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Former Bank of Thailand governor Rerngchai Marakanond is still going to court to defend himself over allegations that he caused the central bank to incur foreign-exchange losses of almost Bt185 billion as a result of his blunder in defending the baht during the 1997 financial crisis.

The current US crisis reminds me of the work of Tarrin Nimmanahaeminda, the former finance minister, who did so much to save Thailand from the debt of the financial crisis in 1997 and 1998 but whose performance was underrated or even attacked by his contemporaries and political opponents.

If we take a look a close look at the US crisis, we can see that Bernanke and Henry Paulson, the US treasury secretary, are now doing exactly the same thing to save the US financial system. They have come, quite embarrassingly, to embrace the notion that banks are too big to fail.

Their actions have gone against the Washington Consensus, which has been preaching fanatically that a free market works best and that no banks are too big to fail.

Broadly speaking, Bernanke and Paulson are pursuing a four-pronged strategy to save US financial institutions.

The first strategy is lom bon fuk (falling on the mattress). Here the Fed bailed out Bear Stearns by guaranteeing its debt of around $30 billion before bringing in JP Morgan to acquire the troubled investment banking firm. In this deal, the senior debt-holders of Bear Stearns are protected. JP Morgan is also protected from the losses incurred by assuming its liabilities. The largest loss that JP Morgan could potentially incur is around $1.5 billion.

The second strategy is ploi lom pai (let it fall). During the Bear Stearns intervention earlier this year, there was talk that Lehman Brothers, another Wall Street firm, might be the next to fall. Fed and Treasury officials hinted then that they would not bail out any more firms. So when Lehman Brothers ran out of liquidity due to the credit squeeze and its high exposure in the mortgage-backed securitisations, the Fed and treasury officials turned a blind eye. They were of the opinion that the financial markets had already digested all information about Lehman Brothers, so they let the firm file for bankruptcy and become the US's largest corporate failure.

In the third strategy of yang nee tong um (we need to bail it out), the Fed has taken the opinion that some banks are too big to fail, so the government must bail them out. It decided to intervene in the cases of Freddie Mac and Fannie Mae, the two mortgage giants, by putting them under public ownership. Freddie Mac and Fannie Mae together hold about $5.3 trillion of the $12 trillion US mortgage market. Allowing these two firms to fall under would have done irreparable damage to the US financial system. The cost of bailing out the two firms was around $200 billion.

Most recently, the Fed has dished out another $85 billion to take control of American International Group (AIG), the world's largest insurance group. This bailout gives the government a 79.9-per-cent stake in AIG, which it plans to hold for two years before divesting. AIG is getting the Fed's money at a punitive interest rate, forcing it to quickly liquidate its assets to pay off the debt. Again, AIG is considered too big to fail because it has a global reach, including AIA, its arm in Thailand, and could potentially bring down global financial markets.

For the US to adopt a nationalisation policy on private business would have been unthinkable. The free-market thinkers and economists in the US are now looking for shelter.

The fourth strategy is called chuay kan noi (give me a helping hand). The Fed is wooing stronger banks in an effort to get them to swallow up weaker financial institutions. Bank of America, with a much stronger balance sheet, has already acquired Merrill Lynch for $50 billion. Morgan Stanley is seeking a merger with Wachovia Corp, as it is suffering from the credit squeeze. Washington Mutual, another ailing bank, is headed for sale. Mergers and acquisitions will become the name of the game as the US financial system is undergoing a dramatic consolidation in the worst crisis since the Great Depression of the 1930s.

The crisis is not coming to an end yet. We don't know if it will reach a point at which the Fed has to issue guarantees for the debt obligations of financial institutions, a move that might require congressional cooperation. They might want to wait until there is a new administration in the White House. But by that time, it might be too late.