Bear Stearns is a lot bigger than Northern Rock and the US Federal Reserve has much larger shoulders than the Bank of England, but that doesn't avoid the unpleasant issue of whether central bankers should bail out financial institutions that fail to manage risk effectively.

After all, that is a bank's job. What else is the function of a bank? The Wall Street towers of glass are in fact inverted pyramids. With a pebble of equity as the foundation, they erect great structures of debt and the ensuing balancing act determines their solvency. Banks must have an accurate view of the value of the assets that underpin their borrowings if they are to keep risk manageable, but the unpleasant reality is that no one has a clue what America's mortgage-backed bonds are worth.

Bear Stearns made a living trading in such securities but someone forgot to tell it that housing is not a financial market. Ask an estate agent - in good times they can price your suburban semi to within a few hundred pounds. In a falling market they can only suck it and see.

The mortgage securitisation market is a huge fantasy built on out-of-date valuations and foreclosure statistics. It was invented to create more liquidity in an extended housing boom but, unlike bonds or shares, housing is not a liquid market. It just goes one way at a time and now that is down.

The Fed tried to stave off this crisis by lending hundreds of billions of dollars to allcomers. It failed and now it is supporting one institution in the fear that its demise might cause a mass dumping of mortgage securities and further erosion of their value.

A rescue of Bear Stearns will not help unless lenders truly believe the market has hit the floor. Why would the Fed's panicky action to help a foolish bank be perceived as being on solid ground? Instead, investors will carry on doing what they have been doing, taking the Fed's money and using it to quit the mortgage markets and invest in oil, gold and foodstuffs - real commodities that people need to stay alive.

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