Hank Paulson, US Treasury secretary, believes that taking $700bn (€486bn, £380bn) of troubled mortgage-related assets out of the banks and into the hands of a new government fund will unclog the financial system, allowing banks to start lending normally again.

The plan is ambitious and reinforced by massive Federal Reserve liquidity support, backing for low-cost mortgages through Fannie Mae and Freddie Mac, a blanket guarantee for money market mutual funds and a ban on short-selling of financial stocks.