It takes some nerve for bankers to lecture politicians about the speed of bank bailouts

MY NEPHEW and his fellow physics students are dismayed by the financial crisis and the outcome for the banks.

This is because the City has been a big employer of physics graduates over the past 10 years.

Knowing that my nephew's greatest understanding of finance is confined to negotiating bailouts and rescue packages from his mum, this news came as a bit of a surprise to me, but apparently it's all to do with the ability of physics people to measure unpredictability, "think outside the box" and hold two opposing views at exactly the same time.

The art of holding opposing views, or at least changing your view within moments, is not only a trait of physicists, however.

Last weekend, Dominique Strauss-Khan, head of the IMF and former minister for economics, finance and industry in France, told us that the world was on the brink of financial meltdown, while his chief economist gloomily predicted another 20 per cent off stock market values.

However, a few hours later Strauss-Khan was telling us that the worst was possibly over and that the IMF would present a report on the crisis.

He was able to do this because (clearly unpredictably as far as he was concerned), European Union leaders had announced a broad-based financial rescue plan with similarities to the one proposed for the British banking system.

Strauss-Khan said the IMF would learn from the crisis and was now proposing a greater role for that august institution in monitoring the world financial system.

Good to know they'll have their fingers on the pulse.

No monetary authority has come out of the current crisis with any degree of glory. Here, the Financial Regulator seems to think that his organisation was doing a good job.

Perhaps measured against the job that other regulators were doing (a key performance indicator in the financial world - "my index is down but not as much as yours so give me my bonus now"),, it was.

But if Warren Buffet could see that the industry was creating Weapons of Mass Financial Destruction, why couldn't the authorities?

The problem with financial authorities - and particular with bodies like the financial regulator - is that they are populated by career central bankers who have never spent time in a dealing room and whose concept of risk is so far from that of the average trader as to be in a parallel universe. The biggest shock in my entire working life was moving from the cloistered offices of the Central Bank to the profit-hungry ethos of commercial banking - and that was before anyone had every come up with the concept of securitisation and CFDs.

The authorities have been regulating for a time long gone and, during the last 10 years, they could hardly have been more wrong in their assessment of the damage financial engineering could do to an institution's risk profile.

And, at least until the last few days, the bankers themselves have continued to operate in their own parallel universe where when asked about high salaries and bonuses, they trotted out the line that "to get the best" you had to pay the big bucks.

Given that the "best" have had to call on the rest of the country to rescue the industry, that's an argument only a physicist looking for a City job could possibly try to defend.

Politicians have come in for a certain amount of criticism - mainly from the financial institutions themselves - for not acting more quickly to prevent the carnage.

I can't honestly say that I'm a big admirer of politicians in general but it takes some nerve for a banker to lecture a politician about the speed of a bank bailout package.

The bailouts were regrettably inevitable because the financial system itself is too integrated into the global economy to allow for the meltdown that Strauss-Khan was forecasting but, when you've caused the disaster, screeching at those who are trying to fix things doesn't help.

Especially when you've spent years telling them that your industry is a shining beacon of all that is good with capitalism.

There is a famous thought experiment by renowned physicist Erwin Schrödinger in which a cat is placed inside a sealed box along with a vial of lethal prussic acid. The vial may or may not break and release the acid.

At its simplest, Schrödinger postulated that as you look at the box, the cat inside is both alive and dead because, until you open the box, you haven't fixed him in time and space and sealed his fate.

The banking sector opened Schrödinger's box this year and they're extremely grateful that the cat inside has nine lives - something that even a brilliant physics brain like Schrödinger's somehow forgot to take into account.

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