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The Guardian newspaper reports that Goldman Sachs, the investment bank which has only just paid back the $10 billion it loaned from the US government's Troubled Asset Relief Program, is set to hand out gigantic bonuses this year, possibly its biggest ever. Where is this money coming from? In the less crowded field of investment banks, Goldman can act as a crucial intermediary in the bond markets to help governments and companies raise money, and it can charge higher premiums for doing business. So much for reforming Wall Street while we nursed it back to health. Has Goldman Sachs won the recession?

Frankly, I don't know exactly where to come down here, so I'll offer a couple conclusions. The first is that I think this will be the first of many signs that the US government missed its chance to reform bank regulations when it had Wall Street gasping for life early this year. It's possible that Obama's new regulation proposals will be a post-recession Goldilocks porridge of rules that avoid the hyper-regulation we might have enacted in March 2009. But I tend to think Washington will have trouble passing serious reform, especially if they're on the docket after protracted battles over health care and climate change. As the big Wall Street banks repay their loans and get back to the business of making ungodly profits, money will stop flowing from Washington to Wall Street and continue gushing in the opposite direction. The political will to limit executive compensation or enact dramatic risk regulation will be weakened, and, like it or not, 2010 and on could look very close to 2006 and before.

Vince Cable, the Liberal Democrat treasury spokesman, expressed grave concerns to the Guardian that: "Now they are cashing in and the same bonus culture has returned. The result must be that we are being pushed to the edge of another crash." But it's important to note that Goldman isn't building this mountain of money the same way it built the last mountain of money. As the WSJ explains:

Much of the company's recent profit has come from its fixed-income business, a less-risky arena than the illiquid derivatives and others products it loaded up on amid the credit bubble and Goldman has reduced its overall leverage from a year ago. That seems to fit the less risky profile that Congress wants from financial firms.

Moreover, Goldman has publicized changes in the way it rewards with bonuses to reduce short-term risk taking and "tie staff to the firm." It's unclear, however, whether these changes are for public relations, in which case they will disappear as soon as the public stops paying attention, or considered crucial to the health of the company. As the WSJ article rightly notes, the real test comes when the economy gets rolling and the market for high-risk investments returns. That will be the real test to determine whether Goldman can, as Fareed Zakaria suggested, self-regulate itself toward long-term profit and sustainability.