As usual, only a small sliver of Goldman's profits last year came from investment banking and managing clients' assets. The vast majority ($17.3 billion out of total profits of $19.8 billion) came from a category called "trading and principal investments" — basically, Goldman's own investments and trades.
In the company's annual report, published this morning, Goldman says this trading makes it easier for the firm's clients to buy and sell financial products. And, Goldman argues — contrary to what you may have read in the papers — the firm is not in the business of betting against its clients.
Here's what the report says about Goldman's investments during the housing meltdown of 2007:
Although Goldman Sachs held various positions in residential mortgage-related products in 2007, our short positions were not a "bet against our clients." Rather, they served to offset our long positions. Our goal was, and is, to be in a position to make markets for our clients while managing our risk within prescribed limits.
And besides, Goldman says, its clients were savvy investors, not a bunch of chumps that the company could bend to its will:
The investors who transacted with Goldman Sachs ... were primarily large, global financial institutions, insurance companies and hedge funds ... These investors had significant resources, relationships with multiple financial intermediaries and access to extensive information and research flow, performed their own analysis of the data, formed their own views about trends, and many actively negotiated at arm's length the structure and terms of transactions.