At last we have come to the point. The behaviour outlined in the US Securities and Exchange Commission's devastating complaint against Goldman Sachs neatly encapsulates the most important and damning of the charges that have circulated in the past two years against investment banks in general and Goldman in particular. Sales of structured products backed by subprime securities triggered the credit crisis. The question is whether this was down to deliberate deception, incompetence or bad luck. Now the SEC will attempt to make a charge of deliberate deception stick.
From a moral point of view, the tale outlined in the complaint could scarcely be more damning. What pension fund or institution could possibly want to do business with a bank that behaves in the way Goldman is portrayed in the SEC's suit? If this version of events stands up in court, then the damage to Goldman's business will be severe – and so the market's instant reaction on Friday looks justified.
Legally, the story may be different. The charges themselves rest on very specific points concerning Goldman's disclosure of information, both to ACA, the bond insurer that put its name to the already infamous Abacus 2007-AC1 securitisation, and to its end investors. The story is awful for Goldman, but it may have a better chance of defending itself in a court of law than in the court of public opinion, where it has flailed in its attempts to counter infantile insults about vampire squids.