Goldman seems to have come through the current banking crisis in surprisingly decent form. And so perhaps they should be listened to when it comes to solutions for fixing the financial system, and the reducing the risk of prolonging or repeating the current problems.

Is their success due to their superior risk management? Or is it, as some grumble, because one of their own was making the calls on government moves at the height of the crisis? After all, the fall of Lehman - which Paulson insisted on - triggered a $20 bn payout to Goldman. Not bad for a day's work.

But let's stop the veiled accusations and see what Goldman's vaunted risk management amounted to. From the Bank of England's Director of Financial Stability Andrew Haldane:

Risk managers are of course known for their pessimistic streak. Back in August 2007, the Chief Financial Officer of Goldman Sachs, David Viniar, commented to the Financial Times: "We are seeing things that were 25-standard deviation moves, several days in a row"

In layman's terms, according to Goldman's risk model, the events of the summer 2007 (we're talking about the slight tremors that preceded the blowup of a year later) were predicted to have only a slight chance of ever happening. How slight? One 25 standard deviation move is predicted to occur once every 6 x 10124 lives of the universe. So how about 'several 25-standard deviation moves' in a row? According to Haldane, it just doesn't compute.

And what caused those tremors in 2007? House prices had started declining and, surprise, subprime borrowers were defaulting. This is the event that Goldman's golden boys computed as not possible to happen ever in this or any other mathematically conceivable universe.

So did Goldman navigate the credit crisis successfully due to superior risk management? Unlikely. By september it had a massive outstanding bet on the simultaneous (i) failure of a major investment bank and (ii) survival of a major insurer able to pay out several dozen billion in default insurance. A dumb bet on two counts: by the summer of 2008 the market took the noises coming from Treasury (and past handling of failing investment banks) to be a tacit guarantee of bank debt. Secondly, the main reason to avoid the failure of a major financial institution was the likely inability of even big players such as AIG to honor their massive related insurance obligations. Luckily for the Goldmanati, they had an alternative risk management model, much more accurate in predicting such unlikely market events. It's name: Hank Paulson.

Some of this is old news, but worth keeping in mind as the Golden Boys decide to 'advise' the Goldman-deficient Obama administration on the bailout plans.

*Thanks to TPM reader eds for reminding me of the AIG debacle.