The Securities and Exchange Commission seems to have gone out of its way to rub salt in the open, raw flesh of Goldman Sachs. When it charged that the firm colluded with a hedge fund to rook investors in a mortgage-backed derivative, it engaged in a scenario right out of Cold War missile-attack nightmares—a bolt out of the blue—not giving the poor dears the customary opportunity to wheedle their way out of the charges.

This lamentable breach of customary decorum—one that we all deplore, I am sure—is the SEC’s way of signaling that it means business. This case is shaping up as one of those titanic battles the feds wage now and then, such as the war against Drexel Burnham Lambert and Michael Milken back in the 1980s, which resulted in Drexel collapsing and Milken going to jail. Congressman Barney Frank already has said that the Goldman case may hasten the passage of financial reform regulation, which has been stuck in limbo in Congress. And as regulators in Europe look into the case, there is a sense that Goldman CEO Lloyd Blankfein may have a hard time keeping his job.

Goldman, for its part, is fighting back hard, very much as Drexel did. Its defense is very interesting, because of what it says—and doesn’t say.

To understand what’s happening here, folks, you have to realize that Wall Street dwells in a kind of moral twilight. In its quest to make larger and more impressive profits, ordinary concepts of ethical behavior just don’t apply. Since the markets are restrained only by the limits of their own interests—or “self-regulation,” as this is known—the Street has a way of behaving like an infant child, testing mummy and daddy’s tolerance, with the feds, acting in loco parentis, stepping in now and then to set boundaries and send transgressors to the corner.

So it is with Goldman Sachs. The SEC says, “You deliberately broke the mortgage market,” and Goldman says, “No, daddy! It fell off the shelf. I just accidentally threw a softball on the wall, and it bounced off the mortgage market.” I am oversimplifying just a bit, but that’s the gist.