The worst may still be to come for the already battered financial markets, according to the chief of a leading investment bank.

Hans-Joerg Rudloff, as the chairman of Barclays Capital - the investment banking division of Barclays Bank - is a formidable figure in the financial services world. In his capacity as chair of Barclays Capital - a post he has held since 1998 - he regularly attends World Bank and International Monetary Fund (IMF) meetings. In addition, he is the director of several companies and is the chair of Marcuard Capital (Bermuda) Ltd. and sits on the board of the Thyssen-Bornemisza Group. He was formerly an executive of Credit Suisse First Boston, as well as chairman of family firm MC BBL Securities.

Mr. Rudloff who splits his time between the UK, where he works during the week, and his home of Geneva, Switzerland is on the Island this week to attend board meetings.

Looking at the turmoil that prevails throughout financial markets now, Mr. Rudloff told The Royal Gazette investors were questioning how it got so bad. "Before everyone thought the sky was the limit and now everyone thinks the world has come to an end," he said.

But ultimately Mr. Rudloff said the world never came to an end.

He added, however, that the markets have to right themselves and that is something that is going to take time. How much time was something Mr. Rudloff did not venture to guess.

Looking at what has happened to the markets, Mr. Rudloff said: "We lived through an evaluation bubble. Assets were pushed to a level that could not be justified. There was the tulip boom, the dot.com boom - these booms are usually the result of enormous optimism."

And stocks, he said, had been overvalued as an expression of that "enormous optimism".

But with a note of pragmatism, Mr. Rudloff said the optimism was at times based on technological advances that if they paid off at all, it would be some years down the road. But investors still got caught up and their expression of confidence was reflected in unsustainable asset levels.

Mr. Rudloff added: "But as always there is brutal correction which is now even hitting the blue chip shares of the old economy and there are no hope stories. But the markets are not stupid - what is expressed on the up side, is expressed on the down side."

But it is not a simple case of what goes around comes around with Mr. Rudloff saying that the current state of the market turmoil is unlike anything seen in a long time: "There is no doubt about order in the world but there is a new element that has not been seen since the 1930s, and that is total distrust of the system."

He said investors felt cheated, and rightly so: "Every day there is another scandal. Even respected companies have put their good name on the business plans of useless companies...the credibility of the system is gone."

Mr. Rudloff said it was thought that the capitalistic model had won the battle waged over the last 50 years but that was now being questioned.

"This model was exported to two-thirds of the world but it has failed as it did not improve anything within some countries and further there was abuse by those operating within the model," Mr. Rudloff said.

Citing examples, Mr. Rudloff said Argentina was now completely bankrupt and there could be revolution (when people are hungry there is revolution), and in Brasil they would be voting in a few days and it looked like support could go to an extreme, leftist regime.

He added that in Venezuela, "a populist backed up with militias" was in power. And the model brought nothing to Africa, he said. But far from looking for an alternative to capitalism, Mr. Rudloff said: "We know the model is right, but the application has been wrong.

"Liberalism has been abused by the rich countries. Now it is the model being challenged, but it should be the application."

Of the prevailing distrust from investors, Mr. Rudloff reiterated that it was new territory: "Every day (stock) prices are going down.

"But people are being called to account. And credit has to go to America, which has attacked its abuse."

Looking at the corporate scandals that have prevailed in recent months, Mr. Rudloff said it was "appalling" to see the admired leaders of the capitalist system turn out to be "little crooks with creative accounting. And they all thought they would get away with it," he said.

Citing Enron, Mr. Rudloff said there are some 40,000 Enron employees with no pensions while the "top cats profited".

But he said efforts were being made to right the wrongs: "Many will be lucky if they are left standing in their trousers and going to prison for 10 years."

Regardless of the penalties meted out to some crooked corporate bosses, Mr. Rudloff said it would still take time to re-establish investor trust: "You don't rebuild that overnight," he said, "trust is re-built in mosaic pieces."

Mr. Rudloff predicted that there would be a "sobering up" among company heads: "There will be no more salaries of $25 million per year ...the heads of companies will take their responsibility seriously and not putting their hands in the till.

"There must be a time of restoration." And direction could be sought from those with an already proven track record, with Mr. Rudloff citing the examples of Zurich Financial appointing a man of 71 as its chair and that Deutsch Telekom had been handed over to a man of 73. "Restoration has to be put in safe hands, with those of impeccable standing," Mr. Rudloff said.

But Mr. Rudloff emphasised that the process would take time: "The market ruthlessly demands correction. With the quality of balance sheets in deep doubt, there will be a period of conservative accounting.

"There is strain and stress going through the entire system, there is no way a loss of $12 to $13 trillion does not have a huge effect," he said.

Mr. Rudloff concluded: "Everyone thought this would be temporary, thought it was September 11 et cetera, but it has not been temporary and there may be further decline."

Next week: Barclays Capital chairman Hans-Joerg Rudloff speaks further on what is happening in the global economy and what impact it may have in Bermuda.