The monarchs of money have been exposed as arrogant fools. Now we are all paying the price for their hubris



For decades, we have worshipped at the shrine of gold. Prime ministers and presidents have bowed before its keepers. The monarchs of cash, arbiters of wealth, supposed founts of all wisdom, have bestridden Europe and the United States, humbling all in their path.

Investment bankers, hedge fund managers, private equity bosses have strutted in their huge townhouses, tossed away thousands at charity auctions, held court at polo matches and racecourses, launched fleets of yachts and squadrons of Lear jets in a fashion which many of history's dictators would have envied.

Today, we awaken to discover that like so many wizards of Oz, these supremely confident figures are in reality foolish old men - and some young ones - mouthing hollow incantations from behind curtains.

A Lehman Brothers worker dons a branded hat and drowns his sorrows with fellow investment bankers

Their universe is crumbling. They rule from the summits of glass towers, but now many can scarcely afford the rents. Markets are tumbling, currencies trembling, great companies begging for lifelines.

The money men have made fools of us. In the years of their dominance, they insisted that the markets were the highest judges and must be left free to rule. Now that the markets signal their downfall, they are running sobbing to governments and taxpayers, begging for our money to save them from the poorhouse.

Humble

The bankruptcy of Lehman Brothers, which makes the collapse of Northern Rock seem a mishap in an eggcup, is the heaviest blow to fall upon Western capitalism for decades.

In a year, Lehman's shares have fallen from $65 to zilch. This represents not the eclipse of a single investment bank, nor the follies of one management, but a failure which rocks the whole financial system.

A vision of capitalism stands discredited. Almost every bank boss in the Western world is today trembling in his Gucci loafers. Few, if any, even know the scale of their own institutions' exposure to risk. It will be months, maybe years, before we can be sure that the financial structure on both sides of the Atlantic can weather this storm.

The rest of us, humble savers and mortgage holders and workers in the real world, are entitled to our anger. For years, we have been told that we should stifle our resentment about the huge rewards which the City and Wall Street have paid themselves.

No matter that in a rational world, no 30 or 35-year- old could be worth a million a year or more. Only these masterminds, it was said, understood how to pull the levers of their wonderful engines of wealth.

The City of London was once a quaint little place where a few thousand people shuffled cash, affected bowlers or even top hats and spent three hours over lunch.



Nowadays, however, the financial services industry accounts for almost a third of Britain's economy. What causes pain in the City will eventually hurt each one of us.

Fantasists



When the people controlling the huge financial institutions of London and New York lose the plot, consequences are felt in every household in Britain and America.

What has happened reflects the intrusion of reality on a legion of fantasists in Porsches. For a start, they lost sight of what the word 'bank' used to mean. A bank was once a solid, comfortable, rather dull place which took in money from depositors, then lent it to businesses and private citizens at a profit.

Then along came a generation of ambitious, clever and greedy people. They thought this was a boring way to do business.

They could instead accelerate and enlarge the process on a grand scale. They borrowed

huge sums in the wholesale money market, and used these to place bets on whatever took their fancy - currencies, shares, commodities, property.

For a long time, enough of these bets romped home winners to provide shareholders with handsome returns, and traders with amazing incomes.

In truth, we should not call the screen-kings 'traders', but 'bookmakers'. The good ones made enough money to buy themselves Mayfair houses before they were 30, drink Bollinger for breakfast and buy their cocaine in Bond Street.

Desk cleared: A Lehman Brothers employee leaves the offices in Canary Wharf, East London after the firm went bankrupt overnight



They devised ever more inventive ways to recycle debt, to shuffle liabilities 'off balance sheet' and blow bubbles that impressed not only babies in bathtubs, but chief executives in government.

You may remember a few years ago, some commentators speculated that this new cycle of wealth generation had rendered redundant all traditional ideas about economic ups and downs, booms and busts. Many marketmakers and even economics ministers believed that from here on in, the Western world would get richer and richer.

Those of us sceptical about Santa Claus never subscribed to this doctrine. But not in our wildest moments did we imagine the recklessness with which business was being conducted in the towers around St Paul's, Canary Wharf and Wall Street.

Today, all is revealed. The collapse in the value of property, against which a mountain of debt was secured, has exposed the fragility of the edifice on which trillions of pounds depend. We are left waiting to discover whether the real world - in which people work to make and sell goods, to provide real services - can survive the shock.

For decades, the money men have ruled us. Private equity overlords have confidently proclaimed that they could run any business better than its own managers.

Luxury

Now these same people stand gasping and bewildered, hoping that central banks and governments can pour enough public money into the system to compensate for their ghastly mistakes.

Almost the worst part of it all is that the rest of us cannot afford the luxury of standing on the riverbank, watching the City's gilded idiots thrashing in the torrent, and rather enjoying their comeuppance.

The financial services industry is too important to Britain for that. And it is an area in which we and the Americans are alleged to possess unique skills.

The current failure, in the eyes of the world, is the failure of an Anglo-American model.

Unless the reputations of the City and Wall Street can recover, unless our money industry can be stabilised and revived, there is a danger that British financial services will go the same way as so many other British economic mainstays - shipbuilders, car makers, textile weavers and such like - which have vanished over the past century.

If the world decides that we do not know how to manage its money, then as a nation we are in deep trouble.

Today, in both Britain and America, the financial community has suffered a devastating loss of confidence. It is inevitable and right that regulation will be tightened on both sides of the Atlantic, to prevent a recurrence of the recklessness which has created this disaster.

If regulation goes too far, however, if the risk-takers are too tightly shackled, then the City of London will atrophy. It will find itself offering little to investors that other nations, rival financial centres, cannot provide for themselves.

It may sound paradoxical to bemoan the causes of the Anglo-American financial system's failure, then to say that we must not change it too much.

But we should acknowledge that for at least two decades before it overreached itself, the City brought great prosperity to this country.

It is impossible to devise a model that generates successes without also allowing failures. Henceforward, we need to find means of moderating risk exposure, without destroying incentives and opportunities for entrepreneurs.

This will not be easy. Demoralisation and even panic prevail today, and are likely to persist through many months to come.

City and Wall Street bosses deserve no crumb of our pity. Their hubris has created a crisis of capitalism in which almost all have been complicit. But the U.S. and British governments cannot and will not allow the financial system to fail.

It will take years to rebuild the confidence which has been destroyed, but rebuilt it must be. Our livelihoods for the rest of the century depend upon it.