'Blowout Profits' for Goldman Sachs? Capitalism Ain't Supposed to Be Like This

Editor's note: this originally appeared on AlterNet's blog, PEEK.

A few short months ago Goldman Sachs was deemed too big to fail, and allowed to sink its fangs into the public vein. Not only did it receive direct assistance from lowly tax-payers like you and I, the gaggle of Goldman alumni that run the Treasury Department and implemented the Troubled Asset Relief Program funneled tens of billions to insurance giant AIG to assure that it could cover about 13 billion in Goldman's losses. Goldman paid back the TARP loans -- because caps on executive pay are a form of socialism, of course -- but is still making hay on the public dime, specifically on the sale of $28 billion worth of subsidized debt courtesy of the FDIC.

But today, as the New York Times put it, "up and down Wall Street, analysts and traders are buzzing" about the fact that Goldman is reporting "blowout profits" to the tune of $3.4 billion in the 2nd quarter. In a masterful bit of understatement, the Washington Post notes that "the New York investment bank profited from turmoil in the financial markets, the absence of former rivals and the continued support of the federal government."

It's good for Goldman's shareholders and great for its traders -- according to the WaPo, "Goldman said it set aside $6.65 billion for employee compensation in the second quarter." But for everyone else? Not so much. And not only because of the costs borne by the public, not only for the moral hazard this kind of crony capitalism represents, not just for the unfairness inherent in the pervasive reverse socialism we're seeing these days, but also because of the lessons that support has left unlearned. Protected from the fallout of their bad bets, Wall Street's casinos are open for business again. Just this week, Bloomberg reported that Morgan Stanley was trotting out another "collateralized debt obligation" backed by shaky loans that's again getting a AAA rating (if you have no idea what that means, see my piece from last October titled, "How Wall Street's Scam Artists Turned Home Mortgages Into Economic WMDs").

Now, let's just consider for a moment what's supposed to happen when businesses make catastrophic decisions, take on too much risk and get burned (never mind bringing down much of the global economy with them, as in the present case). We were told that if any of these "money center" banks failed, we'd end up living in a Mad Max-like dystopia, but let's think for a moment what other scenario might have played out had we just let the fuckers face the music.