LONDON: It is not exactly "Black Monday" or even "Black September" when in the early 1990s the financial markets in London went into a free fall after a speculative run on the pound and forced the UK to abandon the exchange rate mechanism (ERM) and the Bank of England to inject billions of pounds into the market to prop up the sterling. The Lady of Threadneedle Street is still coy about how much she actually spent then.

But there was nothing coy about yesterday's developments in the global financial markets which saw Lehman Brothers, the fourth-largest US investment bank, filing for Chapter 11 bankruptcy protection, and British police surrounding the bank's London headquarters, which has been put under administration by accountants PriceWaterhouseCoopers (PWC) and which employed some 4,000 people, most of whom are likely to lose their jobs in the process.

It was indeed a "Dark Brown Monday" which saw the knock-on effect leading to sharp falls in share prices around the world, and government officials in the US, EU and the UK taking measures to reassure markets. The FTSE by midday was down almost 6 percent and Dow Jones by half that at the beginning of the trading day. UK bank HBOS saw its shares plummet 30 percent - a major collapse by ordinary market standards.

One economist yesterday likened the international financial system to a "prison where the convicts are in charge" while another blamed the current crisis on the unfettered deregulation of the financial markets. The fears are that this crisis has the potential to be the most damaging since the 1920s that eventually led to the Great Depression and the collapse of Wall Street and the world stock markets.

Deregulation in the US was precipitated by the abolition of the Glass-Steagals Act in the 1990s that led to the former strict delineation between investment banking and commercial and retail banking being jettisoned. The Glass-Steagals Act was ironically born in the aftermath of the very chaos of the financial markets in the 1920s when banks virtually had free reign and regulation was almost a dirty word. What is amazing in the current crisis is that not a single senior executive has lost his or her job or their benefits, even though some of the banks have written off billions of dollars to cover worthless speculative investments in dodgy US subprime mortgages which has led to a credit crunch which has sent financial institutions in the West reeling and strapped for cash.

For those institutions that have exposure to Lehman Brothers, the Bank of England yesterday injected 5 billion pounds as a short-term credit relief and the European Central Bank similarly injected 30 billion euros to the same effect. It is most likely that major central banks would have to continue to inject billions of dollars of liquidity into the markets over the coming weeks if only to pre-empt any slide into global financial instability. Ten of the world's biggest banks last Sunday also agreed to set up an $70 billion emergency fund, with any one of the participating banks allowed to access up to a third of the funds in the case of any urgent liquidity problems.

Financial stability is supposedly the bedrock of the new Basel II Concordat with risk management at the core. How ironic that most of the banking crises have occurred during the adoption process of Basel II. The unanswered question remains how do financial institutions reconcile the provisions of Basel II with an increasingly deregulated global financial market?

Judging by recent events financial institutions simply cannot be trusted to regulate themselves. Human greed in the financial market has to be fettered and the best way to do that is through market intervention. This does not spell the end of the much-misconceived concept of the "free market". While it is no business of any government to own and run banks, they should ensure the proper legal, regulatory and enforcement-banking regime to ensure financial market stability.

The current system makes a mockery of moral hazard. Senior bankers and their shareholders, are only too willing to capitalize on the upside when the going is good, paying themselves huge salaries, bonuses and dividends. But when the market is down and in trouble, they are only too willing to jettison their responsibilities and the effects of their wanton speculation, and pass them on to the hapless taxpayers. Governments, often in cahoots with big business, are only too willing to bail them out under the guise of protecting the stability of the financial markets and the impact on customers.

There is something rotten to the core of the financial markets status quo. Unless major shareholders and senior executives are held responsible for the actions of their financial institutions, with the possibility of long prison sentences and other personal sanctions such as loss of assets where willful neglect and mismanagement are proven, the system is in danger of merely being patched up. The actions of the US Treasury, the Fed, and regulators all over would only serve as a plaster trying to plug a huge and deep gash.

There is also a case for greater political accountability of financial market regulators. In the Northern Rock crisis in the UK, where the Financial Services Authority (FSA) admitted that it might have been too lax in regulating the mortgage provider, no one in a senior position at the FSA or the Treasury has been forced to resign. This is outrageous because it sends the wrong signals to the markets, which is all about confidence not only about business but perhaps more importantly about supervision, regulation and enforcement. And yet the politicians continue to display almost an innate arrogance and complacency, referring to the current crisis as a series of accidents.