Adrian Hamilton: I wouldn't get too carried away by success if I were Brown

Being a Chancellor with a plan isn't the same as being a statesman

It's not only in the stock markets that shares can rebound with a dramatic rush. Gordon Brown's bounceback has been almost as astonishing as that of the banks he now claims to have saved. And he is right to boast. The Brown package of state-guaranteed loans and direct government shares has become the world standard. Where the US stumbled with a rescue plan rejected in Congress and then savaged by most of the experts and where the EU floundered between the conflicting approaches of an interventionist France and a parsimonious Germany, our Prime Minister stepped up to the plate and scored the home run.

In politics as in comedy, of course, timing is all. You could reasonably argue that Brown himself should carry the can for much of the regulatory failure of the banks by fatally dividing oversight for the financial industry between the Bank of England and the FSA when he made the Bank independent. You could point out that the Government's response was hopelessly indecisive and delayed when the crisis first broke over Northern Rock. And you could argue that the British package was only made possible because of the double failure of the US authorities in letting Lehman Brothers go and concentrating on toxic debt rather than injecting new capital in the banks.

But it was the British officials who saw those lessons and acted upon them. And it was Brown who sold the British model to a reluctant US and a doubtful Europe. This was a man in his element, doing what he loves most – pushing measures to answer problems and acting as a super-Chancellor of the Exchequer.

Yet, if he is to glory in market acclamation, Brown should also learn their lessons. Shares have rebounded, but nothing like near the levels they were only a year ago. Nor have the Government's poll ratings. And the reason is two-fold.

One is that, although markets seem to have concluded that the global adoption of the Brown plan has staved off the imminent collapse of the financial system, it hasn't of itself solved the underlying strain in the system. There is still a huge weight of toxic debt overhanging the markets (just look at the potential liabilities of credit default swaps) and a continuing uncertainty as to who is liable for what.

Beefing up the bank's capital can make them more robust but so long as house prices keep falling and shares are low, then no one is going to be very willing to start lending again, not least because they don't know the full extent of their own liabilities. Hence the steady refusal of the all-important interbank rate to budge from its high.

What the markets are also warning is that recession is on the way and that it may do far more damage than the financial crisis. The two are inextricably linked, of course. But even a recovery in confidence in the banks cannot now come in time to stop an economic downturn – a squeeze that may well be necessary to work the excesses of house prices and consumer credit out of the system.

Nobody knows – unless you're Warren Buffet – just where the markets will move over the coming couple of years. But you could urge their caution on Brown. Good though his package may be, it is not perfect by any means, especially when it is taken in conjunction with recession.

Recapitalising some (although not all) of the banks undoubtedly helps. But once the state gets sucked into the market, it gets into all sorts of complications with the shareholders and with the direction of its interests. Recapitalisation does not mean, and should not mean, a return to the past, 2007 or whenever. The pressure on the Government to use the banks in which it has shareholdings to succour borrowers here and promote investment there, whatever the commercial justification, become irresistible. The last thing an economy suffering from too much credit at too low a price needs is another dose of the same.

And that raises another question over the Prime Minister's role as the new "master of the universe." To claim ownership of a plan adopted by all is natural politics. But it is not quite the same thing being the Chancellor with a plan and being a statesman with a leadership role. Attending the EU summit yesterday, Brown made much of his ideas for global institutions to supervise global finance. Fair enough. But better regulation is for the next round, not this. For now there is a global recession and what is needed is a co-ordinated response and for that you need teamwork, not a relentless insistence that you were right when all others were wrong.

Those who follow markets, know the pattern. Excessive zeal on the way up is replaced by panic on the way down, to be followed by the quick upsurge as dealers realise they have gone too far, before they fall back again as the reality of the environment is fully absorbed. If I was Brown, I wouldn't be too cocky, not at least until winter is over.

a.hamilton@independent.co.uk