The significant point about the fraud investigation against Goldman Sachs is not that it is taking place, but that it didn’t take place much earlier.   It has been known for years now that mortgage-backed derivatives  were often constructed in a manner that was not only highly complex, but deliberately designed to evade scrutiny and to deceive, to the benefit of the originators.   In this case a package of mortgages and other fancy financial products was deliberately manipulated to fail, thus allowing a hedge fund, Paulson & Co., with whom the US-SEC is alleging  Goldman Sachs was collborating, to make a killing by betting (taking a short position) on the collapse of the package.

These devious collateralised debt obligations or structured investment vehicles, as they are called, have repeatedly made massive fortunes for their originators – until their deceit is exposed.   This particular mis-selling defrauded clients out of nearly $1bn (£650 millions), with Paulson & Co. taking the pickings, and the fall guys who insured the package against default – none other than our own Royal Bank of Scotland – taking a colossal hit, no less than $841 million losses.

But the interesting point remains: why is action being taken now if this kind of systematic fraud has been known to the authorities for so long?   Because Obama, having taken a pummeling over health reform, has realised that attacking the excesses of Wall Street presents a highly attractive populist target in the run-up to the mid-term elections in November.   Expect a whole series of similar assaults on grredy and immoral banks in the next few months.   And why is Britain (and Germany whose IKN bank was also involved) suddenly coming to life to have a go at the banks?   Because America has taken the lead, and Europe cannot be seen to be lagging behind in the light of domestic hatred of the banks.

The real lesson of this story, sadly,  is that despite all the huffing and puffing about being “shocked at the moral bankruptcy” of Goldman Sachs, the UK Government would have done nothing about it had not the US Government preempted their reaction through pursuit of their own political expediency at home.    Radical banking reform still remains the elephant in the room in the present British election, unmentioned by the two main political parties (though not, to their credit, by the Lib Dems) and together with a public sector-driven growth programme (as an alternative to massive public sector cuts) and a systematic programme to tackle inequality forming part of the election-that-never-was.

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