THE MONEY MEN SAY it is over. The economists say it has just begun. And the politicians are loving every minute of it. Perhaps it all depends on what the meaning of the word "it" is.

To Treasury Secretary Hank Paulson "it" is the credit crunch. "I am encouraged. I am feeling better about the markets. In terms of the capital markets, I believe we are closer to the end than the beginning. . . . The worst is likely to be behind us." Before you attribute that to the usual cheer-leading expected of a Treasury Secretary, consider the words of legendary investor Warren Buffett, "The worst of the crisis on Wall Street is over."

What these money men have in mind is that the banking system is gradually deleveraging--writing down the rotten paper on and off its balance sheets, and replacing it with massive amounts of new, real capital. Some comes from sovereign wealth funds, although the managers of these enormous piles of cash are somewhat more cautious now that they have seen the value of some of their early forays into such as Citigroup dwindle. Some of the new capital comes from what are called 'bottom fishers"--investors who are willing to buy some of the dicey IOUs from banks at a healthy discount. All in all, U.S. financial institutions so far this year have raised $46 billion in preferred stock, compared with $27 billion in the same period last year, and $41 billion in convertible and common stock, ten times the

One example of the ability of troubled banks to get their hands on new capital: asset manager BlackRock paid UBS $15 billion for a portfolio of subprime mortgages that was on the bank's books at a value of $20 billion--a 25 percent discount. In addition, the troubled bank raised billions from Singapore's sovereign wealth funds, rich Saudis, and its own shareholders. Tough medicine, but at the end a healthier bank.

Not all observers agree with Paulson and Buffett. Consultants Capital Economics advise their clients, "Far from beginning to ease . . . the credit crunch is spreading [from] . . . real estate loans [to] . . . commercial and industrial loans and credit card lending." Loan officers at the Fed concur; they point to tightening loan standards that are "close to or above historical highs for nearly all loan categories."

All of these experts are correct. Paulson and Buffett are encouraged by the fact that the difference between interest rates paid on risk-free government IOUs and riskier bank-to-bank loans has declined sharply, suggesting that banks now think it is less risky to lend to one another than it was a few months ago. They also must find it encouraging that the gap--or "spread," to use money-market jargon--between mortgage-backed securities and ultra-safe Treasuries has fallen in half. Others find it more impressive that the risk differential between safe Treasuries and risky paper remains twice as high as during normal times.