Sympathy for the devil

Please don't judge me but a small confession to begin: I actually feel a little sorry for Goldman Sachs. I know, I know, how much sympathy can you really have for a bunch of people who are richer than God? But remember, the bank is doing God's work, so presumably they should be reimbursed accordingly.

The giant vampire squid has been flogged by media commentators and political opportunists, the PM included, with such wilful abandon that it almost seems sadistic to watch. Many critics see the bank as guilty of the worst excesses of the bull market bubble and have certainly not been backward in coming forward. This seems to have reached a crescendo following the SEC's allegation that the bank is guilty of securities fraud related to the structuring and marketing of synthetic collateralised debt obligations (CDOs) linked to subprime residential mortgage-backed securities.

The degree of Schadenfreude on show following the SEC and FSA probes highlights the animosity against Goldman. However, in this case it seems potentially misplaced and perhaps a little premature. Bloomberg reported that the SEC vote was split 3-2 to approve the enforcement case against the bank. The fact that the committee was divided denotes some degree of uncertainty and when combined with seemingly "nakedly political" posturing and timing from the SEC and the Obama administration in turn, the case seems unduly vindictive to boot. Not a great start.

The specifics of the case have not been unveiled and as The Times' David Wighton writes: "It is too early to draw any but the most tentative conclusions about the Abacus affair." Much of what has been written in the press seems to focus on the fact that the trader at the centre of the affair referred to himself as "fabulous Fab" in his gloriously hubristic email to a colleague: "More and more leverage in the system, The whole building is about to collapse anytime now…Only potential survivor, the fabulous Fab…standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities [sic]!!!"

This email proves nothing other than the fact that Fabrice is a bit of a prat who refers to himself in the third person. It is certainly not an indication of some elaborate and Madoff-esque subterfuge to defraud investors. The whole affair seems far more prosaic than that. The conflict of interest that follows the Bermuda triangle of CDOs created and checked by Paulson & Co, Goldman Sachs and ACA is one thing, but proving deliberate and calculated fraud is quite another.

The case is interesting because it involves four things that have captivated the market throughout the financial crisis – Goldman Sachs, exotic structured products, hedge funds and the regulators. Investors in the CDOs have protested against the way they were misled but, regardless of whether that is true or not, their refusal to take accountability is a microcosm of the whole credit crisis. Highly sophisticated investors use these products, not your average punter. They have due diligence teams that pore over documentation, and if they didn't – what the hell happened to caveat emptor? Breakingviews neatly summed up the debate: "As politicians and regulators pick over the SEC's allegations, they might keep in mind the synthetic CDO tango took two."

In terms of Schadenfreude, Goldman's competitors and critics should perhaps be wary to cast the first stone. Goldman was a major player in the CDO market but certainly not the biggest – Merrill Lynch, Citigroup and UBS all underwrote more securities according to Nomura. The regulators are clearly taking a hard look at the CDO market and given the sheer volumes traded, you would expect a similar case of "disreputable activity" to have taken place. Critics should also note that Goldman is run like a military operation. They are tough and will come out swinging – yesterday's bumper first quarter profit announcement and accompanying "aggressive defence against US fraud charges" highlights that they are a force to be reckoned with. They will not disappear gently into the night.

Goldman is an extremely difficult firm to like, but provided they can ride out the reputational storm, I doubt that their shareholders and heavily remunerated employees will be too troubled by this specific case (wider regulation is another matter). If Goldman was to suddenly adopt a football terrace style chant (chance would be a fine thing) they might well take their inspiration from Millwall FC: "No One Likes Us – We Don't Care."

JS