Carnage on Wall Street

This is simply the most extraordinary day in financial history in the last eighty years.

The Dow Plummets The Dow Jones is down 780 points on the day as Wall Street reels from the rejection of the bail out plan for the US financial system. In just one stupendous day we have seen the collapse and nationalisation of Bradford & Bingley, huge financial support for the EU bank Fortis and the forced takeover of US bank Wachovia by Citigroup.

The Bush administration is now a totally lame duck Presidency and there will be carnage in the market tomorrow as the fall-out from this vote stretches out first to the Asian markets and then to European stock exchanges. The fall today in the value of the US stock markets was estimated at $1 trillion - that is above the expected value of the financial bail out programme of $700 billion.

What about the UK

We have to make a distinction between savers and shareholders. The government operates a savings guarantee scheme which protects savings deposits in failing banks up to around £30,000 per institution. All deposits are guaranteed with the Northern Rock and there are plans to raise the deposit protection to £50,000. The government is going to have to move pretty damm quick on this one. There are many thousands of people with large sums on deposit in our major high street commercial banks well beyond the maximum of the customer deposit scheme.

Shareholders in Northern Rock, HBoS and Bradford and Bingley have seen their shareholder value destroyed by a combination of collossal mismanagement and global financial turbulence. That is the risk we take when we take an equity stake in a business. But the UK government must now decide how much further it is prepared to support banks on the brink of collapse.

Time perhaps to put every dime into Northern Rock to take advantage of the guarantee?

Today’s mortgage lending figures are truly horrific.

Corporate Britain

Falling house prices and falling share prices are likely to cause further pressure on the banking sector

It will become increasingly difficult to get a loan - be it consumers or businesses

What happens when an airline needs to borrow to finance its business and keep flights in the air?

Or a major steel plant that needs fresh finance to cover higher fuel bills during the winter?

Consumers are not stupid - they know that taxes will have to rise to fund the startling rise in government debt and a budget deficit that could exceed £100bn next year - remember that number - a government in Britain borrowing more than 8% of our annual GDP