Expecting Record Bonuses at Goldman

The Observer observes:

Staff at Goldman Sachs staff can look forward to the biggest bonus payouts in the firm's 140-year history after a spectacular first half of the year, sparking concern that the big investment banks which survived the credit crunch will derail financial regulation reforms.

A lack of competition and a surge in revenues from trading foreign currency, bonds and fixed-income products has sent profits at Goldman Sachs soaring, according to insiders at the firm.

Staff in London were briefed last week on the banking and securities company's prospects and told they could look forward to bumper bonuses if, as predicted, it completed its most profitable year ever. Figures next month detailing the firm's second-quarter earnings are expected to show a further jump in profits. Warren Buffett, who bought $5bn of the company's shares in January, has already made a $1bn gain on his investment.

In April, Goldman said it would set aside half of its £1.2bn first-quarter profit to reward staff, much of it in bonuses. It is believed to have paid 973 bankers $1m or more last year, while this year's payouts are on track to be the highest for most of the bank's 28,000 staff, including about 5,400 in London.

Ok, so a "A lack of competition and a surge in revenues from trading foreign currency, bonds and fixed-income products has sent profits at Goldman Sachs soaring." How will politicians spin this, I wonder:

Critics of the bonus culture in the City said the dominance of a few risk-taking investment banks is undermining the efforts of regulators to stabilise the financial system. Vince Cable, the Liberal Democrat treasury spokesman, said: "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. 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."

No, Mr. Cable, the Federal Reserve created the culture of excessive leverage. Without all of the cheap money provided by the Fed, no such excessive leverage could have existed!

"These banks are intermediaries in the bond markets where governments and companies are raising billions of pounds of new money. There is also a lack of competition that means they can charge huge sums for doing business."

Last week, the firm predicted that President Barack Obama's government could issue $3.25tn of debt before September, almost four times last year's sum. Goldman, a prime broker of US government bonds, is expected to make hundreds of millions of dollars in profits from selling and dealing in the bonds.

You can't blame Goldman Sachs for taking advantage of our Government's asinine monetary policies. But that is exactly what will happen, you can bet on it -- stay tuned for updates.

Horror Health Care Bill Drafted

Slashdot summarizes:

House Democrats on Friday answered President Obama's call for a sweeping overhaul of the health care system by putting forward a 852-page draft bill that would require all Americans to obtain health insurance, force employers to provide benefits or help pay for them, and create a new public insurance program to compete with private insurers.

Passage of this legistlation will result in a double-edged sword against American jobs. Not only will the cost per employee rise, leaving less money to expand business and hire more workers, it will, at best, put downward pressure on salaries, and, at worst, provide an incentive for moving jobs abroad. And that's the 'good news'.

Arguably more damaging would be an establishment of a public insurance program. A government-run program will slowly kill private insurance companies, since a government insurer can offer significanly cheaper rates than private insurers (think Fannie Mae & Freddie Mac), even while operating at a loss (tax to make up the difference). Naturally, with cheaper rates, the government plan will grow as it takes business away from private insurers. On a longer time horizon, this will be bad news for doctors when the government-run monopoly, not the free market, will start enforcing more rules, regulations, and price controls.

In the end, we'll be left with a decrease in American jobs and/or salaries, higher taxes, and a hobbled medical environment where doctors will be forced to work more for less --and that's just from the highlights. We'll learn more as this legistlation evolves.

For those of you interested in probing further, here's a full length PDF of the Bill.

Healthcare Woes: Two Wrongs Don't Make Right

If I wanted to view something utterly absurd, I would've patroned the movie "Land of the Lost." Instead, I got the same fill of lunacy from the following paragraph from a story ran by Forbes 'Obama's Doctor Knocks ObamaCare':

What should the president be focused on? Scheiner thinks that a good health reform would be "Medicare for all," a single-payer system where the government would cover everyone and pay for it by cutting out waste in the system. "A neurosurgeon gets paid $20,000 for cutting into the neck of my patient. Have him get paid $1 million a year instead of $2 million or $3 million. He won't starve," Scheiner says.

Let me get this straight, the advised 'solution' to overpriced healthcare is Medicare for all?! Leaving the 'cutting of waste' in the hands of beaurocrats is a recipe for disaster. If you want a quick example of the quality and inefficiency of Government-run services, take a look at the DMV and the Post Office.

Government intervention in health care can only have 3 possible outcomes: 1) Higher Cost 2) Lower Quality 3) Higher Cost & Lower Quality.

Reverse Engineering Economics of Music Industry

A recent ruling in Minnesota awarded the plaintiffs (record companies) a payout of $80,000 per song.

The recording industry has blamed online piracy for declines in music sales claiming it has lost billions of dollars through illegal file-sharing.

Here's a novel idea: Let's pretend that the internet existed before music. If record companies attempted to sell/distribute music into the digital marketplace that was as we know it now, it would have been a joke to think that large premiums can be charged for something that can be so easily distributed.

Piracy has always existed, and will exist. But you cannot blame piracy as the sole reason behind the decline in music sales. Newspapers are facing even larger margin reductions, and it has nothing to do with piracy. The source for their woes is the same; when something of comparable value, or even greater value, can be acquired for less (less time, less money, less hassle), then there's no doubt that a company will face declining sales.

Apple's iTunes is the perfect example of being able to monetize an old business model. While the true costs of violating intellectual poperties may never be known, what is known is that Record Companies should be more focused on pushing products and services that are naturally competitive in the marketplace -- something they have neglected to do so for years.

Administration Seeks To Rein Private Sector Pay

The Obama administration says executive compensation must be better managed to prevent the sort of risk-taking that jeopardizes the economy.

Excessive Risk means potential for both excess profits AND excess losses. If our government wasn't in the business of bailing out failed companies, then the consequences of those excessive risks (financial ruin) would mitigate future risk taking.

Bailing out excessive risk takers will simply promote such risk taking on the basis that the government will make whole any losses you are to sustain for taking said risk.

Even more egregious is the fact that the excessive risk taking, which most banks engaged in, was encouraged by the government with all of the 'free' money given to banks via low interest rates. Such excessive risk taking could not have happened without the government's encouragement to take those risks in the first place!