Others say the case is merely indicative of massive rip-offs routinely practised by big Wall Street players.

Over the weekend, British Prime Minister Gordon Brown and German Chancellor Angela Merkel increased the international pressure on Goldman. Brown accused Goldman of 'moral bankruptcy' and ordered a special investigation. Merkel is asking the SEC for information so that Germany can decide whether to take 'legal steps' against Goldman.

The now British government-owned Royal Bank of Scotland Group and Germany's IKB were among the clients of Goldman who lost more than US$1 billion on the allegedly fraudulent collateralised debt obligation backed by subprime mortgages created by Goldman.

The fact that Goldman is in the hot seat - not the dock, since these are not criminal charges but civil ones - is of immense significance. One financial commentator described Goldman as 'the rainmakers' rainmaker, the biggest swinging dicks in the financial jungle' because of the vast sums of money that the company makes - and the big bonuses it pays to its executives.

But money alone is only half the power and influence of Goldman. Much more important is the fact that key executives have flitted easily from top jobs at Goldman in Wall Street to leading policy-making positions in Washington. For the two reasons of financial muscle and inside influence, Goldman has often been called 'Government Sachs'.

Robert Rubin went from being co-chairman of Goldman to director of the National Economic Council under president Bill Clinton and then was Clinton's treasury secretary. Rubin later joined Citigroup, but is still one of the movers and shakers in Obama's White House because both Larry Summers, the White House economic supremo, and Timothy Geithner, the treasury secretary, along with other key officials are widely regarded as his proteges.

One of Rubin's successors, Henry Paulson, became treasury secretary under president George W. Bush in 2006, just before the global financial crisis hit home.

Lloyd Blankfein, who took over from Paulson as Goldman's chief executive said in an interview with The Times of London, he believed the company was 'doing God's work', leading some commentators to call it 'Godman Sachs'.

The financial blogosphere has certainly been electrified by the SEC case and the evidence that the commission has so far revealed involving Goldman and the CDO known as ABACUS 2007-AC1.

Paragraph 18 of the SEC case against Goldman (or GS&Co, as the SEC calls it) and its 31-year-old executive Fabrice Tourre, who was a vice-president on the structured product correlation trading desk at Goldman's in New York when the deal was being done (and is now in London as an executive director of Goldman Sachs International), is a gem revealing the murk and mystery and vanity of those involved in creating exotic financial products.

The SEC claims: '18. At the same time, GS&Co recognised that market conditions were presenting challenges to the successful marketing of CDO transactions backed by mortgage-related securities. For example, portions of an e-mail in French and English sent by Tourre to a friend on January 23, 2007 stated, in English translation where applicable: 'More and more leverage in the system, The whole building is about to collapse anytime now ... Only potential survivor, the fabulous Fab[rice Tourre] ... standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!' Similarly, an email on February 11, 2007 to Tourre from the head of the GS&Co structured product correlation trading desk stated in part, 'the cdo biz is dead we don't have a lot of time left'.'

Some of the bloggers are cynical. Tyler Durden believes that 'like a Swiss watch, the witchhunts are here ... in keeping with the tradition of bread and circuses, (President Barack) Obama has managed to channel the public anger at precisely the right time' to deflect from the fact that US debts are increasing.

But economic professor Simon Johnson, who used to be the chief economist of the International Monetary Fund, believes the SEC case against Goldman could amount to a 'Ferdinand Pecora moment'.

Pecora is not a name on the lips even of Wall Street insiders, but he was the tough prosecutor from New York who gripped American imagination in the 1930s by exposing the wrongdoings of Wall Street through congressional hearings and helped to pave the way for comprehensive banking re-regulation.

Johnson says: 'Pecora had the drama of the congressional hearing room and used his skills as an interrogator to batter the bastions of Wall Street, day after day, with gruesome and convincing detail.

'We don't know where and when, but the SEC action points in one direction only: Lloyd Blankfein in the witness box, while John Paulson (unindicted co-conspirator) waits in the on-deck circle.'

Johnson points to the nub of the case: 'Either Blankfein knew what was going on - and is therefore liable before the law - or he was clueless and therefore incompetent.'

If the charges against Goldman are proved or have any substance, what does it say about the links between Wall Street and Washington? Does it mean that the whole culture of Wall Street has been built on ripping off clients? Is the Obama financial reform, which basically involves tinkering with and propping up the existing system hedged with new rules and regulations, fundamentally flawed even before Republicans in the US senate try to rip it apart?

Kevin Rafferty was in charge of the Asia coverage of the Financial Times. and has edited daily newspapers in India, Malaysia and Thailand