Public policy attempts to provide balance are hamstrung by the fact that, from the financial viewpoint, regulations and tax are restrictions on entrepreneurship and profit to be opposed and if possible eliminated. As for labor, return on capital is improved if its cost can be reduced. Outsourcing, offshoring, and labor market flexibility have helped keep wages in check. Hence a major symptom of the Anglo Disease is long-term stagnation of the majority of incomes.

Flat incomes might constrain domestic demand, but easy credit (to the further benefit of the financial industry that channels it) has buttressed household spending. Expansionist monetary policies in the West have combined with Chinese mercantilism to offer rapid asset price increases with no consumer goods or wage inflation, generating high corporate profits. Global trade imbalances and what was a massive asset bubble created an economy blessed with the appearance of strong, inflation-free growth--an illusion that helped validate the underlying policies, despite rising inequality and ballooning, unsustainable, debt burdens. Starting with subprime lending, but now extending to other financial activities, market players have suddenly become scared by their collective imprudence and have engaged in a brutal process of deleveraging. While the credit crunch devastates bank balance sheets, the wider economy is also suffering. Credit available to businesses is shrinking, and the spigot of house equity withdrawals is turned off for consumers. The reality of declining or stagnant incomes for the majority can no longer be camouflaged. Prospects are dire, and further damage to the banking sector and the overall economy is likely.

The imbalances will only be unwound, ultimately, if incomes match spending more closely. That can, of course, happen through a consumer spending slump and an inevitably painful recession. The financial wagers and high-priced assets that surfed on a nicely growing economy will, at some point, have to be marked down as losses, as is happening already. The Anglo Disease will face treatment by the kind of drastic purge that threatens the patient's very life.

There remains another way: higher wages across the board, and a more modest financial sector restrained by regulators and unable to impose the artificially high return-on-capital requirements made possible only by excessive leverage. Making banking boring again is, compared to the alternative, a fairly gentle cure for the Anglo Disease.

John Evans, a writer, and Jérôme Guillet, an investment banker in the energy sector, are editors of the European Tribune, a current affairs website.