How Hank got his great rescue plan so wrong

What he wanted was a deal that gave him complete power, little oversight and an assumption of total trust — something he got used to as boss of Goldman Sachs.

Hank Paulson seems avuncular, likeable even, and in different times he might well be the man rival politicians would have trusted with a phenomenal amount of taxpayers' money. What he misjudged was just how angry even those inside the Washington beltway are at the banking industry's recent foul-ups.

In a plea to senior Democrats to vote through the money, one of them made the point that many people blamed Republicans for the reckless deregulation and financial engineering that led to the current crisis. "I know, I know," Paulson is said to have replied, which seems like contrition but isn't really.

At Goldman, Paulson would have got his way for a plan where the details were hazy and his whim could rule. It is reassuring to see politics is different, and that even a US Treasury Secretary recently in charge of Goldman Sachs doesn't always get what he wants.

One Democrat who voted against the deal last night put it like this: "Paulson created a weapon of mass destruction when he was head of Goldman Sachs along with a bunch of other people. Now he says, Hey I'm the only guy who knows how to disarm it'." It didn't wash.

Paulson needed to explain why the deal failing would be bad for the public rather than just for his former colleagues, and he never bothered, beyond insisting that this was so because he said it was.

If you think the fall in the US stock market last night makes his point, forget it. The Dow, like most people's houses in America and Britain, is still overvalued. There is a bigger fall to come, and any banking bailout can only delay the inevitable.

The underlying problem is that America's housing bubble burst, making the mortgages beneath it untenable and sending the US economy into a tailspin. Buying off the banks does not address this issue; it merely removes $700 billion that could have been spent on a proper stimulus package, a tax cut even.

Suspicion lingers that Paulson saw what happened to Dick Fuld at Lehman Brothers — his life's work and reputation destroyed — and could not face it happening to him. He wanted to throw public money at Goldman to ensure it survived at any cost. For him, Goldman Sachs going under would be an unspeakable disaster. It isn't clear that it would be for the rest of us.

The dark truth about the US economy is that it doesn't benefit most people. That growth you always hear about means nothing to most of the population, for whom wages have not risen since the 1970s.

Maybe the same old deal will go through in a few days' time, but for the moment there seems to be a genuine appetite for change. Bankers can no longer point to their personal wealth and say it indicates they know better.

Spectre of No vote at Lloyds

What are the chances Lloyds TSB shareholders will reject the HBOS takeover and upset the Government's plans to bolster the banking system?

Before the deal, Lloyds had steered clear of the credit crunch, avoided the subprime fiasco and was still paying a chunky dividend.Since then the shares have sunk, the divi has been slashed and there's growing talk Lloyds might need to raise fresh equity.

When asked to vote, some time after they get documents supporting the deal in November, Lloyds shareholders will be urged to take a long-term view — that this is a one-time chance to create a bank dominant in mortgages, current accounts and savings.

It would be understandable, though, if they looked at what has happened to their shares, noted the bank is weaker than it was and voted a firm No.

Instead of pulling pints, the pubcos piled on debt

If you think the banks are a mess, wait till you see what's going to happen to our pubs. The big pub companies are almost as leveraged as Wall Street investment banks and share their fascination with financial chicanery.

Punch Taverns and Enterprise Inns are loaded with debt that has been spread all over the place, by managers who found simply selling beer at a profit far too boring.

Punch shares took another battering yesterday. At 1201/2p Punch is now worth £321 million, equity that has to support debt of £4.7 billion. Punch insists it won't struggle to redeem a £295 million bond due by December 2010, but investors feel it may have to sell assets at hugely reduced prices to meet its refinancing requirements.

Enterprise is more flexible, but its funding is complex. Even analysts who follow the sector say tangible and intangible assets are jumbled together in the big players' baffling balance sheets.

Reformist landlords in the Fair Pint campaign have asked the FSA to look into the accounting issue, though the regulators have their hands rather full just now.

Still, the pub trade is only going to deteriorate in the next year. Pubs are now closing at a rate of four or five a day. It's going to get much worse.