One tweet yesterday said it all: "How can the [US] government sue Goldman Sachs? I thought Goldman Sachs ran the government." That charge is just a tad harder to make today, now that the biggest investment bank on Wall Street is fighting a civil suit for fraud filed by a government watchdog. For anyone who wants a reckoning for the economy-devastating episode that is the banking crisis, this bears the promising indications of war between Wall Street and Washington.

Even more satisfying, this case goes straight to the heart of the financial crisis: it is about the dodgy sub-prime mortgage vehicles that drove all the market madness. According to the Securities and Exchange Commission, Goldman Sachs created a package of dodgy home loans and flogged it to investors – without disclosing that one of its hedge-fund clients had picked the loans that went into the package, and had bet that the investments would fall in value. What this amounts to is an allegation that Goldman knocked up a stinky investment that it knew would tank and scammed investors into buying it. Goldman Sachs made money, the hedge-fund billionaire John Paulson made money – and the suckers lost more than £650m. If any British taxpayer wants to know who these suckers were, look in a mirror: our own RBS was the ultimate insurer for the deal and had to pick up the tab.

Goldman calls the allegations "unfounded in law and fact". But without wishing to get into what is set to be a big, bloody battle, it is possible to make three observations. First, Goldman Sachs is going to have a hard time warding off the damage to its reputation done by this case. For a taster, look at page 7 of yesterday's SEC filing, which quotes an email from Fabrice Tourre, the executive who helped make and sell this investment: "The whole building is about to collapse anytime now … Only potential survivor, the fabulous Fab[rice Tourre] … standing in the middle of all these … exotic trades he created without necessarily understanding all of the implications of those monstruosities!!! [sic]" Coming from a bank that bangs on about its good name and fair dealing, this stinks.

Second, this case marks a distinct turn in Washington's approach to Wall Street – and about time too. With the healthcare battle settled, Barack Obama is again talking about reforming the banks. Let us hope that his bark is accompanied by a decent bite. Finally, months before any regulatory action, this story was reported in detail by the New York Times. Whatever happens in the case, its very existence is testimony to the role that good journalism can play in uncovering difficult and complex stories that affect us all.