The global financial system is in turmoil, but the blame for this mess doesn't lie solely at the feet of rich speculators and banks—we've all got some soul searching to do

Two years ago Tim Ambler, senior fellow in marketing at London Business School, talked to me about the UK's complacency in relying on the financial services sector to continue to underpin our strong economic performance. The City of London, he warned, was an even more fragile bubble than the dotcom bubble of the 1990s. "Our perceived brilliance in this sector is a myth," he said. "It derives from the perception that UK plc is an honest and safe place to put your money, and the bubble will burst as soon as this reputation is undermined."

As I write, the crisis in the financial markets is growing more acute by the hour. The bubble has burst and the reputation of the City will never be the same. The impact on the reputation of the UK as a whole, remains to be seen. It will depends to some extent on how effective the relatively swift intervention by the Treasury, the Bank of England and the Financial Services Authority (FSA) turns out to be. As brand reputation experts know, a crisis well handled can become an advantage, and Gordon Brown's handling of this financial crisis could reinforce the reputation of the UK.

The real problem is that financial services is no proxy for the manufacturing industry that used to be the bedrock of our economy. Barriers to entry are low, it is easy to replicate, technology means it could be done anywhere in the world, and its much-vaunted 'value-added' skills seem to have been directed at finding ways around the legislation that was designed to curb its worst excesses. The more regulation that was introduced, the more the banks took off their balance sheets and the more opaque the web of complicated financial instruments and derivatives became.

Until quite recently, the private equity industry, a rapidly growing sub-sector of financial services, managed to convince everyone that it was above regulation. That particular chicken will come home to roost before Christmas too, predicts Jon Moulton, head of private equity business Alchemy Partners and an outspoken critic of some of the practices endemic in his industry. Moulton believes that up to 200 private-equity-owned firms are in imminent danger of breaching their banking covenants, which, because the sector employs about one quarter of all private-sector employees, raises the spectre of bankruptcies and heavy redundancies.

Most vulnerable are the companies that were the targets of highly leveraged bids sealed at the height of the credit boom between 2006 and 2007, because their profit will be insufficient to cover their interest payments. They've been unable to refinance deals on more favourable terms, as they had hoped, because of banks' reluctance to lend. 

Too much legislation on the one hand, too little on the other. But what has been conspicuously lacking during the past decade of burgeoning growth in financial services has been "oversight". In the days before the FSA was created, the Bank of England would quietly intervene if it thought a bank was over-extending itself. But legislation—which has doubled under the Labour government—seems to have acted as a comfort blanket for the authorities, who have watched with glee as financial institutions have created such apparent wealth for this country and its citizens.

But we were all—governments, regulators, banks, companies and individuals—complicit in this wealth-creation process. Personal debt has risen to dangerous levels over the past few years, underwritten by soaring property prices. We fell over ourselves to take advantage of cheap credit and 100 per cent mortgages. The situation was replicated at corporate level. Now that our wealth has proved so illusory, we all need to be complicit in sorting the problem out.

Business is cyclical: what goes up inevitably comes down. But, much like the extremes of weather we are experiencing, the peaks and troughs of business boom and bust seem to be growing more dramatic.

Just as people realise the need for major and immediate action to avert catastrophic climate change, is it too much to hope that this current crisis could spell the end of unbridled greed and hasten our progress towards a more inclusive, sustainable and kinder form of capitalism?