This apart, one cannot help being surprised at the twist and, indeed, U-turns in the US policy about government support for the financial system. Consider the following:

�  At huge public cost, Bear Stearns and AIG, the insurance company, were saved, the former through a merger, with the cost of bad assets being borne by the exchequer. In the case of the AIG, support level has already gone up to $150 billion, from $85 billion pumped in just two months back.

�  In sharp contrast to these two cases, Lehman Brothers was allowed to go bankrupt. One has not seen any convincing explanation for the different treatment. What one does know of course is that, after the bankruptcy of Lehman in mid-September, the whole global financial system has been badly destabilised with initially at least banks unwilling to lend even overnight money to each other. Currency markets have become illiquid and extremely volatile, and stock markets the world over have crashed. Could the chaos have been avoided had Lehman been treated on par with Bear Stearns and AIG?

�  With great fanfare a $700 billion bailout package was announced in the US. Its objective was to buy troubled assets of the US banks for which there was no secondary market left.

�  In another U-turn, after Gordon Brown, the UK Prime Minister, led European governments in investing public money in the re-capitalisation of banks, the US followed suit.

In yet another U-turn, the $700 billion package is now to be used exclusively for re-capitalisation, and not for buying stressed assets!

So much for consistency in policymaking! Experience in an investment bank, which earns huge profits in proprietary trading (i.e. speculation) in the financial markets, seems to be less than adequate preparation for making economic policy at the highest level in difficult times, as Paulson's twists and turns evidence.

In Europe, a couple of major banks have baulked at taking the capital offered by the governments. Deutsche Bank, the German giant, is preferring to shrink its balance sheet size rather than taking government money. Barclays has preferred costlier private money from the oil rich states in the Gulf to government assistance.

The reason seems to be the strings attached to government money: the UK government, for example, has insisted on suspension of dividend payment and staff bonuses, and continued lending to house-owners and small businesses. HSBC, which does not need additional capital, has publicly criticised the "guarantees given to failed managements".

One other feature of the bank bailouts is worth noting. In 1997, the US treasury influenced the IMF in forcing Indonesia to shut down 16 banks resulting in a run on the system. Obviously, while banks in the developing countries can be allowed to (indeed, forced to) close, those in the West stand on an altogether different footing.

Following the banking crises, the task before the banking regulators and supervisors is gigantic. The financial system has become highly complex. As Lord Turner, who took over as chairman of the UK's Financial Services Authority a couple of months back, said recently, "we have been doing supervision on the cheap".

He has argued for an increase in both the quantity and quality of the supervisory personnel. He not only wants to hire more people but accepts the need for better compensation to attract the right kind. (The asymmetry in the compensation levels of the regulators and regulatees in the US and UK has become too large.) Our banking regulator also perhaps needs to ponder over some of these issues.

Tailpiece: One was a bit surprised at the attendance at the G-20 Summit the previous weekend: after all, it was hosted by somebody who has very little authority for policy making left in his own country, let alone presuming to lead the world economy out of the mess it is in, thanks primarily to the extremely poor regulation of the credit markets and banking system in the host country. The man who really matters, namely the president-elect, did not bother to turn up.