Last week’s 18 percent stock market plunge was sparked by fear that the American economy is headed into a deep recession driven by a disastrous worldwide freeze-up of the credit system. Monday’s 11 percent rally reflected hope that the industrial world’s governments are finally coming up with an adequate rescue plan.
The critical thing now is to get that rescue moving quickly. The longer world leaders wait, the deeper the credit freeze gets, and the harder it will be to thaw. The U.S. Treasury must take a cue from European central bankers and take three immediate steps:
• Begin injecting capital directly into American banks to assure the world that they will not fail and so they can resume lending normally.
• Guarantee all American interbank lending to get credit’s basic circulatory system flowing again.
• Speed up the process of buying toxic mortgage securities to get them off the books of struggling banks.
Meanwhile, Congress must make it clear that it will raise the $700 billion limit on the bailout bill if necessary — because it may be. European governments over the weekend put $2.3 trillion on the line, and Britain injected $64 billion directly into its troubled banks.
Whatever it takes, the goal must be to restore confidence — faith that banks won’t fail and that lending to them is safe.

Just two weeks ago, the nation conducted a rancorous debate over the wisdom OF bailing out Wall Street and the banks. After fits, spurts, an injection of presidential politics and one rejection by the House, a revised $700 billion bailout package became law on Oct. 3.
How quaint the free-market arguments against the bailout seemed after last Friday capped an eight-session, 2,400-point drop in the Dow Jones industrial average. Retirement savings have shrunk, car loans have dried up and solid companies have had trouble raising the short-term cash needed to cover inventory and payroll.
Treasury Secretary Henry Paulson believed he could stem the crisis by buying up bad mortgage securities on banks’ books, a cumbersome process that would stretch over many weeks. Events overtook that plan as the credit seize-up grew critical.
Now the Treasury is headed for a more direct approach: giving banks money in exchange for an ownership stake. Meanwhile, Europe’s fractious governments finally have agreed on a common policy after two weeks of country-by-country actions that sometimes undercut each other.
Result: The markets calmed down on Monday.

The bailout plan is not popular, and that’s understandable. Many Americans are rightly concerned that Wall Street bankers and financiers aren’t paying an appropriate price for running the economy into a ditch. Yet the alternative — a deep, long-lasting recession — is worse.
The bailout doesn’t have to be a giveaway. The Treasury probably will get preferred stock in the banks. Such stock pays dividends when firms make profits, and if the banking system recovers, then the stock will have value that the Treasury can recover by selling the securities in the market.
The same is true for distressed mortgage bonds the Treasury will purchase. There’s a reasonable chance that their value will rise after the housing market hits bottom.
Over the long run, taxpayers probably will recoup most of the money used for the bailout; we might even make a profit. The government has the right and obligation to police the program so that profiteers don’t undercut the taxpayers’ return.
In just a few short weeks under a conservative Republican administration, the federal government has become more deeply involved in U.S. financial and banking markets than at any other point in its history. Indeed, the one time Mr. Paulson stepped back and let the market work by allowing Lehman Brothers to fail, the non-intervention set off panic.
An effective rescue now can forestall a serious recession. But there’s no time to lose.
Caption: A worker operating a monitor smiles on the floor of the New York Stock Exchange a few minutes before the closing bel.