When the Berlin Wall fell, American commentators were quick to point out the significance. "We flipping won," crowed PJ O'Rourke, a right-wing writer. Francis Fukuyama, an academic, was more measured, but perhaps even more extreme. In his book, The End of History, he declared that the event had ushered in a new era, that the Cold War struggle was over; the West had won. The message was clear: the Russian bear was beaten and capitalism was king.

Off we went on a financial money-go-around, fuelled by low interest rates. Globalisation was promised to bring us all to a better place, with free trade being the vehicle to do it. From Argentina to China, collective farming and industry were abandoned and markets opened up to outside investment. Privatisation was the dogma of choice, encouraged by the International Monetary Fund and advised by Wall Street.

A visit to government offices in eastern Europe in the 1990s was not complete without meeting their financial adviser - normally a fresh-faced American just out of graduate school. Even Russia fell in with this free-market thinking, privatising its major industries - even oil, gas and aluminium companies - until the rouble came under sustained attack and the markets crashed in 1998. Investment bankers, who had flocked to Moscow, packed their bags and left. Then president Boris Yeltsin resigned in disgrace, Vladimir Putin assumed power and was then voted in as president to restore order to the country. He was saved by a soaring oil price, started nationalising oil companies and had people wondering on Wall Street: could this ever happen here?

The notion was unthinkable, absurd. John Cassidy had written a piece in The New Yorker in 1997, outlining how some of his Wall Street banking chums had been using the writings of Karl Marx as a guide to Wall Street. How we laughed. But Marx, despite the failure of communism, had important and interesting things to say about globalisation, although few people were listening. His model economy made it clear that capitalism tended towards monopoly, which should lead to strong regulation. But Wall Street bankers resist regulation in the way that small children resist going to bed. Marx's "theory of immiseration", which stated that profits would increase faster than wages, so workers would become poorer in time, was proving correct. Inflation-adjusted wages in the late 1990s were lower than in the 1970s, with one exception - those working on Wall Street.

Capitalism went forward, unchecked and often without regulation; even the world's last major communist country, China, embraced it. But the Chinese were smarter than anybody had thought. Utilising their vast resources and workforce, they became the world's factory. Five years ago my then 10-year-old son asked me: "Is everything made in China?" His world view, though obviously skewed by looking at the bottom of too many toys and PlayStations, was prescient. On the back of all these exports, China suckered America into a dependence on cheap goods and in the meantime built up enormous cash reserves, which they lent to America so they could buy more cheap goods. A virtuous circle indeed.

Less than 20 years after the fall of the Berlin Wall and the comrades must be chuckling into their vodka and pickled gherkins. One of Marx's assertions was that "politicians carry water for their corporate paymasters". This has quietly held true for much of the past 20 years, but was definitely apparent in the past couple of weeks. At last the financial bosses are queuing up in Washington to make their case that their company is worth saving. This has led to unprecedented scenes: events on Wall Street in the past few weeks are nothing short of nationalisation. First, the US Treasury took over Freddie Mac and Fannie Mae; they were quasi-government backed, so the move was not altogether unexpected. However, the authorities refused to prop up the ailing investment bank Lehman Brothers.

The British used to execute its admirals, as Voltaire observed: "to encourage the others". This may not have encouraged the markets, but panicked them instead. It was supposed to send a signal to the so-called "Masters of the Universe" that they were on their own. But it spooked the markets into wondering who would collapse next. Nobody was too big to fall. This philosophy lasted a whole day, when it became clear that American International Group (AIG), America's biggest insurer, needed an urgent injection of funds or it, too, would seek bankruptcy protection. As it is a major player in the US$62 trillion (Dh227.7tn) credit default swaps market, it was deemed too big to fail. It used to be said that if you owed $100 to a bank, they owned you; if you owed them $1 million, you owned them.

So the American taxpayer now owns 80 per cent of AIG, has backed the fire-sale of Bear Stearns to JP Morgan with guaranteed loans, has rescued Fannie Mae and Freddie Mac and provided a further $300bn for the Federal Housing Authority. All in all, the sums are enormous, pushing up to $1tn and an exposure several times that. What next? The last two "bulge bracket" banks, Goldman Sachs and Morgan Stanley, have come under sustained selling pressure on the market.

The US Securities Exchange Commission (SEC) announced yesterday plans to limit short-selling. It may have come a day too late to save Morgan Stanley, and possibly Goldman Sachs from a merger of convenience. The market has decided that the business model of lending and leveraging is no longer feasible. Commercial banks are immune to this problem, because they rely on retail deposits for their capital. This begs the question: if banks won't lend to other banks, why should we?

Morgan Stanley is desperately looking around for somebody to bail it out - and looking beyond Washington. Its main focus is China, not unreasonably, as they have the money. Reports suggest that the country's wealth fund, China Investment Corporation, is interested. By the weekend one of America's grandest investment banks may be called Morgan Stanley Bank of China. Soon everything won't be just "made in China", but owned by China. Perhaps Savile Row suits one day will no longer be the clothing of choice on Wall Street, but instead blue tunics, just like Chairman Mao's. Bankers will be carrying little red books, reminding them of the importance of regulations, not to deal in financial instruments that they don't understand and not to lend to people who cannot pay them back.

Wall Street will be hoping it won't come to this, but will have to learn to live with more scrutiny. rwright@thenational.ae