The credit crunch began with US banks lending to people who could never repay the loans.

Banks laid off these debts with other banks through ‘derivatives’, a sort of junk insurance, which went round the finance houses of the world like a game of pass the parcel. Huge bonuses were paid out each time, until the music stopped and borrowing dried up.

Then the spivs started betting on these banks’ failure, to force their share price down — short selling — to make another killing, and killing the banks in the process.

All this against a backdrop of rising oil and food prices. Oil prices have doubled due to the demands of economic growth in China and India — but also due to speculators gambling on rising prices.

Food price rises were also fed by a growth in biofuels, the plant-based alternative to oil, with land diverted from food crops to fuel, creating world food shortages.

So we all feel the impact of what happens thousands of miles away. Like many, I’ve taken sharp intakes of breath when I see the numbers whizz around at the petrol pump, or the rising supermarket bill or the latest house price index.

But it’s far worse for those in the developing world, where food price hikes leave millions facing starvation and famine.

The answer is global action, but governments must act locally too. As the Prime Minister said, “this is no time for a novice” — or those faint hearts who talk down the economy. Cuts in public spending proposed by the Conservatives would only make things worse — we saw that in the Thirties depression.

The Bank of England, like other central banks around the world, injected billions into the financial markets to get things moving. Even President Bush should be credited with his rescue plan — so huge, it is equivalent to almost double the UK’s entire annual public spending. But the US Congress is right to require the strings of accountability to be stronger.

We have banned short selling and, when Parliament resumes next week, we’ll see the Chancellor’s Banking Bill to tighten city regulation.

But we also need global economic reforms. As the flow of capital has become global, so must the standard of conduct and supervision.

The world needs transparency in dealing and sound banking, with properly managed risks and integrity. Bonuses should be based on hard work and enterprise, not short-term speculation. And we need responsibility, with bank directors held to account, not rewarded with pay-offs for failure.

The Prime Minister and Chancellor have a clear agenda to push these ideas forward in the councils of the world. The world this time is ready to hear the message.