Skip to main content

Sign up for our newsletter.

Quality journalism. Progressive values. Direct to your inbox.

Detroit and Goldman Sachs: Makers and Takers

Dean Baker

 by Beat the Press

By now everyone has heard about Detroit's bankruptcy. One of the big bills in the city's payable box is the $3.5 billion in unfunded pension obligations. The story in many people's minds is that overly generous public sector wage and benefit packages pushed the city over the brink.

It's worth looking at this one a bit more closely. According to the city, the average retiree gets a pension of $18,275. That's better than many workers, but $1,500 a month in pension benefits will not put anyone on the Riviera. That's coupled with pay that averages less than $42,000 for active city workers. (They accepted a 10 percent pay cut last year.)

It's often difficult to get a sense of the meaning of numbers without a base of comparison. In order to know whether Detroit pensions are a lot or a little we can compare them to the pay at an organization that gets substantial support from the government, Goldman Sachs.

If people didn't realize that their tax dollars were going to boost the profits and pay at Goldman that's probably because it is not an explicit line in the budget. The way the government supports Goldman in its various activities (it was in the news yesterday for jacking up aluminum prices through market manipulations) is by providing it implicit insurance.

This insurance takes the form of the famous "too big to fail" guarantee. There is a widely held belief among investors that if Goldman's deals threatened to put the bank into bankruptcy, as happened in 2008, the government would step in to bail them out, as it did in 2008. As a result, investors are willing to lend banks like Goldman Sachs money at below market interest rates.

Bloomberg News estimated the size of this subsidy to the banks at $83 billion a year. This money translates into higher profits for banks like Goldman Sachs and higher pay for its top executives.

This sets up an interesting comparison, the subsidized pay of top executives at Goldman Sachs with the pensions of Detroit public employees. The graph shows the hourly wage of Goldman Sachs CEO, Lloyd Blankfein, based on his reported 2012 compensation of $13.3 million. (It was $16.2 million in 2011.) Assuming a 40 hour workweek (I know that Mr. Blankfein must work more than this), his compensation comes to $6,650 an hour. This means that in three hours he will earn more than a typical Detroit retiree gets in a year.

baker-2013-07-22

We can also make the comparison of Detroit pensions to Goldman Sachs more generally. Goldman Sachs profits in the last quarter were $1.93 billion. This means that if the bank sustains this rate of profitability its profits over two quarters would exceed the $3.5 billion unfunded liability of the Detroit pension system. It seems that there is much more money in being a government subsidized too big to fail bank than in being a declining industrial city.


This work is licensed under a Creative Commons Attribution 4.0 International License
Dean Baker

Dean Baker

Dean Baker is the co-founder and the senior economist of the Center for Economic and Policy Research (CEPR). He is the author of several books, including "Getting Back to Full Employment: A Better bargain for Working People,"  "The End of Loser Liberalism: Making Markets Progressive,"  "The United States Since 1980," "Social Security: The Phony Crisis" (with Mark Weisbrot), and "The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer." He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues.

We've had enough. The 1% own and operate the corporate media. They are doing everything they can to defend the status quo, squash dissent and protect the wealthy and the powerful. The Common Dreams media model is different. We cover the news that matters to the 99%. Our mission? To inform. To inspire. To ignite change for the common good. How? Nonprofit. Independent. Reader-supported. Free to read. Free to republish. Free to share. With no advertising. No paywalls. No selling of your data. Thousands of small donations fund our newsroom and allow us to continue publishing. Can you chip in? We can't do it without you. Thank you.

Progressives Applaud as Biden Signs 'Landmark' IRA Into Law

The bill is "a start to, not the culmination of, our work to reduce global warming pollution and ensure clean air, clean water, and the preservation of open spaces," said one climate campaigner.

Julia Conley ·


News Outlets, Press Freedom Groups to DOJ: Don't Let GOP States Criminalize Abortion Coverage

"We ask that you publicly reiterate the press freedoms granted under the First Amendment, and remind states that they cannot infringe on those rights when news outlets write about abortion."

Kenny Stancil ·


'Massive Win': Court Rules Transgender People Entitled to Disabilities Act Protections

Plaintiff Kesha Williams "plausibly alleged that gender dysphoria does not fall within the Americans With Disabilities Act's exclusion," an appeals court found.

Julia Conley ·


'Terrific Win for Consumers': Biden FDA Clears Way for Over-the-Counter Hearing Aids

"This is such an important move that will change lives," said the Congressional Progressive Caucus.

Jake Johnson ·


Saudi Arabia's Enablers Condemned as Woman Sentenced to 34 Years for Tweets

"Saudi activists warned Western leaders that giving legitimacy to the crown prince would pave the way for more abuses, which is unfortunately what we are witnessing now."

Brett Wilkins ·

Common Dreams Logo