What a week. Within five breathless days, global capitalism teetered on the brink of the abyss, tipped over into systemic failure – and then yesterday bounced back. It is as if the world’s biggest banks have been on one giant bungee jump: their own customers, investors and employees have looked on, powerless, as their individual financial futures plummeted and rebounded. The US Government has answered the great bank panic of September 2008 with a promise to take all the dangerous debts out of the American banking system. It is, potentially, the biggest bailout in the history of modern finance and, by ring-fencing financial risk and therefore reducing fear in the credit markets, it has restored confidence. The result was a £100 billion-plus rally on the London stock market yesterday, leaving the FTSE 100 index a mere 2 per cent lower than it had been at the beginning of the week.

But if the markets have come back, the world is profoundly changed. The turmoil has claimed tens of thousands, potentially hundreds of thousands, of victims: the employees of Lehman Brothers, the 158-year old investment bank that succumbed to bankruptcy; the staff at AIG, which is now owned by the US Government, pending a piecemeal sell-off. And the 70,000 people across the UK who work for HBOS, Britain’s biggest mortgage and savings bank, may yet have to live with the consequences of this week’s firesale to Lloyds TSB.

The reputation of Wall Street and the City has been fundamentally damaged. The collapse of the banks has revealed the depth of the public’s distrust – and dislike – of bankers. This will, no doubt, change the tone of politics and government policy, as it relates to the treatment of banks and bankers. The days are over in which politicians treat the Masters of the Universe with a certain awe and the world’s capitals court financial institutions with the promise of as little regulation as possible. Britain liked to boast about its light-touch, risk-based regulatory system. But no longer. The public is unlikely to accept a world where bankers are left to their own devices and the people are left to live with the consequences.

Most important of all, a chapter of ungoverned globalisation has closed. Most people have become used to the idea that the free movement of goods is levelling the commercial playing field between different parts of the world. Mobile phones made by Motorola, of the US, in factories in Tianjin, China, end up on sale on Tyneside in the UK. But globalisation has involved not only the eye-catching trade in products made by people around the world but also the much more discreet, but ultimately more powerful, flow of capital across the globe. Thomas L. Friedman, the New York Times columnist, has argued that cheap telecommunications, sophisticated software and the removal of trade barriers have brought India, China and other countries into what is now one global supply chain for everything from cars to shoes to new kinds of medicine. As he puts it, the world is flat: anything that can move will move. This week, we have discovered to our peril that this includes money. The world has, very nearly, been flattened.

The crisis was, in many ways, triggered by financial forces far from Wall Street. Asian banks began to withdraw support from Fannie Mae and Freddie Mac, the two institutions underpinning the US housing market. They forced the US Government’s hands. Since then the international fallout has been self-evident. This week alone, world markets gyrated, the Kuwait Stock Exchange fell to its lowest for nine months and two leading Russian stock markets were suspended. When panic struck, fear chased capital to every corner of the globe.

That is why the efforts to resolve the credit crunch have taken place not just in New York, London and Brussels but also in Beijing. China’s sovereign wealth fund, China Investment Corporation, already owns 9 per cent of Morgan Stanley and has been in talks to potentially up its stake.

The contradiction in all this, of course, is that the response to a global problem has been singularly American. The US Government, headed by a Republican president, has abandoned conservative economic doctrine and announced, in effect, a willingness to nationalise the banks’ bad debts. This is a new New Deal that would make Franklin D. Roosevelt blush. But Washington rightly judged that it needed to put economic hazard before moral hazard. It has done what US governments have done before, ditchedtheoretical principle for financial pragmatism. And it has done so, in the absence of any alternative, on its own. This is a unilateral act of self-defence in the face of a global problem.

Henry Paulson, the US Treasury Secretary, hopes to nationalise the global risks associated with America’s sub-prime mortgages by setting up a toxic relief fund to buy up the mortgage assets that are poisoning banks’ balance sheets and sowing the widespread distrust that has prevented banks from lending to each other. Although the assets involved and the pricing of them will be much more complicated, the nearest equivalent is the Resolution Trust Corporation. This operated from 1989 to 1995 to buy up the toxic paper of almost 800 banks which failed in the US Savings & Loans crisis.

S uch a toxic relief fund would have the immediate effect of restoring liquidity, by removing the “toxic” assets that are clogging up the credit markets and not trading. By holding them for long enough, the Government could eventually recover their true value, recouping at least some taxpayers’ money. There are many hurdles to overcome before such a relief fund can be put in place. It took more than six months to get the legislation to set up the Restoration Trust Corporation through Congress, and that was not in an election year. Even though Mr Paulson’s plan appears to have cross-party support, many questions remain. Which assets will be considered toxic? How should they be valued? The lower the value, the greater the risk that the rescue will flop; the higher the value, the higher the cost to the taxpayer. We have come a long way from the night in 1907 when JP Morgan was able to call the relevant bankers together in New York and force them to agree to bail out the failing Knickerbocker Trust. The next chapter of globalisation will have to address this imbalance. This may well be the last financial crisis that the US can seek to resolve alone.

This newspaper has championed globalisation. Free trade has raised the living standards of millions of people more swiftly and effectively than any international aid programme could ever hope to do. It has unleashed much-needed innovation and economic growth. But this unprecedented week will prompt many people to challenge the principle of free markets. There is no doubt a need to consider the responsibilities of management and owners. We will have to become more savvy about the new web of dependencies and international capital flows. And Western capitalism has a job of work to do to restore public confidence. A period of calm would be a good start.