Trouble comes in two - Paulsons that is.

The first was the ex-Goldman Sachs chief and ex-Treasury Hank Paulson who used his influence as a smart and astute investment banker to lobby for deregulation particularly in diluting the leveraging norms and got the Congress to allow his investment banking firm to lend 30 times its capital. His firm used it to ramp up all kinds of toxic assets and spread a culture of mercenary banking.

And then as Treasury Secretary he saw to it that the competition to Goldman is wiped out, first by helping JP Morgan Chase to buy Bear Stearns at a cheap price (with Government help underwritten by the Treasury and Federal Reserve) and then in September 2008 forcing Lehman Bros to declare bankruptcy, by refusing to extend the same helping hand.

Hank Paulson was also in the thick of scheming (along with Geithner of Federal Reserve then) to make sure Goldman and Morgan Stanley convert themselves into Banks to qualify for Government rescue. He thus effectively slayed the opposition in a series of wise moves.

Goldman became one of the two remaining Superpowers of Wall Street, which gave it a nice position to write the rules to make more money. It is a legend that Goldman started shorting its own clients and played all sides of a deal to keep making money.

Now comes the other Paulson, John whose scheming along with Goldman to create and short toxic bonds is the news of the day, as revealed by the SEC suit.

Below is a very concise description of what SEC’s suit is all about.

http://money.cnn.com/2010/04/16/news/companies/Goldmans_Sachs_fraud/index.htm?cnn=yes&hpt=Sbin

Wonder what ethics Goldman has if it ventured to bundle toxic assets into a synthetic or hybrid CDO tranche to sell to other 'sophisticated’ investors who were managing the funds of pension funds, churches, schools, municipalities, etc. And which other investment bankers did similar deals with deliberate intent to make money on toxic sub-prime loans ?

The key description of the deal as per the SEC charge:

Quote: So they seek out a reputable third party to, as internal Goldman memos state, put its “name at risk…on a weak quality portfolio.” Unquote

They were ‘Too big to be sued' till now.

Let us see whether this opens the floodgates of more such suits.

But wait, Goldman and its top management could escape making its Vice President,Fabrice Tourre, the fall guy. It appears that Goldman was aware much earlier that a suit like this might be laid. It is not unthinkable that they used their influence with SEC to name Fabulous Fab as an accused so he could become the fall guy. They have already issued press statements saying that the deal and its aftermath was the result of action of a single employee. They are obviously playing to distance themselves from Fabrice Tourre's action even though he worked in the firm, painting him as a 'rogue dealer'.

Who knows they may get away with it and carry on their merry dealings through more such 'rogue dealers'.

But again, the political reality of mid-term elections may work against Goldman getting off so easily. Obama and the Democrats are spoiling for a fight to push their reforms of the financial sector and may be using this as a test case or pressure to bring the titans into line. They have to convince the American public that they are working in their interests and not on the side of the fat cats and what better way than to get a win over the biggest titan, Goldman.

Gordon Brown, the British PM, who is also facing elections has nicely picked the opportunity to rail against the titans in UK.

So it is all becoming very political too. Witness the current bill in the Senate 'Restoring American Financial Stability Act' being upstaged by 'The SAFE Banking Act'. The former is not supposed to go far enough to brak the 'Too Big to Fail Banks' so the latter has prescribed some quantitative restrictions.

The question is - Will Obama do a Teddy Roosevelt and take on the Titans to break them up ?

He may well do, because this is an election year, after all.