Goldman staff in London were briefed on the outlook and told they could look forward to the bonus hikes if the company registers, as predicted, its most profitable year ever, the report said.

The surge in projected profit can be attributed to a lack of competition and increased revenue from trading foreign currency, bonds and fixed-income products, the newspaper said, citing insiders at the firm.

Bonuses have been a point of contention between the Obama administration and Wall Street, which last fall endured a credit crisis that paralyzed the financial markets. The U.S. Treasury responded with the Troubled Asset Relief Program, which made $700 billion in loans available to banks. Goldman Sachs received $10 billion from TARP, which it repaid last week.

In letters to lawmakers last week, Goldman CEO Lloyd Blankfein said the firm is obligated to “ensure that compensation reflects the true performance of the firm and motivates proper behavior.”

What is left unsaid is that the lack of competition that has led to these record profits was engineered by Hank Paulson, former chairman of Goldman Sachs, when he was secretary of the Treasury under George W. Bush. After bailing out AIG, which then channeled billions to Goldman, Paulson then allowed its competitor, Lehman Brothers, to sink, causing a panic on Wall Street.

Speculation about why Paulson left Lehman go under mostly involved the analysis that it was not sound to bail out all the firms in trouble. But now that the bonuses have been announced and the reason for them given, it is clear that Paulson was aiding his old company. That this is going on with Tim Geithner saying nothing about it is a scandal of monumental proportions that is going largely unnoticed in most of the mainstream press.

Were there an effective Congress with a committee to investigate the causes of the financial collapse, such as the commission headed by Ferdinand Pecora in the Thirties, this inaction by Paulson regarding Lehman would raise a red flag. As it is, Lloyd Blankfein, who succeeded Paulson at Goldman, is getting away with this while people are still losing their jobs and their homes in considerable numbers.

[Editor's Postscript: Any piece that manages to peeve former Goldman broker Jim Cramer must be doing something right.]