The Western world faces the worst financial crisis since the 1930s. So they say. But they're wrong. To a large extent, the troubles that have claimed Lehman Brothers and Merrill Lynch, and may yet do for AIG, are not so much a financial crisis as an ownership crisis. It is not markets that have failed, but a peculiar form of ownership that we have taken for granted for decades - stock market-listed companies with dispersed shareholders.

To see this, consider the curious incident of the dog that hasn't barked - hedge funds. We have not (so far) seen a widespread collapse of these. Yes, a few have gone to the wall, but as there were thousands, this is barely more than normal attrition. And yes, their average returns have been poor. But they have not been a serious source of instability in the wider financial system. They might become victims of the crisis if their financing dries up, but they haven't caused it.

This is a surprise. Before the credit crunch started, countless experts warned us that hedge funds were a source of “systemic risk”. They were wrong.

Instead, the big dangers to the financial system have come from elsewhere. Fannie Mae and Freddie Mac - the guarantors of US mortgages - had to be nationalised. Three of Wall Street's big five investment banks have ceased to exist as independent entities. And the future of AIG, which helps to insure investors against defaults on bonds, is in doubt.

There's a pattern here. The biggest shocks to the financial system have all come from stock market-quoted companies. By contrast, hedge funds, which many expected to cause trouble, have been innocent bystanders. These are, generally, owned as private partnerships.

So, one form of ownership has caused a crisis, and another hasn't. The reason for this lies in what economists call the principal-agent problem, and what everyone else calls the difficulty of getting your employees to act in your interests rather than their own.

Big, quoted companies have been unable to solve this problem. Shareholders - often, ordinary people with pensions - have little control over fund managers. Fund managers have little control over chief executives. And chief executives have had little control over trading desks, partly because they just didn't understand the complexities of mortgage derivatives.

So traders were free to gamble with other people's money. They got multimillion bonuses if they did well, but faced almost no meaningful sanction if they failed: John Thain, Merrill Lynch's chief executive, is rumoured to be in line for an $11 million payout. The result was excessive risk taking.

In hedge funds, things have been different. Very often hedge fund managers invest their own money and take key decisions themselves, or at least closely watch those who do. Their incentives to take huge risks have been smaller. So these have at least survived.

What we're seeing, then, is the cost of separating ownership and control. In private firms, or partnerships - even limited liability ones - the two are closely aligned. In stock market-quoted firms, they are not.

Of course, Lehman Brothers tried to mitigate this problem by having employees hold shares; its chief executive, Dick Fuld, has lost more than $200 million this year as a result of Lehman's price collapse. But this was not good enough. No one at Lehman seems to have had sufficient control over Mr Fuld to rein in his pride, to tell him to admit failure and seek a rescue deal on any terms.

People have countless ways of losing money - greed, hubris and stupidity are always with us. Good organisations find ways to restrain these impulses. A lesson of this crisis is that firms with dispersed shareholders might not be best able to do this.

Although few have said this explicitly, investors know it tacitly. One reason why the markets rose last week, after the US Treasury nationalised Fannie Mae and Freddie Mac, was that investors realised that state ownership, for all its obvious faults, can be less dangerous than dispersed private ownership.

So, this is a crisis of a form of ownership, not of markets. This distinction might seem odd to those whose economic attitudes have not changed since the Cold War. The traditional Right defended markets and traditional ownership structures. The Left attacked both. But it's always been theoretically possible to defend markets while being sceptical of particular forms of ownership.

And it's more important to do this than ever before, as Robert Shiller, of Yale University, shows in his book, The Subprime Solution.

The solution to our troubles, he says, is more markets, not fewer. He proposes the introduction of markets in livelihood insurance, so that people can buy protection against job losses, and better markets in house-price futures, so we can insure against falling house prices.

Markets, then, can protect us from risks. So why haven't they done so?

Again, the answer lies in a failure of ownership. We've had more bad financial innovation - those mortgage derivatives - than good innovation (Shiller's ideas) because it's been easier to own the former. The investment bankers that thought up derivatives made fortunes selling them to other investment banks. Those who would gain from Shiller's ideas have shallower pockets. So it's hard to make money selling them even good products.

All this suggests that governments have a double role to play. They should help to encourage the development of Shiller-type markets and facilitate the transition from inefficient to less inefficient modes of ownership, as the US Treasury did with Fannie Mae and Freddie Mac.

Before we think about solutions, though, we should identify the problem - that ownership failure can be a bigger problem than market failure.

Chris Dillow is an economics writer at the Investors Chronicle

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