tenuous at best

Goldman Sach's (GS) rapid re-entry into the black is more a reflection of the US Government's absolving of extraordinary mistakes than good management on GS's part.

GS was given a free pass by the previous Secretary of the Treasury Hank Paulson (also the former Chairman and CEO of GS) through the Troubled Asset Relief Program (TARP). The TARP was set up to mop up the toxic assets that had been brewing over the last few years that resulted in two of GS biggest rivals collapsing. The free pass that GS received illustrates the concept of moral hazard. Moral hazard is the idea that a person or company will behave differently if they're not fully accountable for risk that they take. Like the risks that GS took in selling sub-prime mortgage backed securities which they knew couldn't be paid back; and also the $20 billion in AIG backed Credit Default Swaps . Had AIG been left to fail, GS would have failed on the back of $20 billion exposure. Instead AIG was forced to payout the toxic credit default swaps to GS thereby ensuring their future of continual high risk taking. Why would anyone, bank or otherwise, worry about all this risk aversion nonsense when you can carry on with high risk activities and get a state handout when it collapses.

Perhaps they were too confident or not confident enough?

This whole conundrum reminds me of the drug that is being developed that is able to dull bad memories. The drug would be great to treat people with post-traumatic stress disorder but if misused it could lead to a greater problem; actions without consequence. Would someone be more inclined to commit evil acts if they knew that the act could be erased? I don't think it would make a difference to morally good or morally bad people because the good people still wouldn't act immorally and the bad people are going to act immorally anyway. I think it would have the greatest influence on people who are border line. People who would think if they do a small thing they can just erase the bad memory of the act and relieve themselves of the guilt.

As a sidenote GS's funds set aside for employee remuneration is currently sitting at $22.7 billion annualised. With 29,400 employees that's an average remuneration of $772,925 per employee. Pavlov's dog must be spinning in his grave. "What's that Pav-dog? You mauled that elderly person to death? That's ok Pav-dog. Have this treat; and there is plenty more where that came from!"