What has happened in the past 18 months should teach us that it has become too easy to make money in the financial sector. There is too much cash available and discipline has become slack.

One can inject into the argument many theories about what went wrong. One could, for instance, point out the lack of either good management or detailed understanding of the businesses people were in. One could cite the fact that mortgage-holders did not understand what they were getting into, or the absence of regulation of developing areas of the sector by either banks or the authorities.

All this is true, but where do we go from here?

It is essential that we do not have more regulation without thinking it through clearly. What happens in most cases is that politicians are driven to take action without the expertise or full knowledge of what the consequences will be. One must go back to basics.

First, institutions should avoid reappointing the friends of senior executives. Senior appointments should be continually under review. Share­holders, whether institutions or individuals, should make themselves much more alert to how appointments are made and how remunerations are set.

Second, it should be apparent to all of us that sometimes senior executives, including the chairman, do not fully understand the businesses in which the company is involved.

The financial instruments now causing such turmoil were not properly priced for their inherent risk and managers were unaware of the integral problems with these instruments. Much of this was made possible by the advanced technology used to devise and distribute these instruments.

This technology must become more deeply understood by top management and problems inherent in these instruments must be brought to the attention of senior executives much more forcefully by accountants. Accountants should make strong recommendations whenever they discover something that does not adhere to regulations or that carries undisclosed risk to the investor. This has not always happened.

Third, financial institutions and fund managers are making billions of dollars of bets in parts of the world where they have only a tiny presence. There is too little manpower from these organisations in many markets whose economic and political fundamentals require in-depth understanding.

Fourth, it has been too easy to give away big bonuses. The real problem is that bonuses allow the wallet to come before the firm. They should not be agreed without careful investigation as to how the earnings are arrived at and whether the investment is in the investor’s long-term interest.

Annual bonuses on unrealised gain reward the manager (often to wild levels) for investments that have not created any realised benefit for the investor. If one looks at some of the bonuses and rewards that have recently been paid, it is frightening that they have been awarded with so little consideration for shareholders and without taking into account the efficiency of the people who received them.

Fifth, it is essential that the rating agencies be investigated. They acted without responsibility, blindly dec­laring that everything seemed to be in accordance with sound investment principles.

Central bankers, who have themselves rarely acted as well as they could have within the political remit they have been given, must in future be more forceful and act with diligence and speed before we get to the point where we are now.

The real problem we face is not so much the big institutions, and the money they can write off and then redeem by raising more capital from various parts of the world, but lack of confidence. This, combined with fear, gives rise to problems that will take a long time to resolve.

Investors need to be given a sense of what action is being taken to correct the situation. Financial services and banking should set the very highest standards for ethical behaviour. Ethics is not only a question of acting correctly. It is a matter of not trying to avoid regulation even if one thinks one can get away with it.

This must be taught at a very early stage and demonstrated in the way a firm is managed. I passionately believe that this is something that has deteriorated in the past few years.

Sir Evelyn is former chairman of NM Rothschild & Sons and chairman of EL Rothschild