ONLY a year on from the catastrophic collapse of Northern Rock and some optimistic analysts were suggesting we had reached if not the bottom point of the credit crunch, then at least a levelling off.
Then Lehman Brothers crashed down upon their and our heads from a great height – the biggest victim of the economic downturn yet.
Lehman Brothers is certainly no Northern Rock. When Adam Applegarth's overstretched institution admitted it was
going under, customers rushed to the doors of its branches begging to remove their savings and clear their current accounts.
Lehman Brothers has no such high-street branches. It is purely an investment bank, with no retail arm, meaning there are no small customers to panic over the safety of their cash.
Unfortunately, that does not mean that the man on the street is safe from the fallout.
Lehman – and other investment houses – operate through complex deals, trading securities and debts in order to finance other institutions. Most high street banks and pension funds have dealings with it, or with firms like hedge funds that traded extensively with it.
Administrators PriceWaterhouseCoopers admitted yesterday that untangling even the UK arm of Lehman was likely to take years. During that time, banks will not know the extent of their exposure to the failed bank and customer lending will dry up even further.
But consumers should perhaps be most concerned about the health of the insurance giant AIG. It has already applied for a bail-out of £22 million from the US government and, if it is unable to shore up its balance sheets, could damage millions of customers and companies around the world.
Manchester United will also be worried. AIG is the Premier League champions' main sponsor, having signed a four-year £56.5 million agreement in 2006 – the biggest shirt sponsorship deal in English football.
Other banks may suffer, too. In such a jittery climate, only those seen as the most reliable will be dealt with. It is likely that, had it not surrendered itself to the Bank of America yesterday, Merrill Lynch would have been the next to go.
Private banker Michael Symonds, of Chelsea Partners Private Office, said: "It is fair to say more will follow. Investment banks prospered when times were good and they are now battening down the hatches. There will be further casualties, whether that be for individuals or organisations."
Howard Archer, chief European and UK economist at analysts Global Insight, warned: "Lehman's collapse increases concerns that other banks could fail. As a result, banks are likely to become even more reluctant to lend to each other, thereby increasing the risk that the credit crunch will deepen and last for some considerable time."
Only two of the top four US investment houses remained intact last night – Goldman Sachs and Morgan Stanley.
The freeing-up of liquidity in both the UK and US will go some way to improving movement in the markets, although the funds released by the Bank of England were hugely over-subscribed.
Further state assistance seems unlikely.
The Fed, exhausted from saving Fannie Mae and Freddie Mac, and Bear Sterns, resolutely resisted wading in to pluck Lehman from the tsunami of debt engulfing it.
It is unlikely to play lifeguard when another institution admits getting in over its head.
Justin Urquhart Stewart, investment director at 7 Investment Management in London, said: "It's a return to pure capitalism, the survival of the fittest – the government can't and won't bail everybody out.
"Investors will now retreat to the trustworthy banks, though that's not a phrase that trips off the tongue easily nowadays."
Going down, down, down – global markets plummetAT 8AM yesterday, the London Stock Exchange was forced to rush out an announcement calling a halt to trading in Lehman Brothers until further clarification of its position.
Shares of Lehman in London slumped 84 per cent to 42 cents, before rallying to 72 cents.
At the same time, the dollar was down 2.6 per cent against the Japanese currency at 105.14 yen – the biggest one-day percentage fall since early 2002 – while the euro dropped 2 per cent to 151.32 yen. Seen as a safe-haven, the Swiss franc powered higher against the dollar, which fell 1.6 per cent to 1.1126 francs.
At 9am, after an hour of trading, the FTSE 100 Index had plunged 2.7 per cent, or 147 points , to 5,269.7.
By then, it was also apparent France's CAC 40 had slipped almost 4 per cent, while Germany's Dax (Commerzbank ) fell 3 per cent.
Later in the afternoon, when the American markets opened at 2:30pm, all eyes were focused on Wall Street, where New York's benchmark Dow Jones Industrial Average was down more than 2 per cent, slumping 272.68 to 11,149.31.
Asia's biggest stock exchanges in Japan, Hong Kong and South Korea were closed for holidays, but every market open was deep in the red.
India's Sensex tumbled by 5.4 per cent, Taiwan's benchmark plummeted 4.1 per cent, while Australia's key index was down 2 per cent and Singapore dropped 2.9 per cent.
The full article contains 868 words and appears in The Scotsman newspaper.
