The toxic carousel

This raises some fundamental questions as to the extent of the due diligence carried out by RBS prior to its investment in the Abacus toxic time bomb of collateralised debt obligations (CDO).

Those CDO's were marketed by Goldman's - with the help of a triple-A investment rating from Moody's - and then sold on as triple-A grade 'investments' to RBS investment traders, who where then paid handsome bonuses for their involvement in such deals.

RBS is likely to have a mountain to climb proving the CDO's it purchased from Goldman Sachs were indeed shoddy, given the only people who can access CDO performance data are investors in CDO's, who are also subject to non-disclosure agreements.

Goldman Sachs relationship with RBS soured somewhat back in 2008 when its former chief executive, Sir Fred Goodwin, was negotiating the banks initial £12bn rights issue.

Goldman's, hired as a key underwriter to the rights issue, was at the same time betting against its struggling client by taking short positions on RBS shares.

What Goldman Sachs settlement with the SEC lays out this week is it set up one customer (RBS) to be the fall guy for another customers (Paulson & Co) who paid Goldman $15 million in fees so it could choose some of the investments for a portfolio - in secret - to then go on to short its positions against that same portfolio, again in secret.

Of course, Goldman's also picked up massive fees at both ends of the deal.

And since the CDO's are in themselves secretive agreements, traded in an unregulated over the counter derivatives market, the chances of RBS winning a case against Goldman's are shaky at best.

The government-led investment vehicle managing the tax payer stake in both RBS and Lloyds - UK Financial Investment Limited - has already expressed a willingness to purse Goldman for a settlement for its overall losses in the Abacus deal.

So it will be interesting to see what RBS head of strategy, Jennifer Hill makes of all of this, and if RBS will pursue 'the giant vampire squid' for the remainder of the losses.

The SEC has said the gates are now open to other claims now Goldman has admitted the omission from the marketing literature omitting Paulson & Co's involvement in Abacus was "a mistake".

Hill was the former managing director of Goldman Sachs in London and New York and was also the former CFO of Goldman's European Investment Banking division before joining RBS - so no pressure.