Despite their armies of specialist civil servants, the state regulators that oversee banks smelled nothing of the crisis that was brewing under their noses day by day. No one was alarmed by the 35% return on equity of Marcel Ospel's UBS or of Daniel Bouton's Société Générale. Instead, observers enthusiastically cheered these baffling profits, half of which was generated by speculative gambits in the banks' trading rooms. Those responsible for the ensuing crisis kept their bonuses and stock options. France, the archetypal country of civil servants and state control, saw Crédit Agricole, Caisse d'Epargne, Société Générale, Dexia and others swirl in a maelstrom of asset depreciation that could only be arrested by government bailouts. Switzerland had to shore up UBS. Germany's battered credit unions and regional banks had to be rescued as well. Yet before the crunch came, the bosses and traders of America's investment banks (whose leverage had reached a factor of 35!) had been pictured on magazine covers and hailed as geniuses.

Now that the smoke is clearing, we ought to be punishing these people. Surprise, surprise: fingers are being pointed in a different direction. Instead of blaming the regulators and decision-makers, France has found a new culprit: Switzerland! Not a day goes by without someone blasting off on TV or in the press against tax exiles and dodgers with undeclared accounts, accusing them of being responsible for the state's empty coffers. A new economic theory has been developed whereby France's current “healthy” deficit (8.5% of GDP) should be distinguished from the “unhealthy” one run up by previous governments. The present shortfall supports investment and provides for the modernisation of the economy; the old one stemmed from consumer subsidies and was therefore harmful. But isn't the “cash for clunkers” scheme (as well as the various other spending incentives now available) simply a handout rather than an investment?

The Germans, for once in agreement with the French, are also beating the drum: "Don’t blame the gaping holes in our financial surveillance mechanisms," they say, "blame Swiss bank accounts!" France's projected budget deficits, €150 billion for 2009 and €115 billion for 2010, have shaken confidence, which as everyone knows cannot be switched on and off like a light. Something similar to the 10% tax amnesty in Italy would have been very successful. Why not a pan-European amnesty to avoid diatribes from national politicians? Investors will probably steer clear of France's planned superbond, so big that Alain Juppé and Michel Rocard (former prime ministers and experts in economic forecasting) have been called in to decide how to the spend the money that is raised. The borrowing scheme could also have been tied to a tax amnesty, paying an enhanced interest rate to retail savers with a second zero-coupon instalment to be held for three years by those repatriating funds. In Germany, too, there have been solutions designed to restore trust and iron out the wrinkles. A rancorous clash could have easily been prevented.

The Swiss franc was trading at parity with the French franc in the 1950s. Just as the tax shield was starting to reverse the outflow of tax exiles, the ranting of France's budget minister will merely accelerate emigrations by those who think that Switzerland is a stable country where the individual is respected and life is good. The Swiss franc today would be worth 4.40 in France's former currency.

This difference of opinion between the French and Swiss will undoubtedly be decided upon by our parliament and by referendum. In the meantime, let's consider how the global economy is performing. Together with all the fiscal stimulus, increasing investment expenditure and inventory rebuilding have stemmed the decline and provided scope for a recovery. The spectacular rally in equities after the steep June-July pullback is a reliable sign of restored confidence originating in Main Street. Zero real interest rates are generating a stellar stockmarket performance, buoyant bond prices, well-valued commodities and gold at USD 1,000 an ounce. The carry trade is back, banks are speculating on the markets again, Goldman Sachs has never earned so much money; ETFs, derivatives, bonuses, flash trading and so on are blowing another huge bubble. Determination from the Franco-German duo for tough market reforms is barely being heeded in London and New York, the world's leading financial centres. The drawback is that unemployment is rising sharply and deepening deficits; wages are not rising, and this is stymieing consumer spending. Worse still, households are saving their money, which has led to a plunge in consumer credit of the likes not seen in 50 years. Governments cannot do more, at the risk of losing all semblance of credibility. The global debt burden is worsening considerably, giving rise to the most acute problem of them all: the impact of monetary tightening on economies when trying eventually to deal with the bubble created by zero rates.

Although the outlook now seems brighter, problems remain that could become acute without prior warning. Given the equity markets' 50% bounce — against all odds — from their lows, caution should be the watchword. We are continuing to pull back from numerous share and fixed-income segments to lock in gains. Only the emerging markets still offer opportunities. More than ever, investors need to be overweight in gold.

In times of crisis, as in Gounod's Faust, "the Golden Calf reigns above all (...) and 'tis Satan who leads this dance." The new bubble will be just as diabolical as the previous ones.