The seeds of it go back a long way, probably to the late 1970s and early 1980s as we started to bring down trade barriers and to transfer capital flows all over the world.

At the same time, we began to pursue globalisation and privatisation. They were a major boost to the world economy and brought benefits on a large scale.

From the early 1980s, we also saw the stock of financial assets growing faster than national economies. Trading in those assets was growing even faster than this. By the time we got to the Millennium, the markets were much, much bigger than governments and were deciding absolutely everything: interest rates, the appointment of chief executives, exchange rates. Governments had lost their power.

By 2004 more and more people, including Mervyn King, the Governor of the Bank of England, were issuing warnings about rising asset prices but, with elections coming up, nobody wanted to stop growth.

We borrowed too much: households, companies, banks, governments all borrowed too much. There was an appearance of prosperity but it was an illusion, it was not the real world. Now we are having to correct that but there is no quick fix. It will take a long time.

We face two major problems. The first is the retrenchment of US consumers, who represent 5 per cent of the world’s population and 30 per cent of total consumption.

The second is overcapacity. There was excess capacity in every industry I know: financial services, airlines, manufacturing. The global automotive industry, for instance, was producing 100 million vehicles a year but demand was for 60 million.

Turning to why companies fail, the reason is hubris. I am on the boards of a few companies and the question we ask ourselves is how to stop this behaviour. Someone gets the bit between their teeth and it is hard to stop them when profits are zooming along and everyone is happy.

If somebody is doing extremely well, not just in banking but in all sorts of companies, it is very difficult for nonexecutive directors to stand in their way. The press is praising them and the analysts are saying how wonderful things are; it takes a lot of courage for a member of the board to say they do not agree. It looks as if they are not supporting the company.

It is indisputable, however, that companies cannot expand at a really rapid rate year after year; they will go backwards at some point. We will continue to have boom and bust. This is a necessary part of the capitalist society and generates economic growth.

Sir Brian Pitman is a former chairman of Lloyds TSB.
This is an edited report of his comments at The Times debate.