The last British experiment with government wage controls was in the late 1960s, when the National Board for Prices and Incomes was given the task of assuaging the doubts of international bankers (the "gnomes of Zurich") and staving off a sterling crisis by capping wage increases.

I happen to recall this because my father worked for the board at the time and, when Harold Wilson's government fell in 1970 and the board was scrapped, he lost his job. What was bad for the Gappers was, however, good for the economy. It started three decades of deregulation, accelerated by the election of Margaret Thatcher in 1979.

So it is odd to find that wage controls are back on the agenda in the wake of the credit squeeze. This time, the wages that some would like supervised are not those of seamen and miners but of bankers who used to demand discipline from others. That is, I suppose, karma.

Karma does not make it a good idea, however. So someone has to defend investment bankers before laws and regulations are passed and unintended consequences follow. Defending those who constructed the weird credit instruments that are piled up on balance sheets is a tough job but I shall take it on.

First, note an irony about the current criticism of bankers. Bankers down the ages have been criticised, and often vilified, for usury - hoarding scarce supplies of capital and lending it at high interest rates. The bankers' sin in recent years, however, has been the opposite. They have lent copiously and cheaply. Central banks kept short-term interest rates low and investment banks managed to entice all kinds of investors into the business of lending money by transforming loans into tradeable securities.

Everyone was happy with that as long as asset prices kept rising but since they lurched to a halt and then fell, all the financial intermediaries involved - from mortgage brokers and title insurance agents to credit ratings agencies and bond insurers - have come under severe scrutiny. What on earth were they thinking?

Those in the harshest spotlight are bankers. They are accused not only of wasting shareholders' money by taking excessive risks with their banks' capital (which has now had to be replenished by Asian and Gulf countries) but of precipitating a credit crunch that has already destabilised the US and UK economies.

Raghuram Rajan, of the University of Chicago, argued last month that bankers' bonuses ought to be clawed back when their trading profits turn out subsequently to have been earned by excessive risk-taking. Martin Wolf described banking as "virtually the only business able to devastate entire economies".

Martin's solution was for regulators to ensure that the bonuses for top managers of banks - or "systemically important financial institutions" - should be paid in restricted stock redeemable over five or 10 years. He said that this idea was "horrible" but better than doing nothing.

I have no argument with the notion that banks should employ a clawback mechanism to limit risk-taking by bankers.

Indeed, I argued last year that Citigroup and Merrill Lynch were wrong to allow Chuck Prince and Stan O'Neal to claim their unvested stock when they resigned from the helm in disgrace.

But there is no need for regulators to intervene on behalf of banks' shareholders. Official action would be justified only if investment bankers were the culprits for the world's economic woes and regulation would do more good than harm. On both of these counts, I doubt it.

On the question of volatility, banks play a special role in economies. They are leveraged institutions that can both offer credit and cut it off, which affects economic growth, and may be given credit or bailed out by central banks if they get into trouble. For this reason, they are regulated.

Going on to tamper with the pay of individuals is a big regulatory step. I do not think it can be justified simply on the grounds that investment bankers sold credit instruments to big fund managers and insurance companies that later transpired not to be worth very much.

If anything, the people whose individual financial incentives should be forcibly altered are the mortgage brokers who were paid on commission to mis-sell mortgages to people who could not have been expected to keep up the payments.

Nor is it adequate to look at cyclical weakness in some economies and draw the conclusion that bankers are forces of destruction. That is to count only one side of the balance sheet: on the other side are the gains from having a lot of intelligent and highly incentivised people innovating feverishly in markets.

We may recall this crisis the way we look back on the dotcom bubble of the late 1990s. It involved foolishness and loss but it did not invalidate the internet any more than this upheaval invalidates credit derivatives.

I am even more sceptical about whether regulating bankers' pay would achieve anything. Most get a chunk of their bonuses in restricted stock. As to trying to impose rules on the pay of people with an arsenal of derivatives, tax wheezes and offshore vehicles up their sleeves, good luck.

Lord knows I suffer from the riches of bankers, like everyone who lives in London or New York alongside them. But the fact they are paid as they are is a matter for individual resentment, not official intervention. - (Financial Times service)