The wonder of financial crises is how events can move straight from impossible to inevitable, without ever passing through improbable.
Two weeks ago nobody would have imagined that, before the end of the month, the Bush Administration would have nationalised the world’s biggest insurance company, that two of the four biggest global investment banks would be out of business and that the US Government would take responsibility for three quarters of the country’s new mortgage loans.
Sadly, the events of the past two weeks may be only the prelude, not the climax, of this amazing crisis. Even the apparent rescue of Halifax Bank of Scotland may result in a bigger crisis, if the drowning HBOS drags down its rescuer, Lloyds TSB. If this happens, every big bank in Britain, except possibly HSBC, will have to be nationalised, Northern Rock-style.
The same would become inevitable in the US if market speculators who have been richly rewarded by the US Government for taking down Fannie Mae, Lehman Brothers and AIG, turn their attention to the next group of stumbling financial institutions in the firing line: Washington Mutual, Wachovia, Bank of America, Morgan Stanley and Citibank. If any of these wounded giants collapses, the others will fall like dominoes and the entire US financial system will have to be nationalised. In a financial crisis, the impossible can become inevitable in one day, as we saw in Britain on Black Wednesday.
Not sure the British government is going to nationalise the banking sector. It might compensate the small customers under existing schemes. Governments borrow money as well and the British government is no exception.
The other thing is that ‘British’ banks are international, certainly true of HSBC and Barclays, who by the way are so worried about finances that they are spending £2 billion buying part of Lehman Bros in the States. I wonder if it is necessary to have an exotic sounding Russian or Indian name in order to be an economic expert.
Interesting that the much vilified Glass-Steagal Act can now be seen to have had some value.