The idea that Goldman Sachs is not only too big to fail but also too big to criminally prosecute has gained traction lately. Some believe that the bank's stature makes a criminal prosecution too-risky an endeavor for the government, given its stature as a powerful Treasuries dealer. A criminal prosecution against Goldman Sachs (NYSE: GS) would radically upend the market and carry grave consequences. The firm's inability to trade treasuries would spread and hamper its ability to make markets in other securities and the markets would react in kind.

This view was given a boost by Brad Hintz, an analyst at Sanford C. Bernstein, who has informed clients, as noted by Bloomberg: "If an alleged violation is identified during a Goldman investigation, we expect a reasoned response from the Justice Department. In a worst case environment, we would expect a ‘too big to fail' bank such as Goldman to be offered a deferred-prosecution agreement, pay a significant fine and submit to a federal monitor in lieu of a criminal charge."

Deferred prosecutions have been in vogue since the Bush era and certainly seem to have caught the fancy of prosecutors. Basically, it's a way of rewarding self-reporting or cooperating companies with lenient treatment. The deal calls for charges to be filed but then dismissed after the company pays a fine and cleans up its act.

In October, the DOJ dismissed a conspiracy case against UBS after such an agreement expired. But a deferred deal for Goldman Sachs would ignite a firestorm of political protest. It would be hard to win the headline wars. Charging the company doesn't seem likely, frankly. It seems more likely that specific individual executives will be charged, provided the evidence is there. That's an open question right now.

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