All good things must come to an end. In the City this week a 20 year long party was brutally interrupted; the music stopped, the lights were turned on and the bouncers sent the losers back home in disgrace. The City speculators enjoyed the fruits of free markets and light regulations for 20 years but they got greedy and they forgot to respect the rules of the market. The market like Mother Nature cannot be tamed by human kind. Like any badly run business, Lehman Bros et al were exposed by market forces they believed they were invulnerable to. Their bankruptcy was brutal and surprising; Lehman Bros was founded in the 19th Century, but they exposed themselves to toxic debts and they paid the penalty.

The ‘real’ American economy has yet to dip into recession but such is the amount invested in the finance markets by working Americans that a market meltdown could have plunged America, and thus the world, into a severe recession. It seems the rescue package proposed by the US Treasury and the Federal Reserve has managed to pull the financial markets back from the brink; indeed the major stock exchanges finished the week close to where they started it, after Friday’s rally. Yet it seems clear to serious analysts that the financial markets will never be the same again. It is abundantly clear that the regulation of the markets will have to be reviewed following this week’s events. There has never been, nor will there ever be, a 100% pure free-market economy and some form of regulation is not a controversial issue. Regulation of the markets is however, an immensely complicated topic and not something that the layman could realistically comment on. It is clear though, that too much regulation impedes economic growth and it would be unfortunate if populist political leaders now issued counter-productive regulatory measures.

Adam Smith wrote about the ‘invisible-hand’ of free-market economies acting to benefit all those who took part in economic activity. The ‘invisible hand’ theory remains, in my opinion, unassailable, and the best way for ensuring human economic development across the world. Yet you can never have a utopian free market in which every stakeholder is 100% informed and 100% free. In my judgement modern economics is a bit like a child learning to ride a bicycle. Put stabilisers on a bike and the child may be able to peddle but he won’t be able to go very fast or turn very nimbly. There comes a time when the parent has to take the stabilisers off so that the child can learn to ride for himself, pick up speed, gain independence, avoid obstructions and travel far greater distances. Sometimes the child may wobble and the parent is usually on hand to correct his balance. Occasionally the child may crash. The parent will usually be there to pick him up, soothe his wounds and put him back on the saddle, sometimes it may be better if the child picks himself up and gets back on his bike; who knows?

It seems that the action of Hank Paulson may have drawn a line in this particular crisis and sealed the markets of from all that toxic debt. With any luck the markets will continue to recover confidence and the ‘real’ economy won’t be affected by the panic at the stock exchange. Certainly with US house prices starting to stabilise there are hopes that US will indeed avoid a full recession; although many analysts fear there are many more unwelcome and perhaps even worse shocks still to come.

Of course the populists politicians have poured scorn on the ‘spivs’ and the short sellers and the general line has been to blame the greed of Wall Street for this week's crisis. Certainly many speculators and investors were guilty of huge arrogance and greed and they got their comeuppance with a ‘market correction’ in the form of a richly deserved p45. Yet can the workers of the West really wash their hands and absolve themselves of blame when the bubble bursts? I didn’t hear anyone complaining about the huge increase in public spending in health and education made possible by City revenues. I didn’t hear anyone moan about the easy access to credit to allow for that new car or extension to their (suddenly expensive)house. Plenty of people cashed in on the property boom and the increase in house prices. Nor was the any shortage of takers for 100%+ mortgagers or low-interest credit cards or easy finance for consumer goods. One reason why the Government has had to step in to solve this crisis is that so many working people have money invested in stocks and shares, pension schemes and bricks and mortar. Ordinary people in Europe and the US have enjoyed the fruits of the stock market and easy access to credit for the last 20 years. The banks are guilty of proliferating risky credit but consumers wanting to join the party did agree to sign on the dotted line.

The party in the markets is over but one night of excess doesn’t stop you from drinking alcohol it just teaches you to enjoy it more responsibly. Free market economics have given the entire world unprecedented increases in living standards. In East Asia, for example, since the 1990s the number of people living in poverty has decreased from 486 million to 275 million and it is still falling. It would be a disaster if the world now started to put the protectionist shutters as it did in 1929. So the rave has been busted but the party can continue with the music turned down, the lights on and mum and dad keeping a beady eye out upstairs.