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Reporting profits in recession sure to stir public ire

Bob Tippee
Editor

The US oil and gas industry should listen to whatever political problems befall Goldman Sachs Group Inc. for echoes from its own experience.

The financial giant this month reported its largest quarterly profit ever—$3.44 billion.

A developing view is that Goldman Sachs, after a short ride aboard its $10 billion federal lifeboat, now feeds on others’ flotsam.

“With competitors such as Lehman Brothers Holdings Inc. and Bear Stearns Cos. gone and others like Citigroup Inc. flailing, Goldman appears to be pulling off one of the biggest market-share grabs in Wall Street history,” the Wall Street Journal reported July 15.

Suggestions of predation join suspicions that Goldman has for years enjoyed political favors from its many former executives who moved into high government positions.

In fact, cronyism appears in a flood of allegations, which the firm has denied, published in a widely circulated article by Matt Taibbi in the July 9-23 issue of Rolling Stone.

Taibbi says Goldman exploited six financial bubbles, including the 2008 zoom in oil prices.

He makes his conclusions clear early in the article by describing Goldman as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”
Whatever the mechanism, Goldman does have the money to defend itself against all this and has paid back the bailout dollars.

Its larger problem may be timing. For Goldman, prosperity resumes while masses of Americans struggle. As oil companies were reminded early last year, reporting record profits during recession can provoke outrage.

When the oil industry encountered that embarrassment of riches, its public standing already had suffered from disclosure in 2006, after gasoline prices jumped following hurricane damage to Gulf Coast production and refining, of a $400 million retirement package for ExxonMobil Chairman Lee Raymond.

At least some stir might be expected from a public increasingly seeking unemployment benefits, therefore, from Goldman’s $11.36 billion first-half reserve for compensation and benefits. According to the Wall Street Journal, that’s enough to pay each Goldman employee $386,429.

Of course, the analogy isn’t perfect. Taxpayers didn’t rescue any big oil companies.

(Online July 17, 2009; author’s e-mail: bobt@ogjonline.com)


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