Amid collapsing banks, yo-yoing share prices and widespread insecurity it is natural to look for a culprit. The difficult bit is choosing the villain. Did the banks - particularly the de-mutualised building societies - completely lose touch with reality in their hunger to expand market share? Should their senior executives shoulder all the blame, or is there such a thing as political responsibility?

The merest hint that bonus payments might be made to anyone involved in weaving webs of financial derivatives out of absurd -risk mortgage lending makes me vibrate with fury. It is obvious that many remuneration packages encouraged executives to concentrate on short-term profit targets to the detriment of sustainability. In doing so they incentivised idiocy. I think the people responsible must face the consequences.

But moral hazard should not apply to bankers alone. As our political leaders compete to blame each other for a financial crisis that will damage every salary and pension in the land, it is worth remembering that none of them warned of apocalypse before it happened (not even Vince Cable, though he came closer than the rest). Former masters of the universe have been reduced to the status of beggars, but the MPs who should hold them to account have done no better.

I find it depressing that the House of Commons was not recalled in September to debate the crisis in emergency session, but perhaps such a recall would have been futile. Perhaps our ferociously whipped parliamentarians would simply have followed instructions from their leaders. They usually do.

I wish Britain would adopt the American system of democratic checks and balances, an in particular the independence from party it grants to Senators and Congressmen. Their work improved President Bush's financial rescue plan by subjecting it to ruthless scrutiny and amendment. It would be nice to see British legislators responding with similar independence of conscience. Until then their sanctimony about the banking industry smells like opportunism.   



I found it nteresting that Nicholas Taleb, the Black Swan author, last week went on the Today programme to say that that insolvent banks should be allowed to go to the wall. He pointed out that every time there is a major financial disaster the default response of the Federal Reserve is always to cough up large amounts of liquidity -- US taxpayer's cash -- to flood the system. The other central banks typically do the same.

Taleb says that doesn't work as the banks need to know they will not be rescued from the consequences of their irresponsible lending during the "good times".

Irwin Seltzer, an economics commentator, did an interview for FT a couple of days ago where agrees with you that it's depressing that the first response of the political parties in the UK was to announce they will be suspending debate on the ongoing bail outs.

When this occured, what was on offer in the US was a $700 billion gift to the banks with almost no explanation of what would be done with it, and no ongoing oversight.

I found the robust public debate among US legislators a wonderful example of democracy in action. After all, it is the taxpayers who legislators represent that are being asked to fund enormous loans to capital markets that have failed to manage the crisis so spectacularly.

Moral Hazard