk about the great productivity of bookies at a busy sports event, or surely the world-beating productivity of Gauteng gangsters on pre-Christmas sprees.
Like most 21st century bankers vexed by the inability of the average taxpayer to understand the arcane world in which they exist, Blankfein is at pains to point out that bankers "help firms grow by helping them raise capital; firms that grow create wealth; this allows people to have jobs that create more growth and wealth". This is impressive but probably only accounts for a small portion of Goldman's profits.
As with any very large bank across the globe, Goldman's profits are probably heavily reliant on its trading activity. It trades ordinary stuff like oil, currencies, shares, gold, debt and commodities. As to the productivity of this activity, free-marketeers say it helps ensure efficient pricing; others point out it is the destructive speculative tail that wags the real economy dog.
And then there is the highly leveraged trading in all sorts of derivatives, which is where banks made loads of money until everything crashed around them.
Goldman was one of the few to get out ahead of that crash; perhaps it will the next time too but until bank regulators can split productive activity from trading activity, taxpayers will be sceptical and nervous.
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