Remember how over the weekend Hank Paulson was on all the bobblehead shows saying that the bailout should extend to foreign firms trading in the US and how he was going to put together a Coalition Of The Bankrupt with other major nations for his bailout plans?

Europe's not interested in buying toxic debt from sinking companies.

Ulrich Wilhelm, spokesman for Angela Merkel, the German chancellor, said there was no need for “a measure along the lines of what has been decided in the US”. Peer Steinbrück, the German finance minister, also made clear after a telephone conference with his contemporaries in the G7 group of leading nations that Berlin did not need to set up a rescue package. ...The French government also said it did not plan to set up a toxic asset fund or contribute to the US scheme. British officials said they had already instigated a special liquidity scheme, but like France and Germany they did not intend to pursue a toxic asset fund. The European Commission made clear it was not planning any emergency measures.

That's a wee bit of a problem for Paulson's plan, and signals exactly how much confidence European governments have in it. And the reason they have so little confidence in Hanks plan is simple - it won't solve the underlying problem which is that too many banks have sailed too close to the wind and are now insolvent. Solving that problem would require recapitalizing those banks and getting credit flows unfrozen again - which would cost yet more untold hundreds of billions and would again reward bad actors for their sins but at least would help people other than the fat-cats at those major banks.

Without such a recapitalization, though, the light at the end of the tunnel is still the oncoming train of recession.

Speaking at the Reuters 2008 Restructuring Summit, Andrew Feltus, senior portfolio manager of an $8 billion high-yield fund at Pioneer Investments in Boston, said the remaining banks will dominate the market, which is "good for them, not good for the borrowers and not good for the overall economy." ...According to bankruptcy data and management company AACER, in the eight months to August there were just over 40,000 U.S. commercial bankruptcy filings, compared with 43,000 for all of 2007 and 30,000 for all of 2006. "The rest of 2008 will remain robust for bankruptcies, as will 2009," said AACER president Mike Bickford. "The generally poor availability of credit has definitely begun to have an impact on commercial borrowers." ...In a survey released on Monday, but compiled in August, the U.S. National Small Business Association said 67 percent of respondents said their business had been affected by the credit crunch, up from 55 percent in February. NSBA head Todd McCracken said the survey was particularly troubling because, unlike the February poll, it only included NSBA members "who tend to be larger and well established." "We had expected they would have less severe problems than we saw in February," he said. "But instead they face more difficulty getting credit. And there's no sign of a turnaround. It's rather alarming."

Originally posted in slightly different form at Newshoggers