Two months on and it appears salvation will have to wait a little bit longer.

The major 2009 climate talks in Bonn, Bangkok and most recently Barcelona were blighted by a reluctance to compromise on all sides. Tensions reached a tipping-point when the G77 staged a walk out at the Barcelona talks, blaming the developed nations for setting feeble emissions targets.

Bargaining positions have been clearly defined all year – the poorest nations, most vulnerable to the consequences of climate change despite contributing least to the problem, want money for development and technology to ‘green’ their economies. They reckon US $400 billion a year should cover it, a figure baulked at by richer nations during these difficult economic times. Most EU nations agree on a minimum 20% reduction of emissions on 1990 levels by 2020, but this can’t become a global target until the US passes a climate bill of its own, which won’t happen until after Copenhagen. Without the US on board, the emerging superpower (and now world’s largest polluter), China, has argued that before the People’s Republic commits to anything that might curb its rampant economic growth and growing market dominance, the US has got to get its act together.

Back in October, the US Climate Change Envoy, Todd Stern, issued a portentous statement on Channel 4 News, saying it was “certainly possible that there won’t be a deal” in Copenhagen. The US has been dithering on climate change since the Kyoto Protocol and the eight years of denial and damaging environmental policy has not abated in the post-Bush era. Obama’s manifesto of change has forced the main parties further apart than ever; the GOP continues to bury its head in the tar-sands and block climate change legislature, making environmental reform impossible until next year.

So it came as little surprise when the day after talks broke down in Barcelona, Stern issued a statement that a legally binding deal at Copenhagen wasn’t “on the cards.” The UK followed suit as Ed Miliband, Secretary of State for Energy and Climate Change, moved the UK’s position from securing a legally binding deal to laying the ground work for one in 2010. APEC leaders appeared to deal the final blow in Singapore a couple of weeks ago as they issued a joint statement, that time had run out to obtain global consensus.

So far, so depressing. But it isn’t all doom and gloom for Copenhagen; in the past couple of weeks there have been some serious reasons to be cheerful.

Talks between Obama and Jintao in Beijing week sparked hopes of “green tech-sharing” between the world’s two biggest polluters, and both said that Copenhagen should be the start of a deal to “rally the world.” China was already one step ahead of the US having announced a “carbon intensity” target which was rumoured to curb emissions’ intensity by around 40% by 2020. Last week the figure was made public, confirming the speculation. China’s target isn’t legally binding and “will be dealt with internally” – which essentially means it’s up to them whether they they fulfill their promises. But, in recent years China has reduced 1.5 giga-tonnes of CO2 through voluntary green initiatives. If they deliver on their 2020 target a further 4 giga-tonnes of planet warming gas will be contained.

As a result of the talks and not wanting to lose the moral and political high-ground to China, Obama was ready to announce targets of his own; 17% reduction of emissions on 2005 levels in ten years, incrementally going up to 83% by 2050. The 2050 target is a 70% reduction on 1990 levels, which is still short of what most scientists say is required, but suggests the US might finally be taking responsibility for being historically the worst carbon offender. The initial target is low but that’s because Obama needs to get a bill through a hostile House and Senate.

Pressure on the US political elite isn’t only coming from Asia though; Brazil recently pledged emissions cuts of at least 36% and a dramatic reduction of deforestation by 80% over the next 10 years, which has environmentalists and the Amazon rainforest sighing with relief. There’s never been more pressure on the US’s cumbersome political system to deliver a ‘Carbon Bill’ as soon as possible, if they want to avoid looking more sheepish than a lamb wearing a Christmas woollen.

A delay in a global deal is definitely unwelcome but not surprising after a year of frustrated and failed negotiations. After the debacle in Barcelona the Chair for the Group of the Least Developed Countries, Bruno Sekoli said, “We do not want a compromise deal. A bad deal is not good for… vulnerable countries.” That from the man who represents those with the most to lose if climate change continues unabated – and it’s important his richer peers take note. But although nothing will be signed, and Obama won’t be there for crucial final days,  the Copenhagen conference could still be a game-changer.

The next summit is starting today in Pittsburgh, and with the recession technically coming to an end, expect a lot of handshaking, backslapping, and sombre guff about there still being a lot of work to do. Some of the measures laid out at the London summit have been met, like the creation of the Financial Stability Board (though the oxygen-starving level of bureaucracy it seems to be inviting may render it ultimately useless). Others, like the stimulus packages, are in theory working but in reality have only had a fraction of their total amounts released. With the recent domestic handwringing over cuts indicative of a growing resistance to further Keynesian intervention, surely one of the big aims of the Pittsburgh summit should be the stronger enforcement of stimulus plans.

But as David Smick mused on Associated Press yesterday: “They’re going to have a nice discussion, in which they come up with side issues to fixate on – bankers salaries”. Alastair Darling is duly setting this stall out already, saying “the party has got to be over” for bankers, who must start to “behave sensibly”. Tough words indeed. Of course, received wisdom states that appearing tough on pay is a fast-track to public adulation, hence these high-profile quotes. But to be fair, once remuneration gets unilaterally sorted, more progress can be made on regulating the activities of hedge funds and investment banks – creating a competitive disadvantage by lowering pay may disrupt proceedings. It’s a question of sorting the genuine concerns from the latent self-interests of business lobbyists and banking chiefs.

Meanwhile Nicolas Sarkozy is threatening to walk out of the summit if an agreement on remuneration isn’t made, though his finance minster, Christine Lagarde said (with more than a hint of weariness): “I hope that we will save [Mr Sarkozy] the trouble of having to walk out”. He’s recently shown that he’s a world leader when it comes to pay reform, ruthlessly enforcing a series of pay rules for French banks the likes of which the UK regulators pussied out of. Still, this whole “do it or I walk” routine is getting a bit wearying – he threatened to walk during the last summit, and then didn’t, so the whole thing has a touch of “the boy who cried wolf” about it.

It sounds like there’s going to be repeat of the utterly incoherent protests we saw in London too. From the Guardian: “a group called the Pittsburgh G20 Resistance Project plans a mass march today, gathering people with anti-capitalist, environmental, union-driven and economic concerns. ‘We’re an anti-authoritarian group,’ said a spokesman, Noah Williams. ‘We reject all forms of hierarchy and repression.’”. Way to engage with the issues on their own terms, guys. Pass the alfalfa.

Still, they’re not the only ones with an agenda so broad it’s destined for impotence. Obama is using the summit to press for a reduction in tax breaks for fossil fuel energy producers – it’s hard to decide whether this is creating important momentum ahead of the Copenhagen climate conference, or unnecessarily diluting the economy-heavy agenda of the G20 summit. Probably more important to the G20 is discussion of the aforementioned points, plus reminding everyone of the dangers of the creeping protectionism that was emerging at the start of the year – this looks like being the idea that Brown brings to the table most forcefully.

We’ll be back tomorrow to look at whether they did talk about any of this, or just chucked some soundbites around.

A living will is a plan for banks to follow should they go the way of Lehman – “a forcing device for the clarification and simplification of legal structures”, according to Lord Turner, head of the Financial Services Authority (FSA) who Darling is tasking with making the banks get their act together (expect much harrumphing in the Mervyn King household this morning). As the various lawsuits against Lehman Brothers have demonstrated, trying to wind down a bank whose structure is more labyrinthine than a Brillo pad is not easy; the wills would force banks to iron out their tax-avoiding knots, so that it’s easier to prepare them for a crisis.

One look at Barclays’ tax avoidance flowcharts that the Guardian weren’t allowed to publish earlier this year, and you can see the levels of complexity and amount of colour-coding currently deployed in the name of saving a few bob; their indignation at the information being revealed shows that they’re not going to take any new regulations easily. Barclays, for example, runs their money through sun-dappled, tax-absorbing holding companies in the Cayman Islands, Luxembourg, Brazil and so on; the new rules would force them to make these channels a lot clearer, and potentially cut out these Hawaiian-shirted middlemen.

There’s already been a whole heap o’ beef after Lord Turner announced his plans for the wills a fortnight ago – the familiar chorus of Britain’s financial services industry being put at a disadvantage; lawyers saying tax issues weren’t even the FSA’s business; the idea of not allowing banks to generate as much money as possible, which amounts to a moral quandary in the banking world – witness financiers’ brains melting at the thought that capitalism and restrictions on wealth creation might actually have to coexist.

Barclays, to be fair, have actually been one of the few to be (grudgingly) accepting of the plans. “To break it up into living will elements is going to be very difficult,” said Group Finance Director Chris Lucas. “Nevertheless it is something we are going to have to do.”

It’s also worth pointing out, as Margaret Doyle does over at Reuters, that while Turner and Darling’s idea has to fight through domestic opposition from people of all stripes, from lawyers to bankers to the CBI, to implement it effectively on a global scale is going to be very difficult indeed. The idea, as has been mooted, of a global fund to protect against banking failures surely has diplomats waking up in cold sweats, and as Doyle notes, the nationalistic protection that kicks in during a banking crisis will be hard to balance out.

Obama’s speech on Wall St yesterday to mark a year since Lehman acknowledged these international challenges, segueing neatly into some self-promotion: “As the United States is aggressively reforming our regulatory system, we will be working to ensure that the rest of the world does the same”. He too hinted at a living will system: “If taxpayers ever have to step in again to prevent a second Great Depression, the financial industry will have to pay the taxpayer back – every cent”. Nevertheless, compared with the other international regulatory motions floating around – higher capital ratios, rules on compensation – this will undoubtedly be the hardest to persuade banks to sign up to, and the hardest to implement globally.

Anyway, the move has been widely applauaded, but the Bernanke love has been building for a couple of months now. First Nouriel Roubini, he of “I told you this was going to happen” fame, voiced his support for the Fed chief: “Mr. Bernanke’s decision to keep interest rates low and encourage lending has, for now, averted the L-shaped near depression that seemed highly likely after the financial collapse last fall”. Then fellow beard idol Paul Krugman also made kissy sounds towards him: “I think Bernanke has done a really good job… it’s really very hard to see how anyone could have done more to stem this crisis.” Now loads more economists are queuing up to anoint Bernanke – “it’s good news for the Federal Reserve. It’s good news for the country. It’s a great choice”, says Richard Berner of Morgan Stanley; “Bernanke is a true prudent man who calls them as he sees them, and knows the ins and outs of policymaking… If he can pull off this recovery that still needs nurturing, he could well go down as one of the greatest Fed Chairmen in history”, said Christopher Rupkey of Bank of Tokyo.

So what’s he done right to earn all this? Well, he’s been very active in keeping the money machine churning around, pouring cash into the system to keep banks confident enough to keep lending and trading, and stimulating borrowing by lowering interest rates (as much as it can be stimulated by doing so amid a recession). He’s also acknowledged the dangers of inflation created by having too much money in the system and seeing it lose value, and has said that he’ll pull back Fed support once the economy picks up to a safe level.

There are some who are nevertheless still annoyed at the way Bernanke dropped the ball during the years when Alan Greenspan was Fed chief – Bernanke also failed to spot that having a housing and construction market going at far more than full tilt, with subprime mortgages the icing on that particular pain-cake, would need some careful monitoring and buffering against the inevitable bursting bubble. In the words of Edward Hadas in the Telegraph today, “Those who spread kerosene should not take too much credit for putting out fires”. Still, everyone realises that while he may not be the best forecaster or long-term strategist, he knows what to do right now, and so the calls for his firing have been very few.

Politically then, this is a very safe move by the Democrats. In making Bernanke stay, there’s an air of making him atone for his past sins, sorting out the mess that he helped make in the first place. It also gives the signal that the Democrats are steady and secure, are willing to overlook party differences in the name of America, and retrospectively condones the action they’ve already taken. Plus, if a Democrat chair came in and the recession continued to bite, there’d be easy points to win for the Republicans, regardless of quite how much the recession was tied to Fed activity.

So Bernanke continues to steer America through the recession slalom, and Obama can go back to bed and try to forget, for just one week, the vast healthcare shitstorm that’s looking like hanging over his entire first term and beyond. Good luck old chum.

The bad news first – the California Public Utilities Commission is saying that having 33% of the state’s energy coming from renewables by 2020 probably isn’t going to happen. Distribution of all the new energy would cost $12bn, something that broke-ass California can’t really afford right now. Also the price of renewable energy will be higher; though as all energy prices will be higher in 2020 thanks to increased demand and upgraded distribution networks, renewables won’t cost that much more. Congress is also scaling back Obama’s original renewable plans, as they were just too radical to win votes. The US National Academies of Science concurs – it says that the grid needs an upgrade before the targets can be met.

More gloom: Wave power is finding it hard to get funding these days, and the red tape involved in setting up offshore tidal plants is pretty heavyweight. Read all about the bureaucratic nightmare here, complete with requisite sea metaphors (“investors’ patience at low tide”, “wading in the shallow end”, “further out… the regulatory waters are murkier”). What’s heartening though is Scotland’s embrace of tidal power as one of its main renewable energy sources – it’s currently investigating the impact it would have on biodiversity in Scottish waters.

And hurrahs for the motion passed in UK parliament that will allow the rollout of ever more photovoltaic cells across the country – i.e. solar panels for your roof. The incentive for households to invest in the panels has just got much greater, with the introduction of tariffs that allow a hefty return on leftover power being sold back to the National Grid from your panels. It’s expected that you could have made back your money in less than 10 years, and then obviously turning a profit from then on. The greater uptake also means greater competition, and therefore greater falls in price for the panels; prices have fallen 20% this year already. And as non-renewable prices go up, it’s only going to become more and more attractive.

MPs are also courting a group of scientists this week, who have the idea of creating a massive electricity grid, stretching from Kazakhstan to the UK, and Scandinavia to North Africa, that would tie together the renewable energy output from the entire region and distribute it more evenly. It would cost £1.3tn over 20 years.

And MPs have finally caught up with that KPMG report we looked at a while back, and they’re pretty annoyed at our current status as third-worst renewables provider in Europe. If you look at the original report, the gap between our targets and our current state is definitely worrying. But at least things seem to be turning towards the right direction – getting this ship around was always going to be a long job.

This is just silly though. What about planes, guys?

It’s being launched at the perfect time, as today Obama announces new regulations on emissions and fuel economy – cars will have to average 39mpg by 2016 across the range of models offered by any one company, trucks 30mpg. It’s important to note that distinction – not every car will have to be 39mpg, but rather cars across a fleet must average that amount, meaning that the likes of GM can still build gas-guzzlers as long as they’re also building hybrids and electrics that drag the average up. We’ll have to wait to see the small print on this, but hopefully the average applies to the cars that have been sold, rather than just constructed.

The fuel efficiency savings will hopefully be enough to persuade the US public to start buying the greener vehicles anyway. So how do they match up? The Insight has in its favour a sub-$20,000 price tag and some cool Night Rider light up displays that tell you when you’re driving efficiently; the Prius is roomier, gets more miles to the the gallon, and has a solar panel on the roof. In terms of styling, Honda have got rid of that Tron-like wheel arch from the first edition and replaced it with boring regular wheels; the Prius is a bit pointier and spunkier. Each also come with smugness as standard.

The Prius also has Lane Keeping Assist, otherwise knows as the “Drunk Driver’s Friend” – it keeps the car within the lane when concentrating on keeping within the white lines becomes too much of a drag. Unfortunately MSNBC noted that: “Left to its own devices, we found that it would, within a couple corrections, begin to bounce from one side of the lane to the other at too great an angle for the system to correct and the car would barge into the adjoining lane”.

The Prius also has the better, and crazier, ad campaign. Its TV spot features a landscape made entirely from part-time actors undulating into beatific greenness as the Prius passes, though I’m not sure about the message being given that the car helps melt snow:

Allied to that are “living billboards”, made of flowers, being erected alongside Californian motorways, plus these Teletubby-like installations: “Oversized solar flower sculptures will be placed in highly interactive areas such as public parks. These sculptures, which include free Wi-Fi access, will serve as seating environments and charging stations for people to recharge their spirits as well as their mobile phones and laptops.” Jeez, this is second only to Innocent smoothies in the cutesy-poo stakes.

But let’s not mock too hard, because this is undeniably good technology. Less wonderful is the just-announced “EcoBoost” technology from Ford, which is a gizmo put into fully petrol-powered cars to make them seem, rather than actually be, less planet-raping. It’s a turbocharger that allows you to accelerate without burning as much fuel as before: “Ford boasts that its new V-6 with EcoBoost delivers V-8 power using far less gas.” It looks like Obama isn’t going to let the Big Three get away with this being their gesture towards environmental friendliness.

“Waterboarding” is a euphemistic term that allows a violent form of torture to sound merely like your gran describing surfing. It involves restraining someone with their head lower than their feet, and pouring water over their sack-covered face – the result is your nose and mouth fill with water and you feel like you’re drowning; Time ran a feature this week on the long-term psychological damage caused by the technique. It’s also emerged in the last couple of days that the CIA used the technique 266 times on two Al-Qaeda prisoners, which won’t please the anti-Guantanamo Obama; two officials in the human rights bit of the Justice Department under George Bush say that leaked memos prove there was no “torture”. This one will run and run.

Anyway, to understand the bewilderment and horror of interrogation by your off-the-leash enemies, or maybe just to have something to high-five people about, Playboy journalist Mike Guy signed up for some waterboarding action this week. He reckons he can do at least 15 seconds. He does about 5. Lame:

More hardcore is Christopher Hitchens, who goes back for more after his first go, though not without psychological cost: “I have since woken up trying to push the bedcovers off my face, and if I do anything that makes me short of breath I find myself clawing at the air with a horrible sensation of smothering and claustrophobia…if waterboarding does not constitute torture, then there is no such thing as torture.” We’re unsure what’s worse – the waterboarding, or the terrible trip-hop they seem to have piped into the torture room:

But the hardest of them all is Kaj Larsen, who back in 2007 not only dons the regulation orange Guantanamo boiler suit and shackles, but gets waterboarded over and over for 24 minutes. “That sucked”, was his conclusion after the session ended:

We’re now just waiting for the Jackass or Dirty Sanchez brigades to try it out for some ill-advised political special…

But despite contriving to make Web 2.0 seem dull and dogmatic, Darling’s confidence comes as there are a number of signs that the recession might have gone past its worst point. CBI announced today that GDP has so far fallen 4%, most of the 5.1% total that they forecast; they expect recovery to begin in a year’s time. 

They join manufacturing organisation EEF, who said: “For the past six months manufacturers have been grappling with a collapse in global demand, but attention is now turning to preparing for the upturn”. David Miles, of the Monetary Policy Committee, said last week that he saw “green shoots” in the economy. Also using that phrase are the head of the Dallas Fed, and Ben Bernanke, head of the US Federal Reserve, who used it last month on TV show 60 Minutes, and said: “Recently we have seen tentative signs that the sharp decline in economic activity may be slowing.” And much was made last week of Obama’s “glimmers of hope” speech, which, if you’re still given to taking his word as gospel, announced America’s passage into prosperity again. The stock market has been listening to all this and reacting accordingly. And housebuying is on the up too.

But don’t take out that 100% mortgage just yet, because various leaders have been queuing up to chuck a bracing bucket of cold water on these optimistic scenarios. The Organization for Economic Cooperation and Development (OECD) said on Saturday that the world was still in a period of “extreme uncertainty”, and that the recession would continue well into 2010. Obama meanwhile reformatted his botanical metaphors, swapping nice green shoots for a scary-sounding wood: “We’re not out of the woods. This is still a difficult time for the economy. Credit is still contracted”, he said at the weekend. Head of the European Central Bank, Jean-Claude Trichet, said: “I would not overemphasise whatever we are observing… let’s be prepared for a very difficult year”. Quelle bummeur!

But king of the pessimists is Paul Krugman, who reminds us via a bullet-pointed list that we’re still very much screwed: “1. Things are still getting worse. 2. Some of the good news isn’t convincing. 3. There may be other shoes yet to drop [??]. 4. Even when it’s over, it won’t be over”. That’s right – the recession is here to stay. Forever.

First, the juicy villainy. Over the weekend, AIG announced it was going to press ahead with the bonuses that were part of a lawful package agreed before the messy business of the last few months; its CEO, Edward Liddy told Tim Geithner by letter that “quite frankly, AIG’s hands are tied. Outside counsel has advised that these are legal, binding obligations of AIG, and there are serious legal, as well as business, consequences for not paying.” Larry Summers, Obama’s jowly economic advisor, acknowledged the legal constraints, but through very gritted teeth, adding that “every legal step possible to limit those bonuses is being taken”. Now Obama himself has stepped up to the plate, saying he’s told Geithner to “pursue every legal avenue possible to block these bonuses”. Check out the video of him here, doing a weird line in faint, arch amusement at the crumbling financial world he’s inherited.

There’s a worry that if the bonuses are not paid, and AIG won the resulting legal case, it could claim back costs and double the value of the bonuses as damages, though the Wall Street Journal’s law bloggers think that the US government has a pretty good case against AIG nonetheless. Andrew Ross Sorkin also makes the good points that a) we need to keep AIG’s top staff on and use their knowledge of the situation and b) it could create a snowballing of similar legal cases if a precedent was set.

But once again in this crisis, the bonuses get the most coverage while actually paling next to larger sums that can’t be as easily and snappily attached to some financial villain. As the Wall Street Journal and the FT have noted, the real story here is the standard that’s being set for companies who have been stung by the actions of other companies. Banks like Deutsche Bank and Goldman Sachs, and municipalities in states like California and Virginia, are having their potential losses from dodgy derivatives and securities they invested in through AIG erased with bailout cash.

Numbers include: $7bn given to Barclays, $4.1bn to Societe General, $4.5bn to Bank of America. $85bn in all was used, over half of AIG’s bailout pot, in making sure these banks wouldn’t feel AIG’s pain. It is presumably felt that the banks, who could be held equally accountable for investing in products that relied on heavy leverage and high levels of credit, need to have their confidence buoyed at such a critical stage. And the FT claims that this action “is widely regarded as a ‘blueprint’ for the level of government support that can be expected in the derivatives industry”, so it’s only going to continue across the industry.

It’s part of the plan to stabilise the global derivatives market, which at one point reached a brain-melting total of $1.14 quadrillion. That’s over a thousand trillion dollars, or $11400000000, a number only Dr. Manhattan can properly conceive of, but when you realise that’s the sort of level that losses could even remotely reach towards, £85bn is actually a pretty worthwhile spend if it’s going to get the international credit market moving again. It’s happening alongside the reopened clearinghouse for derivatives, that’s been running since last week.

The lesson now is to start properly assessing the risk of derivatives, something that Gillian Tett in the FT says AIG was “extraordinarily complacent” in doing, as well as attacking the ratings agencies and regulators. But, as Sorkin noted, a banker will only want to stay at AIG if their salary and bonus package is right; similarly, derivatives will only be traded if the returns are right, and that zeal for compensation will always attempt to steamroller regulation. A new systemic overhaul in how regulation is managed is what’s needed, but how to enact that is way outside this bloggers comprehension…

The Glass-Steagall Act was passed in 1933, and split apart investment banking from commercial banking, so that the speculations of investment bankers wouldn’t harm the public’s commercial banks if they went wrong. And so the American banking system stayed until 1999, when Phil Gramm introduced a repeal of the Act that was eventually passed with an overwhelming majority in the Senate.

The repeal meant that large commercial banks like Citigroup and Bank Of America could indulge in investment banking, leading to a more widespread use of instruments so complex even the heads of banks couldn’t understand them, like structured investment vehicles. People started defaulting on the mortgages that these investment strategies afforded them, and because they were so widespread after the repeal of Glass-Steagall, the world went plughole-wards.

Hence Paul Krugman accusing Phil Gramm of being the chief architect of the financial crisis behind Alan Greenspan (though it should be noted that Democrat heavyweights including Kerry, Biden and Daschle all voted in favour, and Larry Summers supported it too), and the momentum for reinstating the act is gathering. Paul Volcker, who heads Obama’s Economic Recovery Board, said last week: “Maybe we ought to have a kind of two-tier financial system”. Sheila Bair, one-time possible Treasury Secretary and head of the FDIC, said that the size of banks should be limited so that they couldn’t get so big that they need to be bailed out by the taxpayer, hinting support for the splitting of investment and commercial banking, which would break down megabanks into smaller separate parts.

Even Guy Hands, bane of Lily Allen’s existence, expressed support for the act in his annual review: “The Glass-Steagall Act was a sensible reaction to the 1930s depression, and it is a tragedy that the hubris of bankers, regulators and politicians resulted in its repeal. It needs to be reinstated globally as soon as possible”. And Barack Obama, in a March 2008 speech, suggested his discomfort with the 1999 repeal: “by the time the Glass-Steagall Act was repealed in 1999, the $300 million lobbying effort that drove deregulation was more about facilitating mergers than creating an efficient regulatory framework”.

In the UK too, there’s been banter about installing a similar system, something we’ve never had before. Gordon Brown ruled it out last month, saying: “We do not envisage, as some have advocated, a rigid divide in future between “narrow banking” – retail and corporate deposit taking – and investment banking and trading conducted at an international level”. But George Osbourne said it’s “something worth considering”, and Sir James Sassoon, a former managing director at the Treasury, said the idea “deserves more thorough scrutiny”, but would need to be matched with other new regulatory measures.

So should it just be brought back in unchanged? The FT’s John Gapper doesn’t think so. “Even if it were possible to split bank lending from securities underwriting…it is useful to have banks, to buy insolvent investment banks”. And the newspaper’s Lex column opined yesterday: “A new Glass-Steagall would be no panacea”, pointing out that purely commercial banks like Northern Rock and Germany’s IKB were the first to go down during this crisis, and that “the real problem lies in the fuzzy relationship between banks and the opaque world of the shadow financial system”, not in banks with both commercial and investment interests. And don’t underestimate the lobbying power that Obama mentioned – as former Bear Stearns chief Alan Greenberg said, with colossal understatement, a reinstatement of the act “will run into a little bit of opposition from the same people who fought so hard for the death of Glass- Steagall”.

But Gapper does suggest a modulation of Glass-Steagall, to reduce risks, reduce size (as Bair suggested was necessary), and prevent conflicts of interest. What it will end up looking like will be the result of a long battle between House, Senate, executive and lobbyist, but we can definitely be sure that money, created through complex and risky means, is something that will stay in investment banking for a long time, and will be very hard to breed out. Let’s try and keep it away from the rest of us somehow.

I’ll bet it was lots of fun at first. The Obamas look so sweet in that photo of them walking down Pennsylvania Avenue, and it had to feel pretty neat to take a girl from Chicago’s south side in your own helicopter around Maryland. But whatever warm glow enveloped Barack Obama seems to have been now blown away by Washington’s cold winds.

His stated intention to do things differently got torn to shreds by the appointment of some cabinet members with ethical lapses that looked kind of District-textbook. His bipartisanship ran into the Republicans (oh yeah, those guys are still here). And his much-awaited rescue plan for the financial system, announced by his treasury secretary on Tuesday, sent the markets into free fall. We thought Obama was so cool, he could do anything; but Tim Geithner looked like something off stuffwhitepeoplelike.com.

Critics have been queuing up. On the editorial pages, even some of the president’s friends have grown lukewarm. So has Barack Obama’s day in the sun turned into the shortest political honeymoon in memory?

Things might not be so bad. My guess is that the person least perturbed by the quick resumption of panic and anger is Mr. Obama himself; not because he will have retreated into a “don’t-worry-be-happy” shell of denial, but because, from election night, he has always signalled that the start of his ride was going to be a bumpy one.

Second, if support for his stimulus package is tepid, his own approval ratings remain sky-high. His principal mistake in that respect appeared to be to let House Democrats set too much of the stimulus agenda. Message to Democrats: find that abandoned mineshaft in which you’ve hidden Bill Clinton, and have him invite Nancy Pelosi for a barbecue.

On the bailout, my guess is that Wall Street optimists had been hoping for some kind of magic wand to whisk away their woes, restore their profits, and take toxic assets off their balance sheets. Yeah, right. There’s about as much chance of that happening in the near future as of the Italians playing exciting football.

The problems confronted by the Obama administration are enormously complex. As the Economist put it, Tim Geithner wasn’t ready for prime time. But as the details are fleshed out, it may take shape as the most reasonable solution. And while the stimulus package is not perfect, anything which gets money into the hands of US consumers will be better than something which does not.

However, the ride will continue to be bumpy. Having a rough start is not a problem. The literature on the political business cycle in the US suggests that the president does well to do unpopular things early in his presidency, in the hopes they begin to pay dividends at the next elections. 

Things may really start to get rough for Mr. Obama after the 2010 mid-term elections, though. There’s a good chance that a real turnaround will not have yet begun, while national debt will soar. If his party suffer setbacks next year, the period which follows may prove particularly difficult.

In the meantime, though, when one compares Mr. Obama’s start with that of his immediate predecessors, it hasn’t been all that bad – at least, not yet. At this stage in his presidency Dubya was still wondering how they managed to make his office that shape; Bill Clinton was chairing night-long committee meetings deciding what committees he should chair.

Nonetheless, this is a nail-biting time. We’re only just now learning how very close the world financial system came to outright collapse last autumn. If the world economy is being besieged by the barbarians of bad credit and mistrust, Washington may be the last bastion from which a rearguard will be mounted. If the US stumbles its way into a Depression – and it still can – the rest of us will go down. If Washington manages to restore confidence, the world economy still faces a difficult couple of years. But it will not collapse, and can then start groping towards recovery.

So these are tense days and weeks, and all eyes are on the White House, and on the US Treasury. Nobody cheered encore at Tim Geithner’s debut; they were all trying to figure out why the curtain had closed. But everyone’s faith in Barack Obama may buy him a bit more time. Now more than ever, we’re hoping Michelle is pestering him not to screw up, buddy.