The world's politicians are now running full tilt to get ahead of the markets. So far, the markets are winning, plunging in what to all appearances is a death spiral. Share prices fall, making it nearly impossible for the banks to raise new capital; house prices fall, reducing the value of the mortgage-backed securities on bank balance sheets; governments offer to help by buying preference shares in the banks, but the claims these shares would have on future earnings spook common shareholders, and prices fall further.

Not that the policymakers have not finally gotten it right. Led by British Prime Minister Gordon Brown, they are now about to shore up the capital of the big banks, to increase their ability to lend. Meanwhile, Hank Paulson and his U.S.Treasury team are about to take $700 billion of dicey loans from the banks, and replace them with good hard cash, while Federal Reserve Board Chairman Ben Bernanke invents new ways to throw his balance sheet into the breach. Throw in the fact that the world's central banks finally decided that Bernanke has had it right by keeping interest rates low, and that Bank of England Governor Mervyn King and European Central Bank President Jean-Claude Trichet have been wrong to keep rates high, and you have a policy mix that should break the credit logjam.

Two problems. First, these policy remedies will not take effect immediately. In America, Paulson and his team--headed by an unknown former Goldman Sachs employee, AC/DC fan and aerospace engineer, 35-year- old Neel Kashkari--have to find some way of valuing the bank assets they plan to buy, and hire experts to conduct the eventual sales. In Britain, bankers are not sure that they want to avail themselves of the up-to-£50 billion Brown has on offer in exchange for control over their compensation and some of their operations. They will try to raise at least some of the capital in the markets, a great step forward if they succeed.

Second, and in the end more important, the forward progress made possible by the stimulative measures taken by the several governments is bucking the strong headwinds created by an emerging worldwide recession. The International Monetary Fund says its studies show that financial upheavals following run-ups in house prices generally produce serious recessions. So it sees "a substantial likelihood of a sharp downturn in the United States."

The data suggest that such a downturn is already underway. The travails of the housing industry have been too fully reported to need comment here. Nine consecutive months of job losses have cut the number of jobs in the nonfarm sector by 760,000 so far this year. Jobless claims are at their highest level since 2001, and it is taking longer for the unemployed to find new jobs. Orders for manufactured goods are falling at an accelerating rate, and a leading index of manufacturing activity records the lowest level since the days following the September 11 terrorist attacks on America. Car sales are so low that there are serious doubts about the ability of General Motors to survive the downturn, despite a $25 billion government handout to the industry to help it convert to greener vehicles. Once-mighty GM a few weeks ago drew down the last $3.5 billion from its revolving credit line.