In its latest effort to act like a good parent, setting boundaries and all that, the SEC claims that Goldman was deliberately selling rubbish to its customers and was in cahoots with a short-seller named John Paulson, who thought the mortgage market was going to hell. Without telling investors, the SEC claims, Goldman let Paulson help the firm design a “synthetic CDO”—essentially a gambling instrument consisting of other gambling instruments called “credit default swaps”—that Paulson wanted to be as cruddy as possible, so that he could profit from his belief that the mortgage markets were destined to fall. It’s a bit like Goldman designing a house in cahoots with a burglar, replete with nonworking window locks and a ladder lying by the side of the house.

Goldman’s response is that it was all a big accident, just one of those things that happens in a free market, no misbehavior, just business as usual, boys being boys. It says in a statement that it lost money on the deal, and that it provided extensive disclosures to its investors. And then there’s Paulson. Did Goldman act in cahoots with Paulson to build a flammable house, and then let Paulson toss in a match?

Now, if you compare the SEC complaint with the Goldman statement to which I just linked, you can see that there is significant daylight between Goldman and the SEC on just what investors were told about Paulson’s involvement. The SEC says that Paulson’s role in designing the CDO was not disclosed to investors in marketing materials.

It says that the investor with the biggest exposure in the CDO, ACA Management LLC, was deliberately misled to believe that Paulson actually wasn’t short the investment but “long”—that he actually thought all that toxic mortgage waste was going to climb in value. While Goldman contends that Paulson was among the firms that “provided input” into the construction of the CDO, it flat out denies that ACA was told by Goldman that Paulson was long the CDO.

The most significant thing in the statement is what isn’t in the statement. Goldman doesn’t deny that its marketing materials didn’t mention that Paulson—the biggest short-seller since Genghis Khan—was involved in designing it. I guess Goldman isn’t denying that because the marketing materials are all over the Internet. And guess what? They don’t say a thing about Paulson “providing input” into the selection of the CDO portfolio.

Take a look at that flip book. Read it carefully. What you’re not seeing, disclosure of Paulson’s role in design of the CDO, is the moral twilight in all its glory. Whether it was legally required or not, Goldman simply didn’t feel that it had a moral obligation to disclose to buyers of the CDO that a major short-seller was involved in putting the thing together.

I’m sure that highly paid former SEC officials are being put on the Goldman Sachs payroll at this very minute, to an extent that would make Allied Capital blush. The firm can spend millions of dollars and maybe even win, but a lawyer, a legal brief, and a press release are poor substitutes for what Goldman lacks—which is a conscience.