Nice, acerbic column in The Atlantic by Daniel Indiviglio.

Would you have sympathy for a professional auto mechanic who bought a lemon after given the opportunity to examine the car beforehand? Few people probably would, since if anyone should have known better, he should have. Yet, in its case (.pdf – brief synopsis here) against Goldman Sachs, the Securities and Exchange Commission needs the court to develop a very similar sort of sympathy for German IKB bank and other large sophisticated investors who purchased a synthetic collateralized debt obligation (CDO) from Goldman. Even under the circumstances of the case, it's extremely difficult not to feel that IKB should have known better.

As far as I know, RBS also bought into the offending CDO. Same logic applies. Did they do ‘due diligence’?

This week’s Economist has quite a good piece about Goldman:

The Securities and Exchange Commission says Goldman misled two clients by failing to give adequate disclosure. At the urging of a hedge fund, Paulson, it enlisted an insurance firm, ACA, to select (with Paulson’s input) a pool of mortgage instruments upon which the security’s price would be based. The SEC alleges that Goldman misled ACA into believing that Paulson would co-invest with it. In fact Paulson was betting that the security would decline. The SEC also claims that IKB, a German state bank with a seemingly inexhaustible capacity for self-harm, was not told of Paulson’s role in helping pick the mortgages, a role the SEC argues was material.
Broken dealer?

Both of these possible offences are serious. Goldman denies the first outright, and on the second it argues that Paulson’s role was not material. The arguments appear finely balanced: the investigation has gone on for more than a year and the SEC’s top brass was divided over whether to proceed. It is impossible to second-guess the case’s outcome. But Goldman is already viewed by many as guilty. That fits a broader narrative in which it manipulated the bail-out and profited from economic misery. For those interested in accurate history, this is unfortunate. Some of Goldman’s links with the government were uncomfortably close. But the real story of this financial crisis, like many others, was not about one firm but near universal risk-taking, stupidity—and possibly widespread fraud.

History says that banks bounce back from legal problems. Goldman, however, will continue to be beaten up in public, whatever the outcome of this case. In one way, rightly so. No firm has combined such red-blooded dedication to profit and high pay with so little appreciation of the state’s generosity, in saving it from following Lehman and in propping up finance with subsidies and guarantees (which are now being reconsidered—see article). Many at the firm might wish it could go private again and recover its capitalist vim. But after a decade of huge success it is now too big to do that. It is also so dedicated to trading that it cannot go back to being a normal, boring bank. Greed and success, let alone a guilty verdict, have already pushed Goldman Sachs into a kind of prison.