A few months ago a senior European central banker confessed that policymakers felt as if they were fighting a financial war. The only problem, he added, was that it was fiendishly difficult to work out exactly who the enemy really was – or where it might be.

It is a comment American financial leaders might echo today as markets reopen. Late last week Hank Paulson, US Treasury secretary, unleashed his most potent, self-styled “bazooka” to date, proposing to use $700bn (€485bn, ￡382bn) of taxpayers' funds to purchase toxic debt (on top of money being used to purchase AIG or backstop money market funds).

In terms of heavy artillery, this is potent stuff. The $64,000bn question, though, is whether it will truly end the fight. For, as the implications of last week's events sink in, policymakers now face a supremely difficult challenge to persuade investors that they are able to turn the recent tide of utter fear into greed. And the stakes in this battle are sky-high. After all, the unpalatable truth is that if this latest salvo does not calm the panic, then Paulson simply does not have many more bazookas left in his arsenal.