In financial markets, as soon as you hear the words “new paradigm” you know the next cata­strophe is not far away. The reasons are not complex nor are the observations opaque. It does not matter whether it is dotcoms or subprime mortgages. Sooner or later in market cycles the main participants, and especially the banks, become carried away with a Wildean belief in their own, oft-declared genius.

The gains get magnified by leverage and the egos inflate in direct correlation to the paper profits. At this point, the Darwinian principle that he who makes the profit must be both protected from the rules applied to the rest and rewarded irrespective of risk start to apply. In the recent case of subprime mortgages, bankers lent money to anyone, irrespective of their credit history, because the risk was securitised and the financial equivalent of explosive pass-the-parcel ensued. When the game ended, bankers walked away with much of the gains while the parcel exploded in all our faces. The paper gains disappeared and the losses were added to our tax bill.