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Mirabile dictu, says John Plender. Bank shares are upwardly mobile in Europe. In one bound we appear to be free.

Here at FT Alphaville we are appalled.  Which scandalous rumour-mongers made a packet on Tuesday pushing up bank shares on the basis of no news at all?  Where are these cynical long buyers, who last night were quaffing champagne in Mayfair restaurants after amply lining their bespoke-tailored pockets? Hbos was up 15 per cent, for goodness sake. It’s just not normal. We call on the FSA to investigate.

But the bull run may not persist, in Plender’s view. Bank shares may be up:

But not for long, in my judgment. It is, admittedly, positive for short-term market confidence that the Fed has demonstrated an unambiguous urge to throw everything that can be thrown at the credit market problem. Yet, its actions so far constitute the easy part of crisis management, if anything in central banking can be called easy.

The Bear Stearns rescue addressed a liquidity problem. But this crisis goes beyond that, he adds. Many US households have negative equity in their homes, and the rot spreads from subprime to prime. In the corporate sector, a solvency trap looms as pension liabilities swell because of lower discount rates. The pain is exacerbated by the decline in equity markets.

Where will it all end? Not before banks, investors and regulators can put realistic values on the securitised products in a broken financial system, which is the nub of the solvency issue. For that to happen, the housing market has to stabilise. For that to happen, the housing market has to stabilise. Hence the moves to grant Fannie Mae, Freddie Mae and the Federal Home Loan Banks a looser capital regime so they can pump liquidity into the mortgage market and the market for mortgage-backed securities.

Yet, these are huge markets that will not be easily propped up. There remains the possibility that governments and central banks will end up investing heavily in mortgage-related products in the attempt to establish a base from which active trading can recommence.

Again, notes Plender, the burst of optimism in the equity markets contrasts with perceptions in the debt markets. Progressive convergence will bring a painful adjustment on the equity side of the equation. Bear Stearns will not be the last institution that proves too interlinked to fail.