<p>Goldman is less profitable because the markets they operate in are less profitable, even with the market recovering there just is less profit in the markets, swings are unpredictable and in the markets where Goldman made a lot of money, specifically in derivatives trading in things like Credit Default Swaps, the volume just isn’t there as it was before the 2008 crash. Goldman also is still feeling the consequences of the 2008 meltdown, of which they were a major player (despite what they claimed). Goldman had been a big player in the CDO market that directly led to the financial collapse, and they were the beneficiary of 10’s of billions of dollars in payouts on credit default swaps issued against risky (and some potentially fraudulent) instruments they created that came from the government bailout of AIG and other financial institutions (I believe the number was between 15-20 billion off the top of my head). </p>
<p>Yeah, I have heard that Goldman’s problems are all Obama’s fault, that the restrictions put in after the 2008 meltdown and such are the cause, but that is political propaganda, not fact in most cases. Among other things, the kind of restrictions proposed by the Volcker rule have not gone into effect and likewise while it was passed, Dodd-Frank has still not been implemented by the regulatory agencies, including limits on proprietary trading that could potentially impact them. Goldman’s problem is that the areas they made a ton of money in, specifically derivatives and hedge fund trading, is moribund across the board. </p>
<p>I think the OP is on the right track with his complaint and it isn’t just Goldman, the problem is that the whole concept of ‘shareholder value’ has become perverted, where the price of the stock is everything. The problem is to boost stock price basically means impressing wall street analysts. Among other things, it causes companies to look at the next quarter, rather then years down the road, and also leads them to do things that in the short term will boost the price, but in the long term will hurt investors (like the stock purchases the OP mentioned). It is why companies that are profitable will lay off thousands of workers to cut costs, and then not bother to wonder who will buy their product or service, it is a short term, greed driven view of things.</p>
<p>Nowhere is this more evident then executive compensation, executives have every interest in boosting short term profits, even if it hurts them in the long term. Once upon a time executive compensation was cash salary plus cash bonus, today the bulk of their compensation is tied to stock grants and options. In theory, that should make them in effect an owner of the company and promote rational management, but unfortunately it doesn’t. When executives receive options and restricted grants they tend to vest in the short term (unlike employee stock plans that tend to be vested over multiple years), a year or so, and as a result they can have 10’s or hundreds of millions in boosting the stock price in the short term…and how do you boost the stock price? You please stock analysts and how do you do that? You beat quarterly estimates…and how do you do that?In lieu of boosting revenue, you cut costs, which often means cutting people and capital and research investment. Wall Street analysts (usually a bunch of 20 something types from top business schools with finance degrees i.e don’t know reality from fantasy) pour over the financial returns and he who beats estimates is gold, period…meanwhile, said actions could hurt the long term future of the company, but what 27 year old thinks that way (the analyst I mean). </p>
<p>Basically, the compensation system rewards taking huge risks (what old Greenspan testifying in front of congress said “flabbergasted him” in how stupid the risks the financial companies took) and gutting the future for today and that hurts investors, because eventually the house of cards falls. Unfortunately, options and stock grants are very attractive, because the reporting rules as far as I know still doesn’t require reporting them as charges against revenue (as salary and cash bonuses are) but are fully deductible on taxes as if they were cash. It allows them to pay a CEO 10’s of millions of dollars in compensation, for example, without upsetting the wall st analysts since in effect it cost them nothing in terms of the revenue/profit stream.</p>