The Big One 2 – Banking Crises Explodes

When the Credit Crunch devoured Northern Rock I remember going into the main office and saying \"We are living through history guys\", in the dramatic way that I tend to adopt sometimes.

After yesterdays events, I now realise I should have saved those words until today.

On August 20th I wrote about the growing feeling in city circles that a big one was going to crash, Lehman’s was the name on many peoples list.

A big 2 though was not contemplated.

Let’s put this into perspective.

Lehman Brothers has been around for some 158 years, it is the 4th largest investment bank, a household name that has survived amongst other trifling things The Great Depression.

It has not survived The Credit Crunch.

For Lehmans’ filing for bankruptcy is a massive blow to the financial system as other banks unwind their dealings with them.

On the same day, we have the news that Merrill Lynch is to be bought in
rescue package worth $50 billion by Bank of America.

As Robert Peston, the BBC’s Business Editor says: ” That Merrill is steering itself into safe harbour, no longer confident of its future as an independent, is
almost as shocking as Lehman’s demise.”

There is also a further fear that AIG, one of the worlds biggest insurers, is also tottering.

So, as the markets around the globe go into meltdown as it digests an extraordinary couple of days, the question is how will the mortgage markets in the UK be affected ?

The Bank of England has already made the following statement.

“Following the announcements overnight, the Bank of England will be monitoring carefully the conditions in sterling money markets and will take appropriate actions if necessary to stabilise those markets.”

What these “appropriate actions” are remain to be seen, as does the effect of this news on the LIBOR rates that have been artificially high for so long now and had been easing slightly.

Calls for interest rate cuts are growing ever more sharply.

As I said back in August, my optimistic view is that, although it is big news, it is not the massive shock it may well have been. As long as LIBOR holds steady I think we are unlikely to see UK lenders run to the hills again.

There may be a dodgy couple of weeks, but I hope that ultimately the slow course of recovery we have been seeing recently in the UK mortgage market will not be knocked off course.