OK, I’m going to offer up a couple of comments about the Goldman affair even though there have been far too many pixels killed already.

• It seems as if the crux of the SEC complaint entails failure to disclose. If that’s the case and nothing further comes to light then it might be considered slimy but it hardly seems earth shaking. Henry Blodgett, who knows a thing or two about these sorts of prosecutions personally, thinks that the SEC case as presented is weak.
• The progressive wing of the blogosphere is beating the story to death. It seems as if it represents to them a defining moment in the debate over financial regulation. We shall see.
• Some conventional wisdom holds that we’ll see the usual dance followed by the imposition of a big fine and no admission of guilt. Oh, and a couple of mid-level GS employees will get booted from the securities industry. If that happens it all amounts to nothing. But, does the SEC have the cajones to actually litigate and press for more? Don’t count on it. A loss would be devastating.
• The real problem for the bankers will be the follow-on law suits. Everyone who lost a dime or thought they did will be able to fold into one class action or another. That may well induce Goldman not to settle and take their chances in court.
• The issue may make a difference in the financial regulation debate as it relates to derivative regulation, at least on the margin, but it is not going to energize the public. The facts are simply too complex for the average American to grasp so this is much more a Washington/New York story than it is a seminal moment in the FinReg debate.

Simon Johnson sees in this case a reflection of all that is wrong with Wall Street. To him the industry represents a criminal enterprise:

John Paulson obviously knew what he was doing in helping to create the “designed to fail” securities – and the consequences this would have.  If he cannot be convicted of conspiracy to commit fraud, then the law in this regard needs to be tightened significantly.  The Financial Crisis Inquiry Commission, chaired by Phil Angelides, is probably already planning to grill John Paulson about his taxes – the point Pecora made in this regard with J.P. Morgan junior was most telling and gripped the nation; it turned out that Morgan hardly paid any tax.  I would respectfully suggest that the Angelides Commission also pull in Hank Paulson and pursue a similar line of questioning with him – when it focuses on how much money Hank Paulson made, and how little tax he paid, while building and overseeing an extortion scheme of grand proportions, America will scream.

Do not assume that I think that all is perfectly fine with our current financial structure. If you have read me before you know that I favor both limits on banks permitted activities as well as something along the lines of leverage caps that will incentivize the players to reform into smaller more manageable enterprises.

I do not, however, think that in this case we have manifest evidence of pervasive fraud throughout the industry. What we do have is an example of the fact that Wall Street is, as it has always been, one mean place to do business. Its ethics are questionable at best but ethics are not particularly subject to enhancement through legislation. Go ahead and take your best shot at Goldman but don’t be surprised if they come out on top and don’t think that you can legislate good behavior.

You can ring fence Wall Street  but you probably can’t change it.