Goldman's Fabulous Quarter

Even more fabulous than the sky-high forecasts, as Clusterstock lays out.  This is not actually hugely surprising, given that three of their biggest competitors went out of business or were acquired in the last year; as financial markets unfroze, Goldman, which had one of the cleanest balance sheets, was bound to see a hefty increase in their profits.

Still, the populists are bound to make hay out of this, and it's hard to blame them.  It is true that Goldman probably did not need the federal funds it accepted; Bernanke and Paulson pushed healthy banks to take funds as well as sick.   The idea was that if only the sick banks got money, that would send a strong signal to the market that they were in danger, and trigger the very run the feds were trying to prevent.

On the other hand, as Matt Yglesias and others have pointed out, whether they want to be or not, banks like JP Morgan and Goldman have gotten a great deal out of the government interventions.  For starters, they were the first and biggest beneficiaries of having the financial markets not collapse.  And now they enjoy an implicit guarantee that Uncle Sam will not let them fail because they are simply too important.  That is a very valuable and profitable guarantee to have.

I genuinely don't know what to do about this.  The libertarian answer is that the government should make a credible committment not to bail out banks.  I'm pretty sure that's a bad policy idea, but leave that aside; the government can't make that committment, because politicians cannot committ their future counterparts to action.  And I guarantee that if there is another crisis, politicians will intervene rather than risk another Great Depression.

Nor is the answer simply regulation.  A lot of that revenue is perfectly sound, boring stuff we want them to do, like underwriting equities.  I don't know where the government would get the legal authority to cap either their volume, or the salaries they pay their workers.  But that doesn't stop it from rankling.