UR TV CAST

There is something almost biblical about the way capitalism punishes each period of excess with a countervailing period of austerity and self flagellation. In the 19th century Karl Marx and other political and economic thinkers thought that the boom to bust nature of markets would eventually end up destroying capitalism entirely, but it hasn’t turned out that way. In fact the system emerges from each cycle refreshed and strengthened. Capitalist democracies have survived because they have learned to regulate themselves, so as to nip the worst excesses of the boom and provide a safety net during the subsequent bust.This is where the present generation of radical free market thinkers have got it hopelessly wrong. Capitalism needs regulation as much as it needs entrepreneurs and free markets.

The lesson of the American technology boom, and its accompanying excesses, is that when the restrictions are eased too far too fast, markets run riot and end up caving in on themselves. As the good times roll, bankers investors and managers alike become oblivious to risk and, in a process that Wall Street sometimes refers to as “reaching for yield”, end up throwing caution and normal standards of probity to the wind in their pursuit of easy money.There are big dangers in the subsequent crackdown too. Too much regulation, and you end up up killing the goose that laid the golden egg. The system gets clogged up with rules, codes, standards and officialdom and the wheels of economic prosperity grind to a halt.

In the present atmosphere of near hysteria on the other side of the pond, that’s a real possibility Punishing the perpetrators of these deceptions is one thing. Judging by recent comments from Paul O’Neill, the US Treasury Secretary, he’ll be leading the posse from the front. He wants to hang people like Mr Ebbers from the highest branch. But reforming the system requires altogether more considered thinking and debate.The Chancellor suggested at the Mansion House dinner the other night that Britain would remain comparatively immune to the accounting scandals sweeping corporate America He’s got good reason to be smug. We had our accounting frauds in the late Eighties and early Nineties, and moved to tighten standards accordingly.