Commentary: What Wall Street owes you

Editor's note: Janet Tavakoli is president of Chicago-based Tavakoli Structured Finance and the author of "Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street"
(Wiley, 2009), a book about the causes of the global financial
meltdown. Her company is a consulting firm for institutions and
institutional investors on derivatives, the securitization of assets,
and mergers and acquisitions. Her firm has done work for investment
banks but not for Goldman Sachs; she worked for the company in the
1980s.

Janet Tavakoli says Goldman Sachs' record profits were enabled by the taxpayer-funded bailout.

CHICAGO, Illinois (CNN) -- Goldman Sachs Group Inc. announced record earnings Tuesday of $3.44 billion for the second quarter of 2009.

Goldman's stock price leapt 77 percent for the first half of 2009, and closed Tuesday at $149.66 a share.

Without an ongoing series of front- and backdoor bailouts financed by
U.S. taxpayers, most of Goldman's record profits would not have been
possible.

In April 2009, Goldman Sachs' CEO, Lloyd Blankfein,
who received record salary and bonus compensation of $68.5 million in
2007, said that bonus decisions made before the credit crisis looked
"self-serving and greedy in hindsight." Now, they look self-serving and
greedy with foresight.

Goldman
set aside $11.4 billion for employee compensation and benefits, up 33
percent from last year. That's enough to pay each employee more than
$390,000, just for the first six months of this year.

In June,
Goldman bought back its preferred shares, repaying $10 billion it
received from the government's Troubled Asset Relief Program, or TARP,
and setting it free of limits on executive compensation and dividends.

But pay is not the key issue. U.S. taxpayers deserve a large cut of the
profits, not the chump change -- less than a half-billion dollars --
they got from preferred shares in the company and the relatively small
amount they could get from warrants in its stock.

U.S.
taxpayers should insist that a large part of Goldman's revenues and
profits belong to the American public. TARP money was just part of a
series of bailouts and concessions that allowed Goldman to prosper at
the expense of a flawed regulatory system.

In March 2008,
Goldman, a primary dealer in Treasury securities, was among the
beneficiaries of a massive backdoor bailout by the Federal Reserve
Bank. At the time, Henry Paulson, former CEO of Goldman Sachs, was treasury secretary.

In an unprecedented move, the Fed created a Term Securities Lending
Facility, or TSLF, that allowed primary dealers like Goldman to give
non-government-guaranteed "triple-A" rated assets to the Fed in
exchange for loans. The trouble was that everyone knew the triple-A
assets were not the safe securities they were advertised to be. Many
were backed by mortgage loans that were failing at super speed.

The bailout of American International Group, or AIG, ballooned from $85
billion in September 2008 to $182.5 billion. Of that money, $90 billion
was funneled as collateral payments to banks that traded with AIG.
American taxpayers may never see a dime of their bailout money again,
but Goldman saw plenty.

Goldman may be the largest indirect
beneficiary of AIG's bailout, receiving $12.9 billion in collateral,
including securities lending transactions, from AIG after the
government bailed out the insurance company.

The key question is
whether Goldman asked AIG to insure products that were as dodgy as the
doomed deal from Goldman Sachs Alternative Mortgage Products exposed by
Fortune's Allan Sloan in his October 16, 2007, Loeb Award-winning article: "Junk Mortgages Under the Microscope."

If the federal government had not intervened and if AIG had gone into
bankruptcy, Goldman probably would not have received its $12.9 billion
from AIG. U.S. taxpayers and the American economy are owed some of the
bailout money passed directly through AIG to Goldman.

Wall Street
firms also reaped trading windfalls when AIG needed to close out its
derivative transactions. This was the most lucrative windfall business
in the history of the derivatives markets. When AIG left money on the
table, it was U.S. taxpayer money.

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