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“The biggest fear is that long-term bond rates won’t come down in line with short-term rates. We’ll have the reverse of what we’ve seen in recent years, and that is what is frightening the markets,” he told the Daily Telegraph, while trudging through ice and snow in Davos.

“The mechanism of monetary policy is ineffective in these circumstances. I’m not saying it won’t work at all: it will help the banking system but the credit squeeze is going to go on because nobody trusts anybody else. The Fed is pushing on a string,” he said.

The grim comments came as markets continued to suffer wild gyrations, reacting to every sign of contagion spreading to Europe, Asia, and emerging markets.

Wall Street has begun to stabilize on talk of a rescue for the embattled bond insurers, MBIA and Ambac.

The Fed’s 75 basis point rate cut allows the banks to replenish their balance sheet by borrowing at short-term rates and lending longer term, playing the credit ‘carry trade’, hence the 9pc rise in the US financials index yesterday. But confidence remains fragile.

Professor Stiglitz, former chair of the White House Council of Economic Advisers, said it takes far too long for monetary policy to work its magic. This will not gain much traction in the midst of a housing crash.

“People have been drawing home equity out of the houses at a rate of $700bn or $800bn a year. It’s been a huge boost to consumption, but that game is now up. House prices are going to continue falling, and lower rates won’t stop that this point,” he said.

“As a Keynesian, I’d say the biggest back for the buck in terms of immediate stimulus would be unemployment assistance and tax rebates for the poor. That will feed through quickly, but set against the magnitude of the problem, even a fiscal stimulus package of $150bn is not going to be enough,” he said

Banks and lenders fear this kind of thinking — that walking away from a house could be the smart economic move — appears to be on the rise. Wachovia, in a conference call yesterday, warned investors that increasing numbers of homeowners are walking away from their homes by choice: “… people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they’ve lost equity, value in their properties…”

Calculated Risk notes this is “one of the greatest fears for lenders … that it will become socially acceptable for upside down middle class Americans to walk away from their homes.”

A commenter on L.A. Land this morning writes, “I am one of these people. My condo has dropped in value from $520K in 5/06 when I bought it to $350K now. My ARM payment will probably go up $900 per month in June.

“Despite all this, I would be willing to stay if the bank would refi the loans to a 30 year fixed, but since I’m not a ‘hardship’ case they’d apparently rather foreclose. I guess the only way I could qualify for loan mitigation is to get my boss to fire me, stop making payments, and wreck my credit. In fact, my bank won’t even talk to me until I miss a couple of payments.

The second-biggest French bank said that it had lost €4.9 billion (£3.7 billion) as a result of the rogue trades by a Paris-based trader who concealed his positions through “a scheme of elaborate fictitious transactions”.

It said that it was in the process of dismissing the trader, who had “confessed to the fraud”. Some of his managers would also be leaving the company.

The fraud appears to be one of the biggest in history, dwarfing the £827 million lost by Mr Leeson, whose rogue trading led to the collapse of Barings in 1995.

SocGen described the fraud today as “exceptional in its size and nature”.

The trader, who has not been named, was in charge of trading what SocGen called “plain vanilla” European stock market index futures.

Plain vanilla is a phrase frequently used in the City to describe supposedly simple and straightforward securities, as distinct from more complex and esoteric investments.

Traders in index futures take bets on the future direction of share market indices such as the FTSE 100.

Normally, they are governed by strict trading limits to prevent catastrophic losses, or they hedge their overall exposure with offsetting bets.

Experts say video games can be fun as well as educational, although the outcome largely depends on the content.

“They could in fact lead to changes in attitudes, beliefs, and ultimately, changes in behavior,” said Craig Anderson, a professor of psychology at Iowa State University who studies the effects of video games on people.

The multi-player version of Fuel of War lets gamers connect and play along side or against each other from anywhere in the world.

They can choose to fight for the Western Alliance, made up of the U.S. and European countries, or the Eastern Alliance consisting of China and Russia.

And the choice of weapons is staggering – players can hop from ground combat with an array of hand-held munitions to flying helicopters, planes, or driving tanks – all futuristic designs DeLise and his team created using current weapons and intelligence gleamed from the Internet and other sources on next-generation military hardware.

Fuel of War, set for release in February, is a first-rate shoot ’em-up game with a well developed story line. It is one of a growing number of games that center around the theme of energy.

A previous game from Kaos centered on an oil war in the Caspian region, and Energyville, a SimCity-like Web-based game from Chevron and the Economist Group, lets players plan the energy needs of a future city.

But Anderson, the psychologist, is concerned about the message that violent games like Fuel of War may send to players.

“It may well change attitudes towards the use of these tactics as a political tool,” he said. Players may think “of course we have to use military tactics to go take oil.”

Solazyme is currently producing thousands of gallons of algal oil for use in producing algal biodiesel via conventional transesterification or algal renewable diesel via refinery-based hydrotreatment.

The company also has a research project underway for the production of algal biocrude oil. The biocrude or biopetroleum will be designed to match the composition of light sweet crude oil. The biopetroleum would be fully compatible with the infrastructure that refines, distributes retails and consumes petroleum products—not just automobile fuels but aviation fuel and chemicals as well.

Israel eased the siege for a day on Tueday, allowing in shipments of fuel and medicine. But the International Committee of the Red Cross said aid needed to be allowed into the territory on a regular basis to prevent a complete collapse of health and sanitary services.

“Deliveries of essential humanitarian goods must be secured in the long run to prevent more hardship and to avoid the collapse of the already fragile infrastructure,” said Dorothea Krimitsas, a spokeswoman for the International Committee of the Red Cross.

Israel sealed Gaza on Thursday, halting fuel shipments. Three days later, Gaza’s Hamas rulers shut down the territory’s only power plant, which provides electricity to about one-third of Gaza’s 1.5 million residents.

Krimitsas said the situation remained precarious. Gaza’s hospitals were pooling their fuel to maintain life-saving services such as surgery and intensive care units.

Medical supplies are running out and health staff are having problems getting to work because transportation has become more difficult, Krimitsas told reporters.

“There is no functioning central heating in the hospitals,” she added.

The ICRC, which acts as the guardian of the Geneva Conventions on the rules of warfare, has repeatedly called on both Israeli armed forces and Palestinian militants to ensure that their conflict avoids harming civilians.

Krimitsas said Israel needed to provide conditions for Palestinians to live normal lives without relying forever on emergency relief.