The market meltdown has a satisfying shape to it, and follows on quite logically from the intersection of deregulation, rapid capitalist greed, and high speed data networking. Pull up a chair, get some popcorn, and enjoy the show.

When I was a precocious teenager, I had to go and meet the head teacher of my new school and so I decided to carry a book to show what a generally savvy, intelligent type I was. Leaving my copy of Goldfinger at home, I swaggered in holding a copy of Extraordinary Popular Delusions and the Madness of Crowds, by Charles Mackay. At the time it seemed a contrarian, fusty choice, guaranteed to make me stand out from the crowd as bookish and eccentric. I didn’t realise that it was going to turn out to be the Hanes manual of the global economy.

But alas, a book which describes, among other things, how Dutch investors were ruined by an insane market in tulip bulbs (tulip bulbs!) has turned out to be the perfect lens through which to view the American Savings and Loan Bubble, followed by the American Dotcom Bubble, followed by the American Ninja Mortgage Bubble. In each case, people managed to convince themselves that something was worth more than it really was. In each case, when the real value of the assets was revealed, everyone was amazed, appalled and scandalised, and in each case, serious looking men in suits promised to put in regulatory and institutional checks and balances that would prevent the market from ever allowing such folly again. You may notice a pattern here.

What makes the latest version of this familiar story so exciting is that the final showdown, a liquidity crisis in which interbank lending has ground to a halt, has played out on, well, a sort of science-fiction, planetary scale - because of the power of global networks built during the previous dotcom bubble.

First we start with a lie, such as “This tulip is worth millions!”, or “This borrower with no income and no job can definitely make his house payments.” However, this is no longer just a local, or even a national, lie. It’s something everyone can enjoy. Global, interconnected electronic markets slice up the lie, package it appealingly, and distribute it as part of a million digital transactions. The lie is transmitted around the world, a computer virus infecting the portfolios of hedge funds, merchant banks, insurance companies - even the humble high street banks of sleepy Cotswold villages.

Because of the speed and complexity of these globally interconnected networks, blinding digital despatch with which the basic lie is diced, spliced, wrapped, packaged, and shelved means that it simply vanishes into the ethernet. It’s just too much for any one individual to comprehend (except for Warren Buffet, of course, who called this one years ago.)

Eventually reality comes down like the wrath of God and the banks involved have to do an excruciating audit, looking at every asset and trade to understand their exposure. And because they don’t even trust their own portfolios, they can’t possibly take on more unknown risk by lending to someone who may have even more exposure to even more implausibly awful levels of risk. Which means you end up with the scene at the end of Reservoir Dogs: a bunch of guys in dark suits pointing at each other, screaming. They can’t pull the trigger and trade again because it may destroy them. But if they don’t trade they’ll die. So they stand their screaming and calling for help until one by one they go down, like Lehman Brothers, or get helicoptered out by you and me in the form of government bailouts for the likes of Northern Rock and AIG.

The incredible scale of this market f***-up is so huge that it can only be expressed with inappropriate language. We really all need to sit down and take a moment. There’s simply no point in pretending that sober looking men with distinguished haircuts and well-cut suits have any sort of monopoly on wisdom and good sense. This is finance’s shame, and rock’n’roll’s finest hour. Mothers, don’t let your daughters marry a banker. If Iggy and Mick and Ozzie had been in charge of the world’s financial system they couldn’t have made more of a mess of it than the present bunch of gangsters in hand-made shirts. We now have all the evidence we need to conclusively state that the well-dressed titans of Wall Street and the City have been pigging out like sloppy drunks at a Vegas buffet.

These drunks are now going to come around to our house, reeking of Cabernet, and explain that we need to give them more money to clean up the mess they’ve created. As is tradition, they will then explain that we shouldn’t mess with the recovery by letting governments introduce oppressive regulatory reform that might cramp their style. Yeah, right. However, before I get too smug, let’s forget how all this started: a simple lie. Imagine a house you own, or the house of someone you know who owns property. In your mind’s eye, walk outside the house and look at it and say, “How much is this property really worth?” You and I and the great British public were quite happy to bid up the prices of our tulip homes, watch Changing Rooms, and alchemically transform our bricks into gold. But frankly, with your bathroom and those dreadful kitchen tops you’re definitely going to have trouble selling. Perhaps the Government will bail us out too? Just as long as we can afford basic cable to watch the judicial lynchings on Wall Street, the traditional way to end this family show.

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Michael Parsons helped to launch The Industry Standard magazine, and was the launch Editor of CNET.co.uk

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