The U.S. Securities and Exchange Commission’s April 16 complaint against Goldman Sachs for failing to disclose the near-certainty of failure in the synthetic debt products it sold under the Abacus brand is an important first step in restoring a fair and equitable balance of power in the financial system.

Allowing a select club of investment banks to operate literally without restrictions in dealings with hedge funds and other participants was regulatory folly. Giving those same banks federal deposit insurance — and indeed, taxpayer-funded bailouts — when their excesses brought the financial system to the brink of collapse is an outrage.

Goldman Sachs denies that it broke any laws and says it will defend itself. We welcome any and all disclosures that will get to the bottom of these transactions.

We also welcome any actions that lead to a more rational financial system, where community banks and larger regional banks — institutions crucial to the health of the Central Coast economy — will be able to compete on a level playing field with larger institutions. The rebalancing of power in favor of community banks, traditional lenders to small companies and larger regional institutions will help area businesses get the capital they need to recover, grow and expand as our economy improves.

What’s also required to restore the balance of power is a regulatory regime that gives community and regional banks adequate flexibility to restore their balance sheets, even as Wall Street firms are forced to disgorge the profits they garnered through deceptive disclosure practices and conflicts of interest.

Although there may be some difficult days ahead in the stock market as this and other enforcement actions come into public view, these actions are absolutely necessary to restore Main Street’s confidence in the financial system. Revelations about the hidden relationships between hedge funds and large investment banks will help all of us understand the roots of the financial crisis.

Hopefully these actions will ensure sure that hidden conflicts of interest and other misdeeds do not again bring us to the brink of financial catastrophe.

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