Round 1: Goldman Wins, Taxpayers Lose

Whitney's comments come ahead of what are widely expected to be blockbuster results for Goldman when it reports second-quarter earnings on Tuesday. The firm could produce quarterly profits exceeding $2 billion and is planning to pay annual bonuses of $18 billion, or $600,000 per employee, in 2009, The New York Times reports.

On the surface, this performance can simply be chalked up to Goldman's superior talents at trading and risk management, as well as its underwriting prowess. But, of course, nothing is so simple when it comes to Goldman, about which the conspiracy theories are circulating at an even faster-than-normal pace owing to:

• Matt Taibbi's controversial Rolling Stone article, which refers to Goldman as a "great vampire squid wrapped around the face of humanity."
• A recent attempt by a former employee to steal Goldman's proprietary "black box" trading software, which has yielding unsubstantiated stories about Goldman front-running NYSE trades to the tune of $100 million per day.
• Government Sachs: There's no denying there are a lot of former Goldman executives in government, supporting a view the firm gets favorable treatment from Uncle Sam.

This last issue is particularly sensitive now given the TARP funds Goldman received last fall - both directly ($10 billion) and as an AIG counterparty ($13.5 billion) - and since the firm now appears to be printing money again. There's still the unresolved issue of whether the government will make any return on what former Treasury Secretary and former Goldman CEO Hank Paulson called its "investment" in Goldman Sachs last fall.

As with other TARP banks, the U.S. government took warrants in Goldman in exchange for bailout funds. As "investors" in Goldman, U.S. taxpayers should therefore be pleased to see the company return to profitability so soon and so strongly. If that's the case, then I have no qualms about Goldman employees getting big bonuses as they have proven to be the fittest firm in the Darwinian world of Wall Street. 

But that outlook assumes the warrants will be either held to maturity or repaid at a valuation to reflect Goldman's renewed strength and stock price appreciation. As of Friday, Goldman had yet to repurchase its warrants and bailout monitor Elizabeth Warren has warned Treasury is undervaluing the securities across the industry.

In other words, the taxpayer looks likely to get the short end of the stick, again.