The Orphan Month

by R. Hurst on May 26, 2011

in Capitalism's Welfare Babies,Subversive

Last night I began to read Money and Power: How Goldman Sachs Came to Rule the World
and bought Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America (both which I hope to review on this blog) and printed the Levin report on Goldman Sachs fraudulent activities. I also watched Too Big to Fail on HBO on Monday night. Simply, I have spent a lot of time thinking about and consuming information about how these criminal organizations have defrauded their clients and the American taxpayer.

All this information has brought the “Orphan Month” back to the front of my mind. I am sure many of you have heard of it – in 2008 when changing their classification from “investment bank” to “bank holding companies” in order to access money from the Federal Reserve (something that other banks did at the same time as well), Goldman Sachs also changed their calendar year. This change ended up making December 2008 a month that fits in neither fiscal year 2008 nor fiscal year 2009 – it is, in essence, an “orphan.” And while the financial statement would lead you to believe that this orphan month lived a life like Oliver, the crooks at Goldman Sachs treated themselves like Annie when she lived with daddy Warbucks.

All this talk of “Orphan Months” was the byproduct of a live-blog of the Q1 conference call by Floyd Norris who drew attention to the rogue month by writing the following:

Goldman’s 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman’s earnings statement, and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ended in February.

The orphan month featured — surprise — lots of write-offs. The pretax loss was $1.3 billion, and the after-tax loss was $780 million.

Would the firm have had a profit if it had stuck to its old calendar, and had to include December and exclude March?

We’ll see if they discuss that.

Despite having the worst month in the company’s history, the execs at Goldman thought they deserved bonuses valued $600million above their total pre-tax losses:

Add it all up, and the various stock-related grants given in one month of 2008 (we’re not including annual bonuses here) were worth $1.9 billion at the time, and are worth somewhere in the neighborhood of $7.6 billion now.

Remember that December 2008, when Goldman made these grants, was the worst month in the company’s history: it lost $1.3 billion, and was mired in the depths of the financial crisis. Yet many partners will have received stock and options awards that month which are worth hefty eight-figure sums today. Not bad for a month’s work.

What a great group of honest guys! Great work! Nothing to see here – move along. A good quarter for Goldman in the midst of a financial crisis is just the bit of good news that the American people want to hold on to! Felix Salmon wrote at the time:

I suspect that when it comes to bonus time at Goldman, December 2008 will never matter. The 2008 bonuses will be paid based on the 2008 fiscal year, while the 2009 bonuses will be paid based on the 2009 fiscal year. And those $1.3 billion of losses in December — losses which will never show up in any annual report — will be conveniently ignored by the compensation honchos.

This was written before it became clear that Goldman didn’t consider making compensation packages based on December 2008 company performance because they compensated themselves for the month of December alone! So, some at Goldman, probably partners and senior execs, received large bonuses in 2008, December 2008 and 2009? This deserves an SNL, Really?!? Goldman Sachs segment. After fraudulently exploiting (not according to me, according to the SEC and Senate) a financial crisis that they were instrumental in creating and, despite their assertions, brought to their knees by only to be rescued by the Federal Government, Goldman Sachs gave themselves 3 bonuses in 2 years for their superb performance! Let’s put that in some perspective – the value of the bonuses (just for December 2008) now is $7.6 billion – roughly the equivalent of 152,000 teachers salaries making $50,000 a year. Lets add these 2008-2009 bonuses up: FY 2008 $6.8B, Dec 2008 (non adjusted) $1.9B, FY 2009 $16.7B – a grand total of $25.4B! The equivalent of 508,000 teachers’ salaries at $50,000 a year. 508,000 is 3.7% of the total number of people unemployed due to the recession. That might not sound like a lot but the bonuses of, assuming everybody at Goldman receives a monetary pat on the back, 30,000 people over a two year period (again not their salaries their bonuses) are roughly equivalent to what you could pay 508,000 teachers in one year if you paid them $50,000 each (the average teacher makes about $46,000).

All that compensation and all they had to do was create a crisis that nearly destroyed the global financial system. As if their catastrophic contributions were insufficient, they decided to sneak in an extra bonus in December 2008 because they did such a great job. CNBC wrote:

It turns out that it wasn’t just losses that were stuffed into the orphan month. So were the stock and options awards. The effect of this seems to have been that the award went largely unnoticed.

I am no legal expert and would not suggest that anything about this behavior was illegal, although the ethics of taking billions of dollars in TARP money and low interest money from the Fed (essentially from taxpayers)to save the institution from collapse while stuffing a somewhat unreported month with huge losses and bonuses that exceed said losses are questionable at best, but shouldn’t we at least have a national conversation about whether or not this type of behavior should be legal? Is there no way that the taxpayer can ensure that their money, whether funneled through AIG or forced upon insolvent institutions, is not just doled out to Ivy league trust fund babies that graduated in Mongolian literature only to become a Goldman Sachs leech employee? Is there not something that we can do to ensure that this type of irresponsible behavior never happens again? Is there any reason why the new financial regulation legislation passed with so little public debate? I think now that the worst of the storm has passed, we need to have this debate. I hope that the 2012 campaign is about bailouts, banking and corporate welfare. I hope that we can have an honest discussion about how and why some institutions and people are above accountability and the law. It really is too bad that the Tea Party has been co-opted by crazies, racists and big moneyed partisan Republican activist groups – because I would be ready to walk the Mall with them on this issue.

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