After earning hefty profits on its commodities trading for nearly 18 years, heavyweight trader Goldman Sachs Group Inc. (NYSE: GS) now finds itself on the hot seat, defending this crucial source of revenue. And while that may not be good for Goldman, it’s also bad for investors.  Let me explain…

It all started back in 1991, when J. Aron & Co., Goldman’s commodities-trading division, recommended that a large institutional client invest about $100 million in commodities.  The vehicle “du-jour” was Goldman’s own investment vehicle, the Goldman Sachs Commodity Index (now the S&P GSCI Commodity Index).

The GSCI is a 24-commodity dollar-weighted index, comprised of 70% energy (oil and natural gas), 8% industrial metals (aluminum, copper, lead, nickel and zinc), 3% precious metals (gold and silver), 14% agriculture (wheat, corn, soybeans, cotton, sugar, coffee and cocoa) and 4% livestock (cattle and hogs).

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Alex#8217;s Notes: Hat-tip to Tyler Durden over at Zero Hedge. Mark Patterson: #8220;It#8217;s A Sham. The Banks Are Insolvent#8221; Posted by Tyler Durden at 8:40 PM Update 2: Please see the most recent post in this thread, in which I disclose that representatives of Mr. Patterson dispute the original Ambrose Evans-Pritchard article was #8220;fabricated#8221; [...]div class="feedflare" a href="http://feeds2.feedburner.com/~ff/YourFinancialFuture?a=iZk5s07c5zo:3AWH3n5N1-Q:yIl2AUoC8zA"img src="http://feeds2.feedburner.com/~ff/YourFinancialFuture?d=yIl2AUoC8zA" border="0"/img/a a href="http://feeds2.feedburner.com/~ff/YourFinancialFuture?a=iZk5s07c5zo:3AWH3n5N1-Q:F7zBnMyn0Lo"img src="http://feeds2.feedburner.com/~ff/YourFinancialFuture?i=iZk5s07c5zo:3AWH3n5N1-Q:F7zBnMyn0Lo" border="0"/img/a a href="http://feeds2.feedburner.com/~ff/YourFinancialFuture?a=iZk5s07c5zo:3AWH3n5N1-Q:7Q72WNTAKBA"img src="http://feeds2.feedburner.com/~ff/YourFinancialFuture?d=7Q72WNTAKBA" border="0"/img/a a href="http://feeds2.feedburner.com/~ff/YourFinancialFuture?a=iZk5s07c5zo:3AWH3n5N1-Q:V_sGLiPBpWU"img src="http://feeds2.feedburner.com/~ff/YourFinancialFuture?i=iZk5s07c5zo:3AWH3n5N1-Q:V_sGLiPBpWU" border="0"/img/a a href="http://feeds2.feedburner.com/~ff/YourFinancialFuture?a=iZk5s07c5zo:3AWH3n5N1-Q:qj6IDK7rITs"img src="http://feeds2.feedburner.com/~ff/YourFinancialFuture?d=qj6IDK7rITs" border="0"/img/a a href="http://feeds2.feedburner.com/~ff/YourFinancialFuture?a=iZk5s07c5zo:3AWH3n5N1-Q:l6gmwiTKsz0"img src="http://feeds2.feedburner.com/~ff/YourFinancialFuture?d=l6gmwiTKsz0" border="0"/img/a a href="http://feeds2.feedburner.com/~ff/YourFinancialFuture?a=iZk5s07c5zo:3AWH3n5N1-Q:gIN9vFwOqvQ"img src="http://feeds2.feedburner.com/~ff/YourFinancialFuture?i=iZk5s07c5zo:3AWH3n5N1-Q:gIN9vFwOqvQ" border="0"/img/a /div

Buy-out fund manager Mark Patterson won’t be high up on Tim Geithner’s Christmas card list this year. The chairman of MatlinPatterson Advisers says Geithner’s effort to stabilize the banking system through the TARP is a hopelessly ill-conceived policy that enriches speculators at public expense.

What makes Patterson’s comments particularly interesting is that he’s a TARP insider. He used TARP matching funds to buy Michegan bank Flagstar Bancorp. Patterson’s firm ended up with 80% of the Flagstar shares. The government managed to secure a mere 10% stake.

Patterson reckons Team Obama is only putting off the necessary day of reckoning by pretending the US banking system is still solvent. Speaking at the Qatar Global Investment Forum he had this to say about the government’s handling of the banking crisis:

It’s a sham. The banks are insolvent. The US government is trying to sedate the public because they are down to the last $100 billion

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Contrary to the prevailing analysis, we believe that the Obama and Bush administration insistence on protecting banks at the expense of the taxpayer is the result of a Machiavellian effort by Goldman Sachs and other major banks to influence U.S. economic policy by infiltrating the corridors of power.

Today, we duly note that Goldman Sachs has just hired former Barney Frank staffer Michael Paese to be its top Washington lobbyist. This position was formerly held by Mark Patterson, the current chief of staff at the Treasury.

Pease and Patterson are not the only ones to pass through the revolving door between Washington and Goldman. Bush’s Treasury secretary, Hank “The Hammer” Paulson is a former Goldman CEO. And his replacement, Tim Geithner, was mentored by Gerald Corrigan, a former New York Fed president and current partner and managing director of the Office of the Chairman of Goldman Sachs.

Who else was President Obama considering

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