The news from the banks seem to have triggered two kinds of reactions:

one is a further expectation of Central Bank rate cuts to protect the banking sector from systemic risk. As Greenspan unashamedly asserts in this interview (in French), we should not punish the financial world for its follies, because that would have all too real impacts for the rest of the economy - in fact, we should save them to save theeconomy, thereby "forgiving them for their excesses. Bernanke is on the same line, and the financial markets thus expect once more that their losses are insured by the Fed (i.e. by us) and that they can go back to betting merrily;

another is an expectation that the banks have finally managed to put a tag price on the recent crisis and, as a lot of the crisis was about the uncertainty on the losses, and the fear that it was bigger than aticipated, the certainty of having a clear number is good news, whatever the actual number. Banks have cleaned up and can move forward.

So, losses swallowed, we can go back for one more merry round of the great bubble making machine...

... except that things are not so rosy. The other argument used to be bullish is to look at China, and other emerging markets, and expect them to "save" growth for the world on their own. We've had a whole spat of articles outlining how Chinese growth was actually contributing more to world growth than the US right now, and how China itself was increasingly protected from the vagaries of the US economy thanks to its larger exports to other regions (Europe and the rest of Asia, mainly) and to its own solid domestic demand.

Markets are very obviously betting that multinational companies will benefit from that trend:

The Dow’s resurgence shows more confidence in the rest of the world than in the US. Since it peaked on July 19, the best Dow stock is Procter & Gamble – a consumer group with steady demand for its products which gains from a weak dollar because it sells all over the world. It is up 12.75 per cent. The worst performer, down 16.3 per cent, is Home Depot, which is primarily a play on the US. A consumer-led recession would clobber its profits. This Dow peak reflects bullishness on emerging markets, but not on the dollar or the US economy. (FT)

So the health is the US corporations is becoming completely decoupled from that of the US economy, which is a frankly new development. That may or may not be a good thing (it certainly is for the investor class), but it is worth flagging, as it is likely to have far reaching political consequences, given US corporations' influence on domestic US politics. The interests of US corporations and US citizens have never been completely aligned, but at least they were still falling somewhat within the same community. It may no longer be the case at all.

Which is worth pondering.