Goldman Sachs Group (NYSE: GS) may have done several terrible things including an alleged sale of mortgage-backed securities to financial firm ACA. Goldman may have allowed Paulson & Co. to determine the mix of the underlying derivatives in this pool. Paulson then went short the mortgage market, supposedly, making money while another Goldman client suffered. That is, in essence, what might may have occurred.

Goldman has taken a beating since the SEC brought civil fraud charges on Friday both to its reputation and to its stock price. Of course, the matter has not even gone to court or any real settlement negotiations.

In the meantime, British Prime Minister Gordon Brown has said that Goldman is “morally bankrupt” and has called for an investigation. American International Group (NYSE: AIG) is apparently preparing to sue the big investment bank for more than $2 billion in CDO loses it sustained in a complex insurance relationship with Goldman, according to the FT. In Germany, “The general secretary of the Christian Social Union, Alexander Dobrindt, told German business daily Handelsblatt that as long as investigations were ongoing, dealings with Goldman should be put on hold,” according to Reuters.

Lynchings in the US  went out sometime during the second half of the 20th Century and cattle rustlers can now get a fair trial. Goldman has not been given these benefits and it may be proved that the firm did nothing wrong. The press has been quick to point out that the agency’s 3-to-2 vote to move ahead with the actions against Goldman went along party lines with Republican members dissenting. If the facts were plainly against the investment bank it seem unlikely that the two who voted against the matter would not want to open themselves to public ridicule.

At first blush the Goldman problem looks a bit like Toyota Motor’s (NYSE: TM) recent travails. The critical difference is that the No.1 car company in the world admits that some of its products are defective. The world’s No.1 investment bank has mounted the defense, which may not prove adequate, to counter the charges of the SEC

Some cynical observers believe that the Democrats on the SEC board rushed to charge Goldman because the financial legislation backed by the Democrats is close to a Congressional vote. It is worth believing that the agency is not that partisan. The investigation of Goldman after all has gone on for months and the bank received a Wells Notice about the SEC’s pending charges nine months before formal charges were brought.

History may prove that the prejudice against Goldman was a rush to justice. The firm may prevail in court. Experts have pointed out the weaknesses in the case against the bank and Goldman’s board has supported its CEO Lloyd Blankfein.

Is Goldman guilty as charged? Impossible to say now, but much of the world is acting otherwise.

Douglas A. McIntyre

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