It remains to be seen whether or not Goldman Sachs will face penalties for its role in a large debt packaging transaction currently under investigation by the SEC. However, whether or not the firm did anything wrong when it created and sold a mortgage-backed instrument the SEC claims was destined to fail has taken a backseat to questions regarding the timing of the SEC's announcement and its proximity to the White House's latest push toward financial industry reform.
While regulation and reform in the financial industry are about as close to foregone conclusions as anything gets to be in Washington, questions are arising about the action against Goldman due to the party line split among SEC commissioners in voting to bring the action and the curious timing of several events over two days which included the breaking of the story in news outlets and the purchase of the Democratic National Committee of ad space related to the suit, both before the SEC made its announcement.
The SEC is supposed to be a non-partisan entity which maintains independence from the White House and political entities. Therefore coordination with politicians, and particularly those serving on a party's national committee, would show at the very least the taint of bias, something regulators work hard to avoid. However, the head of the SEC is essentially an at-will employee serving at the President's leisure. To think that a conversation took place between the White House and the SEC before this major announcement was made, particularly with a number of Goldman alum in positions of power in the current administration and with the interesting timing of some of the events that transpired doesn't require one to be a conspiracy theorist.
Many Americans are so fed up with Wall St. that they won't care if the White House and SEC talked before action commenced. Indeed, many in this segment of the population would probably embrace concerted action, whether or not it is strictly allowed. However, enough Americans who are upset with Wall St. still believe that following rules is important that the allegations of back door dealings and coordination will leave a bad taste in some mouths. Reform is coming, as to some extent it should. But it should not come on the backs of scapegoats as the result of politicized back door dealings. If Goldman Sachs defrauded investors, it should face penalties. However, it should not be used as a political pawn the larger reform game, a move which risks painting reforms which are needed with a tainted brush.