The striking thing about Goldman Sachs’ profits isn’t so much that Goldman is making so much money as it is that, as Kevin Drum observes, the money is basically all coming from trading. It’s not that they’re bringing in big bucks doing investment banking or giving financial advice. They’re just gambling. And winning.
But what if they lose? For all we know, they’re actually making really unsound bets. Imagine putting $1 down on a lottery where there are 100,000 possible outcomes. In 99,999 of those outcomes, you win $3. But if that 100th ball comes out, you lose $1 billion. That’s a terrible bet. But you could still put a nice long winning streak together making that bet. You could earn a lot of money. Now you’d never do it with your own money on the line. But suppose you could do it with your company’s money, and then pay yourself an annual bonus based on the profits, and know all along that if you ever wind up with the bad outcome that Uncle Sam is going to bail you out.