Right. That’s that done, then. Now what?

Events of the past week have brought home the reason why Henry Paulson’s $700 billion bailout, or whatever meaningless figure you wish to conjure, is essential, if perhaps not enough. Step back seven days, and the argument was that public money was being pledged to banks to bail out bankers whose excesses had made that pledge necessary.

What is apparent now is the extent that the seizing up of the world financial system is the problem of us all, and not just a few overpaid Wall Street plutocrats. That European Schadenfreude that saw it all as the fault of the turbo-charged Anglo-Saxon financial system has taken a battering after the bailouts of Fortis and Dexia of Belgium, Hypo Real Estate of Germany and Iceland’s Glitnir, the near-collapse of Italy’s Unicredit, and the government support packages for Irish and Greek banks.

Part of the problem, politically and philosophically, of putting together the Paulson package has been the impossibility of decoupling the interests of the bankers and the banks. It is unfeasible to declare Year Zero and ensure that the banks survive but their overpaid executives go to the killing fields. Bonuses, once paid, cannot legally be clawed back, however pleasing might be the prospect of financiers joining the rest of us in the queues for the soup kitchens.

Someone has to run the institutions after the rescue. Note the re-emergence of John Thain, the former head of Merrill Lynch and the New York Stock Exchange, as putative chief executive of Bank of America, one of the institutions most likely to survive unscathed.

The next question is, will it be enough? Frankly, the odds are not good. There are plenty of signs that the credit crunch has spread out of finance into the real economy. Another 159,000 off US non-farm payrolls in September is just one. If corporations, encouraged to take on too much debt in good times by those same banks, now find their access to credit limited, they will seek to reduce borrowings, delay investment and lay off workers. Those workers, and everyone else worried about their jobs and houses, will stop spending.

Those corporations see falling sales, whether of consumer goods or of their components – note the abrupt fall-off in demand reported this week by Wolfson, which makes chips for iPhones, for example – and lay off more workers. Meanwhile, more entrepreneurial smaller firms, which have traditionally provided much of the impetus for economic growth, are even more constrained by their bankers. This is how it goes, down and down in an endless spiral.

At the end of that spiral there are two futures. One is Götterdämmerung, a financial catastrophe that does indeed bear comparison with the aftermath of 1929 – and please, disregard anyone who claims we are there, or anywhere near there, yet.

The other is a sadder, shabbier world perhaps more comparable to Britain in the 1950s, where luxuries were just that, mostly inaccessible, a step up the housing ladder meant years of penury ahead and credit was almost unheard of. Worry if you work in finance, estate agency, retail or other vulnerable areas, or if you are unable to trade out of your debts on your existing salary.

Among the survivors, of course, like cockroaches in a nuclear winter, will be many of Gordon Brown’s 600,000 or more workers taken on to the public payroll over the past decade, along with their copper-bottomed pensions. A world inherited by diversity inspectors and wheelie bin snoops. Dear God.

Have a nice weekend.

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