Sir Isaac Newton was once asked his opinion on the financial mania known to history as the South Sea Bubble. The great scientist responded that he could calculate the motions of celestial bodies, but not the madness of people.

Observers of this week’s seismic shocks to the banking system will be tempted to similar incredulity. The collapse of Lehman Brothers, the private sector rescues of Merrill Lynch and HBOS, and the $85 billion public bailout of AIG have a pattern. Vulnerable banks have seen their share prices collapse owing to fears about the institutions’ solvency. The share prices of Morgan Stanley and Goldman Sachs continue to plunge. Regulators in the US are investigating possible illegal “short sales” in bank stocks. The Prime Minister spoke yesterday of the need to clean up the financial system.

Financial crises are not natural catastrophes. The obvious question is the right one: “Who is to blame?” And the obvious answer is the bankers who have brought the Western economies to this pass — especially those economies characterised by low savings rates and high debt levels, the US and the UK.

There is some truth in that answer; but it is not the whole story. The crisis is not the creation of “greedy bankers” and speculators: it is the result of too much debt, after governments and central banks failed to constrain the credit expansion of the early years of this decade. Bankers then irresponsibly exploited the opportunities afforded by an easy credit regime. Wall Street fuelled the demand for high-yield investment products in an era of low interest rates — hence the attraction of the sub-prime mortgage market.

But bankers operate by incentives. The real weakness in the banking system lies with those responsible for bankers’ compensation: the shareholders, who own the banks, and the boards, who manage them. Perverse incentives promised huge rewards for those who took risks in the hope of reaping short-term profits — but those same incentives did not penalise failure.

Hedge funds are also a focus for criticism, owing to their short-selling of bank stocks (that is, selling stocks they do not own, in the hope that the price will fall and thereby allow them to buy the shares later at a profit). Again, there is some justice in this, but it is not the whole picture. Short-selling is a useful discipline in financial markets. A falling share price may signal that a company management is under-performing or has a bad business model. There are good reasons that the share prices of investment banks are being marked down: many are technically insolvent. But in the exceptional current circumstances, short-sellers are exploiting weaknesses in the financial system with consequences that go beyond their commercial calculation of risk and return. The Financial Services Authority has introduced a ban on short sales of bank stocks, with effect from today — some will say, a week too late for HBOS.

But ultimately a rush to blame the bankers or the speculators is misplaced. More serious, it diverts attention from the underlying problem. This is that banks in current circumstances will not lend to each other: the inter-bank lending market has seized up, as banks that need to borrow are facing punitive rates. The ratings agencies, whose job is to assess credit quality, are compounding the difficulties of banks that need to borrow. The financial system increasingly resembles a football team, each of whose players refuses to pass the ball to his team-mates for fear of not receiving it back. They will not win that way. Nor will the Western economy recover without a resumption of inter-bank lending. The most important task for policymakers is to help to unfreeze that market.