The global credit crunch is going to get worse before it gets better, according to John McFall, the Chairman of the Treasury Select Committee...

Speaking on the Jeff Randall Live programme, he said a spell of "collective madness" had seen the banking industry ignoring risks and making investments they simply did not understand.

Mr McFall said: "We've been consumed by greed. The banks have been investing in things they don't understand.  They've had young whizz kids to devise these complex products. The investor has also thrown caution to the wind. The result is that we could be talking about one trillion dollars in writedowns because of this."

Worse to come

He said the banks "equated product complexity with security as they invested and that's wrong. Even those who have lost in the banks are winning because of the bonus system. The incentives system is that they give bonuses straight away and they move on. If there's a loss then it's the ordinary punter, it's John or Jean Public, that is picking up the tab whether it's their savings or in their pension products.

Referring to the credit crunch, he said: "I don't think we are over the worse. We've got the US banks that are telling us about writedowns and there's writedowns to come from the European side."

Also on the programme, former Citigroup banker, Peter Hahn, said banks were withdrawing free easy credit, which would lead to less consumer spending and further falls in house prices.