So the watchdog can bark after all. Adair Turner, chairman of Britain's Financial Services Authority, says the financial sector has "swollen beyond its socially useful size". That is a striking statement for any financial regulator, particularly one that counts promoting London's financial centre as one of its goals. Identifying the problem, however, is the easy bit. Reversing decades of financial expansion will require global agreement on tough new rules, and the determination to make sure they are consistently enforced.

Turner's comments, in a debate hosted by Prospect magazine, underscore the extent to which the crisis has upended the received wisdom among policymakers. For years they assumed markets were self-correcting, that financial innovation brought lasting economic benefits, and that regulators should think twice before getting in the way.

But after two years of global economic turmoil and with several trillion dollars of public money committed to preventing further panic, the costs of this approach have become all too clear.

What is less certain is what should come in its place. A market economy needs functioning banks and financial markets to intermediate capital flows and allocate credit. This useful activity will involve some useless speculation: it is hard to imagine a regulator -- or anyone else -- reliably drawing a line between the two.

The authorities can, however, make sure that banks take greater account of the possible costs of their risk-taking. Turner thinks forcing banks, particularly those involved in trading activities, to hold greater reserves of capital will choke off some "socially useless" activity. Such changes are already under way. They will have the added benefit of reducing banks' profits and -- by implication -- the outsized bonuses they distribute to employees.

Governments can also do more to protect taxpayers from future financial failures. Banks could be required to prepare for their own failure by drawing up what Mervyn King, governor of the Bank of England, memorably described as a "living will". Alternatively, systemically important institutions could be charged an explicit fee for the state guarantee they enjoy.

Turner also floats the idea of introducing a Tobin tax -- a levy on financial transactions -- named after the economist who in the 1970s proposed taxing cross-border currency transactions. However, this would not distinguish between "useful" and "useless" transactions. It is also hard to imagine a global tax that could not be avoided somehow.

Turner is right to launch a debate. His comments will also help counter accusations that financial regulators have been captured by the industry they are supposed to police. But the reforms he has proposed cannot be imposed unilaterally by any one country -- let alone by a regulator that may not exist in its current form a year from now. Shrinking the financial sector will require a global agreement every bit as robust as the intellectual consensus that allowed it to swell up in the first place.

In the blink of an eye it look as if the City is “booming” again after Barclays and HSBC announced buoyant investment banking earnings on Monday.

Both banks were hit by a surge in bad debts as the recession took its toll on borrowers, but analysts said that resurgent debt and foreign exchange trading and market share grabbed from troubled rivals fuelled the largely positive results.

Barclays announced an eight percent rise in profits for the first six months of the year to almost three billion pounds, while HSBC reported profits of the same amount, though this was half what they made during the same period in 2008.

The results have led to speculation that some City workers will once again receive bumper bonus packages just months after the banking sector was bailed out by the taxpayer.

Barclays’ Chief Executive John Varley defended the system of bonus payments by comparing his staff to highly-paid footballers.

“The football analogy certainly goes some way to I think [to explain bonuses]….There is simply no higher priority that to ensure we filed the very best people,” said Varley. “That in a sense is exactly the same as a football manager if they are going to win. Our obligation is to ensure we pay appropriately.”

Which begs the question of whether you would rather watch Steven Gerrard scoring a goal or pay a visit to your local Barclays branch manager.

While Varley juggled his football metaphors, Stuart Gulliver, who runs the investment bank at HSBC, used a different analogy, comparing the bank bonus culture to the Hollywood studio salary system.

“If a foreign exchange trader makes a deal then they know two days later how much they made,” said Gulliver. “If it’s a £5m profit, that is something we can count, we can see it, it’s real. And they are part of a successful team.”

Barclays and HSBC did not receive government handouts but all the banks benefited from state intervention that used £1.2bln of taxpayer funds to prop up the banking system.

Do you think it is right that big bonuses reappear so soon after the height of the banking crisis and while homeowners, savers and small businesses are still struggling?

Former Royal Bank of Scotland Chief Executive Fred Goodwin is not having a good year.

Earlier this month he was hauled before parliament to explain his part in how RBS, the company he led for nine years, came close to the brink of collapse.

Goodwin offered profuse apologies - “I could not be more sorry for what has happened” - and pointed out he’d lost more than five million pounds from the fall in value of RBS shares.

Before you wipe a tear from your eye, Goodwin was paid 4.2 million pounds, including a 2.9 million bonus, in 2007, the year he led RBS’s ill-fated acquisition of ABN, even though he waived a pay-off when he left.

Now it has come to light that Goodwin is set to receive a pension of 650,000 pounds a year for life. This from a bank that just unveiled a record British corporate loss of 24.1 bilion pounds and will soon be 80 percent owned by the government.

UK Financial Investments (UKFI), the part of the Treasury which manages the state’s investments in banks, is now examining Goodwin’s pensions arrangements with the RBS board to see whether some or all of the payout can be clawed back.

Should the 50-year-old Goodwin do the decent thing and forego his pension deal? Or is it wrong for the government to act retrospectively and stop him drawing from his retirement pot?

In the Middle Ages the four ousted British bankers who brought the Royal Bank of Scotland and HBOS to the brink of collapse would have probably had to endure the public humiliation of sitting in the stocks. 

On Tuesday the likes of former RBS chairman Tom McKillop and  former RBS chief executive Fred Goodwin had to undergo a more civilised form of public humiliation - a grilling by Parliament’s Treasury committee.

Given the public outrage over their huges salaries and bonuses for banks that are receiving state aid the bankers’ parliamentary appearance could have not have come at a worse time.

Not surprisingly then McKillop, Goodwin as well as former HBOS chairman Dennis Stevenson and former HBOS chief executive Andy Hornby were quick to say sorry.

Equally predictable was the froth of parliamentary indignation. “You’ve destroyed a great British bank,” one parliamentarian told Fred Goodwin.

Whether the bankers’ apology before the committee will sate the British public’s sense of outrage against overpaid and failing bankers is questionable. 

But their appearance before the seat of government also raised uncomfortable questions as to the way banks have been regulated in the past and how they will be in the future.

The bankers suggested their pay should be linked to multi-year performance. Are they right? Or does the banking system need more fundamental change?

Bankers are having a rough time of it lately.  It is not just that their companies are collapsing beneath them and their bonuses are the subject of global hate and derision. They also have to put up with the barbs of journalists (who are very familiar with being at the bottom of the popularity pile).

The latest example comes from Tim Dowling, scribbling away for Britain's Guardian newspaper.  Mr Dowling has penned a useful primer for bankers who suddenly find themselves living in the real world.

You can read the complete guide by clicking here.  But Global Investing's favourite tip concerns the use of London's celebrated buses:

"When a bus comes into view, raise your right hand as if you were hailing a taxi. Get on at the front and tell the driver where you are going. He will name a price. Haggling is frowned upon, as is suggesting a route. Buses have no business class as such, but the top deck, if there is one, offers superior views."

So cruel. So very cruel.

Net job creation in the UK has almost stopped as employers feel pessimistic about prospects for the economy, the latest quarterly Labour Market Outlook survey by KPMG and the Chartered Institute of Personnel and Development (CIPD) has found.

The balance between the proportion of employers looking to increase staff levels over the next three months and those expecting to cut has fallen from +41 in autumn 2007 to +2 in autumn 2008 – the lowest figure recorded since the survey began in spring 2004, according to the Payroll and Human Resources Newsletter.

Of the 721 employers surveyed, 83 per cent anticipated that Britain’s economic condition would further deteriorate this autumn and only one percent said they thought there would be an improvement.Respondents felt more optimistic about their own organisation though, with only 25 per cent believing that things would get worse.

Even though inflation is running at a 16-year high of 5.2 percent, staff pay excluding bonuses is seen increasing on average by just 3.5 per cent when the next pay review is due, while the expected average increase including bonuses has risen from 3.9 per cent to 4 per cent.

With official UK unemployment data for October due out on Wednesday, CIPD Chief Economist John Philpott sees a gloomy winter ahead:  “With pay increases at best modest for those still in work, the harsh chill of recession will make this the toughest winter for UK households for almost two decades.”

Tell us what impact the downturn has had on you and your business. How has staff morale been affected?