I suggest everyone get a copy of the April, 2008 issue of Scientific American and read the piece on the last page "The Economist Has No Clothes".
It clearly explain why these things happen.
Neoclassical Economics is not a science, it is a cult and he proves it.

Bryan Savage, Placerville, CA, USA

Surely the point to consider here is that as per the market system, these failing companies - shareholders and all - deserve to be obliterated. Whether the obliteration came from liquidation or state buyout is, essentially, irrelevant to shareholders, as either way they have lost their money.

Dean Rodrigues, Sevenoaks, Kent, UK

The arguement is without basis. All shareholders are risk takers. Econ 101. being wiped out is the inherent risk.The hope is that in the name of propping up useless parasitic investment banks the government does not pony up depositors funds as allowed by Paulson in the USA.

Chunfla Burlbe, London,

Why do you say it was "investors" who drove the values up, but now it is "speculators" who are driving the values down?

Russ Armstrong, Becker (pop 2600), Minnesota, USofA

Methinks you surround yourself with too many distressed bankers Mr Kaletsky. The noise or hysteria levels are such that we must have reached a short term low. Wall St now knows that it has to row the boat alone.The Goldman Sachs franchise will emerge with more market share, thanks to Mr Paulson.

Will, Lincoln, UK

Maybe the US Treasury and Fed have run out of bullets. Most banks will not pay tax for the next 5 years. who is taking up the slack? Freddie and Fannie has expanded US Treasury debt by 50%, who is going to pay? It is about time they let them go bust and they should never have saved one. Fool.

richard, Neuchatel , Switzerland

Re the points made about loss of shareholders' assets, one must remember the old maxim about never putting all of ones eggs in one basket.

Jas, Nottingham, Nottinghamshire, England

There has been an "open season for speculators" to attack Oil Futures market for the past 48 months, costing trillions to economies.
Should the Fed had intervened then and stopped speculators ?
Your position on that question was a resounding NO !

NMB , California, USA

Capitalism is a mighty fine system when someone else takes the pain of your losses

Donal, Cork, Ireland

I Think your interpretation of what Henry Paulson has done is hysterical (not funny) and that the Fed will support the banking system.

roger sykes, christchurch,

Why not rush through legislation to make 'shorting' or whatever it's called illegal and remove such options from the financial markets altogether? Instead of wringing their hands in fear that speculators can now bring down any bank or institution, why don't governments address the issue?

Peter UK

peter young, Chichester, uk

How you could ever imagine that losses incurred within the financial sector would not impact the overall economy is beyond explanation. The losses started in housing and are now spreading to all forms of debt. A loss is an immediate capital haircut which means the ability to lend is diminished.

Scott, Bangkok, Thailand

How you could ever imagine that losses incurred within the financial sector would not impact the overall economy is beyond explanation. The losses started in housing and are now spreading to all forms of debt. A loss is an immediate capital haircut which means the ability to lend is diminished.

Scott, Bangkok, Thailand

Speculators of the type described need to be legislated against.
Shareholders should perform due diligence and assess the risks.
I'm not sure I can agree that Paulson can be blamed to the extent that AK argues - that is an over simplification the same way the financial securites were over complex.

Stephen R, Belfast,

Bullishness still remains it seems! When the banks suffer so will business. Unless a company is so well financied as to not have any debt on it's books many will be looking to refinance existing loans. If these are not forth coming expect more instances such as XL's demise. Truly worrying times.

Duncan, Wokingham,

Well yes....welcome to the joys of the 'free market' capitalism which is the reigning religion of US business. SInk or swim but look for no help - you are on your own. Why do you think in the US we have no healthcare system that covers all? If individuals can be left to die, so can businesses.

Ann, Empire, USA

I mean what is the job of government if it is not to bail folks out when times get hard. What am I gonnna do if I can't get another bonus? I've spent everything on the ranch, the Lambo, the yacht and now I'm bust. Gimme a break! The government helps New Orleans - so why not Wall Street?

john problem, Hackney Wick, UK

The answer is regulation which was replaced with manipulation to create this debt binge. The regulators should suspend trading if they suspect a solvent bank is being shorted. Otherwise it deserves to fail.

Stephen Marchant, Newton Abbot, UK

Short Sellers 1 : Regulators Nil - that is the score in this 'game'. And the media allow the short raiders to brag about their success - this is just irresponsible (or crazy?)

Heinz Geyer, London,

No government, no body of taxpayers,is big enough to guarantee the entire liabilities of its banking system. Mr. Paulson had no realistic alternative but to let Lehman Bros. go. This message needs to sink in.

Ken RV, Ramsgate, South Africa

Anatole, did you consider that the US government may not have the funds or capital to underwrite investment banks. Paulson did not have a choice. He may not have a choice with AIG either. The only country with the funds is China. Maybe they should underwrite these banks and take over Wall st.

Stephen O'Mara, Tamworth, Australia

Work is work eh? Huw Sayer from London.
I could never understand how the claims that the city was creating wealth could be sustained.
Now we know, all they ever did was skim of the top of wealth created by those who did real work.
They've run out of creativity.

john, woodbridge,

I'm with Anatole on this one (first time!). The US should have forcibly took control of Lehmann and forced the Korean deal through. Trying to set an example for other banks by allowing such a huge institution to fail is just short-sighted. Paulson has caused more problems than he has solved.

alan, london,

Why should a well-managed bank run short of capital? In its day-to day business it should NEVER do so. If there is a panic run on a bank, i.e. a liquidity crisis, the central bank can give short term funds to tide it over. Any shorters will be severely burned when things return to normal.

Steve, Portsmouth,

I have never agreed with anything Kaletsky has written.

How can you support an essentially corrupt business premise where huge gains are made by speculators and the tab to be picked up by the tax payer when it fails?

Paulson has drawn a line in the sand.

Pity we don't have his ilk here

john rigby, kenilworth, england

EVERYONE has forgotten that we can all go back to a cash business environment. No one needs to use a bank for anything. Banks are nothing more than a way to overcome the obvious difficulties of using cash. Keeping account of cash does not preclude dispensing with banks. WE DO NOT NEED BANKS. PERIOD.

Chris Coles, Medstead, Alton, United Kingdom

Hopefully this demise of the Cult of super Managers. Since early 1980's we had been fed the entirely false notion that these super Managers needed mega bucks to motivate them; ignoring that for agenuine Super Manager the challenge and achievement are the not mega millions is the real motivator.

S Yogarajah, Harrow, UK

Taylor Wimpey shares have fallen 85% this year and a further £44m was wiped off yesterday after a 1 day drop of 15%. TW has announced a further 150% rise in its pension deficit to £160m with George Wimpey's pension deficit riseing to £215m in just 6 months. With £1.5 billion writedown what is next?

Damien Vaugh , Greenwich Millennium Village, UK

Entitlements for the rich greedy wall street suits? We should have never bailed out B-S to begin with. Let's just start printing money!

Patrick, Reading, PA

Bankers are in business to make money and if they lose the money placed in their trust, then they should be put out of business. Taxpayers should not be asked to support stupid people who take large paychecks and bonuses on top while the average person lose everything invested. Jail time?

Gene, Gebüg, Germany

Markets generally reward risk with reward. The emphasis here is risk; there is always a chance things go wrong and the higher the risk , the more chance for loss. It was believed the banks were to important to fail. Perhaps thats right. Then again in the future it may prevent this from recurring.

Richard Parker, London, England

Totally agree with Kaletsky. Those who invested in a a preferred share with 5% coupon in a AAA agency (Fannie and Freddie) were not speculators, and many regional banks had this very conservative assets in their portfolios. These are the investors that must be punished to avoid moral hazzard?

Marcelo Cimini, Buenos Aires, Argentina

Through Paulson the American taxpayers are saying 'enough is enough'; no more of our tax money to bail out money lenders who do not know how to lend money. You make bad loans - you eat them. Not us.

Bob Hall, New York, United States

Can someone explain why we should be so compassionate towards this bunch of incompetent bankers ?

If the banking sector decided to act sensibly (laughs loudly), then maybe speculators would be attempting to support them. However, the banks didn't act sensibly and are being punished. Quite right

Paul Sutcliffe, Leeds, UK

I can't agree with Kaletsky. If banks invest so stupidly they must be allowed to go bust. Shareholders must have more say in future!

To HJ, speculators make money by selling short the bank's stock and then buying it back at a lower price. They don't care. They make most money in a downturn.

Will Harris, London, UK

Only the French from experience with the ancien regime, seem to understand . Which is worse, slow, gradual, impoverishment , or being forced to deny what we see and experience? I think the latter - for it robs us of dignity,

glenn schaefer, holbrook, usa

Even without direct investment we are all shareholders through pension schemes etc, so nobody should get smug. The real culprits are the bank chiefs who have destroyed the companies they were entrusted to run and the confidence of everyone. They should be the ones to pay for their mistakes.

peterfieldman, paris, france

and its taken you this long to understand this? This was obvious from the beginning with the sheer numbers involved. There are two ways out, leave interest rates high and destroy the economy or flood the market with money and inflate your way out. Inflation is the least of our worries.

Ian, Tokyo, Japan

Your assertion that probs in the fin world will "probably not" impact on the real eco are perplexing. Have you noticed the growth in credit and the highly correlated increase in asset prices and consump that have driven growth over the past 3 decades. So what happens when credit is taken away??

Hamish, London,

What nonsense - financial services are as much part of the real economy as any other business - to say otherwise is to be as ridiculous as those old left-wing people who think that service sector jobs are somehow worth less (are not as real) as industrial "dirty hands" jobs - hogwash, work is work.

Huw Sayer, London, England

But this is precisely the point that the American Government is attempting to reach! A Dollar with no value; a share with no worth...means that all of those Foreign Sovereign fund holders who now own America...don't anymore!

New dollar, new shares, no debt. Watch it happen

David Downes, Chester, UK

Kaletsky has been consistently wrong and over optimistic. He misunderstands the clear message being sent by Paulson, which everyone else gets perfectly. Much more moral hazard would be created by tax payers bailing out the banks. If 'good' players get hurt as well, its tough, thats life.

Alexis Ashford, Guildford, Surrey

So what was Paulson's alternative? Continue to pile debt onto the US taxpayer by handing blank cheques to investors?

There had to be a line drawn in the sand at some point. By bailing out F and F, Paulson got the support of the foreign SWFs. If he bailed out Lehman's too, where would it end?

MB, Edinburgh,

Can someone explain why Mr Kaletsky believes that 'speculators' would want to "drive the share prices of these companies down to zero and thereby put them out of business"?

How would speculators expect to make money from putting banks out of business? If they can't, why would they act in this way?

HJ, Reading, UK

AK changes his predictions day by day. Last week we were all pessimists then last night on Newsnight AK is making comparisons with the Great Depression. That's useful. How about early retirment with Gordon Brown and some more realistic leaders?

Russell Hicks, Woldingham, UK

Paulson has also guaranteed the election of Obama. faced with a recession/depression the scales are now tilted back to the Democrats. That also means his boss George Bush could be in some trouble after he leaves office since Obama says he will investigate the GWB Administration.

William, Guildford, UK

I think you are missing the point. Mr K is not offering sympathy to the shareholders just stating that the rescue of the likes of Lehman would have been preferable to a global financial melt down and all the implications that has for the real economy, our jobs, businesses and the economy as whole.

Michael, Bromyard, UK

We must be at or near the point of maximum bearishness. If Anatole has finally moved to a negative point of view, it must be about time to start investing in Global markets.

Gareth, Auckland, NZ

Anatole is right -surely it must be one of the prime roles of Government to guarantee the Banking system -extraordinary that the Fed has stood on the sidelines and let Lehmanns fall -why penalise shareholders in this fashion ?

JeanH, Oslo, Norway

I'm not sure of Mr Kaletsky's conclusion. AIG can still be aided by the Fed if it poses a systemic risk. This principle is true of Lehman and arguably Bear. Bear was just lucky it was first in line. If the first one was not helped, the market would have tanked. Paulson did ok.

Hafiz, Serangoon, Singapore

Shareholders are designed to be non-secured holders. In return for the risk of any downside they get all of any upside without limitation. Compare that to bond-holders. So the shareholders made a bad bet. But the risks were always there. Let the shareholders sue in court as in Enron.

Evelyn, Lincoln, USA

Sorry to have to correct you, Sir. The tipping point in both the USA and the UK has long since passed. With respect, even as SS Titanic settled on the seabed, you would have remained irrepressibly optimistic to the bitter end. Nothing it seems can shake your confidence that UK/USA are in fine shape.

William Kent, Brandon, Canada

I find it difficult to have sympathy for companies such as Lehman, and their employees, who have been driven totally by profitability at all cost. The salaries offered, often 6 or 7 figure sums, support an industry based on greed. Live by the sword, die by the sword. Tough, but they understand.

Paul, Hamilton, Canada

What was the alternative? Putting more taxpayers money at risk?

Eric, NL,

Had Paulson chosen to save Lehman Brothers, he would have tanked the US Dollar. He chose not to. For now.

John, Oxford,

If Mr. Kaletsky is concerned that the failure of the US gov. to prevent the demise of some US financial institutions could harm the economy in the UK, perhaps he should convince the taxpayers in his country to bail out Lehman Brothers and Merrill Lynch. I think it would be a tough sell....

Joseph, Los Angeles, USA

And I suppose you think the shareholders of Enron deserved a break too? Your argument is ridiculous. Anyone investing in an entity that utilizes bad business practices to make a profit deserves to lose that investment when said entity is caught in its own mess. Market correction indeed!

Celia, New Haven, USA