There is something profoundly and depressingly self-serving in the arguments that the price of saving the little people and wider economy from rampant speculation in and irresponsible selling of financial instruments (exotic and vanilla) is to save, also, the prime instigators of the problems.

That argument is, of course, frequently advanced by Mr Greenspan (and lately by Mr Bernanke). Yet what we more accurately have here is a failure to action the axiom of William Martin (made famous by one of his successors, Paul Volker) that the job of central bankers is to take away the punch bowl just as the party starts to swing.

In contrast, by the time sales forces start hawking as serious investments great volumes of (for example) CDOs backed by car loans the party has begun to look a lot like a Mick Jagger groupie night in. The consequence has been pain amongst assorted hedge funds, miscellaneous financial firms and banks - pain which also menaces the ‘real’ economy.

All might untangle non-catastrophically if the current US central bank strategy of easing just as banks all tighten lending practices/standards to protect their balance sheets succeeds. There is cause for hope here as it has worked before as part of the standard Fed toolkit for crises over the last decade.

But, notwithstanding the prior successful use of such bridging liquidity by the Fed, it should be asked if this crisis is different and far more self-inflicted than growth worries (1996 cut), Asian contagion (1998 cuts) or 9/11 (2001 cuts) were.

Specifically, central banks - and the Fed foremost - failed to control the growth of credit caused by the quick, sharp 2001 cuts and leisurely hikes over the next five-odd years to June 2006. Hardly an external shock (though initiated by one); and further easing now risks perpetuating the same issues. That is an important difference from prior crises; and, although the likelihood of creating a structural problem does ultimately depend on how deep the Fed cuts this cycle, credit weaning is not a gimme.

Hindsight is marvellous of course. But as early (or maybe that should be 'as late') as 2004 there was widespread concern about credit growth. Below this post, for example, is a letter sent by an ordinary reader of this space to the Bank of England in 2004. Doubtless one of many that both Mr King and Mr Greenspan recieved that year it now appears particularly timely.

Yet still the punch bowl stayed out; and is out.

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