When disaster strikes, political leaders know they must be seen to act — even if they have no idea what to do. They can hardly stand there, hands in their pockets, and shrug. They must at least pretend they know what they’re doing.

This advice applies to financial disasters, as well as natural ones. And based on the noises emanating over the past week from international financial officials, looking like you’re doing something is pretty much the order of the day.

The Group of Seven finance ministers sternly pledged to enact recommendations from a recent report on financial stability — within 100 days, yet. These include requiring banks to provide more disclosure on risky derivatives, and stronger guidelines for credit-rating agencies. Meantime, members of the Basel Committee on Banking Supervision (13 rich countries, including Canada, that write the global banking rules) want tighter capital adequacy requirements on banks, and computerized “stress tests” to simulate whether banks are vulnerable to collapse.

The emphasis in these proposals is on oversight and transparency, not regulation. They wouldn’t stop the hyper-risky behaviour that produced the current meltdown; they would just shine a little more sunlight on it. They wouldn’t prevent the rise and fall of future bubbles — they would just shift more of the blame to the victims (who, the theory goes, should have known what they were getting into).

Finance Minister Jim Flaherty mimics this “look busy” strategy in his own approach to the crisis. He’s blamed brokers for selling products they themselves don’t understand. He’s blamed provincial securities regulators for not supervising the brokers (following Ottawa’s script that, if anything at all is wrong in the national economy, it must be the provinces’ fault). And he’s pledged to move up a meeting with Canada’s major banks (originally scheduled for May) to discuss what’s happening. Not a moment to waste.

Unlike the optics-driven dithering of elected politicians, global central bankers have been spurred into genuine action by the sheer scale of the crisis. Led by the Americans, they’ve tossed around tens of billions of dollars of liquidity, bailed out failed brokers, and (in the United Kingdom) actually nationalized a major bank. These actions were prudent, helping to avoid (for now, anyway) a much wider conflagration. (If only government would respond with equal determination to the scourges of substandard housing, preventable disease, or environmental degradation. But that’s another debate.)

Trying to stabilize the current crisis is one thing, trying to prevent it from happening again is quite another. And officials will have to move a lot further down the road of re-regulation than the G7 and Basel declarations indicated if they are serious about stopping this predictable boom-and-bust routine.

Make no mistake: Despite all the finger-pointing at lazy credit raters and unethical brokers, the current meltdown is rooted squarely in the innovative but blinding greed that is the raison d’être of private finance. The bankers and brokers have no one to blame but themselves, and their clever efforts to design and sell ever more complicated (and lucrative) paper assets. We need to control and constrain that greed, not ratify it.

To do so, we must refocus on the bread-and-butter basics of what banking is supposed to be all about. The real economy needs credit, delivered in a stable and predictable way, to lubricate everything from home buying to business investments. That can be done efficiently without any recourse whatsoever to the gigantic paper casino that now sucks up an astounding 40 per cent of all profits generated in the U.S. economy.

Mundane mortgage and business lending should be guided by sensible rules on everything from ethical lending behaviour (flouted so disastrously by bonus-obsessed U.S. salesmen) to a strong public guarantee system to reinforce investor confidence. Banks and other lenders should not only be required to meet minimum capitalization standards, they should be required to do so with real money — held for safekeeping by public deposit and mortgage insurers. If push comes to shove, and the contraction of private credit starts to directly curtail real consumer and business spending, re-establishing a direct public presence in credit creation would help, too.

Above and beyond all that, if financial sophisticates really want to gamble on things such as derivatives and credit swaps, it will be hard to stop them. But make sure their unproductive game-playing is firmly separated with strict financial firewalls from the mundane credit system we all depend on.

The timid incrementalism of the G7 leaders wouldn’t have made any measurable difference to the current crisis, let alone prevent the next one. If we really want to get off this destructive, repetitive roller coaster, we’ll need our financial leaders to do more than look busy. We need them to actually get busy.

Jim Stanford

Jim Stanford is economist and director of the Centre for Future Work, a progressive labour economics institute based in Vancouver. He has a PhD in economics from the New School for Social Research in New...