The Obama administration's programme to revive the economy and stabilise the financial system has got off to a rocky start. There has been much bickering in Congress about the content and the implementation of the plans. Ideology and politicking have been stumbling blocks, and a fumbling start by the Treasury Secretary on the bank rescue plan has made it even worse.

The stimulus package has been criticised for being stuffed with pork. But that's the way Congress always works, and this case is not an exception. Aside from that issue, the bottom line is that the mix of tax reductions, increase in household benefits and government spending will indeed have a positive impact on economic activity. It is correctly designed to boost consumer spending as soon as possible, while investment expenditures will kick in at a later date.

Money in the hands of distressed households will be spent immediately, and this will start to help the economy, beginning in the second quarter. As consumer spending begins to pick up firms may need to increase inventory and eventually boost capital spending. However, unemployment may keep on rising before it stabilises.

Cash-strapped states will also get some relief, helping them to maintain their spending programmes. Government investment expenditures on such things as infrastructure projects will take longer to implement. They will start slowly in the second half of the year and extend well into 2010.

We are not a fan of big government, but the economic situation is so dire that massive government intervention is unavoidable. Leaving it to the market to sort out a solution would increase efficiency but would also result in an even more brutal recession than is currently projected. It would be politically unacceptable.

But the costs of government intervention are significant. Efficiency is undoubtedly reduced as failed firms and individuals are saved at the expense of successful ones. In a properly functioning market system excessive risk-taking and bad business decisions are punished and good ones are rewarded. As a result, successful entities take market share from unsuccessful ones and the whole economy prospers.

When the government steps in to shore up failed entities, we may end up with zombie companies that will suck up public funds and may not return to full competitiveness. However, in the case of the major banks, because of their crucial role in the payments system, they cannot be allowed to fail. In dealing with their problems what is required is a bold and focused action plan. Unfortunately, Tim Geithner's plans for the banking system are indecisive and vague. No wonder that he got the thumbs down from the markets.

All the subterfuge can't hide the fact that many of the banks are essentially insolvent and the best way of handling the problem is to nationalise them, clean them up and re-privatise them. But this course of action will mean that current shareholders, bondholders and management will take a major hit. Well that's how it should be. They took the risks and now should suffer the losses.

However, the American model of capitalism is hardly a purely entrepreneurial one. There are liaisons between corporate interests and the state; and the moneyed interests are not keen on suffering major losses. Besides, until recently the banks in question were being touted as the leading lights of American capitalism.

The government went to great lengths to open up foreign markets so that the banks could expand their international activities. And as we know, they sold huge quantities of toxic assets around the world, polluting balance sheets everywhere. Anyway, the intention is to rebuild these brand-name banks and maintain their position in the global market.

Bashing bankers has become a favourite sport on both sides of the Atlantic. Naturally, the bankers pretend to be contrite when grilled by this or that committee. Generally, they have got off lightly, given the scale of their errors. In fairness, we should note that it was a competitive game that they were all forced to play. If your competitors are taking excessive risk and making huge returns then you have to follow suite or face the firing squad if you only produce meagre returns.

Recently, we have heard more stories about the fate of risk managers at these banks who dared to speak up about the excessive risk taking. Unsurprisingly, they were fired for being outspoken. The smart ones took notice and kept quiet.

And what about the central bankers who kept on topping up the punch bowl when the party was in full swing? Well, they are still in their posts and have largely escaped censure. Who said the world is fair?

Iraj Pouyandeh is a strategist and senior portfolio manager at LOM Asset Management. He manages the LOM Global Equity Fund. For more information on LOM Asset Management please visit www.lomam.com