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Goldman's Choice: Pinstripes or Toasters

Goldman, if faced with the choice of giving up federal support or giving up risk, will likely choose the former.
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) -- Jon Corzine looks awfully smart all of a sudden.

Shortly after

Goldman Sachs

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saved its bacon in 2008 by becoming a bank holding company, Jon Corzine, then governor of New Jersey and a former leader of the firm, gave Chairman and CEO Lloyd Blankfein a


emblazoned with the Goldman Sachs logo.

It was a joke, of course, from those long ago days when banks were boring and new customers opening checking accounts were given toasters. Everyone knew that was silly. Goldman was a bank holding company with explicit federal support, but soon it would be back to business as usual as Goldman proved a few months later by posting its usual record trading results doing, well, no one outside the firm knew exactly. But that was Goldman. Toasters? Ha, that was a good one!

Suddenly, though, toasters don't look so bad. It turns out that the wacky

Securities and Exchange Commission

civil fraud case against Goldman announced April 16 was just a warm up. Federal prosecutors have opened a criminal investigation into the company, according to widespread reports late Thursday.

The issue being examined by the Justice Department is somewhat different from the one the SEC has brought, according to

The Wall Street Journal

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. Still, both cases go to the heart of Goldman's business. Much as Goldman may wish it could pin the blame on a 31-year-old vice president like Fabrice Tourre, it can't. Creating complex securities and selling them to a range of clients with a range of bets while "getting comfortable" with all kinds of conflicts and all kinds of risk is what Goldman is all about.

Few of us, including federal prosecutors, understand exactly how the soup is made. What President Obama and a few other powerful Democrats in Washington understand is that the soup had an awful lot to do with nearly bringing down the financial system. It made Goldman really fat and nearly everyone else really thin. And it had to stop.

So Goldman, says our president, we've got a few laws we'd like to pass to reduce risk in our financial system. You've got two choices. You can either keep lobbying against them and go to jail, or you can shut up and retool your business. In other words, start making simple loans and giving away free toasters.

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The Many Faces of Lloyd Blankfein

Corzine, meanwhile, truly may get the last laugh. He is now in charge of

MF Global


, a trading firm that, in part because it has no government backing, may be positioned to take over the risk-taking role that legislators want to force Goldman to give up.

It seems more likely that Goldman, faced with the choice of giving up federal support or giving up risk, will choose the former. Goldman will sell its bank and become a hedge fund, private-equity shop and deal adviser, similar to

Blackstone Group

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Still, that toaster joke was too funny. Mr. Blankfein, I like mine lightly browned, with a bit of butter and jam. Thanks.

--Written by Dan Freed in New York.