Wouldn’t it be nice if, just once, policy makers exceeded expectations instead of falling short? Actually, it would be more than nice: until that starts happening, policy will keep losing credibility.

But it’s apparently not to be. The IMF ministers have endorsed the G7 plan — but there isn’t any plan, just a vague statement of principles.

Krugman also had an excellent NYT op-ed piece, Moment of truth, where he questioned U.S. Treasury Secretary Henry Paulson for letting Lehman fail:

Last month, when the U.S. Treasury Department allowed Lehman Brothers to fail, I wrote that Treasury Secretary Henry Paulson was playing financial Russian roulette. Sure enough, there was a bullet in that chamber: Lehman's failure caused the world financial crisis, already severe, to get much, much worse.

The consequences of Lehman's fall were apparent within days, yet key policy players have largely wasted the past four weeks. Now they've reached a moment of truth: They'd better do something soon - in fact, they'd better announce a coordinated rescue plan this weekend - or the world economy may experience its worst slump since the Great Depression.

Krugman was part of the round table this morning on ABC's This Week, where once again he said that unless the G7 comes up with concrete, comprehensive measures, they will only exacerbate the "cumulative crisis of confidence".

He corrected George Will's assertion that this is only a "psychological problem" and said that the U.S. Treasury's better takes it cue from Gordon Brown to recapitalize banks quickly because "two weeks is an eternity".

Again from Krugman's op-ed piece:

But on Wednesday the British government, showing the kind of clear thinking that has been all too scarce in America, announced a plan to provide banks with £50 billion in new capital - the equivalent, relative to the size of the economy, of a $500 billion program here - together with extensive guarantees for financial transactions between banks. And U.S. Treasury officials now say that they plan to do something similar, using the authority they didn't want but Congress gave them anyway.

The question now is whether these moves are too little, too late. I don't think so, but it will be very alarming if this weekend rolls by without a credible announcement of a new financial rescue plan, involving not just the United States but all the major players.

Why do we need international cooperation? Because we have a globalized financial system in which a crisis that began with a bubble in Florida condos and California McMansions has caused monetary catastrophe in Iceland. We're all in this together, and need a shared solution.

Why this weekend? Because there happen to be two big meetings taking place in Washington: a meeting of top financial officials from the major advanced nations on Friday, then the annual International Monetary Fund/World Bank meeting on Saturday and Sunday.

If these meetings end without at least an agreement in principle on a global rescue plan - if everyone goes home with nothing more than vague assertions that they intend to stay on top of the situation - a golden opportunity will have been missed, and the downward spiral could get even worse.

What should be done? The United States and Europe should just say "Yes, Prime Minister." The British plan isn't perfect, but there's widespread agreement among economists that it offers by far the best available template for a broader rescue effort.

And the time to act is now. You may think that things can't get any worse - but they can, and if nothing is done in the next few days, they will.

I am still waiting from something concrete to come out of the G7 meeting, but I am getting increasingly worried that their vague statements will only accelerate the market's death spiral.

Meanwhile, this morning Richard Fisher, president of the Dallas Fed bank said that the Federal Reserve will consider all policy options necessary to stabilize financial markets and limit damage to the economy:

``We can and we will restore order to the credit markets,'' Fisher said during a panel discussion sponsored by the Institute of International Finance in Washington. He said the U.S. faces a period of ``negative growth'' and pledged that the Fed would do ``whatever'' is necessary to ease strains on markets and the economy.

Fisher didn't offer details on what options may be under consideration. He said he was breaking from Fed officials' public-speaking tradition of not talking on behalf of the entire policy-making Federal Open Market Committee.

``This morning I am casting that convention aside,'' he said. ``I speak for all of us when I say that the Federal Reserve will continue to explore every avenue and consider every option to see the credit markets through the credit crisis.''

Regardless of what happens this week, my next post will look at beyond the crash, focusing on global stocks you should be watching - and there are plenty of them.