By association

In the Victorian era, Englishmen distinguished between the deserving poor and the undeserving poor; between the elderly and infirm, who couldn't help themselves, and the young and able bodied, who had only themselves to blame if they were filthy, hungry and desperate. Moral turpitude and laziness must have brought them so low, never the greed or heartlessness of others.

We have refined this behavior to suit our more enlightened times. Today we distinguish between the deserving rich -- the successful billionaire, to whom we would happily entrust the fortunes of our favorite soccer club -- and the undeserving rich. The latter will not personally have fallen on hard times. They do not consider themselves personally culpable, though they have brought down their banks, destroyed shareholder value and taken our money.

Still, they receive our charity. It is grudgingly given; thin gruel, doled out with moralizing lectures. We know, like the Victorians before us, that it will be squandered, encouraging neither self-knowledge nor self-improvement in the recipient.

Yet we heed the words of the Old Testament. To misquote the book of Deuteronomy, "The rich, like the poor, will never cease to be in the land; therefore I command you, saying, 'You shall freely open your hand to your brother, to your rich and needy.' "

Bankers and other wastrels are as keen as the Victorian poor to avoid our handouts. But those institutions that do accept alms find themselves more beholden to the government and the politicians than either side might have wished.

And, like the Victorians, who ultimately failed to salve their consciences by pushing the poor out of sight in institutions, our politicians and regulators now find themselves tainted by the contact with the beneficiaries.

Take the British government's decision to rescue ailing lender HBOS plc by brokering its merger with Lloyds TSB Group plc, setting aside competition regulations to achieve it. At the time, the deal was spun as the prime minister's initiative, discussed over dinner with Lloyds chairman Victor Blank, and a brilliant move that helped restore Gordon Brown's reputation as national leader. Then, when a weakened Lloyds was forced to turn to the state for help, the swift decision to take a large stake in the combined bank was used to project the prime minister as a global statesman.

Yet, in February, on Friday the 13th, as ill-luck would have it, Lloyds revealed that, in the speed and haste of the merger, the true scale of HBOS' losses had been somehow overlooked. Suddenly, the government claimed the impetus for union came from the banks. Blank was left with the choice of being made to look like a government lackey or a reckless dupe. Lloyds CEO Eric Daniels told a parliamentary inquiry that due diligence had been inadequate because of the pressure to act quickly.

In the same week, James Crosby, one of the architects of the bank bailouts and a former chief executive of HBOS, was forced to resign as deputy chairman of the Financial Services Authority after allegations that he had ignored warnings about excessive risk while still at the bank. Yet during much of his career at HBOS, when he was supposedly under the scrutiny of the financial regulator, he was either on the FSA's own board as a non­executive director or on the watchdog overseeing the regulator itself.

Meanwhile, it has been revealed that the Treasury, having brought in a team of senior City of London figures to oversee its nationalized institutions, is hiring out-of-work bankers to help it keep pace with the financial crisis. No one dares pronounce the dread phrase "conflict of interest." Yet such people may either want to wreak vengeance on their former colleagues or generously excuse the excesses of the bonus culture.

As the nexus of state and finance becomes tighter, the banks and the government that bought them become weaker. How long before London's new nickname, Reykjavik-on-Thames, is no longer a joke?

By then, the distinction between the deserving and undeserving rich will be much clearer. The former will be pawning the yachts and the Bentleys and heading back to Moscow or Monaco. The latter will buy the yachts and the Bentleys from the pawnbroker, paying cash from new government salaries.