Regulatory reform is always about fighting the last war. Right now you could abandon all banking regulation, and banks would behave themselves for generations to come, such has been the searing experience of the last two years.

Markets are prone to bubbles. They happen not because of an absence of regulation, but because as the good times roll, investors, bankers, consumers and, yes, regulators too, forget the lessons of the last bust and come to believe that innovation has made things different this time, or even that the cycle has been abolished.

The root cause of the current crisis was big, macro-economic trends compounded by mistakes in the operation of monetary policy. The vast capital surpluses generated by Asia and the oil-exporting nations of the Middle East flooded the world with cheap money, leading to a breakdown in traditional standards of risk assessment as too much money chased scarce investment opportunities. The "Greenspan put", whereby whenever the system showed signs of correcting, the Federal Reserve would come riding over the hill by cutting interest rates and swamping the system with liquidity, further exaggerated the crisis. There's an old saying that you can't have both guns and butter. The Americans tried to have both - a costly war in Iraq and a consumer boom of unprecedented proportions.

Most attempts to manipulate markets for the supposed common good are doomed to failure. I fear we are about to see another costly lesson in the old truism: there's no mess so bad that government intervention doesn't make even worse.