Vericool Finance

Even on Wall Street, the land of six-and-seven-figure incomes, jaws dropped at the news.  During one of the worst six-month periods in the history of finance, Goldman Sachs squirreled away $11.4bn to pay its staff and has just posted the richest quarterly profit in history.

At that rate, bank staff could earn an average $770,000 this year, with packages for senior executives and bankers running well in to the high millions.  It would be easy to forget there’s a financial crisis still going on, but Goldman should expect renewed political and public anger.  It might insist it has to pay to keep the brightest and best, but it would be foolhardy to believe these arguments will placate a restive public.

Slurp – the great vampire squid strikes again!.  It takes some sucking power to extract $3.4bn of quarterly net income within a year of a full-throated banking crisis. So how did they do it? The vast bulk of the cash came from plain vanilla stuff, like helping companies raise money from share issues, and Goldman has undoubtedly profited from the fact that so many competitors have either died or retrenched.

But are these huge profits a one-time wonder? Beneath Goldman’s gleaming mantle is cephalopod swimming with one powerful arm.  The huge spring boom in client trading was no more business as usual than the events of last autumn; and Goldman’s other arms remain weak.  And with $171bn in excess liquidity now in its coffers, the government could yet opt to cut this sucker down to size.

Goldman attracts admiration and loathing in equal measure: no bank seems better capable at looking after its own interests. But if more capital is required to make the banking system safer, returns are bound to fall.  The goose that laid the Goldman egg could yet be killed by regulation, but the behaviour of survivors like Goldman suggests the opposite. They are hiring staff on salaries and bonus packages that make sense only if the days of mega-profits have returned permanently.

The question for governments is whether they are prepared to tolerate this state of affairs indefinitely.  It’s time to ask whether exceptional profits deserve exceptional rates of taxation. If we, the taxpayers, are obliged to underwrite the banking system, it is surely right to extract a fair price for that guarantee.  That’s how pricing power works – as Goldman would presumably understand.