The Gold Standard for the Great Recession


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Expert Perspective by Grahall’s John Hammond

expert perspective telescopeTwo articles published in mid-July together offered a snapshot sharply contrasting the economic status of some of our country’s “haves” and “have-nots” during our current “Great Recession.”

On July 14, Reuters reported that “Goldman Sachs Group Inc employees, on average, are within striking distance of $1 million of compensation and benefits this year, just months after the bank received bailout funds and other support from the government. The figure will likely fuel criticism of the politically connected bank, especially at a time of recession and rising unemployment.”

The following day, the New York Times noted that “In California and a handful of other states, one out of every five people who would like to be working full time is not now doing so…. The national unemployment rate has risen to 9.5 percent, the highest level in more than a quarter-century. Yet it still excludes all those who have given up looking for a job and those part-time workers who want to be working full time.” And unemployment is likely to continue rising.

Goldman recently repaid the $10 billion government bailout it had received. The “U.S. Treasury decided the bank was strong enough to survive without government support. The bank also … was a major beneficiary of the government’s $180 billion rescue of insurance giant American International Group Inc.” Marshall Front, chairman of Front Barnett Associates, is quoted as saying, “’It is definitely a politically charged issue, but one of the objectives of Goldman paying back the government was that it would be free to adjust compensation.’”

Goldman pointed out that “money set aside for pay surged 75 percent in the second quarter. Compensation and benefit costs were $6.65 billion, up 47 percent from the comparable quarter in 2008.” What’s more, only those accountable for the kind of profits Goldman has earned will receive large bonuses. Chief Financial Officer David Viniar said “the compensation figures reflected Goldman Sachs’ performance in the second quarter, adding that funds set aside for compensation could be lower in the second half if business deteriorates.”

Meanwhile, deterioration is the word for the country’s unemployment situation, especially in hard-hit states like California, Oregon, Michigan and South Carolina. The Times article coined a term for the latest stage in our economic downturn, following “the prologue, when credit markets began to quiver in 2007; the big shock, when the collapse of Lehman Brothers, in September 2008, led into almost six months of terrible economic news; and the stabilization, when the news became more mixed. Now comes Stage 4: the slog.”

As the term suggests, most people, especially the unemployed and under-employed, face a long forced march through a slow recovery. “After a decade in which household income barely outpaced inflation, a slow recovery could leave many people hard-pressed and frustrated. In just the last week, the Labor Department reported that the number of people filing new claims for jobless benefits dropped [link to: New York Times article July 10  2009 ] — but so did consumer confidence [link to: New York Times article July 11. 2009] and Mr. Obama’s approval rating [link to: Gallup article Juy 10, 2009]. Welcome to the slog.”

And the disparity between unemployment benefits and the $904,624 average annualized compensation set aside in the second quarter for Goldman employees? We might recall the opening of the F. Scott Fitzgerald story, ”The Rich Boy,” whose narrator begins ”Let me tell you about the very rich. They are different from you and me.”

Emaill John Hammond at

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