Indeed, the need for greater regulatory independence is a compelling reason for establishing an international financial regulator, another topic the G20 conspicuously avoided. We recognise that international financial institutions are far from perfect. Nevertheless, a well-endowed, professionally staffed international financial regulator – operating without layers of political hacks – would offer a badly needed counterweight to the powerful domestic financial service sector lobbies. The independence argument is in addition to the well-recognised need for better mechanisms for co-ordinating regulation to reduce regulatory arbitrage in a world of global capital markets.

We do not mean to imply that the political system alone is responsible for the lax discipline that has led to our current predicament. Overly optimistic assessments by rating agencies and negligence by investors, as well as malfeasance in the financial sector, certainly did play a role.

But politicians had a big hand in fanning the excessive leverage that lies at the root of the current crisis. Start with a tax system, particularly in the US, that favours debt finance. Add the favourable treatment given to partnerships, including hedge funds and private equity, that are largely taxed at very low capital gains rates instead of much higher income tax rates. Important regulatory appointments are, of course, largely political, and governments determine the extent and power of the regulatory agencies. During the boom, many regulators throughout much of the world were put under pressure by leading politicians to lighten up. The lack of transparency, which the G20 leaders complain of so vehemently, also served as a convenient shield to keep politicians' interference out of public view.