And if this doesn’t work…

With Treasury markets shut for Columbus Day, flight to the relative safety of T-bills will be muted, potentially limiting the downside in the stock market. So the timing may be perfect for a deal to sell a chunk of Morgan Stanley to Mitsubishi UFJ Financial Group. Morgan Stanley’s stock was up by a quarter before the market opened, after slipping so low last week that the 20 percent stake that the Japanese bank planned to buy for $9 billion was worth more than all of Morgan Stanley.

The New York Times suggested the U.S. government would back the deal if need be. Though details of the transaction released this morning made no mention of any government support, it doesn’t seem such a stretch, given that governments around the world spent the weekend figuring out how to shore up global banks.

The UK pumped 37 billion pounds ($64 billion) into Royal Bank of Scotland, and bailouts await HBOS and Lloyds TSB when they complete a renegotiated merger. Barclays hopes to raise 7 billion pounds ($12.10 billion) in extra capital from private investors rather than government funds.

The cables attached to the UK bailout are stronger than anything the US Treasury seems likely to insist on. Banks in Britain are resisting aid, fearing government ownership and government management. Since such socialist remedies would be a bitter pill in the U.S. no matter how sick the banking sector gets, US medicine for the financial sector is still likely to taste more like candy.

Deals of the day:

* Three major South Korean corporate groups, including a consortium of steelmaker POSCO and energy-construction group GS, have submitted final bids for the controlling stake in Daewoo Shipbuilding & Marine Engineering, the companies said.

* British back-office outsourcing firm Capita Group said it bought network services company ABS Network Solutions for 13.6 million pounds ($23.25 million).

* Australian insurance and banking group Suncorp-Metway is considering its options on a possible sale of its banking and wealth management unit, Suncorp said, amid a report that it had shelved sale plans.

* Australia’s CSL, the world’s top plasma products group, said the U.S. Federal Trade Commission had asked it for more information on its proposed $3.1 billion takeover of smaller U.S. rival Talecris Biotherapeutics.