I was in New York at the beginning of last week, on an official trip, as Lehman Brothers went bust. I saw the TV cameras outside the bank's offices, but the point when it really became real was when, that evening, I met some people who earlier that day had been employed by the firm.
This 158-year-old banking institution had survived the Great Wall Street Crash of 1929 which ushered in deep economic depression. That historic bust, too, had been preceded by a speculative boom. Then, investors were borrowing money to buy stock. Today, banks have been lending money which they do not have.
The US Federal Government had already bailed out more than one struggling financial institution. This was a bank too far. But the fallout from the failure of one of the titans of Wall Street sent financial markets into panic, and across the Atlantic people have been fearing for their savings and pensions.
Now President Bush has warned that unless Congress can agree a trillion-dollar rescue package, a crisis on Wall Street will become a crisis on 'Main Street', affecting the real economy and ultimately costing the taxpayer more.
In Britain we've also seen the Government having to bail out a bank, at massive cost to the taxpayer. Some are now calling for tighter regulation of the City. We should be wary of rushed measures that ultimately could undermine rather than protect capitalism.
But steps could be taken to protect people's savings, and the regulatory system of banking could be improved by giving the Bank of England the ability to intervene when financial institutions are at breaking point.
There's a simple moral in this story: it's important to live within your means. Gordon Brown once ludicrously claimed an end to boom and bust. Now the boom has ended and he is finding out that imprudent borrowing is as dangerous for governments as it is for banks.