Which is deeper? The US Treasury's pockets – or the global finance black hole?
It's a question that continues to dominate European – check that, make it world – market sentiment.
Is $700 billion enough?
The European markets were closed before Federal Reserve Chairman Ben Bernanke and Henry Paulson got warmed up during a hearing in Congress Tuesday. But their message was clear: If Congress dithers, the markets will tank.
Today, like a lot of market-moving events, this one is following a familiar narrative arc:
1. The Friday Frenzy. Rumors that US Treasury Secretary Henry Paulson is preparing a package spread euphoria. Forget the fact that there are practically no details; the mere possibility of a publicly funded bailout pumps markets up around the world.
"It's an excellent idea," London analyst Jeremy Batstone-Carr at Charles Stanley told me Friday. "No private entity has the balance sheet flexibility to acquire the many trillions of dollars of distressed assets. The only way of getting rid of the problem and restoring confidence, is for a publicly funded lifeboat to be created."
So far, so good.
2. The Monday Reality Check. OK, so now we've gorged ourselves in a stock-buying frenzy, better ask some questions.
What happens to non-US banks caught up in the same maelstrom?
Will $700 billion be enough?
What about political objections in Congress and wider America?
As Gerard Baker puts it in The Times (of London):
"The Paulson Plan is not going to be popular out in the country when people realise that it is going to cost them upwards of $5,000 per family."
3. The Downward Resumption. Oh dear, now we’ve got more questions than answers. And oil prices are spiking.
Will the plan work?
What will be the impact on the dollar – on the global economy?
"There is broad concern as to whether it will actually work," says Keith Bowman, a London analyst with stockbroker Hargreaves Landsdown.
"If the banks are still struggling to price these assets, will the government be any better at that? There is broader political concern: Who's going to run the scheme? How often will it be reviewed? Is it fair that the government is handing out billions to financial institutions? Shouldn't they be providing help to the consumer instead? What about the stress that it's putting on US finances and the dollar?"
For Bill Emmott, the former editor of the Economist, Winston Churchill had it right when he said in Tuesday’s Guardian, "You can always rely on the US to do the right thing - once it has exhausted the alternatives."
It's not all about Wall Street, of course.
Here, Britain has its own grotesque property bubble, which after months of soft implosion now looks like one of
those ancient balloons you find under your desk on the first day back at work after Christmas.
More evidence of that Tuesday: The British Bankers’ Association says mortgage lending during August fell to the lowest level since 1997 - a new record low.
In other signs that the credit crunch is exerting its squeeze farther and wider:
Two travel companies went bust this month, leaving thousands of travelers stranded all around the world.
Now Ryanair, Europe's leading low-cost airline, is grounding aircraft as it grapples with spiraling fuel costs.
Channel 4, the only state-funded terrestrial broadcasting alternative to the BBC, announced plans to cut 15 percent of its workforce because of slumping advertising rates.
It all adds up to a bad day for the London stock market, with the FTSE down 3 percent at one point.
Britain’s economic turmoil has been bad news for Prime Minister Gordon Brown. Or has it?
Falling living standards, growing unemployment, and banks in crisis have conspired to undermine his popularity rating. But Mr. Brown had quite a good run at the crisis last week, executing a rescue deal for HBOS, the leading mortgage bank. He showed his detractors that while they carp he is rolling up his sleeves.
Tuesday, he tried to broker his own political rescue, with a much-watched speech to the annual Labour Party conference. Labour MPs are restless; Brown needs to woo them with some typical leftist largesse. That’ll cost money, of course, and it's not clear how much will be left once the last bank has been bailed out and the financial crisis has blown itself out.
It was a good 'tough times' speech, though hardly a barnstormer in the Barack Obama mold. The four-minute ovation was about par for the course on these occasions, as is the cheesy exit music. And British commentator David Aaronovitch sums it up when he predicts "capitalism has more of a future than Brown."