The Securities and Exchange Commission's civil fraud case against Goldman Sachs is surprising on two levels.

First is the idea that history's most successful and envied investment bank would have rigged a security to fail, and then sold that security to its regular customers. The CDOs, or collateralized debt obligations, were riddled with troubled subprime residential mortgages. The hedge fund manager who helped create these securities for Goldman bet against the CDOs and cleaned up. Goldman has denied wrongdoing, and the manager was not named in the SEC's lawsuit.

The second gasp comes at the welcome boldness of the SEC, which is taking on one of the most politically connected companies on Earth. Here's hoping that the SEC has opened a new, more aggressive chapter. The agency has been embarrassed recently as ineffective, particularly over its ignorance about Ponzi schemes like Bernard Madoff's.

Certainly, the fraud case should alter the tenor of the conversation in Congress over stricter regulation of the financial industry. Goldman survived an arguably near-death experience because of taxpayers' generosity, then went on to have one of its most profitable years ever in 2009. Instead of showing gratitude by loosening its commercial lending, Goldman initially balked at limiting seven-figure bonuses for executives.

The danger in that sort of hubris is a repeat of the financial collapse. To function, Wall Street must have investor confidence. If it can't deal honestly, then it shouldn't be surprised when Washington steps in. hN


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