Has any firm been more vilified in the financial crisis than Goldman Sachs?

Infamously branded a vampire squid by Rolling Stone, Goldman has figured in so many alleged nefarious plots it s hard to keep track. There was the alleged conspiracy between Goldman and Treasury Secretary Henry Paulson, its former chairman, to save AIG in order to enrich Goldman. Goldman took taxpayer money and used it to pay huge bonuses. It supposedly helped Greece hide its precarious finances and caused the European debt crisis. It s been linked to the Galleon insider trading scandal, blamed for the mortgage bubble and its collapse, and accused in Congress of unbridled greed.

In short, Goldman Sachs has become the public face of Wall Street excess.

It s remarkable how little wrongdoing by Goldman Sachs has actually emerged from the swirl of allegations. It took Fabrice Tourre, a thirty-something vice president, and his candid if indiscreet emails to finally generate some charges that stuck: that Goldman failed to disclose material information to buyers of a toxic investment based on mortgage-backed securities just before the real estate bubble collapsed.

Goldman declined to comment on this column.

I was among the critics of Goldman s role in that deal, writing in April that, regardless of the deal s legality, To me, it fails the higher standards of honesty and professionalism that Goldman once embodied and urgently needs to restore. Now Goldman has settled the SEC s charges related to the deal, agreeing to pay $550 million, a record for a Wall Street firm, and change the way it markets some securities. It didn t admit or deny wrongdoing, but in a rare concession, conceded that offering materials in the deal were incomplete and that it should have disclosed that billionaire John Paulson s hedge fund helped choose the mortgages at the heart of the deal.

Perhaps to anyone not tied to Wall Street, this should have seemed self-evident from the start. But Goldman had a chorus of defenders, notably Warren Buffett, one of its major investors and hardly a disinterested party. His blind spot must have been the result of too much time in the trenches of mortgage-backed securities, a world Tourre presciently characterized as surreal. Goldman insisted it had done nothing wrong, or at least nothing wrong by the prevailing standards of Wall Street. Goldman deserves credit for swallowing hard and settling the case. We acknowledge we made a mistake, we regret it, we know it was not good for us and take it very seriously, Chief Financial Officer David Viniar said Tuesday.

Goldman said it knows of no other mortgage deals still under investigation, which is pretty remarkable considering the number of deals Goldman did. If the Paulson deal is the only one where Goldman officials crossed a line of unethical if not illegal behavior, it deserves to be put in context. (As for Tourre, who still faces civil charges, the SEC should speedily reach an appropriate settlement with him. To his credit, he had the moral compass to recognize something was amiss. Unless there are still-undisclosed facts, it doesn t seem fair to ban such a young and relatively low-level employee from the securities business.)

Like other Wall Street banks, Goldman faces the constant reality of actual or potential conflicts of interest whenever it acts as the middleman in deals in which there will always be winners and losers. Many if not all derivatives transactions are zero-sum games. This isn t like underwriting a public offering where, if the stock goes up, everyone feels good. Goldman has said it can manage such conflicts, and Congress has decided not to ban it and other big banks from such activities. But in the wake of its settlement, Goldman needs to demonstrate that day-in and day-out. That means full disclosure and treating all clients fairly, not stacking the deck in favor of big spenders like Paulson.
But Goldman s newfound humility is both refreshing and encouraging. Also working in its favor (and other banks) is passage of the financial reform bill, which ends uncertainty about the regulatory environment.

Goldman reported weak earnings Tuesday apart from the costs of the settlement, largely due to trading losses in the most recent quarter, which included the disruptive flash crash and a sharp market decline tied to the European debt crisis. Its stock climbed after the news, and I think investors are right to look beyond the quarter. Goldman has an enviable franchise and by the nature of its business will always have access to better information than most investors.

In April I said I wouldn t want to own Goldman shares until my confidence in the firm s integrity was restored. With the firm s settlement and pledges to do better, I believe that time has come.