Was the first $700bn rescue plan flawed?

"The US House of Representatives is accused of costing the US tax payer several billion dollars. US Law Makers were understandably reticent to grant a blank cheque for $700bn. As a result US stock markets saw over $1trillion knocked off their value. Therefore it is concluded the rejection of this plan has already cost more than it is saved. This observation was made by various economists, and yesterday even US President George Bush made that same observation."

But Baxter believes this comment is patent nonsense.

He says: "Stock markets rise and fall. Yesterday the Dow Jones recovered 62 per cent of the unprecedented losses it incurred the day before.

"It is clear that a financial rescue scheme needs to be implemented. It is clear it needs to be implemented soon. But it is vital the scheme introduced is the right one. The worse possible action right now would be panic measures, implemented without providing Congress sufficient time to consider their full implications."

Baxter believes that the US Government's plan is the wrong plan, hatched up by a former banker to correct mistakes made by bankers.

He adds: "Right now money from the US, UK, Eurozone and possibly certain other countries too, is required to re-capitalise banks, in return for equity. If the fundraising was accompanied by a public offer, available on the same terms available to the Government, it seems quite likely that under these terms, private money will also be made available. Such action would go some way to dealing with the fundamental causes of the financial crisis, and provide tax payers who support such a scheme with the potential of a long term gain.

Baxter suggests that there is a myth floating around the system at the moment that the financial crisis is a crisis of confidence. "This is wrong," he says, "the crisis is more serious than that. The lack of confidence is due to real fears that debt levels in certain countries including the US and UK have reached levels that are too high.

"Take an average football team in the Conference League, a plan to turn that team into potential winners of the European Champions league via giving the players renewed confidence would fail. The team could only be appropriately transformed if world class players were recruited."

He concludes: "The plan presented by Henry Paulson was similarly flawed, and members of the House of Representatives who voted against his plan were right."