From an investment newsletter:
Let me explain investment banking to you. It's real simple. You take a tiny bit of capital from suckers... er, I mean investors. Then you borrow against that capital by around 50 to 1. Then you gamble like crazy and try to earn 1% or 2% a year on the borrowed money. When you win, you pay 50% of the revenues to the employees and the managers. After all, they "made" the money. But when you lose, it's the shareholders' problem. And if you lose enough money, it's the taxpayers' problem. Sounds like a great business, doesn't it?
It boggles my mind that investors would actually choose, willingly, to invest in these companies under these terms. But like Barnum said, there's a sucker born every minute. Goldman recently raised $5 billion from suckers. Guess what it's doing with the money? Bloomberg reports the bank is ramping up its risk taking faster than any other bank on Wall Street...
Goldman Sachs's so-called value-at-risk, the amount the New York-based bank estimates it could lose from trading in a day, jumped 22 percent to $240 million in the first quarter, twice what Morgan Stanley stands to lose, company reports show. VaR climbed 2.8 percent in the same period at JPMorgan Chase & Co. and dropped 14 percent at Credit Suisse Group AG.
Guess what else Goldman is doing with the money? The bank set aside $4.7 billion for employee compensation in the first quarter. That's not a misprint. If compensation continues at that rate, Goldman employees would make an average $569,220 each this year ? just beneath the bank's record pay in 2007. What could the firm be doing that's so valuable to the economy it justifies this incredibly high rate of average compensation? Separating fools from their money is hard work.