The big investment banks, and Goldman Sachs is the biggest of them, have feasted on public money and, now, restored to strength, are throwing themselves back into the markets as recklessly as ever - only more so. The big US investment banks are not just symbolic of the greed and excess of the pre-crisis craze. They were instrumental. They created, sold and traded the derivatives the world later came to know as "toxic assets''. But now, after restoring themselves with emergency government loans, they have repaid the US Treasury and rushed back into the markets. Goldman reported a record profit for the three months to the end of June of $US3.4 billion ($3.9 billion). And the company - where average employee pay is $US700,000 - set aside a record $US11.4 billion for staff bonuses for the first half of the year alone. Guess where the firm made its biggest profit? From trading all the Treasury bonds the US Government issued to pay for the $US787 billion stimulus it injected into the economy to save it from the financial crisis. Criticism of its bonuses sent Goldman's chief, Lloyd Blankfein (2007 salary plus bonus: $US70 million), out to give a contrite speech. But behind the facade, his firm was betting the bank once again. The percentage of the firm's assets that could be wiped out in a single day - a metric known as "value at risk" - zoomed up by 20 per cent in the first quarter of this year and by a further 33 per cent in the second, to reach a new record high for the company.

This illustrates the first of the great systemic problems. It's called "moral hazard". Meaning? If you think you are completely safe from any risk, you will behave recklessly. Goldman's, like most banks and investment banks around the world, has just seen what happens if you take absurdly dangerous risks. Answer: you make out like bandits. The Government rescues you if anything goes wrong and the boss even gets to keep his job. One US investment bank was allowed to fail outright. Lehman Brothers. This was the event that took a Wall Street crisis and made it a global one. Officials will be extremely wary about letting any big institution fail in future. Moral hazard, already big before the crisis, has become giant. The G20 will pretend that curbing bankers' pay and raising capital requirements will solve the problem. It will not. The incentive to take maximum risk has only increased. The other great flaw is the problem of bubbles.

Every decade or so, a huge asset bubble develops. That is, a dangerously big bulge in the price of shares or real estate. Japan's land and share bubble of the 1980s wrecked the world's second biggest economy. The US housing bubble of 2003-07 wrecked the world's biggest economy, taking the global economy down with it. Each bubble formed when central banks allowed money to become too cheap. When interest rates are so low that money is, essentially, free, people abuse it. A bubble follows. Disaster is only a matter of time. The world's central bankers have been programmed to be vigilant against inflation in the prices of goods such as bread and petrol, but to ignore inflation in the price of assets such as shares or real estate. They must be reprogrammed. But they are deeply invested in the old orthodoxy. Australia's Reserve Bank has been one of the most forward thinkers on this. The president of the New York Federal Reserve, Bill Dudley, is also campaigning on it: "I think that this crisis has demonstrated that the cost of waiting to clean up asset bubbles after they burst can be very high," he said in June. "That suggests we should explore how to respond earlier."

Eminently sensible. But he is having great difficulty persuading the majority of the members of the central bank fraternity, who prefer to dwell in doctrine than reality. And this problem is not even in the purview of the G20 leaders. It's a failure of central bankers around the world. So guess who has been left to fix it? Central bankers. So far, they are not making much headway. Yet until these problems are fixed, we simply guarantee that, in five or 10 years, we will see another global financial crisis, but probably on a bigger scale. Peter Hartcher is the Herald's international editor and author of Bubble Man: Alan Greenspan and the Missing Seven Trillion Dollars.