Despite the lack of detail and absence of any signature on the $1 trillion cheque, Henry Paulson, the US Treasury Secretary, was hailed as a hero by traders on Wall Street yesterday after he managed to erase the worst week on the New York stock markets since the 1929 Crash.

Although the clearest reaction was the upward surge across the world’s stock markets – in New York, the Dow Jones industrial average jumped 3.3 per cent – Mr Paulson was personally praised for the bailout.

Barack Obama, the Democratic presidential candidate, who is backing the Treasury Secretary’s plan to allow Wall Street to dump billions of dollars worth of toxic assets into a federal-backed vehicle, voiced his support for Mr Paulson. It is believed that Mr Obama is most likely to appoint Tim Geithner, the president of the New York Federal Reserve as his own Treasury Secretary, should he be elected. Mr Geithner has been right-hand man to Mr Paulson in talks in the failed rescue attempt of Lehman Brothers and AIG.

John McCain, Mr Obama’s Republican rival, however, sought to distance himself from the bailout by claiming that the Treasury’s policy in funding private-sector bailouts should be more consistent and suggested the Federal Reserve may have gone too far in its role in recent rescue operations. Only a year ago, Mr McCain had remarked that he did not know a great deal about economics.

Perhaps seeking to indicate the difference between himself and President Bush, he said that the Treasury “must have well-developed remedies for a financial crisis”.

“With billions of dollars in public money at stake, it will not do to keep making it up as we go along,” he said.

Alan Greenspan, the former Chairman of the Federal Reserve, said yesterday that he endorsed Mr Paulson’s plan to take bad mortgage assets off the books of Wall Street banks. However, he attacked the Treasury’s initiative to ban short-selling and described it, when interviewed on American television, as a “terrible idea”. He added that “we went from irrational exuberance to deep fear”.

Many believe that Mr Greenspan is partly to blame for presiding over a sustained period of low interest rates and for the boom-and-bust cycles in the US housing market underpinning America’s present credit crisis.

Carl Icahn, the billionaire shareholder activist who attempted and failed to seize control of Yahoo! this year, described the bailout as crazy and inflationary hell.

Some Wall Street experts are worried that the bailout will allow banks to wriggle out from the consequences of their bad investment decisions and leave the American taxpayer to foot the bill.

Chris Whalen, the co-founder of Institutional Risk Analytics on Wall Street, said that, although the bailout was perceived as a very positive development, it should not be used as an opportunity for banks to offload solvent assets at the expense of the American taxpayer.

Mr Whalen explained that he believed the federal bailout would change the face of Wall Street. “What we are looking at is back to the future. Big banks will go back to taking no risk and the other other players will be small niche investment boutiques, with all the smart people,” he said.

One corner of Wall Street was livid with Mr Paulson. Hedge funds said they were considering suing Washington when it introduced a temporary ban on short-selling. The emergency order temporarily bars short sales of nearly 800 financial stocks.

Richard Baker, the president of the Managed Funds Association, a hedge fund lobbying group, said that the group had been discussing possible litigation spurred by the SEC ban, but that it had not come to a decision.

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