Would They Rather Banks Lose Money?

After Goldman Sachs recently reported strong quarterly earnings and accordingly accrued higher amounts for year end bonuses, many commentators and politicians on the left became apoplectic. While the complaints varied, the basic gist was: it was wrong for Goldman to pay large bonuses after receiving TARP funds last fall.

First, some firms who took TARP funds did so at the insistence of the Treasury Department, which feared that if just weaker firms took the money, their could be greater instability in the financial system as customers and investors avoided doing business with the weaker firms. Note that when firms like Goldman Sachs and JP Morgan wanted to repay the TARP money this spring, the government initially hesitated.

Such hesitation flies in the face of those who believe TARP funds were a "giveaway" to the banks - if it was such a good deal, why did the banks want to return the money and the government hesitate to take it back?

Second, many claim they want Wall Street compensation practices to change to "pay for performance". Aside from the fact the Wall Street bonus arrangements have always sought to do just that, if a firm makes a lot of money, is it any surprise that it is going to pay higher bonuses?

Third, if Goldman and other firms don't pay higher bonuses when markets turn for the better, they will lose employees to other firms. Such a loss of talent will cause such firms to be less profitable or unprofitable. And if there is anything that we should have learned this past year, if it wasn't obvious before, we are all much better off if businesses make money than lose money - and the more money, the better. Business profit is the driver of economic growth, since it encourages firms to hire more workers, pay greater compensation, and invest in new activities.

And if the left doesn't get that, and many seem not to, they are no friend of prosperity.