In the aftermath of the SEC's (SEC news) charges against Goldman Sachs (NYSE: GS), the dust is settling in ways favorable to the embattled investment bank. It has picked up some big-name supporters such as Stephen Schwarzman of the Blackstone Group, Warren Buffett (Warren Buffett news) of Berkshire Hathaway, and perhaps, ever subtly, the influential Andrew Ross Sorkin of the New York Times. 

Sorkin penned an article seeming to support Warren Buffett's support of Goldman Sachs. And that has certainly raised some brows. The gist of Buffett's argument is that the buyers of the CDO (CDO news) in question could have--perhaps should have--researched the referenced bonds in the portfolio. Had they done that, their conclusions logically would turn on the future prospects of the securities, not who was short the fund. The quality of the securities was research-able and these were big institutions that had the resources to inform themselves. 

As a general conclusion, it's hard to argue with that. At the layman's level, IKB certainly doesn't look like a savvy outfit. They look more like dupes in the hands of skilled salespeople, who perhaps were within their legal rights to sell in the manner in which they did. That said, the issue seems to be whether there was any legal obligation to disclose the role of certain parties to the CDO's buyers and perhaps even to the portfolio selection agent. There's likely some finer legal issues at play that's generally not part of the public debate, which is largely rhetorical. 

Nevertheless, my hunch is that this case would not be winnable by the SEC. One is tempted to conclude that the SEC was in essence making a John Paulson-sized gamble that Goldman Sachs would not be willing to risk a jury trial, that it would have to settle. Indeed, we are seeing that play out now. Everyone expects a deal, and the two sides may be at the table sooner than we think. 

So did the SEC outsmart Lloyd Blankfein and company? Well, it has certainly forced Goldman Sachs' hand, and the charges have had a profound impact, from which the company will struggle to recover. Goldman Sachs may be forced into some huge management, board and operational changes. One might be tempted to argue that was the point of the charges in the first place: Change and publicity as opposed to a legal win.  

One issue here is whether the gilded patina of Goldman Sachs has been permanently punctured. The email trails that have emerged paint a picture of just another trading firm, bent on unloading inventory at all costs before they blow up. All firms do this, and everyone knows it. It's something of a pastime. But Goldman Sachs held itself above the pack. No one is saying that dealing with a Goldman Sachs sales-trader now is akin to dealing with a used car salesman. It's aura may be dissipating. - Jim