Mervyn's a good call, but why Goldman?

Given the way he has been treated in the aftermath of the Northern Rock affair, he would have been within his rights to tell the Government what to do with its job. But such a move in the middle of the current banking crisis would be one of the few things that could make a bad situation even worse.

Nowhere is this more evident than in the appointment of Goldman Sachs by the Treasury to advise on the matter. For the six decades since the Bank of England's nationalisation, it has always been its role to advise the Treasury on financial matters, and for the Bank of England to bring in further specialist advice when it felt it was needed.

To bypass the Bank and appoint Goldman direct, as the Treasury did, is the kind of unthinking insult to the competence of the Bank and its established role that would have justified the Governor tendering his resignation - or at least making it clear he had no desire to serve again. The fact that he had a greater sense of public responsibility is to his credit and our benefit.

It is the more bizarre because Goldman's advice seems so at odds with everything the Government claimed to want. A primary objective of its policy was to get it off the hook and recover at least half of its deposits. The bond scheme only works with a Government guarantee, leaving the taxpayer firmly impaled for the foreseeable future.

The second essential was to avoid public subsidy so as not to contravene EUrules. It is impossible to price Northern Rock paper in the current artificial conditions but, if one generously assumes just a 1% spread between Government bonds and what Northern Rock debt could be priced at were it on its own, the value of the guarantee on £23 billion of loans is £230 million a year. If that is not a subsidy, what is it?

The third issue is Goldman's role from now on. It is well-known that investment banks these days make their money not from the fees they charge for advice but from the sales commissions they take from the financial products they invariably advise their clients to use - in this case bonds. Advisers tend to be salesmen without the tell-tale box of samples.

Clearly there is a potentially huge conflict of interest here, the more so because a bank's normal fees on an issue of this size would run into the hundreds of millions of pounds. The sums could be astronomical - and the fact that Goldman unofficially says they will not be - is a necessary but not sufficient comfort.

Mind you, one may be getting concerned for no reason. It is still very much open to question whether the bond idea will ever get off the ground. There are those much closer to Northern Rock than I who claim the saga is still nowhere near reaching its end. Nationalisation is fast becoming the cheaper option. IN these markets, news that your controlling shareholder wants to sell out might not automatically be viewed as positive.

Hence the upbeat trading announcements today from fund management group Foreign & Colonial, which paint a picture of a group very much on the mend after a horrendous few years, and making stellar progress despite the bearish trends of the stock market.

Until today, investors had probably not realised how advanced F&C's recovery is, or how different its experience has been compared with the gloomy picture painted by recent industrywide sales figures. The effect should be to create a positive buzz about the group so that the heavily trailed and separate announcement that Friends Provident wants to sell its 53% holding will be seen as positive, not as a source of damaging uncertainty.

It is an important point. Few things can be better calculated to destroy value then selling a fund manager to an owner with whom the employees don't empathise - witness Gartmore when bought by Nationwide of the US or Jupiter when owned by Commerzbank.

The last thing Friends Provident or F&C want is a rerun of those costly sagas. So in addition to trading well, the fund manager has decided to hire Lexicon and Lazard to advise it on the range of strategic options the share sale opens up.

Given that these range from management buying control to using the stake to trigger a merger with another group, and everything else in between, it really could mark the start of a liberating new era. The company certainly wants to give the impression that it is fired up to seize the moment. And it probably is.