one has to wonder why Goldman needed in on the bank bailout last year
All banks of that class were required to participate to avoid stigmatizing any single one and weakening their credit further. Goldman took the money and simply gave it right back.
There was a run on investment banks after Lehman's failure. Merrill Lynch was on the edge of the abyss before Ken Lewis made the deal of the century - for John Thain. Morgan Stanley was next. Their CEO John Mack successfully lobbied the government to institute a ban on short selling, much good that did. Goldman was next. Without the government backstop, Goldman would not exist today.
And if Goldman was entirely populated by "geniuses", why did they need $13 billion from AIG? They made all the same bad bets as everyone else, but they "hedged" them with a counterparty unable to pay out. And once AIG was downgraded to AA in 2005, everyone should have known that they'd be unable to pay out the ridiculous CDS contracts they guaranteed on subprime bonds. It'd be like buying volcano insurance from a homeless guy - and you live next to a volcano. Goldman isn't run by geniuses; its run by people who control the government.
And without the government backstop, your savings would not exist today (and anyone else with cash in a money market or savings account).
The chain of collapse without a backstop is not a robust argument in general, becuase at the point you say Morgan, etc. fail without a government backstop and then try to assume that those firms were the only (or majority) beneficiaries, it becomes shaky. Why? Because if the banks failed as you described, nearly most would have as well and then anybody holding cash in a bank (read all of us sans the mattress crowd) would have been in horrendous trouble. Remember, the government had to backstop not just investment banks, but money market funds as well (which were failing due to the related crisis of confidence issues). Remember the northern rock episode with huge lines of people unssucessfully trying to withdraw their money in the UK?
Imagine not being able to withdraw your cash from a money market or savings account. Banks being structurally exposed to runs and therefore requiring government backstops is actually a well understood issue. The point is we all benefited from the federal backstop, and this argument that, why should banks benefit from an implied or explicit backstop ignores the fact that all of us are backstopped by this as well, whether you realize it or not. Nobody can claim that people keeping their life savings in a money market or savings account and earning 5% interest a year is not also implicitly benefiting from government backstops in general, so let's not single out the investment banks in this case.
As for AIG, this has been discussed in infinite more detail so the interested reader can look up articles on this, but the essence of the point is that of the 13 billion owed, most of it was already collateralized (which means they would have just kept the US treasury collateral had AIG collapsed). Yes, there was a smaller portion that was hedged via CDS that could have failed as insurance, but let's not claim this is the entire 13 billion, in fact, it was far from that. And let's also remember had CDS truly failed it would have reflected a state of the world where most banks were in default, and forget about some investment bank not being able to collect their insurance, we are talking about ATMs not working anymore at this point. So the point is the backstop prevented things from getting to this nightmare, saving banks but also the rest of us as well.
All banks of that class were required to participate to avoid stigmatizing any single one and weakening their credit further. Goldman took the money and simply gave it right back.