08/17/2009 05:12 am ET | Updated May 25, 2011

Goldman Sacks and Plunders

This week the headline should have read: "Goldman Sacks America's Taxpayers" instead of Goldman Sachs posts a US$3.88-billion quarterly profit.

The Wall Street firm's workers are licking their lips at the thought that the firm has set aside enough money to pay out billions in bonuses this year, equivalent to US$770,000 per worker. This is pretty shocking, even by Wall Street standards, given the fact that the firm's profits derive from direct and indirect taxpayer bailouts forked out by Mr. and Mrs. Average American Taxpayer.

Goldman this week defended itself by reiterating the fact that it received US$10 billion in TARP bailout money last year to avert bankruptcy but has repaid that amount in full.

The whole truth...

That is true but that's only a fraction of the bailout.

Goldman received an estimated three times' more, or US$30 billion, in an indirect bailout which was funneled through bankrupt insurer AIG.

Washington bailed out AIG's counterparties, to whom it owed hundreds of billions, because AIG had sold to them unbacked credit default swaps (a form of insurance on bond values). Goldman was not only ahead of the queue in collecting its IOU, but is reported to have gotten 100 cents on the dollar to boot.

Goldman was made whole even though it is arguable that it was imprudent to buy these swaps which were not actuarially approved and had no capital behind them as insurance products are supposed to. Even so, Goldman and AIG's other foolish customers got backstopped for lousy business practices.

The point of all this is that Goldman Sachs cannot argue that the proceeds it received from the AIG rescue did not constitute an indirect bailout any more than can auto parts makers who are saved by Detroit's bailout.

Goldman Sachs, like other indirect beneficiaries, should pay back all tax dollars funneled through AIG out of profits.

Scandal at the root of it all

The Goldman shenanigans marks a low point in Republican cronyism and represents the biggest single Bush bungle if you don't include in the list of misdeeds the 4,000 dead and US$3-trillion unnecessary war in Iraq.

The Goldman-AIG bailouts were inked during a panicky weekend last September after the firms, plus Lehman Brothers, told former U.S. Treasury Secretary Henry Paulson they were broke.

Paulson should have never been appointed in the first place because he had conflicts of interest after pocketing hundreds of millions a handful of years before as CEO of Goldman Sachs.

But he was. So having been put there, he should have recused himself from any fiduciary dealings involving public funds aimed at replenishing the coffers of his old firm and buddies that still worked there.

Likewise, he should have recused himself from dealing with his and Goldman's arch rival, Lehman Brothers. But he didn't and handed over the keys to the investment banking kingdom to Goldman and refused to help Lehman. By so doing, he turned the crisis into a full-blown catastrophe.

Frankly, the Obama regime and Congress should put a lien on Goldman Sachs, and any other AIG counterparties, then negotiate reasonable repayment terms.

Diane blogs at Financial Post