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There is a second reason that the hands-off approach has been shown to be wanting. During the past few years, a significant part of liquidity and credit creation has occurred outside the banking system. Hedge funds and special conduits have been borrowing short and lending long and, as a result, have created credit and liquidity on a massive scale. As long as this liquidity creation was not affecting banks, it was not a source of concern for the central bank. However, banks were heavily implicated. Thus, the central bank was implicitly extending its liquidity insurance to institutions outside the regulatory framework. It is unreasonable for a central bank to insure activities of agents over which it has no super­vision, just as it would be unreasonable for an insurance company selling fire insurance not to check whether the insured persons take sufficient precautions against the outbreak of fire.

The FSA stressed Britain was at the forefront of developing this market both on the high street with retail products and in the capital markets with the growth of Islamic-compliant bonds or sukuk, which are structured to pay investors profits from an underlying business rather than interest.

What seems increasingly clear is that the combination of generous government guarantees with rampant profit-making in inadequately capitalised institutions is an accident waiting to happen – again and again and again. Either the banking industry should be treated as a utility, with regulated returns, or it should be viewed as a profit-seeking industry that operates in accordance with the laws of the market, including, if necessary, mass bankruptcies.

it should be apparent to all of us that sometimes senior executives, including the chairman, do not fully understand the businesses in which the company is involved. The financial instruments now causing such turmoil were not properly priced for their inherent risk and managers were unaware of the integral problems with these instruments. Much of this was made possible by the advanced technology used to devise and distribute these instruments.

"Such conditionality gives rise to a material uncertainty related to events or conditions, which may cast significant doubt on the group's ability to continue as a going concern," Paragon said. Scaling back Paragon's comments came as it reported record profits of £91m for the year to the end of September, up nearly 10% on the previous year.

"Jimbo" — was a finance major at Auburn University when the Mises Institute's Mark Thornton suggested he read "The Use of Knowledge in Society," a now-famous essay written by Austro-libertarian economist and Nobel laureate Friedrich von Hayek. The essay argues that prices in the market represent a spontaneous order that results from the interaction of individuals with diverse wants, allowing them to cooperate to achieve complex goals. According to a June 2007 Reason magazine interview, this insight of Hayek's is what led Wales to found Wikipedia. The rather lofty vision that inspired Wales? "Imagine a world in which every single person on the planet is given free access to the sum of all human knowledge. That's what we're doing."

Mute finance After running on a mixed economy of barter, grant and private monies since its inception in 1994, Mute started receiving revenue funding from the Arts Council of England in 1999. The grant is now set at £65,000 per annum, having significantly increased in the past couple of years, and goes towards the core costs of staff, premises and production. ACE's 'core funding' is supplemented by project funds allocated to new initiatives; in recent years Mute has received nearly £100,000 from ACE for such projects. Grants were awarded for White Cube, Blue Sky (a book now renamed Proud to be Flesh: a Mute Anthology on network cultures); web tools resource OpenMute; business development, FLOSS migration and new online art commissions as well as an OpenMute national workshop tour, UserLand. Approximately £40,000 has also been received from creative-industries agencies London Innovations and CIDA for technology projects centred on wireless networking (YouAreHere) and software development (TNS).

"In crude terms, the Bank is basically providing additional cheap finance to the banks to meet any short term requirements they might face," he said. "An increase in the reserve requirement is in affect an increase in lending to banks at the base lending rate of 5.75%. "It represents a significant increase in the liquidity of the banking system ¿ and relieves pressure on the banks to borrow at the higher penalty rate of 6.75%."