It seems like yesterday that the government was bailing out Goldman Sachs (ticker: GS) along with a number of the largest banks.  A doomsday scenario was about to unfold, and everyone was in panic after Lehman Brothers unexpectedly collapsed.

Today the situation seems quite different.  Goldman Sachs is dominating its competition in terms of profitability, posting obnoxiously high earnings given its uncertain future not-so-long ago.  Goldman also recently repaid its $10 billion in TARP funds to the government, and its stock price is up 78% this year.  On the surface, it seems that any investor would be a fool not to fall in love with Goldman as assumed heir to the Wall Street throne.

It is not a secret that Goldman Sachs is controversial.  Its traders are widely known among the broader financial community as the “bandits of Broad Street.”  There is an entire blog dedicated to the “evil” of Goldman Sachs – goldmansachs666.com.  According to the New York Times article, “For Goldman, A Swift Return to Lofty Profits,” an unnamed rival executive called Goldman traders “orcs,” and an opinion piece in the guardian asked the question “Is Goldman Sachs A Blood-Sucking Vampire Squid?”  An article which itself is a reference to a damning Rolling Stone article that begins as follows:

The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

So — is it really a vampire squid?

Probably.

One thing is apparent regardless of whether or not Goldman is going to be successful in the future – Goldman’s management has decided that nothing needs to change within its corporate culture.  One must respect a company that can so clearly shake off near-collapse and return to its former glory.  Despite the financial crisis, Goldman believes that its bet-the-house-and-the-kids approach to the world is still the best avenue for its continued success.  The New York Times article points to a mind-boggling manifestation of this fact:

While others are shying away from risks, Goldman is courting them. A common measure of risk-taking at Goldman and other banks is known as value at risk, which estimates how much money a firm might lose on a single day. At Goldman, that figure rose by more than 20 percent in the first quarter. Analysts predict Goldman’s V.A.R. ran high in the second quarter as well.

With mergers and acquisitions almost unheard of, Goldman’s profits are riding on trading — mostly behind the scenes swaps and derivatives.  If one is to believe the Rolling Stone article, Goldman is probably doing this without much concern because it is manipulating the markets.

Goldman Sachs, less than a year after the heart of the financial crisis, seems to look a whole lot like Wall Street did before the financial crisis.

The likelihood that Goldman will be successful forever is low.  Speculating on the scale that Goldman is may eventually destroy it – as such behavior killed Lehman Brothers, and nearly killed Goldman itself a year ago.  That does not mean that Goldman will not be the next great Wall Street bank – its demise could take a few months or fifteen years.  Of course, in many ways, Goldman is betting on that, too.

Given its risk stance, it seems obvious that Goldman’s leadership understands that it is “too big to fail,” and is therefore banking on the implicit backing of the U.S. Treasury in its high-risk gambling (or maybe low risk manipulating).  There is little that those of us who do not work at the Treasury, Fed or SEC can do about this.  What we can do is vote with our money.

I believe that when buying a stock, one should always think about the consequences of stock ownership.  That means company ownership (however small).  More importantly, one should ask “would I feel comfortable sleeping at night if I was running this company.”  While Goldman’s executives may be able to answer this question comfortably, I am not.

Even if Goldman were instead a company selling the cure for cancer below cost, I would still have an ethical disagreement with their current management structure.  Goldman pays 49% of its earnings in bonuses to employees — with average packages cited between $600,000 to $900,000 a year depending on the source.  A company handing out money to its executives at such excessive rates does not have the best interests of its shareholders at heart  — Goldman, in its cold, technical look at the numbers and tickers of the stock market, expects its shareholders to treat it with the short-term indifference that it treats its own trades.

Goldman Sachs – evil or not – is one stock that I intend to avoid at all costs until it changes its ways.  Like Goldman, the world may also get lucky – with Goldman surviving unsupported until a new management team with a long-term, shareholder value focus comes in and shakes things up.

For a start-to-finish account of Goldman Sach’s fall and resurgence, Glenn Greenwald did a nice job of piecing it together at Salon.com.