Should Goldman Sachs be sacked as a UK Government adviser in light of the charges brought against the Wall Street giant by the US Securities and Exchange Commission? Most people will probably wonder why a vested interest like Goldman was ever employed in such a capacity in the first place.
What those people don't grasp is the symbiosis between high finance and government. In the US there is famously a "revolving door" between Washington and Wall Street. Such is the interchange of personnel that it can be hard to tell where Goldman Sachs ends and the White House begins, and we have our own version of the revolving door here in Britain.
In 2008, Gordon Brown invited Win Bischoff, a former chairman of Citigroup and now chairman of Lloyds, to co-chair a Government commission on the future of UK financial services. It came to the conclusion last May that "the international financial services sector has been a major contributor to the wider UK economy, and we envisage this remaining the case in the future". How they must have loved that "business as usual" approach in the Square Mile.
For more than a decade, there was an assumption in US political circles that what was good for Wall Street was good for the American economy. And over here, in our familiar "mini-me" way, it was said that what was good for the City of London was axiomatically good for the UK.
And even after all we have been through – the multi-billion pound bailout for the banks, the deep recession, the bonus rows – there are still many people who believe that to be true. Some of them are in government. All their instincts scream: don't rely on the civil servants when it comes to questions of strategic economic policy, call in those clever bankers.
What should we make of the specific charges against Goldman? There certainly seems to be a prima facie case of the bank withholding "material facts" from its customers, contrary to what is required under US securities law, when it allegedly knowingly sold dud securities to investors in the denouement of the credit boom.
But we shouldn't get hung up on the outcome of criminal proceedings. If Goldman manages to get off on these charges – which is entirely possible – that would not make its behaviour on the notorious "Abacus" trade any more acceptable. Furthermore, much of what the banks got up to during the boom – running down their capital, cranking up their leverage, loading up on risk through opaque derivatives, awarding their staff obscene bonuses for short-term profits – was entirely legal. A lot of this activity comes within the category of what the late American economist JK Galbraith termed "innocent fraud".
Let the legal authorities prosecute where there is evidence of criminal activity by the banks. But politicians must not allow themselves to be distracted from the job of curbing the "innocent fraud" that has characterised the activities of the global banking sector for so long.
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