It sounds so simple in retrospect and is difficult to work out why only Goldman Sachs did it. Late last year, as the housing market motored along, David Viniar, Goldman’s chief financial officer, called a “mortgage risk” meeting in his 30th-floor Manhattan office.

After the meeting, the bank’s senior employees concluded that the mortgage lending industry was making a growing number of loans that borrowers could not possibly repay. So the bank decided to reduce its holdings of mortgages and related securities and to insure against losses on its remaining portfolio.

Mr Viniar said: “We thought there was more pain to be felt. We were concerned and so we were short on mortgages through most of the [third] quarter. It was really as simple as that."

It was a perfectly timed move and ensured that Goldman Sachs actually made a profit from the housing crisis, while its US banking rivals have collectively lost about $50 billion (£24 billion), with plenty more to come. It means that Goldman is well placed to profit as its rivals look to raise cash by offloading home-loan-related securities at knockdown prices.

“We think there are going to be opportunities in the mortgage business - there are certainly going to be opportunities to buy distressed assets,” Mr Viniar said.

As the one Wall Street bank to escape America’s sub-prime mortgage crisis, and with three consecutive years of record profits under its belt, Goldman Sachs is as close to unimpeachable as it gets in investment banking. Yet the revelation this week that two Goldman-run hedge funds had fallen on hard times serves as a timely reminder that even the mightiest of Wall Street’s firms are vulnerable, especially when they have as large an exposure to the high-risk world of trading as Goldman Sachs.

One of the hedge funds, Global Alpha, will lose about $6 billion, or 60 per cent of its assets, this year after losing about $3.7 billion on unsuccessful trades in the first 10½ months of the year. They were mostly in wrong-way bets on stock and currency movements.

These losses prompted the fund’s investors to redeem about $2 billion of their money in recent weeks as they scrabbled to avoid further losses.

In the other case, Goldman Sachs was forced to inject $2 billion of its own money into its $7.5 billion Global Equity Opportunities fund after it declined by 23 per cent in August.

Neither of these hedge fund losses will damage Goldman too much, not least because the bulk of them will be borne by outside investors, while the performance of the rest of the group is so strong. In fact, Goldman Sachs is on course for an $11 billion profit this year – a new record for a Wall Street securities firm. This should ensure the highest ever payout for a Wall Street chief executive, as Lloyd Blankfein looks to be in line for a $75 million compensation package this year.

Nevertheless, the hedge fund losses do give us a glimpse of the Achilles’ heel at Goldman Sachs, after four years in which the firm, traditionally known as an adviser, has been steadily ratcheting up the amount of trading that it does from its balance sheet. In 2002, when Goldman began its drive into balance sheet-financed investment, the firm made $1.49 billion in revenues from so-called trading and principal investments. This represented 40 per cent of the group’s total revenues for the period.

In the third quarter of this year, trading and principal investments took $4.8 billion in revenues, more than three times the amount of only four years earlier. It has also jumped as a proportion of group revenues, to 64 per cent.

However, as Goldman now invests so much of its own money in highly unpredictable trades, it has become far more vulnerable to big losses. Moreover, increasing market volatility will make losses even more likely.

So far, the upside of the riskier portfolio is clear. Most revenue from trading and principal investments has consistently come from the trading and it is clear that investing more of its own cash in the likes of shares, bonds, derivatives and currencies is the chief reason for the firm’s rise.

Goldman Sachs has strength outside trading; it has amassed close to $20 billion in one of the world’s largest buyout funds and is making huge amounts of money on investments in companies such as Horizon Wind Energy, the American wind farm group that it sold in July for a $900 million profit.

Goldman’s role as an adviser on mergers and acquisitions gives it an overview of the deal market and, although it has fostered resentment for competing with its private equity clients, it has largely navigated this by co-investing with them.

There is some ongoing concern that Goldman Sachs has lost sight of its No 1 business principal of putting clients first through its pursuit of the so-called triple play: advising clients, financing them and investing alongside with them.

But then the investment banking model has moved on – and it has been dragged there by Goldman Sachs.

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