Never mind the merits of the SEC's fraud case against Goldman Sachs, the firm's decision to fight the accusations is a brave one - although some are describing it as reckless.
'Goldman is in a really difficult position', one banker told Here Is The City, 'The firm clearly can't just roll-over every time a regulator accuses it of wrongdoing, but Goldman would have had the opportunity to settle these claims, and I know that there are some senior people at the firm who now wish that they had done so'.
Another financial markets professional told us: 'This is probably Goldman's biggest ever trade. They are literally betting the ranch that they can take on the SEC, and a political establishment that is gunning for them, and win. If this case eventually settles, then many people are going to ask why that wasn't done at the beginning, avoiding all the negative publicity that has surrounded the firm in recent days. If the matter ends up in court and Goldman loses, then this will be the end of the firm as we know it. The firm is famous for pushing its traders to cut losing positions, but this is one position that it cannot afford to cut or lose now'.
Despite Goldman's blow-out first-quarter earnings, out Tuesday, the talk is still all about the fraud charges. Indeed, the news that the firm has set aside $5.49bn in the period for staff comp has only inflamed the situation further. UK Chancellor Alistair Darling, of course, has entered the fray, saying that the firm 'should be showing restraint, but if they insist on paying bonuses, half will go to the taxpayer under the banker's bonus tax'. (Ed's note - Eh, no, Alistair, your 'one-off' bank bonus tax actually expired on 5th April).
And Bloomberg has reported that Byron Georgiou, a commissioner on the US Financial Crisis Inquiry Commission panel, has intimated that he thinks Goldman trader Fabrice Tourre might be just a fall-guy. 'It's hard to imagine that there wasn't some supervision of a 27-year-old at that time...a trader structuring a billion-dollar transaction'.
Tourre himself has now been placed on paid leave, as he clearly needs to focus on his own legal problems. As is usual in cases like this, Goldman has arranged to remove Tourre's name from the Financial Services Authority's list of register representatives, as he will not be interacting with the firm's clients (at least not for a while).
Finally, although Goldman has continued to downplay the situation, rivals appear to be trying to talk advantage of it (no surprise there). Reuters reports that rival bankers have started a whispering campaign against Goldman in Asia, trying to get the firm kicked-off Agricultural Bank of China's $20bn IPO (the firm is a co-manager). The news agency quotes one unnamed banker, who said: 'People have been known to market against Goldman by saying things like: 'Look, you never really are a client of Goldman. The only client of Goldman is Goldman'....If I knew I was pitching something against Goldman tomorrow, I'd probably make some flippant remark'.