Paulson has announced plans -- subject to Congressional approval -- to spend almost a trillion dollars of US taxpayers' money to quarantine all the bad debts that have brought the banking system to its knees. He is proposing that the US government takes over those debts, leaving the banks to rebuild their balance sheets and merge with each other calmly, rather than at the end of a shotgun.

The market rallies were helped, too, by a temporary ban on the short-selling of shares -- meaning that only people who actually own shares can now sell them. The combination of the two events helped markets post record one-day gains on Friday, but it is foolish to assume that the crisis is over.

The world has changed, and there will be no going back. America, the home of the free market, has been forced to nationalise banks and insurers and is now proposing to free the rest of the banking system from the consequences of its own excess.

It is, as President Bush said, unprecedented action for unprecedented times, and it will have to come at a price for the institutions that are being rescued. It was their greed that created the crisis and they cannot expect to be freed from the consequences of their failure.

In Ireland, however, it might have been difficult to notice. The Irish market, along with all the world's markets, crashed and then rebounded, but it did so without ever really recognising that it was part of a changing world.

Our banks, we were told repeatedly, could not be compared with the US banks, had no exposure to the "toxic" financial instruments that had caused such mass destruction on Wall Street, and were in no danger of insolvency or, indeed, takeover. Commentators who warned that Irish banks were fragile because of the uncertain quality of their multi-billion-euro loans to Irish property developers were accused of irresponsible scare mongering, and the Government has been forced to increase fivefold the deposit protection available to Irish consumers because those consumers have been withdrawing deposits from banks and building societies.

Our Government, too, seemed unaware of what was happening outside the very parochial parameters of Irish politics.

Its energies were focused on the national pay talks and on its October Budget, and it had little time to concern itself with a changing world.

If it had, it would have put an end to the nonsensical charade of the pay talks but instead it embraced the process and tried to claim, ludicrously, that the seeds of our economic revival were being sown by their "success".

Somehow, this Government believes that a six per cent increase in the public-sector wage bill over the next 21 months is a good idea and that it will help restore our competitiveness. It thinks, too, that Irish industry will be able to fund the increases and is also prepared to indulge the trade unions' demands for even greater powers.

It is a nonsense, and one that stems from Taoiseach Brian Cowen's need for a deal, even if it is not in the country's interests. The man who lost Lisbon and who went missing during the summer months as the economy contracted could not afford to "fail" to deliver a national pay deal. He and his ministers could not see beyond the parameters of the old world, where pay deals and economic growth were seen as the norm. It was a deal that belonged to that old world, and it has no place in the new one.

The consequences of the global financial market meltdown -- and that is no exaggeration -- cannot be anticipated, but there will be consequences. Already the cry for tighter regulation of financial markets is on every politician's lips, and the process of consolidation in the banking sector is well under way across the world.

Tough regulation sounds good and is necessary, but will be hard to enforce in a globalised economy unless those regulations have global force.

It is inevitable, though, that the banking sector shrinks and that lending becomes far more conservative and more expensive. That will kill off the dubious markets in those esoteric securities that few people in or outside the markets actually understood (even if they claimed to) and it will cause ripple effects throughout the world's economies. Tighter credit will mean less explosive growth, less dramatic profits and a slower, duller and ultimately safer world.

Ireland will not be immune from those changes. Just as pertinently, the specific problems that caused the shares in Irish banks to collapse over the past few months have not been addressed, let alone solved, by Paulson's dramatic rescue plan in the US. If they had nothing to do with the problem, as they claimed, Irish banks cannot expect to benefit from the solution.

Irish banks were not under pressure because of their exposure to sub-prime mortgages in America, or to many of the securities that emerged on the back of those mortgages, but because they had loaned so much money to the Irish property market, and so much of that as the market peaked. They were, too, hurt by the credit crunch, but it was the substance of their loan books that caused international investors to sell their shares.

Investors were concerned, and remain concerned, about the quality and value of the assets against which those loans were advanced. It is a simple enough fear: will property developers go bankrupt in large numbers if the economy continues to contract and house prices continue to fall? Will many homeowners be forced into default because they lose their jobs? And what will happen to the thousands of people trapped in negative equity (owing more to the banks than their house is worth)? Will they keep paying, or will they throw back the keys? No one knows the answers to those questions, and it will take many more months before we have a clearer idea of what the fallout from our own economic stagnation will be.

It is likely, however, that the Irish banks and building societies will not be immune from the forces of consolidation.

Last week Anglo Irish Bank signalled its desire to merge with the much smaller Irish Nationwide, even though it seems that it had not bothered to mention this fact to the Nationwide. Anglo presumably hoped to persuade the Government to stand guarantor for both institutions' loans, but its hopes were dashed. If those were its intentions, it was a smart piece of opportunism but one that had to be resisted by the Central Bank and the Department of Finance.

Other mergers, however, seem inevitable: Bank of Ireland and Irish Life & Permanent is a logical amalgamation, while foreign predators will also be taking a close look. It is entirely possible, too, that the European Central Bank will steer a European-wide consolidation. The global banking sector will get smaller as the number of players in that sector reduces and the business of banking will return to the basics.

In the short term, the ban on short-selling creates a window of opportunity for the banks to raise fresh funds by selling shares to their existing shareholders in a rights issue, safe in the knowledge that speculators cannot spark a sell off in their share price.

Their shareholders may not be happy, but it is an opportunity that may not last and which will have to be seized quickly.

Longer term, their fate is wrapped up in the fate of the Irish economy and particularly the residential housing market.

If prices continue to fall and transactions dry up, then it is inevitable that some developers will be forced out of business -- how many, and the scale of the losses the banks incur on each one, will determine the future health of the Irish banking system. It will survive, but it will not survive unscathed or unchanged.

For the moment, it is safer to assume that we are now in the eye of the storm: Paulson has steadied the markets, but he has not yet resolved the crisis or come up with a solution that is tenable forever. After the rescue there will have to be reform, and the unknown consequences of those reforms will determine the nature of capitalism for years to come.

Ireland is not isolated from that change and the sooner the Government wakes up to the new reality, the better.