The last week has confirmed what entrepreneurs have long suspected: the politicians, bureaucrats, bankers, and big businessmen who dominate our lives are not as smart as they pretend.

They admit that they have no idea how to deal with the cash crisis.

Yet they could end it very quickly and easily. All it takes is nerve and common sense – the defining characteristics of the entrepreneur – in following four basic strategies.

Remember, you read it here first.

1   Stop panicking. Do not do things simply for the sake of doing them – or for the sake of being seen to do something. Emergency measures have proved counter-productive, because they underline the lack of confidence in the markets. State clearly that the markets are going through an irrational phase. Do not attempt to deal with them while they are still in that phase. Wait for them to settle, then start spending.

2   Distinguish between depositors and shareholders. Guarantee all deposits – but make it clear to bank shareholders that, like all shareholders, they must bear their risk. In any case, most bank shares are in need of revaluation. For a long time, share prices have reflected overvalued assets and unrealistic expectations. They need to decline to a value that reflects what they are worth more accurately. Prices will continue to fall while the markets are in their irrational phase. Then most will return, perhaps gradually, to a more natural level.  Meanwhile, remember that share price need not interfere with operations, and that it is a symptom of financial weakness, not a cause. Focus on the cause.

3   Governments will need to inject money to restore liquidity into the banking system – but calmly, at the right time and in the right place. The panic interventions wasted a great deal of money. Government purchases of bad debts and shares simply reinforced the banks’ own tottering balance sheets: it was not lent out to others to restore liquidity. Government intervention should be more flexible. It should take the form of loans, not purchases. Those loans should be secured by priority creditor status, and should be carefully targeted. They should be conditional on the money being lent out in turn to viable businesses and homeowners.

4   In the longer term, there must be changes to the regulatory system. It is untrue to suggest this crisis was caused by deregulation – banking is the most tightly regulated sector in the economy. The fact is that the regulators – politicians who pass laws and bureaucrats who enforce them – were way behind the game. The solution is not more regulation but better regulators. It might also discourage reckless lending if debt laws were made more creditor-friendly.