Why the SEC Decided to Sue Goldman Sachs

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As you might imagine, the ongoing revelations about the SEC (Bernie Madoff, Allen Stanford, and porn, among others) has made things somewhat awkward for the agency's employees. Children jeer at them on the street. Priests sigh in disgust when they confess the name of their employer through the grate. Their local deli guys are like, "How's it hangin', ladyboy?" when they stop in to buy cigarettes. Even old ladies give them a hard time, according to this morning's Journal.

One ex-SEC lawyer was asked at his mother's birthday party: "How does it make you feel that your agency is absolutely incompetent?"


After two-something years of these kinds of stories piling up on her desk, Chairman Mary Schapiro decided that action was needed. High-school reunion season was coming up, and the SEC would not show up and be harangued or, worse, pitied by their former classmates! So she made a decision.

They were going to do something. Something that would show they had a spine. They were going to sue Goldman Sachs.

To some, Schapiro's idea seemed crazy, mad, totally unrealistic, like an underdeveloped geek coming up with a plan to take down the quarterback with one punch and also steal his girlfriend. They had doubts.

"I have serious doubts about the evidence of fraud" prevailing in court, said Troy Paredes, one of the two Republican appointees on the commission, according to two people in the room.


But despite having a weakling of a case, they went through with it, and even more crazily, Schapiro's plan — which hinged on the idea that the children, the priests, the deli guys, and the little old ladies just need someone to blame, the richer and more mysterious, the better — actually worked! Even Intel Jessica's mother this weekend said, "Can you believe those evil men at Goldman Sachs?" as if she has any idea what Goldman Sachs does or has any inkling of what a mortgage-backed security is, never mind a collateralized-debt obligation.

Now, with the onus on somebody else, the SEC can finally feel good about themselves again. And they do!

Morale is soaring at the SEC, staffers say. After a recent meeting on proposed rules with Ms. Schapiro, two regulatory lawyers walked into the hall and fist-bumped before getting on the elevator.


SEC Chief's Big Bet on Goldman [WSJ]