When your article will not appear in print until a month after you write it, you must remember that today’s whirlwind creates tomorrow’s dust.  It’s far safer to relate events to principles that, by definition, cannot change.

According to Plato, anonymity and honesty are mutually exclusive. Even the most just man, he wrote, would become a thief if he were certain he could get away with it. Right action, in other words, must be supported by accountability.

There’s a clue here. If business and political leaders knew that they, personally, would be accountable for the consequences of doing nothing whenever action – however unpalatable – is needed, many a catastrophe would be avoided.

In our “sticking plaster” age, resistance to tough decisions exists at every level. Dubious loans are sanctioned by risk committees to whom it would have been obvious, if they’d looked, that default would follow. But hiding behind a faceless committee dodges personal accountability.

Once stuck with those loans banks prefer to keep quiet about their worthlessness. Accounting standards allow them to protect their balance sheets from the impact of toxic loans as long as they can dissemble reality by “restructuring” rather than foreclosing. Bust borrowers keep their homes and banks keep up the pretence.

Who is responsible for perpetuating the self-delusion? The buck stops – where? No one seeks a scalp, but refusal to face the facts shields culprits, defers the inevitable and turns bad news into a horror story.

Credit rating agencies now highlight the staggering measure of Chinese banks’ exposure to their local governments and the probability of large-scale defaults, which spell economic slowdown and higher borrowing costs. Because China is the world’s largest consumer of extracted materials, the consequent contagion would be global – and it all started with hiding duff loans.

pretending that dross will magically be transmuted into gold only makes it worse.

Of course, it would be better not to sanction stupid credit creation in the first place, but pretending that dross will magically be transmuted into gold only makes it worse. Even European leaders recognise that printing more money (politely known as “bailouts”) does not dissolve the accumulation of years of profligacy. Mistakes don’t go away: if you don’t own them, they will own you.

The alternative

Alternatively, face the facts. The notion that a bank is “too big to fail” is accepted only while it’s untested. Lehman Brothers was too big to fail; yet there was no bailout, so fail it did. The world survived.

Remember Barings in Singapore? Traders met in the bar at the cricket club to regale each other with stories of how much they were making by backing Nick Leeson’s amazing currency trades.  Yet they were puzzled at not being able to identify counterparties who were losing all the money they were making – until Nick defaulted on his margin calls. Then they could identify the losers: themselves.  There was no bailout and a billion pounds were lost. Short, sharp and nasty.

Recently Icelandic voters made it plain that they were not prepared to endure the extended pain of salvaging bust banks that had lent ten times the country’s GDP and lost the lot. The government had to tell the banks’ creditors to write off their investments. There would be no money. Had they been eurozone members they would have been conned into taking a bailout, imposing yet another dollop of debt on European taxpayers.

Sensibly, Iceland put the debacle behind it and began repairing its economy. Like Britain, where sterling’s slide has been the single most powerful boost to its economy, Iceland left its currency valuation to the markets. It has now raised £1 billion from foreign investors at only 4.9 per cent. Better than a bailout!

If there were no bailouts there would be no reward for failure. Why else do faceless bankers still extract the biggest bonuses? Like MPs’ expenses and telephone hacking, they do it as long as they get away with it.