With the bulk of British banking now perched uneasily on his shoulders, the Prime Minister is in Churchillian mode, calling for a new Bretton Woods agreement, harking back to the 1944 conference between the allied powers that led to the creation of the IMF, the World Bank and the guts of the global financial system.

Today, ominously, we have massive public intervention in the market, governments on the rampage against profiteering capitalism and the banishment of shareholder interest.

Is it Gordon Brown's finest hour? He has the jowels, the husky voice and the gruff manner (sadly, he lacks the oratory skill but that is a detail). The war analogies are coming thick and fast, so it is worth looking back and considering where we are in this financial crisis and where the Prime Minister might take us.

The Treasury's multibillion-pound gun batteries appear to have stopped the assault on the banks. There were even small signs of credit loosening yesterday as one-week dollar Libor, the rate at which banks believe that they can borrow US currency, fell by half a percentage point.

This is only one battle; after its “finest hour” in 1940, Britain continued to fight a debilitating war for five years. At the risk of stretching the war analogy to its limit, Mr Brown might reflect, in Churchill's words, that the rescue of the banks is not the end but, “perhaps, the end of the beginning”.

What lies ahead is a recession of unknown length and severity. The banks are not yet fully open for business; it will take time for them to restore even modest levels of lending.

After yesterday's market celebration, three-month sterling Libor was 6.25 per cent, compared with the Bank of England's base rate of 4.5 per cent. That suggests there won't be many cheap deals for homebuyers soon and small businesses will be paying double-digit rates for funds.

Such dear money will not finance a rapid economic recovery and it is the Government's fear that the financial crisis will subside into a lengthy slough of credit despond.

The Government wants banks to lend aggressively, hence the Treasury's injunction that the rescued will, for a period of three years, actively market loans to homeowners and small businesses at 2007 levels. The banks must “support schemes to help people struggling with mortgage payments to stay in their homes”.

There are several problems here. First, the “active marketing” of cheap loans is how we got into this mess; and secondly, the cost of supporting foolish borrowers must be borne by someone. Those who took out 110 per cent start-up mortgages two years ago will be suffering negative equity and higher rates now. If these people are to be kept in their homes, the banks must cross-subsidise them by charging more to solvent homeowners and sound businesses.

Finally, the Government is insisting that banks must serve Britain and do its bidding. There will be no dividends to ordinary shareholders. The preference coupon of 12 per cent on the government stakes in RBS, HBOS and Lloyds TSB precludes any cash payout for the private sector.

The Treasury and the banks protest the relationship will be at arm's length; the rescue will be for “a limited period”. If the markets continue to soar and Libor plummets over the next few weeks, the British taxpayer will enjoy a pleasant windfall.

More likely is a lengthy workout as the banks struggle to do business. The banks will shrink as they disband their exotic finance affiliates. Salaries will be unattractive and the best and brightest will flee to other industries.

These institutions will revert to old methods of doing business in order to fill the gap in business funding left by the collapse of the securitisation and derivative markets. Banks may become like the old discount houses, helping companies to secure short-term finance from the Bank of England by guaranteeing the trade debts of their customers.

If lending does not rebound, the Government will bear down even harder, intervening more openly at board level to direct investment. There will be government projects to fund - nuclear power plants, high-speed trains, runways and tunnels - and the banks will be encouraged to fund the national effort to help to “kickstart” the economy.

Within a year or two, RBS and Lloyds TSB/HBOS may have become quangos, semi-departments in a new Britain Inc led by a Prime Minister who once conducted economic policy by tinkering with the tax code - rewarding a bit here, punishing a bit there.

How much more satisfying not to have to tinker with silly tax incentives and how much more rewarding to set out an economic plan for the nation with compliant banks to fund it.

Absurd as it may sound, there is nothing strange about this - France nationalised Crédit Lyonnais in 1993 with the blessing of the European Commission, privatising it six years later.

Today the pressure to lead the economy from the prime ministerial bridge is more pressing. Even as we move into an era of rising unemployment, the Government wants to impose even greater costs on businesses and consumers in the fight against climate change. Greenhouse gas reductions of 20 per cent would be extremely challenging in a thriving economy.

Today, they look onerous, if not impossible. If these objectives are sincere, they can be achieved only in a command and control economy, where investment and rates of return are directed, not subject to market whim.

Those of us who were disgusted by the high-risk profiteering behaviour of juvenile bankers might find a disciplined, organised economy oddly attractive. Indeed, the British Government's strategy of muzzling the banks with high-coupon preference shares was replicated yesterday in Germany and in the United States.

But it will have ramifications for all of us. If the banks are not paying dividends, there will be a cost in our pensions, which have depended on the rapid growth in income from banking shares. That income cushion is gone and anyone approaching retirement is facing a less affluent old age.

carl.mortished@thetimes.co.uk

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