FORTUNE -- Goldman Sachs reported just its second quarterly loss since it went public and the first since the dark days of late 2008. It also gave Paul Volcker a great big reason to push harder for his proposal to clamp down on investment banks trading for their own accounts.
Basically, the Volcker rule aims to get investment banks back to what they historically do: broker trades, act as a trusted vehicle to get corporate America funding, and manage the commercial sector's money. Over time banks decided they wanted to make their own money and trade heavily for their own benefit rather than relying on fees from making other people money. Essentially, they became like hedge funds -- big speculative, risk-taking machines. Volcker has been proselytizing to rein them in since these in-house funds helped crash the world economy in 2008, arguing they should focus on their traditional roles of providing liquidity and expertise to the financial markets.
How did Goldman do this quarter? Pretty good, if you look just at what an investment bank is supposed to do. The bank made money from its Investment Banking arm, which includes financial advisory services and equity underwriting. It made money on Institutional Client Services, such as executing trades. It made money on Investment Management, which includes keeping safe the record levels of cash corporations hold.
So how did it post a net loss of $428 million this quarter? By doing all those things Volcker says banks shouldn't be doing.
Goldman's Investment & Banking division, which is its umbrella division for trading its own capital to make profits, took a bath. Goldman's house account lost over $1 billion on its equities portfolio, got burned for $907 million in losses in the debt market and saw its outsized investment in the Industrial & Commercial Bank of China drop $1.045 billion in value -- a total loss of $2.5 billion and the reason Goldman shares have opened weaker this morning.
Goldman (gs) defenders will point to prior quarters where the division posted large profits for the company, including a multi-billion gain on its ICBC shares last year. But Volcker and other investment banking reformers say that there's no reason for the economy to be held hostage to bad speculative bets by institutions that are a fundamental part of a working economy - and take taxpayer bailouts when those bets get out of hand (see 2008).
It's one thing to lose money because the IPO market has softened. It's another to lose money betting Japanese businessmen will play more golf.