Appearing on BBC Radio 4's Today programme over the festive period, this columnist was labelled "miserable". But, as I explained to John Humphrys, our financial predicament is no laughing matter.

The Telegraph | January 4, 2009
By Liam Halligan

What did the great radio inquisitor want me to do? Insist that if the Government keeps borrowing and listeners merrily load-up their credit cards during the post-Christmas sales, then everything will be fine?

Well it won't be. The UK - like most Western economies - is in a grave situation. Our money markets are frozen, denying vital liquidity to millions of credit-worthy firms. Unless the inter-bank market reboots, then even hastily revised 2009 Western growth forecasts - down from 2-3pc a year ago to a 1-2pc contraction now - could turn out to be too optimistic. We face the very real danger of chronic unemployment across the so-called "advanced economies" and widespread social unrest.

Yet the Keynesian bail-out solution, accepted as "essential" by practically every mainstream commentator, will do nothing to unfreeze our credit markets. It's even more dangerous than the disease it's supposed to cure.

Panicked politicians have now closed their ears to reason and are ripping up the rules. And as the bail-out continues, and the investment banks channel public funds to senior executives, the vested interests that caused this crisis are adding insult to injury.

With failure and incompetence thus rewarded, huge damage is being done to the very fabric of Western market-driven commerce. That could spark a damaging populist backlash, recreating the economic dark ages of heavy regulation and state diktat, crushing the entrepreneurial spirit that has long driven human progress.

So there are good reasons, Mr Humphrys, to be miserable - not only about where we are but, even more so, where the policy consensus is taking us. And when asked to give my opinion on the UK's most important radio show, I'd rather be miserable than wrong.

Commentators shouldn't only criticise, but also suggest ways out of this mess. So I'll repeat my call for banks everywhere to be legally forced to "fully disclose" and write-down their sub-prime liabilities BEFORE further taxpayer-funded recapitalisation.

The Swedes took this hard-headed approach during their early 1990s banking crisis. We've adopted, instead, the head-in-the-sand Japanese variant – creating our very own zombie banks which are technically alive (allowing powerful executives to keep their jobs and save face) but commercially dead and a drain on society, given the weight of their toxic debts.

On top of full disclosure, Barack Obama could now make a move which, for all the hype of his inauguration later this month, would prevent a repeat of this credit crunch.

The incoming President is fond of citing America's New Deal of the mid-1930s – given that he wants to repeat the depression-era use of public works. But the most important part of the US policy response to the 1929 Wall Street Crash was the more obscure Glass-Steagall Act of 1933.

Named after the two Democrat senators who sponsored it, Glass-Steagall prevented commercial banks – which take deposits from ordinary households and firms – from engaging in the high-risk speculative activities undertaken by investment banks.

Or at least it did – until 1999 when, after millions of dollars of political donations from investment banks, Glass-Steagall was repealed by then President Bill Clinton – at the urging of Robert Rubin, his Wall-Street trained Treasury Secretary.

That unleashed the forces which have landed us where we are now. Investment banks took over commercial banks - using their retail deposit base, on which there was an implicit government guarantee, for risky speculative trading, not least in opaque derivatives. The promised "Chinese Walls" were fiction, as swash-buckling investment bank culture pervaded "plain vanilla" institutions supposed to be servicing regular activity.

The situation was made more dangerous when, on top of this repeal, the US financial authorities allowed the investment banks to raise their debt-to-capital ratios from 12:1 to 30:1 or even higher. This lit the fuse on the commission-driven securitization and debt-fuelled purchase of tens of millions of dodgy mortgage-backed securities – which inflated the US housing market as politicians wanted, but spread "sub-prime" sickness around the world.

So will Obama re-introduce Glass Steagall? Will he heck. On the contrary, the man upon whom the hopes of the West now rest is bringing back into government many of Rubin's acolytes who drove the repeal in the first place.

Meanwhile, some of America's most powerful investment banks have been allowed to convert themselves back into commercial banks – attempting not only to qualify for more bail-out finance, but to close down any debate on the need for a new Glass-Steagall.

Has Obama got the audacity to end the party and order the Wall Street denizens to behave? Will he reintroduce the necessary firewalls upon which the stability of Western banking depends? My instincts tell me he won't. But perhaps I'm just being miserable.