Whatever happened to the triumph of global capitalism? Even more than “the end of history”, the idea that “we're all capitalists now” became an article of faith around the world from the early 1990s onwards. In the past few years even the few holdouts - countries such as Libya, Cuba and North Korea - seemed on the point of acknowledging that markets, competition and private enterprise were the only rational way of organising economic life, regardless of politics or history or religion or national cultures.

But just as the triumph appeared to be complete the innermost sanctum of the global capitalist system suddenly collapsed.

The nationalisation last weekend of Fannie Mae and Freddie Mac, the two largest financial institutions the world has ever known, signalled the complete failure of the biggest, most dynamic, most innovative and competitive markets that have existed in the history of capitalism - the Wall Street stockmarket and the market for US bonds.

Their failure has been so obvious, that even the most capitalist administration ever, in the world's most capitalist country, had decided to wipe out the private owners of its biggest and most important financial companies and replace them with state-appointed bureaucrats.

The reasons for these failures - related, ironically, to the dogmatic belief among regulators, politicians and financiers that “the market is always right” - have been much discussed. Much less widely considered have been the consequences of this justifiable disillusionment with market forces.

Even more than the mind-boggling $5,500 billion size of the two US mortgage companies, it was the political significance of their nationalisation that marked it out as an historic turning point. This was, after all, the biggest expropriation of private property undertaken by a government outside the former communist world, yet there was absolutely no protest, nor even discussion, about the terms imposed by the US Treasury.

Viewed from across the Atlantic, where nationalisations of relatively unimportant industries such as steel, shipbuilding or coal provoked years of parliamentary opposition and legal argument, it seems astonishing that the US Government could simply announce itself as the owner of these giant companies, wiping out overnight some $20 billion of shareholder wealth. But what is even more significant is that nobody in American politics or business objected to this anti-capitalist coup.

This lack of any serious debate about the sudden fate of Fannie and Freddie may help to stabilise the US economy and housing market in the months ahead, since American homeowners should soon enjoy a potentially unlimited supply of government-financed mortgages. But the effects of this nationalisation on the future of the world financial system will be more far-reaching and profound.

The Fannie and Freddie precedent implies that any other bank requiring government support in future - certainly in America and probably also in Britain and Europe - will have to agree to its shareholders being wiped out. The need to punish shareholders to deter future reckless behaviour is an argument heard even more vociferously in Britain, and especially in the Bank of England, than in the US.

But will such punitive treatment strengthen market capitalism? More likely, it will do the opposite. Most big banks have recently raised extra money from their shareholders to strengthen their finances. Yet many - including Citibank, Merrill Lynch, Lehman Brothers, UBS, Halifax Bank of Scotland, Royal Bank of Scotland, Barclays, Deutsche and Credit Agricole - are still widely believed to be undercapitalised.

Until last weekend it seemed probable that most of these banks would be able, if necessary, to turn to their shareholders for extra capital, if this was needed to cover unexpected losses or to expand their business. But any such attempts to raise new capital are now doomed to failure.

It is hard to imagine Saudi Arabia or China wanting to add to the huge investments they have already made in Citibank or Merrill Lynch, now that they have seen the enormous losses deliberately inflicted by the US Treasury on investors who pumped $20 billion of new money into Fannie and Freddie since November last year. Particularly so as the two mortgage giants raised this money with the explicit support of the regulators and the US Treasury.

It was hardly surprising that Korean suitors withdrew from talks to recapitalise Lehman Brothers, the weakest of the remaining US banks, immediately after the Fannie Mae rescue was announced.

A likely consequence of the Fannie and Freddie rescue, whose punitive terms the British and European authorities have strongly endorsed, is that no leading bank in America, Britain or Europe can hope to raise new capital, either from private investors or from governments in Asia and the Middle East.

Meanwhile, an overzealous determination by regulators to prevent reckless lending in future suggests that banks will need even more capital than in the past to increase their lending. Much of the growth of credit and bank lending in the world economy will therefore have to come from governments instead of the private sector, at least for the next few years.

It is hard to imagine how squeezing private ownership out of the banking system could strengthen the cause of free enterprise and free markets. An early sign of which way the wind is blowing will come from a vote in Congress later this month on a request from General Motors and Ford for $25 billion in subsidised government loans to support their investment programmes through the energy and housing crunch. A few months ago such a request, which would, of course, be illegal under EU state aid rules, would have been unthinkable. Today, however, the question in Congress is not whether to grant this subsidy; it is whether to leave it at $25 billion or raise it $50 billion, as both Barack Obama and John McCain now propose.

With banking systems around the world hobbled by the lack of private capital, the motor industry will not be the only supplicants demanding state support. There will be many more demands from industries, workers and consumers, as much in Britain and Europe as in the US.

If the US loses faith with free markets, compromises the protection of property rights and hobbles its financial markets - all of which it has dramatically done in the past seven days - then Europe will surely follow suit. Emerging economies such as China and India will become even more ambivalent about market economics. Instead of We Are All Capitalists Now, There Are No Capitalists Left may become the ideology of the next decade.

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