Leading article: Sheer power and unwarranted privilege

The pressure on Goldman Sachs, the greatest money-making machine the banking world has ever seen, continues to grow. Earlier this month the United States financial watchdog, the Securities and Exchange Commission, brought fraud charges against the Wall Street giant. Now a Senate committee has released emails extracted from Goldman which, according to the Democratic Senator Carl Levin, suggest the bank placed its own financial interests above those of its customers in the final stages of the credit bubble.

Seven Goldman employees – including the firm's chief executive, Lloyd Blankfein – will face a grilling this week by Senator Levin's committee. Meanwhile, President Barack Obama is pushing banking reform through Congress in the teeth of fierce opposition from Wall Street – with Goldman Sachs very much in the vanguard of that resistance.

This has become the greatest battle between the American government and a private firm since President Franklin Roosevelt took on the "House of Morgan" in the 1930s. And, make no mistake, this is a battle that we here in Britain have an interest in seeing the US government win. There is a direct financial interest for the UK. The Royal Bank of Scotland lost around $850m as a result of the trade for which Goldman is being prosecuted for fraud by the SEC (losses which British taxpayers shouldered when RBS was rescued by the state).

Yet the real issue is not one deal (no matter how legally or ethically questionable) but the sheer economic and political power that a select group of giant financial firms, Goldman pre-eminent among them, have accumulated in recent decades. It is a financial power which is as marked here in Britain – in the shape of the large banks of the City of London – as it is in America.

The question of whether Goldman broke the law will need to be decided by the US courts. And it will be for the Senate committee to demonstrate specific instances of unethical behaviour by Goldman. The bank has already started to push back hard, publicly releasing a mountain of emails at the weekend which it claims exonerates its behaviour.

Yet the truth is that the broader case against Goldman and other "too big to fail" Wall Street banks is already sufficiently made. In the 2008 credit meltdown, the state had no choice but to step in to bail out these firms out when it became clear they were facing catastrophic losses. Goldman argues that it was less damaged than its competitors by the credit crash. But the plain fact is that Goldman was given special per-mission to convert into a bank holding company in 2008 so that it could borrow cheaply from the Federal Reserve. It also accepted $10bn of emergency capital from the US government. Without this state help Goldman would have been sunk.

But Goldman's response has been the opposite of gratitude and humility. The bank is spending large sums to lobby against reforms that would make the financial system, if not entirely safe, then significantly safer. This was the context of President Obama's speech in New York last week, in which he publicly faced down Goldman and the rest of Wall Street.

Whether the SEC's charges against Goldman will be upheld remains to be seen. It is also too early to tell whether the efforts of Mr Obama and Congress to cut Wall Street in general down to size will be successful. But what is at least clear is that Washington is waking up to the fact that the sheer power and unwarranted privilege of its financial sector needs to be addressed. This is one occasion where our own politicians ought to have no hesitation in following the example from across the Atlantic.