Many lawyers previously thought such deals were bulletproof. Now, simplified, they look vulnerable. The SEC, by blazing a trail, has shown plaintiffs' lawyers how they might frame private cases. (If you sue Goldman, they will come.) The potential damages are huge: on average, these CDOs lost more than a billion dollars each. This is why bank shares fell so sharply on Friday.

Goldman has denied the charges, which it said were unfounded "in law and in fact". It will argue that investors were sophisticated and assumed the risks in exchange for higher returns. It will wave a lengthy prospectus and a 66-page pitch book, which disclaimed liability and disclosed a Cayman Islands special purpose issuer, an exchange listing and centrally clearing.

These defences illustrate the second important point of the case: it shows how litigation can fill gaps regulation will miss. Regulators will never keep pace with financial innovation, and bankers run circles around even the best-intentioned rules, especially in derivatives. More fundamentally, Wall Street interprets detailed rules as a shield from liability. If Congress requires only that derivatives be centrally cleared, and those in Abacus were, is that not sufficient to show Goldman complied with the law?

In contrast, the case demonstrates a more effective way to police bankers, because Wall Street cannot outrun a judge. That simple point has been part of Anglo-American common law jurisprudence for centuries. The US judge Oliver Wendell Holmes advised that the law was a prediction about what a judge would do. If bankers consider only whether they are complying with specific legal rules, they will create "alegal" transactions - deals that fit the letter of the law but violate its spirit. But they cannot be certain about how a judge might assess their conduct. That worry, not a rule, is what will make bankers tell clients about the presence of a fox.

David Fuller's view If Wall Street firms can be successfully sued, prosecuted and fined because of "deals that fit the letter of the law but violate its spirit", this case against Goldman Sachs and perhaps other banks will rumble on for a quite a while.

If, as Frank Partnoy suggests, fear of judges makes Wall Street aware of its moral compass - where regulation and laws have not - that should be in the long-term interests of the financial industry and investors. However, over the lengthy medium term it could also be a headwind for the banks involved and this could affect equity performance generally.

Meanwhile, the downward dynamics seen in Europe and the Americas on Friday and in much of Asia today, have probably capped the prior nine-week rally. Most stock market indices had rallied, once again, well above their trend means represented by the rising 200-day moving averages. Therefore equities were due for a reaction and consolidation and events could turn this into another mean-reversion correction towards the MAs.