For years the United States government and institutions - along with the Thatchers, Blairs, etc in other countries - have lectured on the importance of free markets and of the evils of state bailouts. They have also railed against regulation. It is now quite incredible that with the credit crunch causing real casualties, that the United States government is likely to spend $700,000,000,000 of taxpayer's money to buy up dodgy or "toxic" assets.

I do not envy the likes of Hank Paulson or Ben Bernanke who face a major dilemma:

a) Go the "economic Darwinian" route and allow institution after institution to fail and there is a risk that a large number of ordinary US taxpayers may lose their money - other than what is covered by deposit protection schemes - due to further collapses of financial instutions. Nobody would want to see the tent cities of the Great Depression because of people being evicted from homes they can no longer pay for.

b) Go the "state interventionist" route and prop up failing institutions and there is the risk that millions of small guys - who pay tax and do not have clever beancounters who help avoid it - will pay for the greed and folly of those bankers who ultimately have caused the crisis.

Most capitalists believe in unreining markets and that free markets will ultimately work for the good of all. If true it would make life very easy indeed. However it is patently obvious that markets can be bent by for example monopolistic companies or recently by derivative products that are opaque to those who trade in them.

For everybody's sake I hope that there will be a return to stability. However, I hope that the solutions being contemplated in Washington will not those who have profited from selling collateralised debt obligations (CDOs) and other toxic products. I also hope that a more thorough approach will be taken to regulate financial markets. This need not be bureaucratic but must force financial institutions and their staff towards responsible behaviour.

Above all there must be transparency. A key cause for the current credit crunch has been that some derivative products like CDOs have not been transparent. Their value (or lack of it) and risks has been hidden by layers of packaging. A very scary thought is that accountants seem to be moving away from transparency. A letter in last Thursday's Independent by Malcolm Howard warns that new international accounting standards are moving away from transparency. If he is right this needs to be nipped in the bud!