Goldman Sachs to make record bonus payout – World Bank report on rest of global economy is grim

The financial news was mixed today – Excellent for Goldman Sachs, and absolutely lousy enough for everyone else to send the stock market, particularly commodities, tumbling. The Good Ship Hope that sailed when Obama was elected has hit its first snag.

Goldman to make record bonus payout

Surviving banks accused of undermining stability
Phillip Inman
The Observer, Sunday 21 June 2009

Staff at Goldman Sachs staff can look forward to the biggest bonus payouts in the firm’s 140-year history after a spectacular first half of the year, sparking concern that the big investment banks which survived the credit crunch will derail financial regulation reforms.

A lack of competition and a surge in revenues from trading foreign currency, bonds and fixed-income products has sent profits at Goldman Sachs soaring, according to insiders at the firm.
…..
David Williams, an investment banking analyst at Fox Pitt Kelton, said: “This year is shaping up to be the best year ever for investment banks, or at least those that have emerged relatively unscathed from the credit crisis.

“These banks are intermediaries in the bond markets where governments and companies are raising billions of pounds of new money. There is also a lack of competition that means they can charge huge sums for doing business.”

Last week, the firm predicted that President Barack Obama’s government could issue $3.25tn of debt before September, almost four times last year’s sum. Goldman, a prime broker of US government bonds, is expected to make hundreds of millions of dollars in profits from selling and dealing in the bonds.

Evidence for the trickle up to GS theory could not have been more timely, for today the World Bank issued a report on the state of the world economy that was at best, grim, and the alternate prognostications were catastrophic. It’s no wonder the markets responded the way that they did.

World Bank: Prospects for the Global Economy

The financial crisis that erupted in September 2008—following more than a year of financial turmoil—has become a global crisis for the real economy.
Economic activity in high-income and developing countries alike fell abruptly in the final quarter of 2008 and in the first quarter of 2009.

Unemployment is on the rise, and poverty is set to increase in developing economies, bringing with it a substantial deterioration in conditions for the world’s poor and most vulnerable.

High frequency indicators vary distinctly by country at the moment, however, with data for the United States and China more suggestive of economic revival than those for western Europe and other developing regions.

Moreover, several factors point to continued weakness.
Unemployment continues to rise throughout the world, housing prices in many countries are still falling (adding to negative wealth effects), bank balance sheets are fragile, and much more consolidation and recapitalization required.

As a result, the timing and strength of the eventual recovery in the global economy remain highly uncertain.

……
The baseline scenario presented in this edition of Global Development Finance depicts a much more subdued recovery than during a normal recession, partly because this downturn follows a financial crisis—which tends to be deeper and longer-lasting than normal ones—and partly because today’s downturn has affected virtually the entire world, precluding the more typical scenario where recovery from a more geographically isolated downturn is at least partly achieved by exporting to healthier and more rapidly growing countries. …..

Banking sector consolidation, continuing negative wealth effects, elevated unemployment rates, and risk aversion are expected to weigh on demand throughout the forecast period.

……. unemployment, and disinflationary pressures are projected to build over 2009 to 2011.

A more robust recovery is possible, fueled by the substantial fiscal, monetary, and sectoral initiatives that have been put into place.
So too is a much weaker outcome.

In the latter scenario, the drag of the financial sector on economic growth, which is a key feature of the baseline, is projected to be more intense….

Money get back
I’m all right Jack
Keep your hands off my stack

Money, it’s a hit
Don’t give me that
Do goody good bullshit

I’m in the hi-fidelity
First class traveling set
And I think I need a Lear jet

Pink Floyd, “Money”