In yesterday’s “Dealbook” column in the New York Times, Andrew Ross Sorkin wrote that Goldman Sachs is headed for record bonuses and is thinking about making a $1B charitable contribution as a way to deflect criticism.  That to me seems to fall far short of what they should do.  First, a one-time charitable contribution is a case of “So fuehlt man Absicht und man ist verstimmt” (Goethe), which translates into “one senses the intention and is annoyed."  Charitable contributions will only make a difference in perception if they are a long-term ongoing commitment to give away a non-trivial portion of money that would otherwise be available for bonuses.  In other words, Goldman Sachs needs goldmansachs.org! Funnily, if you go to goldmansachs.com today, there is a huge page touting the number of hours of community work they have done, which is 134,247.

Second, Goldman Sachs should sock away a big chunk of the potential bonus money to further improve the capital reserves of the business.  Goldman continues to generate significant portions of its earnings from proprietary trading and from taking on big risks.  If we (should) have learned one thing from the most recent financial crisis, it is that our models of risk stink.  One way to guard against that is to simply have much bigger safety margins and in financial services that means stronger reserves.

If Goldman Sachs did those two things, they could still afford to pay hefty bonuses (by which I mean on average many hundreds of thousands of dollars, which of course translates into many millions for some employees). But they would stand a chance of actually looking decent in the process.

In yesterday’s “Dealbook” column in the New York Times, Andrew Ross Sorkin wrote that Goldman Sachs is headed for record bonuses and is thinking about making a $1B charitable contribution as a way to deflect criticism.  That to me seems to fall far short of what they should do.  First, a one-time charitable contribution is a case of “So fuehlt man Absicht und man ist verstimmt” (Goethe), which translates into “one senses the intention and is annoyed."  Charitable contributions will only make a difference in perception if they are a long-term ongoing commitment to give away a non-trivial portion of money that would otherwise be available for bonuses.  In other words, Goldman Sachs needs goldmansachs.org! Funnily, if you go to goldmansachs.com today, there is a huge page touting the number of hours of community work they have done, which is 134,247.

Second, Goldman Sachs should sock away a big chunk of the potential bonus money to further improve the capital reserves of the business.  Goldman continues to generate significant portions of its earnings from proprietary trading and from taking on big risks.  If we (should) have learned one thing from the most recent financial crisis, it is that our models of risk stink.  One way to guard against that is to simply have much bigger safety margins and in financial services that means stronger reserves.

If Goldman Sachs did those two things, they could still afford to pay hefty bonuses (by which I mean on average many hundreds of thousands of dollars, which of course translates into many millions for some employees). But they would stand a chance of actually looking decent in the process.