Goldman Sachs, one of the world’s largest banking and investment firms, announced record profits of 3.4 billion dollars last week. How could a bank go from needing a $10 billion government cash infusion just months ago to raking in trading revenues of $6.8 billion, almost three times the $2.4 billion they made in the same quarter last year?

And why does Goldman always come out ahead after every market debacle? Yes, it has smart traders and a brilliant franchise. But a growing number of observers believe that Goldman ensures its success more insidiously. In a cover story for Rolling Stone, investigative reporter Matt Taibbi breaks down exactly how Goldman, with a little help from some former Goldman chiefs who happen to control the U.S. Treasury and Federal Reserve Bank, manages to cash in on every recent market meltdown.

To be fair, in strict profit-and-loss terms, Goldman Sachs consistently outperforms its banking peers. They strategically remain tight, nimble and opportunistic, enabling them to jump into an oversold market and scoop up underpriced securities while others are ineptly selling out huge positions in oversold markets that buyers have all but abandoned. In just one example, as Ben White notes in the Financial Times, Goldman CFO David Viniar sought to dramatically reduce his firm’s overall exposure to the mortgage securities market in December 2006, far before anyone began to predict the collapse of the overall mortgage market. This savvy move enabled them to avoid the unprecedented losses of many large banks, which ultimately led to the current financial mess.

And Goldman, for its part, has paid back the money they borrowed from the U.S. Government under the Troubled Assets Relief Program (TARP). So why should we care whether they bring in “windfall profits,” if they are supposedly on their own now?

Because while they did return the TARP money, the company has also accepted other government subsidies that have not been repaid.

In just one example, they are still reaping the financial benefits of the Temporary Liquidity Guarantee Program (“TLGP,” just rolls off the tongue, eh?).  The FDIC guaranteed debt issued by Goldman during the financial crisis last fall, to the tune of $29 billion. This federal guarantee allows Goldman to pay a much lower interest rate on these notes than they pay on their own corporate debt — something Andrew Bary of Barron’s calculates as a government gift of approximately $600 million. Goldman could pay off this debt (using, say, some of its recent eye-popping profits), but instead they seem happy using this government subsidy to pad their substantial revenue stream, while publicly playing the role of the fiercely independent corporate leader.

And now, behind the scenes, it turns out Goldman is even trying to renegotiate the terms of the warrants they issued to the government in return for its bailout. When the Treasury stepped in to rescue the banking system with its giant TARP cash payouts, the banks gave the government stock warrants in exchange. Warrants give the holder the right to buy shares of its stock at a specified price, which benefits the holder as the bank’s stock price rises. Goldman could take the high road and let the government determine the “fair market value” of these warrants, notes Fortune‘s Allan Sloan. Sloan reported this week that the firm instead wants to buy back the warrants at a discount  — minimizing the already limited upside the government would reap in exchange for the immense subsidies given during the crisis.

Goldman Sachs outwardly portrays itself as a self-reliant entity, determined to throw off the shackles of government intervention. Behind the scenes, however, it takes advantage of our government’s good-faith attempts to stabilize the global financial system. While claiming no need for government assistance, behind closed doors it continues to extract from the government any advantage it can, wilting Goldman’s façade as the independent, free-market titan it wants us to see.

Kathleen Rogers has been a journalist for CNBC and Time Warner, a securities trader and market maker with Bankers Trust in both equities and government securities, and a newsletter editor/publisher. With her B.S. and M.S. degrees in engineering from Stanford, Rogers knows when a structure is well-built, and when, as with many popular financial schemes, it’s only built on wishes and fancy math.

Start the conversation

This site uses Akismet to reduce spam. Learn how your comment data is processed.