Let's beef up the Old Lady. The FSA is a lightweight

At last the truce has been shattered. Conservative leader David Cameron has taken far too long to break ranks with the Government over the financial crisis but at least his aim was true when he did fire. Cameron's attack on Gordon Brown for his role in creating the "broken economy" – by allowing huge levels of debt to build up over the past decade – certainly hit the spot.

More pertinently, what he did with his attack was to put paid to the nonsense that our banking collapse is due only to global factors beyond the Government's control. As he told bankers at Bloomberg on Friday, this crisis shows how the past decade of supposed stability and growth was an illusion with very little growth in the real economy. Instead there was an illusory wealth created by low interest rates and lax bankers with too much cheap money to lend. This fed into booming house prices and allowed people to use credit rather than earn higher wages; to our great cost, real incomes have declined over the past decade despite this era of supposed great growth. Indeed, Brown's boast that he had ended the cycle of boom and bust has been blown apart.

But Cameron has missed a trick if he is declaring war. What he failed to say was how the Tories would do things differently: how to fix the "broken economy". Is this to be done through lower taxes, tax incentives for small business and new forms of ownership, lower public spending or new spending on big capital projects? Or all of these. We need to be told the alternatives.

On City regulation Cameron is more promising. His critique of the tripartite regulatory system that Brown created for the City – as well as the country's excessive reliance on the Square Mile for its contribution to our wealth – was an excellent starting point for a real debate about where we go from here. Just as all roads lead to Rome, so all roads in this fiasco lead to the Old Lady of Threadneedle Street.

As Cameron reminded us, it was Labour's decision to strip the Bank of England of its supervisory role in 1997, handling those crucial and delicate powers over to the Financial Services Authority (FSA), then in its infancy. For decades the Bank had supervised the banking sector through a mix of raised eyebrows and, every now and again, a gentle lifting of the Old Lady's skirt if bankers got out of order. It wasn't perfect and there were many crises – Johnson Matthey, Barings and BCCI come to mind. But overall the system worked very well. Don't confuse informality with light regulation. Bank governors kept an eagle eye on what was happening. Admittedly, it was much easier to do – the City was smaller and everyone knew each other.

But Big Bang, and the influx of big international banks, changed all that and the FSA was born, at first only to police the securities industry. But then in 1997 Brown turned it into a super-regulator which was given too much to do and too few people of high quality to execute its enormous powers. With prescience, Eddie George, the then Governor, nearly resigned over the move, fearing it would weaken regulation throughout the City.

Let me give you a little insight into how right he was: the director at one of our biggest banks admitted to me recently that if an FSA regulator who comes to visit for a routine check is any good, they hire him. Otherwise, they run rings around him.

Now Cameron says the Bank should have more powers, or certainly share them. He suggests it should work more closely with the FSA, particularly in establishing banks' capital requirements, because they paved the way for excessive borrowing during the boom. The Bank, he says, should also report to the FSA on the economy's overall indebtedness, which the City regulator would be obliged to take into account when setting capital adequacy levels. This would mean reforming the Basel II requirements, forcing banks to put up more capital during economic booms, as well as in tough times as they do at present.

Cameron didn't spare the FSA, which he believes needs more and better-paid staff and a bigger levy from firms to pay for them – a view echoed by Lord Turner, the FSA's relatively new and so scar-free chairman, last week. Both are right to suggest reform but I think it's still too early to come to any conclusion. There's no hurry. Banks are going to be utilities for some time to come, while the housing market will take at least a decade to recover.

If we have learnt anything from this crash, hopefully it is that regulatory structures need to be carefully thought out if they are to be robust. But at least politics has become interesting again.

A sinking shipping trade helps fathom the recession's depth

Take a look at this graph to get a quick snapshot of what is going on in the "real" world. It's the Baltic Dry Index and shows how shipping freight prices have crashed from their extraordinary high levels earlier this year, reflecting the sudden fall in demand for ships around the world. From the May peak, freight prices have fallen by 87 per cent. A year ago, one ship was hired out for $220,000 a day – now it's available for $10,000. The Baltic index is loved by traders because it's such a good guide to what is happening in the economy now – it was a favourite barometer watched like a hawk by ex Federal Reserve chairman Alan Greenspan.

But the rapid fall in freight prices is not only due to falling demand. Even more worrying, says Paul Newman, the chairman of Icap's shipping business, is that there is an "underlying constipation in getting trade credit facilities" for commerce. He knows of many cases where businessmen have hired ships but can't get them moving because they can't get letters of credit to underwrite the trade.

But it should only be temporary until credit gets going again – that's the key to getting confidence back and staving off a world recession. As Rio Tinto confirmed last week, demand from China is down, but it also predicted that this will pick up again next year. Rio Tinto's own shares fell to a big discount to the offer from predator BHP Billiton – but this is no time for Rio Tinto to give up its independence. Keep up the fight.