US mortgages and credit markets on both sides of the Atlantic have been severely jolted since the US Treasury turned its back on plans to use some of its $700bn in financial bail-out funds to buy troubled assets from banks.

More than a week has passed since Hank Paulson, the Treasury secretary, changed the parameters of the troubled asset relief programme (Tarp). Yet despite Mr Paulson’s insistence to Congress this week that policy actions were starting to bear fruit, the picture on the ground in the credit markets has turned uglier.