It is no accident that, for the second time in a year, Labour has had to take a mortgage bank into what it politely calls 'temporary public ownership'. A large part of B&B's mortgage book were 'buy-to-let' investors convinced that interest rates would remain low and property values would always rise. It has therefore accumulated SOME OF THE MOST TOXIC ASSETS ON THE HIGH STREET, WITH LOANS GOING BAD AT ALMOST TWICE THE RATE OF THOSE AMONG OTHER RESIDENTIAL LENDERS.

Of course, the decision to nationalise B&B is a flea bite compared to the $700billion being spent to rescue the American banking system and the £100billion already issued by the Bank of England to help all mortgage lenders. Yet it is likely to be hugely controversial. The taxpayer is being asked to pick up the bank's heavily damaged mortgage debts while the healthier areas - the branches and savings - are being parcelled off to the private sector.

The Chancellor, Alistair Darling, is proposing a new 'resolution regime' for failing banks under which the Bank of England will be charged with running down failing banks. However, none of this will come in time TO RESTORE THE FAITH OF THE PUBLIC IN THEIR FINANCIAL PROVIDERS OR TO CONVINCE PEOPLE THAT THOSE RESPONSIBLE FOR THIS CRISIS HAVE PAID A SUFFICIENT PRICE IN TERMS OF LOSING THEIR JOBS AND GROTESQUELY INFLATED SALARIES.

If he loses his job as a result of the crisis, he will enter the record books with one of Britain's briefest tenures. Mr Pym's basic annual salary is £750,000, and his service contract is for 12 months but subject to 'a minimum period of two years'. If the axe falls within this period, the annual report suggests he could be in line for TWO YEARS' BASIC SALARY, EQUAL TO £1.5MILLION. He was also GUARANTEED A MINIMUM CASH BONUS WORTH £375,000 FOR HIS WORK IN 2008, and would have got at least the same amount for the first half of next year.

He was also given share options worth £1.5million, or twice his basic salary, when he joined the firm, but these may end up being worthless.

Even inter-bank rates – what banks charge to lend to each other – were falling. SO LAST WEEKEND, AS PAULSON PURRED, WE ALL SAW A LIGHT AT THE END OF THE TUNNEL. YET, AS WE NOW KNOW, THAT LIGHT WAS AN ONCOMING TRAIN. Last weekend I warned, despite the euphoria, the bailout could cause an "almighty, debilitating political dust-up". Unfortunately, that's what happened. Having spent the last few days in the US, I can vouch voters are very, very angry about feather-bedding a bunch of overpaid bankers. Even in New York, a city that lives and breaths high finance, the tabloids screamed "Fraud Street" – aimed directly at the Wall Street crowd.

Just six weeks before the most hotly contested Presidential contest in decades, it's not surprising the politicians have waded in. In Congress, many Democrats, and even Republicans, have refused to approve the bailout. Some want extra home-owner protection. Others say that would spook the banks even more. Almost everyone wants limits on bankers' salaries. AND THERE IS SENSE, TOO, THAT HUGE GOVERNMENT BAILOUTS ARE "SOCIALIST" AND "UN-AMERICAN".

With Wall Street warning of an almighty crash on Monday unless a bailout is agreed, a deal of sorts will emerge this weekend – if only something preliminary. But I'm not sure it will work. What's more, MANY BANKS – IN AN ACT OF ON-GOING SELF-DELUSION – HAVE "PRICED" THEIR SUB-PRIME SECURITIES AT ONLY A SLIGHT DISCOUNT TO FACE-VALUE.

But when TARP (Troubled Asset Relief Programme ) steps in, and establishes genuine prices, many banks will be forced to make even more writedowns. So far, around $510m of sub-prime losses have been "fessed-up". IRONICALLY, PAULSON'S BAILOUT COULD SEE THAT ESCALATE TWO- OR EVEN THREE-FOLD – SO SPARKING A NEW WAVE OF PANIC.

Consider, also, that the situation will remain very fragile until US house prices stop falling. The more prices drop, the more sub-prime loans will default, causing banks to incur more losses. But as new data showed last week, America's housing market may yet have further to fall.

SO THIS BAILOUT IS ONLY ROUND ONE.

When you look at things this way, it becomes clearer what the frenzy in New York City and Washington is all about. There are major quality issues with our nation's flagship product. The authorities have acknowledged the problem - "This is a humbling, humbling time for the United States of America" is how Treasury Secretary Hank Paulson put it in one TV interview. So now Paulson & Co. are recalling defective financial products en masse, slapping GUARANTEED BY THE US GOVERNMENT labels on some of them and replacing others outright with US treasuries.

Our quandary is that we are apparently not capable of safely manufacturing $700 billion in debt securities to sell to foreigners every year, as we've been doing since 2005. That this is the same total as Treasury's bailout plan is just a coincidence. If we keep trying to borrow that much from overseas - as you've probably gathered, selling debt means borrowing money - today's quality problems may soon seem petty.

For now, we can still reassure buyers around the world by slapping that GUARANTEED label on our debt. But as financial crisis and economic slowdown cause government debts to burgeon, and as commitments to Social Security and Medicare loom closer as baby boomers retire, that confidence could easily fade.

Washington is the town of politics - bureaucratic, stodgy, conservative. The home of cheap happy-hour beer and clean-cut young interns living in cramped quarters on the Hill, who are about making a difference, not making money.

But with Wall Street hobbled by the biggest financial crisis in generations, the culture of big money has lost some of its luster. And with the Street now looking to the US Treasury for an unprecedented bailout, it's suddenly Washington that has become the center of financial action - creating, at least for this instant, an unlikely shift of power and influence.

"The financial capital just underwent a huge downsizing," said James Parrott, chief economist of the Fiscal Policy Institute, which analyzes New York's tax structure and finances. "When you're drowning and at the risk of going under completely, the taxpayers as embodied by the government in Washington are the only place to turn to." He added: "It may not be a bad thing that more decision-making rests with people in Washington rather than New York."

The loan guarantees were included in a continuing resolution that included funding for the US government and the wars in Iraq and Afghanistan. President George W. Bush has indicated that he intends to sign the bill. "We're very pleased Congress has chosen to act at this critical time," said Greg Martin, director of communications for General Motors Corp's Washington office. GM had been subject of much speculation that it could be forced into bankruptcy.

The bill, which was approved by the House of Representatives on Wednesday, are the first loan guarantees for US carmakers since Congress approved a similar 675 million dollar measure for Chrysler Corp in 1980. Chrysler Chairman Robert Nardelli, however, said this week the loan guarantees should not be considered a rescue package for struggling carmakers. "This is not a bailout," he said.

Under provisions of the new legislation, not only US carmakers are eligible for the guarantees but also suppliers and foreign automakers with plants in the United States that are more than 20 years old - Nissan and Honda's US operations qualify.

But the country's two far-right parties made large gains, winning a total vote share of 29% between them. The BBC's Bethany Bell in Vienna said that rise in support is the result of protest votes on a variety of issues. Our correspondent said the resurgent far right can be attributed to a mixture of anti-European Union sentiment, some anti-immigrant positions and a general sense of discontent with the two traditional centrist parties. The conservative People's Party, which had been in a faltering coalition with the Social Democrats that collapsed after 18 months, won 25.6%.

OUR CORRESPONDENT DESCRIBED THE FAR-RIGHT GAINS AS A "SLAP IN THE FACE" TO THE CENTRIST PARTIES, WHICH SUFFERED THEIR WORSE RESULTS SINCE WORLD WAR II. Final results will not be released until 6 October after absentee and postal ballots, making up about 10% of the votes, are counted.

The far-right showing was its strongest since 2000, when the Freedom Party won 28% and gained a place in the coalition government with the conservatives. That development sparked outrage across Europe and for several months Austria was placed under EU sanctions. Analysts say the far right could now re-enter government but only after all other options are exhausted.

Senator Judd Gregg said the package could be voted on as early as Monday. "Getting this done soon, promptly is absolutely critical to the state of the markets," he said. The measures would enable the US Treasury to spend up to $700bn (£380bn) taking over bad debts from ailing financial institutions. It would be the biggest intervention in the markets since the Great Depression of the 1930s.

"We have given the [treasury] secretary the authority and the resources and the flexibility necessary... to hopefully be able to go forward and stabilize the credit markets and free up the credit markets," Gregg told reporters as he released the proposed plan in Washington. A vote on the package is expected in the House of Representatives on Monday, with the Senate potentially voting on Wednesday.

US presidential hopefuls Barack Obama and John McCain have broadly welcomed an outline of the multi-billion dollar plan to help shore up the US financial system. The US administration wants a deal to be announced before markets open in Asia on Monday morning.

Several papers report on THE ABSENCE OF THE UK FLAG AND THE DOMINANCE OF EU SYMBOLS on the card, noting that they adhere to a common design set by an EU directive. Open Europe's Lorraine Mullally is quoted in the Telegraph saying, "The use of EU symbols, instead of national ones, is part of a wider attempt to promote the idea of A COMMON EUROPEAN CITIZENSHIP, WHICH EU FEDERALISTS HAVE BEEN PUSHING FOR SOME TIME. The Government seems happy to buy into this."

He laid out a set of proposals including more regulation and control of banking activities and capping of the pay of the leaders of financial organisations. He said "self regulation is finished."

German Finance Minister Peer Steinbruck said the crisis marks the beginning of a multi-polar world, where the US is no longer a superpower. HE BLAMED THE "IRRESPONSIBLE" POLICIES OF THE US FOR THE CRISIS, CLAIMING THEY WERE "SIMPLISTIC" AND "DANGEROUS". Steinbruck yesterday outlined a series of "draconian" financial regulations, according to Eurointelligence.

The article reports that he wants to make short-selling illegal, and to impose legislation forcing banks to take on 20% of the credit risk when selling on credit for securitisation. The FT notes that other proposals included a crackdown on variable pay for bankers. FRANCE AND GERMANY WILL SET UP A WORKING GROUP TO CONSIDER TOUGHER REGULATION.

The Economist argues that "Mr Sarkozy's call to make high finance 'moral' has deep roots. WHEN CRISIS MANAGEMENT TURNS TO A DEBATE ON NEW REGULATION, AMERICANS AND EUROPEANS WILL START FROM DIFFERENT PLACES."

His terse statement came as details emerged of the White House meeting which was supposed to seal the bail-out deal but ended in disarray with the two sides further apart than when they started. Democrats spoke of a verbal brawl in which some Republicans ACCUSED THE PRESIDENT OF TRYING TO SELL THEM SOCIALISM. Mr Bush replied: 'IF MONEY ISN'T LOOSENED UP, THIS SUCKER COULD GO DOWN.'

After the meeting, Treasury Secretary Hank Paulson is said to have literally begged Democrats to help keep the threatened deal afloat. Bending down on one knee in the Roosevelt Room of the White House, the 6ft 5in former American Football star nicknamed the 'Hammer' begged Democrat leaders: "Please don't blow this up." House Speaker Nancy Pelosi jokingly shot back: "I didn't know you were Catholic." The extraordinary sight of the Republican Party's financial lion genuflecting to his Democrat congressional foes underlined just how desperate the Bush administration was to push through its controversial economic rescue package.

But the humiliation was not over for Secretary Paulson. As he got back to his feet after Thursday's ill-fated White House summit, Nancy Pelosi reminded him: "WE'RE NOT THE ONES TRYING TO BLOW THIS UP – IT'S THE HOUSE REPUBLICANS." The glum treasury chief reportedly replied "I know, I know." With elections less than six weeks away and widespread public outrage over the bail-out, some REPUBLICANS IN CONGRESS HAVE MUTINIED OVER WHAT THEY SEE AS THE HEAVY HAND OF GOVERNMENT INTERFERING IN A PRIVATE-SECTOR PROBLEM.

The White House has now set a deadline for the package to be agreed before the financial markets open on Monday. But if a deal is not signed experts predict the London Stock Exchange could fall by up to 1,000 points when it opens next week if the deal is not signed. It would be a 'Black Monday' meltdown similar to the financial crash of 1987. OTHER WORLD MARKETS WOULD ALSO BE SURE TO FALL DRAMATICALLY. But President Bush's press secretary, Dana Perino, was more hopeful. "We feel like we're close, but we're not quite there yet," she said.

The Belgian central bank and the country's regulator are paving the way for a bailout of the huge banking and insurance group, which has a £540 billion balance sheet and a market value of £12 billion. In Britain, the fate of Bradford & Bingley will be decided today. Frenetic talks between the Bank of England, the Financial Services Authority and the government have been taking place this weekend to save the troubled mortgage bank.

Santander, the Spanish bank, is in negotiations to buy B&B, but it is insisting on a stringent set of conditions. The talks are being led by Anto-nio Horta-Osorio, chief executive of Santander's UK bank, Abbey. Dutch banking giant ING and France's BNP Paribas are both involved in talks with Fortis about buying all or part of its business.

Neither bank is thought to be willing to take on Fortis unless they can receive guarantees over the bank's exposures to sub-prime mortgages and other problem assets. THE BELGIAN REGULATOR IS THOUGHT TO BE CONSIDERING THE CREATION OF A "TOXIC DUMP" FOR ASSETS SIMILAR TO THE CONTROVERSIAL SCHEME PROPOSED IN AMERICA AS A MEANS OF ENSURING A DEAL.

ANY UNCERTAINTY AROUND THE FUTURE OF FORTIS IS LIKELY TO WEIGH HEAVILY ON ROYAL BANK OF SCOTLAND. Fortis was one of RBS's partners in the consortium that bought ABN Amro last year. The Dutch banking assets that Fortis bought as part of the deal have yet to be transferred out of the holding company used to execute the deal, which is legally a subsidiary of RBS.

Mr Stephenson is believed to have taken his own life after succumbing to mounting personal pressures as the world's financial markets went into meltdown.

The death of the respected 47-year-old City figure evokes memories of the 1929 Wall Street crash in America and comes as:
• Bradford & Bingley teeters on the brink of nationalisation after a dramatic share price slump.
• David Cameron faced embarrassment on the eve of the Tory conference after members of a secretive club of Conservative donors were linked to the 'short-selling' of Bradford & Bingley.
• Gordon Brown was wrongfooted by Shadow Chancellor George Osborne, who announced plans to set up an independent watchdog to police the Treasury and strip it of key powers if the Conservatives win the next Election.

New Zealand-born Mr Stephenson, who owned a £3.6million, five-storey house in Chelsea and a retreat in the West Country, was chief operating officer of Olivant Advisers. Last year, the private equity firm tried to buy a 15 per cent stake worth almost £1billion in Northern Rock before the bank was nationalised, bidding against Virgin boss Sir Richard Branson.

The financial system could face a meltdown of 1929 proportions unless US politicians succeed in their efforts for a $700bn rescue scheme, experts added. The warning came as Republicans and Democrats met in Washington for a rare weekend debating session to attempt to seal agreement on the contentious plan, aimed at preventing a long-lasting recession in the US.

One Republican said that the message from government officials is that "the economy is dropping into the john." He added: "WE COULD SEE FALLS OF 3,000 OR 4,000 POINTS ON THE DOW [the New York market that currently trades at around 11,000]. That could happen in just a couple of days. "What's being put around behind the scenes is that we're looking at 1930s stuff. WE'RE LOOKING AT CATASTROPHE, HUGE, AMAZING CATASTROPHE. EVERYBODY IS EXTRAORDINARILY SCARED. IT'S GOING TO BE REALLY, REALLY NASTY."

Investors fretted about contagion into Europe, where Fortis, which was part of the consortium that bought ABN Amro last year, fired its chief executive after liquidity concerns pushed shares down more than 20pc to a 14-year low. Holland's ING and BNP Paribas are looking at buying the bank this weekend. London investors have warned that THE FTSE COULD SUFFER FALLS OF AS MUCH AS 1,000 POINTS - A FIFTH OF ITS VALUE, if the deal falls through.

Peter Spencer, economic adviser to the Ernst & Young Item Club, said: "This is the time you have to bail people out and ask questions later. It is very difficult to see how the US banking system would survive without that. THIS HAS THE POTENTIAL TO MAKE 1929 LOOK LIKE A WALK IN THE PARK."

By Monday, after an intense weekend of negotiations, the draft of the bailout legislation before Congress HAD SWELLED TO 42 PAGES. By Friday, after almost a week of marathon talks between Treasury Secretary Henry Paulson and key lawmakers in both parties, THE WORKING VERSION WAS UP TO 102 PAGES.

IT LIKELY WILL GROW EVEN LONGER as negotiators continue to tweak the proposal this weekend, adding and subtracting key elements. Rep. Barney Frank, D-Mass., the House Financial Services Committee's chairman, was optimistic Friday that a final agreement could be reached by Sunday