Checks and imbalances

It may be months before headlines about fraud at New York investment bank Goldman Sachs fade into the sunset, but recent headlines were also months overdue.

Out of range of reporters, the Securities and Exchange Commission and lawyers from the bank have been negotiating a settlement for months on allegations Goldman sold mortgage-backed securities stacked against investors, given they were secretly hand-picked by a hedge fund manager who made $1 billion betting against them.

The bank said it was taken by surprise by the SEC lawsuit filed Friday, The Washington Post reported Tuesday. But, the newspaper also reported regulators told the bank last summer they were considering filing charges and that months of negotiation over the matter came to an impasse.

Speaking of questionable surprises, it seems hardly shocking to learn the hedge fund manager, John Paulson, has helped organize fund raising events in recent weeks for both Democrats and Republicans. Just as investors place bets on both sides of the table, Paulson has hedged his political bets, The Wall Street Journal reported, helping raise funds for the Republican National committee and Sen. Charles Schumer, D-N.Y.

That artful posturing leads logically to the next set of headlines that declare the five SEC commissioners were split on the Goldman Sachs lawsuit with two Republican commissioners opposing the idea of pursuing Goldman in court. Ah, those checks and imbalances. The accusation that the Goldman suit was filed to politicize bank fraud to provide an emotional push for Sen. Christopher Dodd's financial reform sounds a bit different today.

In another court of sympathetic spin versus unsympathetic spin, former Lehman Brothers Holdings Inc. Chairman and Chief Executive Officer Richard Fuld Jr. is scheduled to testify Tuesday before the House Financial Services Committee with his first public statements since the autopsy of Lehman Brothers found the bank set up what appears to be slush accounts in reverse -- places not to hide spending money, but to hide massive losses.

Fuld intends to tell lawmakers regulators were aware of the bank's practices "in real time," the Journal reported.

The issues described here don't scratch the depth of legal entanglements that Goldman will face in court, but the tactics may not be much different, especially if Goldman chooses a "blame the victim defense," as defined by Wayne State University law professor Peter Henning.

"To fight the case, they have to focus on the investors. These were very sophisticated investors who weren't fooled by these transactions," Henning told The New York Times.

It remains to be seen whether such spoon-bending will hold up on court. Stay tuned. There's plenty of ink still ahead.

U.S. markets on Monday worked through the jolt of Friday's headlines, with the Dow Jones industrial average posting modest gains. By Tuesday, international markets had also sorted through the mess with the Nikkei 225 in Japan off 0.07 percent and the Shanghai composite index in China off 0.03 percent. The Hang Seng index in Hong Kong rose 1.02 percent, while the Sensex in India rose 0.34 percent.

The S&P/ASX 200 in Australia rose 0.22 percent.

In midday trading in Europe, the FTSE 100 index in Britain gained 0.73 percent, while the DAX 30 in Germany rose 1.29 percent. The CAC 40 in France added 1.12 percent, while the pan-European DJ Stoxx 50 added 1.1 percent.