The “credit crunch” is nearly eight months old, yet shows little sign of easing. It has already forced the US Federal Reserve to slash its benchmark interest rate by 3 percentage points. It has driven central banks to make huge injections of liquidity into markets. Yet this activity has failed to give confidence to markets. So has the time come for a fiscal bail-out? The short answer is: no.

“The heart of the problem is not in the real economy; it is in the financial sector itself,” argued Mervyn King, governor of the Bank of England this week. “It stems from an ‘overhang’ on banks’ balance sheets of assets in which markets have closed ... That has created uncertainty about the strength of banks’ financial positions.”