[MarkPNeyer]

the bonuses are huge.

i started working at a small electronic trading shop in september 2008. the next january, they gave me a 60k bonus - after just 4 months of work. it was my first job, and i was still going to grad school 20 hours a week, and i was living in north carolina, where the cost of living is nothign compared to nyc.

so when you couple the fact that they get huge bonuses with the fact that the work they're doing has marginal value for society, if any at all, the sentiment makes perfect sense to me.

[thematt]

The bonuses are huge because the numbers are huge and not everybody can do it.

The so-called "marginal value to society" is relative. I might not think your job at the electronic trading shop provided much value to society, but that doesn't mean somebody else didn't. I would bet many of Goldman's clients feel they're providing a great value, otherwise they wouldn't be clients.

The only valid reason for people to be mad is because tax-payer money was used to provide them with liquidity during the financial crisis. That money has since been paid back (with interest), so I have no problem with Goldman paying out whatever they want to their employees now. In retrospect, I'm of the opinion the US government should have demanded equity in return for the loan, but that's water under the bridge at this point. I'm not a shareholder, so GS can pay whatever they want to their employees.

[SkyMarshal]

>The only valid reason for people to be mad is because tax-payer money was used to provide them with liquidity during the financial crisis. That money has since been paid back (with interest),

Was the $800B stimulus paid back? What about the two (and counting) rounds of QE the Fed has implemented (there will be consequences to such huge intervention, it's just not clear exactly what yet)? The financial crisis cost us a great deal more than just TARP.

[littlegiantcap]

The stimulus mostly went to states, I'm not sure if any of it even went to Goldman Sachs. I'm also not sure it's entirely fair to say 1 bank's compensation package should be called into question because of a worldwide recession. Let the shareholders decide what's appropriate.

[SkyMarshal]

It doesn't matter where the stimulus went, but the fact that it was needed at all to prevent (or forestall) a second Great Depression. Of course, the whole idea behind the stimulus was to keep people paying their mortgages so that the trillions of MBS's in the system wouldn't default and bankrupt the banks, pensions, and whatever else had bought them over the years. Basically, another form of bailout for the banking system.

[thematt]

Nonsense, it absolutely does matter. The government gave them money and they paid it back with interest, end of story. If you think the banks should continually be "punished" for some indeterminate amount of time as a result of economic conditions they may or may not have caused, then that should have been a condition of accepting the money...but it wasn't. So go complain to your congressman, your senator or your president, but as far as I can tell the recipients followed the letter of the law...so I have no bone to pick with them now.

[sp332]

"Marginal value for society"? Good thing they're not getting paid by society then. If you're not a shareholder, I don't think you get to complain that other people are giving these people money.

[Anti-Ratfish]

Not that up with US stuff, but didn't GS get money from the government during the AIG bailout? If so, doesn't that give every one in the US complaining rights?

[sp332]

Yeah I guess :) But GS paid the money back now, I'm not sure how much preferred stock the USA still owns in GS.

[SkyMarshal]

They paid TARP back but not the AIG backdoor bailout, iirc. That's the reason for the continuing brouhaha over AIG - Goldman (and other AIG counterparties) got 100% of what they had at risk with AIG, no haircut, all via the US govt bailout, and didn't pay it back (b/c it wasn't paid directly to them in the first place, hence 'backdoor' bailout).

[TruthElixirX]

The government robbed us, gave it to GS, and then GS pays the government back and the government blows up brown people.

What a win for the U.S. tax payer!

[mistermann]

Their profits have to come from somewhere, and a lot of those profits come from their trading activity in the markets, and for them to extract money from that, then the other participants in that market (myself, and "society") have to be losing it.

[MrMan]

Do you think it might be possible that moving that money between market participants is actually a good thing? Let's say someone decides to put 10% of their fortune into a hedge fund and the fund goes to zero. Is that worse than just giving 10% of your money to the church? The children of the limo drivers, pilots, fund administrators, sales desk people, all deserve to eat (in my opinion).

This is not a frivolous reply.

[cims]

You do realize that the bonuses are paid to practically all staff, right? That includes IT, HR, Legal, Personal Assistants, and so on. So by your logic it's only OK for banks to pay bonuses to staff who do something that benefits society? Or banks shouldn't pay bonuses at all? What about consultancy firms or other large companies that pay bonuses?

[MarkPNeyer]

my point is that electronic trading provides very little, if any benefit to society.

the usual argument they make is that they are 'adding liquidity' to the markets - which means that they make it easier for buyers to find sellers. electronic trading is an arms race - the guy who gets there first gets most (if not all) of the profit. so a ton of money is spent trying to be the first guy to get there.

for something like a house, adding liquidity is awesome, by saving time for both buyer and seller. for something like a spread contract, though, you could argue the reverse - a spread is complicated financial instrument, and nobody can really be certain how much it's worth. by adding liquidity, you're making it much easier for people to exchange items of dubious value.

in other words, market makers (which is what we were doing) provide the 'service' of reducing the bid-ask spread of given contracts. that spread is really a measure of uncertainty - the larger the spread, the more disagreement there is about how much the contract is worth. by reducing spreads, the market makers are saying 'we are more certain about the value of this option than the rest of the market is.'

if you believe that someone can know the value of an option that expires in three months, accurate to three decimal places, then yes, it does make sense that the market makers are adding value to society. but if you believe that the market makers are possibly overstating their level of certainty, then what they're doing is adding a false sense of certainty to the market.

when you then take into account that the extra liquidity means that people can trade these wildly complicated financial instruments in microseconds, the 'we are helping the world by adding liquidity' argument gets even more absurd. does the world really benefit as a result of people who want to buy pork belly futures being able to find a seller within microseconds of deciding to buy, instead of minutes or even hours later? is that benefit really enough to justify the enormous amount of compensation given to the people who make such a thing possible?

so the question you have to ask yourself is this: is it better to underestimate how much you know, and take longer to make decisions, or is it better to overestimate how much you know, and make your decisions much faster?

[MrMan]

So by the content of this post I will guess that you only worked at a trading firm for a year or two?

Narrower spreads by definition make the coordinates of that forward price known with more certainty. By definition and by construction. It is not hubris for the market to think it knows that price -- that's the price.

I wish people would stop selectively questioning some post-modern economic constructs, like buying and selling derivatives, then conveniently ignore how the company that wrote Go buys and sells.... search terms! And eyeballs! How else are we all going to eat when farms and factories are all automated? Luddite.