WhatNext

The ever-unfolding financial crisis moved forward rapidly today. The big news is that HBOS is in the final stages of a shotgun merger with Lloyds TSB, in fact the retail banking and mortgage behemoth is being taken over.

Normally such a giant financial institutional merger would not be allowed as it is totally against normal competition rules. But these are certainly not normal times, and rightly the rules need to be relaxed if it is clearly in the interests of the world at large.

Morgan Stanley shares have fallen 30% today, and Goldman Sachs shares are also plummeting. After watching Merrill Lynch and HBOS being sold short in the last few days it’s clear that Morgan Stanley is now being targeted by more short sellers. These people profit by driving shares downwards and then buy back in at a reduced price. They only lose when the price goes up, so these leeches make money by ruining businesses. Some consider shorting a safety valve for the market place, when the general trend of stock prices is upward.

I believe this practice needs to be looked at closely and either banned outright or, failing this, it should be suspended when any stock moves more than 5% in any trading day.

AIG, after having $80 billion pumped into it, has been, in effect, nationalized, and this is the first time in history that the American government has taken such an action. The reason for this is clear, the economy simply could not survive AIG collapsing.

Barclays has nearly concluded the purchase of the property related parts of Lehman Brothers, which could mean that not all the staff of that company in the US will lose their jobs.

However if you examine the most important bank rate, that for money lent between banks, otherwise known as LIBOR, it’s sticking at a high level and most worrying of all, indicates that money is simply not flowing between the banks, nor will it do so until this rate is lowered.

As a consequence of the shrinking economy the unemployment rate in the UK has suddenly gone to its highest figure in a decade, and although still at historically manageable levels, is becoming yet another thing to worry about.

The governments of both the UK and USA must take a clear lead in acknowledging these problems and dealing with them.

More important than this, they must, as part of the G8 work out a strategy and publicly express it, rather than react in an ad hoc basis.

We all need to clearly understand why some companies will be bailed out whereas others are allowed to collapse.

This drama will become a tragedy unless and until there is international co-ordination between the central governments of the G8 and the major financial institutions.