When I was about five years old I got my first ‘grown up’ bike, a classic black broad-wheel pushbike. My dad told me that he intended to put side-wheels on it, but if I wanted he could hold it and I could give it a test run. ‘No thank you, no need to hold it,’ I told him. With my feet barely touching the pedals, let alone the ground, you can just picture how spectacular the fall was when I lost the less than two seconds of momentum that kept the bike upright. I waited for the side-wheels until I gave it another try. Some lessons are only learnt the hard way.

As you may have noticed, the US banking system is still taking the gravel and dirt out from under its skin after an earth-shattering fall – the greatest since the Great Depression. Some of the assets owned by US banks have dropped in value so rapidly that the market has frozen and it has become almost impossible to trade these ‘toxic’ assets. As a result, over the past year the market capitalization (number of shares in issue multiplied by the prevailing share price) of many banks has diminished three-, four- or even more than ten-fold, as is the case with the once mighty Citigroup and Barclays, for example.

But it is not only the shareholders of these financial companies that have seen their investment portfolios blasted to pieces. Ordinary citizens are suffering too. Because of their own precarious financial situation, banks are not parting with any comforting cash in the kitty right now, and have become extremely reluctant to lend to almost anyone other than those who barely need the loan. Not the kind of environment that enables entrepreneurs to start new businesses and existing businesses to expand. Economic growth and job creation has screeched to a halt.

Even more worrying, is the fact that the link between the government’s generosity towards the banks (in the form of bail-out plans and quantitative easing) and the banks opening their hands for potential borrowers, appears severed for the moment. Basic monetary policy (lowering interest rates and/or releasing more money to stimulate the system) is failing. And, unlike South Africa, the US has very little room for fiscal manoeuvring (using the national budget to invest in infrastructure or spending to stimulate the economy).

But the most disturbing is the latest plan by Geithner to effectively use tax-payers’ money to sponsor investors who are willing to take some toxic assets off the books of the largest banks. And who wouldn’t be willing if the terms are so enticing as to provide potential upside (growth in the value of the assets) with almost no downside (the US government and taxpayers will carry most of the burden if the toxic assets remain worthless)? No wonder some of the top executives of the banks have already indicated that they would be very interested in this investment opportunity in their personal capacities.

To put it bluntly, the caretakers of many US financial institutions have become spoilt brats. Not only is their sense of their own importance as inflated as their salaries (which in 2007 peaked at 181% of the average for all US domestic private industries), but they are also abusing the close political relationships between government and financial enterprise. For example, as former IMF economist Simon Johnson points out, Robert Rubin, once the co-chairman of Goldman Sachs was also the Treasury secretary under Clinton, and later became the chairman of Citigroup’s executive committee. Henry Paulson, the CEO of Goldman Sachs, was also the Treasury secretary under George W. Bush.

Expecting that their friends in government will always be there to bail them out, the upper echelons of the financial industry continue to borrow excessively, lend irresponsibly and invest in assets which they barely understand, but which satisfy their lust for continuously higher returns. But higher returns and above-average growth always comes at a price: risk. Risk is and remains the most misunderstood (and sometimes totally ignored) concept in the financial industry. When risk continually realises in your favour and you reap the higher returns, you start to believe that you’ve tamed the market. But the high-risk investment landscape is, by definition, always unpredictable and when you are surprised by the vicious, previously hibernating bear, only then do you know whether you are truly comfortable with that specific risk landscape. Unfortunately, the managers of these financial institutions did not venture into the wilderness alone; they also dragged shareholders, home owners and taxpayers along on the hunting trip.

In times like these the US government cannot afford to act like the indulgent grandparent, allowing its greedy child to run amok and create ruin without experiencing the consequences. Stronger interference, even up to the point of temporary nationalisation, is necessary. If the US financial system does not learn its lesson here and now, it may be taking even bigger risks as soon as it is back on its bike again.