Say farewell to gentlemanly capitalism

Ever since social arrangements became complex enough to write into laws, we have regulated the behaviours that have the potential to mess up our common lives. Look at the Book of Deuteronomy. It’s all there: health and safety (diet and hygiene), taxation, bankruptcy, neighbourly envy, sexual conduct… and finance too. The Old Testament is pretty draconian: no lending for interest within the tribe — but as much as you like outside the tribe. Lawmakers understood even then that easy credit, with its potential to exploit gullible optimism and generate bubbles, could rock a society to its core.

The 21st century’s first credit crisis is not over, but the acute phase is now understood. Financial institutions are laden with untradable, badly priced debt that they can’t re-sell. Governments everywhere have shown that they’ll do anything to avert a confidence run on the whole system. Liquidity is being pumped in, and the immediate cost is coming in the form of increased inflation.