Walking into a black tie dinner the other night, I exchanged views with A Senior Labour Politician. Yes, the latest stabilisation plan might suffice, the Americans and the Continentals have followed Gordon’s lead, further failure of banks may be headed off . . .

By the time we walked out, the Dow Jones was off 900 points. Ten per cent off Wall Street in the time it takes to get through a lobster starter and a lamb chop. Does it matter? The markets are in the grip of unrealistic panic. The gyrations we are seeing, hundreds of points up and down daily, are uncoupled from the normal calculations that govern share prices.

Take one random example. BP shares sell on almost eight times’ historic earnings and the dividend yields 6.5 per cent, on a rock solid cover of two. This is, by any rational basis and on the assumption that the Western capitalist system has a few years to run, cheap.

First rule of a bear market: just because falls are overdone does not mean share prices will not fall further. But seasoned observers are beginning to suggest that buying at these levels, even if prices do slump again, might look quite clever in the longer term.

Yes, we are heading into a recession. But a recession is not nuclear winter. Most people remain employed, people still buy things. To take three examples from this week, sales appear to be holding up or even rising in chocolate, soft drinks and condoms – if not, one assumes, to the same people at the same time.

There is even an argument, and heaven help me if I sound too Pollyannaish, that the prospects for the UK housing market might not be that dire. The price falls we have seen, though striking, have largely reflected the unavailability of mortgage finance rather than some weird demographic refusal to get married, have families or trade up.

We will certainly pay more for our mortgages in future and the squeeze on those at the bottom of the ladder will continue. But if those funds return to the market, house prices could at least stabilise.

Some of us are now watching Libor, the rate at which banks lend to each other, with the same fascination we devoted to stock market indices. The three-month rate declined from 6.21 per cent on Wednesday, through 6.18 to 6.16 yesterday. Some of this fall may represent an expectation of lower interest rates. Some may reflect a genuine if slow easing of liquidity, helped by the Bank of England’s technical moves this week to give lenders access to further funding.

Then there is the halving, from its painful high this year, of the cost of credit default swaps, which provide insurance against bank defaults.

Still . . . if Libor is the new FTSE, then insurers are the new banks. The concern is that they, too, will have to raise fresh capital to fund toxic debt. One of the most vociferous in saying it won’t is the Pru – which in 2004 shocked the market by announcing, after earlier denials, a £1 billion rights issue.

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