The travails of the financial markets have hit a new level of seriousness with the collapse of Bear Stearns, America’s fifth-largest investment bank. It survived the Great Depression, but could not overcome the current freeze in credit markets. Even last week’s use of a Depression-era provision by the US Federal Reserve, which allowed the bank access to emergency funds, was not enough to prevent investors losing confidence.

The US authorities now face a momentous task: to restore calm in markets which are more diversified than at any time in history. Even if big banks can keep a steady nerve, many smaller investors do not have the wherewithal to sit out the crisis. Bear Stearns is unlikely to be the last American casualty: several highly geared hedge funds are rumoured to be close to collapse. The risk is that panic will ripple ever more strongly through stock markets and economies alike.

This is a different kind of crisis from those which have gone before. The extent of the contagion is greater, and the damage has been less visible. There has been no single 9/11-style shock: this situation is home-grown within the banking system. Abetted by complacent regulators and rating agencies, financial institutions have indulged in a reckless game of pass-the-parcel with securitised loans. The fact that so many of these dubious securities are still hidden in balance sheets makes it difficult for the public to understand the scale of the problem.

So why let greedy bankers off the hook? Last week’s move by the Federal Reserve effectively ripped up the rule book of central banking by giving broker-dealers like Bear Stearns the kind of help that was previously available only to retail and commercial banks. Few people will weep for Joe Lewis, a big investor in Bear Stearns, who is thought to have lost almost $1 billion, though Spurs fans will – he also owns Tottenham Hotspur, the North London football team.

The answer is that this crisis is now far too deep to indulge in the academic concerns about moral hazard which made the Governor of the Bank of England so reluctant to help Northern Rock last year. The financial system is intimately connected with every other. At stake is the world economy and the living standards of millions of people. To lose one hedge fund might be mildly unfortunate but to lose a financial intermediary like Bear Stearns, at the heart of a complex web of global transactions, is a calamity. It is impossible to know how many more dominoes may fall as a result. It is important that financial institutions learn the lessons of their folly. But this crisis needs to be resolved quickly and explained later. The decisive and creative actions of Ben Bernanke, Chairman of the Fed, have been impressive. He is expected to cut interest rates tomorrow, perhaps to 2.25 per cent, down from 5.25 per cent only six months ago.

A big move will be the right move, not only for America but for all the other nations now hanging in the balance. For the argument that America’s economy has been “decoupled” from the rest of the world looks increasingly theoretical, as stock markets gyrate and banks the world over face higher costs of borrowing. Alistair Darling’s repeated statements about Britain’s “resilience” in last week's Budget look increasingly naïve. The only way out of this crisis – and the word has rarely been better applied – is for the US authorities, acting in concert with central banks elsewhere, to continue their forthright assault on the panic.