Well, the first thing that has to �happen is that those in �positions of �responsibility take responsibility and resign.

Well, the first thing that has to happen is that those in positions of responsibility take responsibility and resign. Today will see the biggest banking rescue in history as the government effectively nationalises HBOS and Royal Bank of Scotland by taking majority shareholdings in both banks. If confidence is to be restored, then it is surely essential that those who were in charge step aside. Otherwise, how can investors - now effectively us - be sure they will be run any differently in future?

There are now indications that Sir Fred "the shred" Goodwin of RBS may leave his post if shareholders demand it. But in what other walk of life would leaders who have presided over such a comprehensive disaster have remained in post for so long? He should have gone six months ago after he said the Royal Bank didn't need to raise money and then launched the biggest rights issue in corporate history. Sir Fred and HBOS counterpart Andy Hornby have made immense personal fortunes - Goodwin paid himself four million last year alone - despite the recent disasters that have befallen these two great Scottish institutions. If you accept huge reward you must accept that when you mess up hugely you accept the consequences.

Their behaviour tells you all you need to know about the culture of modern banking. Andy Hornby is a supermarket salesman out of his depth who moved into prudent mortgage lending in the belief that house prices would rise forever. Sir Fred went on a buying spree he couldn't afford at the height of the credit bubble and bulldozed through the sale of the banking group ABN Amro, even as the credit crunch deepened. He also led RBS into buying sub-prime mortgages in America and bet heavily on the derivatives market. Yet, like the rest of the banking fraternity, they seem to act as if they are masters of the universe, even though their universe has imploded and their companies are on life support from the state.

A little contrition would not go amiss - like those Japanese bankers last week who bowed humbly before the people on TV. Not a single British banker has uttered any kind of apology for what has happened over the last year. Yet these are the same people who lectured governments about irresponsible public spending, who attacked trades unionists for trying to save their jobs, who called for manufacturing industries to be closed if they required public subsidies. Now they are demanding the biggest public subsidies in history.

In America they take a more robust approach. When the mortgage giants Fannie Mae and Freddy Mac were nationalised, the top managers walked the plank immediately. Same with the investment banksters who ran Bear Stearns when it collapsed and had to be rescued. Dick "the ape" Fuld of bankrupt Lehman Brothers has been hauled before congressional inquiries to explain how he justified his hundreds of millions in remuneration. No, it hasn't stopped the stock market from collapsing, but it has at least given some hope to taxpayers that those who have destroyed the financial system may some day be held accountable for their greed and irresponsibility.

Confidence needs to be restored as a matter of urgency. If the stock markets fall again by 20% this week - as the IMF believes is likely - then the entire banking system in Britain will effectively have to be nationalised. The complete failure of banks to lend to each other - or anyone else for that matter - is now becoming a threat to the entire economy. This cannot be allowed to continue. The credit famine will result in a wave of corporate collapses across the world. There will be thousands of business failures in the UK and millions will lose their jobs.

Iceland, which was big on "financial engineering" is bankrupt, and it is not impossible that a large country could default, especially if it happens to be a world centre of the dodgy credit industry. Our banks are insolvent, yet have liabilities running into trillions. The government last week threw £500bn at the City in the hope that it would sort the problem, but the verdict of the markets was clear on Friday when panic consumed investors. People keep asking why - if the "plumbing" of the financial system is clogged - can't someone just unblock it? But simplistic metaphors don't really help in this situation because it fails to understand the psychology of the actors. Plumbing doesn't panic, it doesn't indulge in derivative trading, and it doesn't try to hide from its own responsibilities.

The banks are not lending to each other because they are stuffed with assets that are not worth the paper they are printed on. They don't want to expose their shaky assets to any market because they will then have to confront the scale of their losses on the property markets and on obscure derivative trades.

The countless billions that the government - the bank of you and me - is giving to the banks in the form of treasury bond swaps is not working because the banks are hoarding this cash to rebuild their balance sheets. The only way out of this is for all the banks to 'fess up and for all the dodgy mortgage-backed securities to be thrown into a market to find out what they are really worth. The assets are worth something - after all, most are based on mortgages which will be repaid. It is only the fear and, yes, the greed, of the banks that is preventing this triage taking place.

This is why it is so imperative that a new generation of banking executives are installed who are not tainted by the debt and bonus culture of the bubble years. We need people who have a degree of social responsibility and a willingness to accept political direction.

There is a very real possibility now that the entire banking systems of the developed world - the G7 - may now have to be nationalised. This is the end of an era - but the last people to realise it are the people who have brought the age of risk capitalism to an end. History will not look kindly on them - so why should we?