I assume front running has contributed to these record profits:

From the National Post:

NEW YORK -- Goldman Sachs Group Inc., long envied by its rivals for its money-making savvy, probably won't be making any friends this year.

The Wall Street banking titan appears poised to report record profits from trading in fiscal 2009, boosted in part by the fact that many of its competitors aren't in strong enough shape to take the same risks.

Goldman's robust earnings from trading operations are expected top its 2007 record of US$25.36-billion and allow the company to jack up its bounty for bankers this year by 64% to US$17.92-billion, according to a forecast by Guy Moszkowski, a bank industry analyst with Bank of America-Merrill Lynch. Goldman will put aside more than 44% of its total revenue to pay compensation and benefits, Mr. Moszkowski said in the report, which was obtained by Bloomberg News.

"Goldman Sachs is arguably the most well-respected investment bank, especially after deftly navigating the 2007-2008 credit crisis," wrote Mr. Moszkowski.

Analysts said that other big banks are likely to see nice profits from their trading operations, which include commodities, equities and fixed income, as those markets explode with activity after all but shutting down in the middle of the financial crisis.

But Goldman is expected to lead the pack.

Mr. Moszkowski, who upgraded the banking giant's stock to ‘buy' from ‘neutral' on Thursday, expects its trading operations to earn US$26.45-billion this year, which would blow past any previous record on Wall Street. Goldman has "unmatched risk-taking/risk management skills," Mr. Moszkowski wrote.

Shares of Goldman surged nearly 4% to US$143.66 a share following the upgrade.

The strong results are bound to fuel more conspiracy theory talk about Goldman. With its myriad of political connections, Goldman has long attracted criticism, including the accusation in a recent Rolling Stone article that the bank has made its fortune by engineering "every major market manipulation since the Great Depression."

"People have been crawling all over that notion that they've got to be crooked," said Roy Smith, a professor of finance at New York University and former partner at Goldman. "But this may just be an example of a firm that has followed a good business model all along and hasn't gotten distracted by other lines of businesses or mergers...In a sense, Goldman has benefited from being a simpler, less complicated business than many of its competitors. They're focused on trying to be the best institutional securities dealer."

It's fairly easy for Goldman or any healthy bank to rack up gains in trading these days.

"The money supply keeps expanding so there's more and more going into trading," said Richard Bove, a banking analyst with Rochdale Securities. "They've just had one of the best underwriting quarters in history."

That doesn't mean the end of the banking industry's woes, however.

"Trading matters, but what really determines how the bank industry performs is how their loan business performs and there's still a lot of pain to come there," said Douglas Elliott, a former investment banker and now a fellow at the Brookings Institution.

But here again, Goldman finds itself in an enviable spot because it has the good fortune of having much less exposure in that area than most of its rivals.

"It's more of an investment bank and less of a commercial bank," said Mr. Elliott. "It's commercial banks that got stuck with most of the bad stuff."

Indeed, while most of its rivals posted gigantic losses and wrote off huge chucks of capital, Goldman has reported only one money-losing quarter since the financial crisis began.

-- with files from Bloomberg News