Real money was made in this crisis, but it was not on TV

In readiness for a day of carnage, Sky News and the BBC set up shop inside City dealing houses. If the TV producers were hoping for footage of traders standing on tables screaming "sell" while executives loosened the locks on top-floor windows, they were disappointed.

Instead, alarmingly young-looking men twiddled thumbs and scratched armpits, while presenters talked of drama for which there was no visual evidence beyond the trading screens that were flashing red. The market fell on Friday (frisky, freaky — whatever) for a number of reasons, but panic selling had little to do with it.

Market makers, who sit between buyers and sellers and strike bargains for both, say they were frantically busy. But it was mostly buyers on the phone looking for deals, albeit at lower prices.
Manoj Ladwa at ETX Capital says: "Prices were being marked lower from the open as buyers were trying to pick up cheap stock. Sellers were either already out of the market or sitting on their hands." The FTSE fell on the lower bids, which in turn sparked automatic selling by computers that trade with each other — black-box dealing, as it's known.

The computers themselves weren't panicking and neither were the funds behind them. They are just obliged to follow the market lower.

Long-only pension funds and unit trusts were also forced to offload on Friday. They need a certain amount of cash on hand and, as requests for redemptions rise, the fund manager needs to get rid of shares even if he personally thinks stocks are cheap and should be bought.

Some big investors put in caveats called stop losses, which inform their broker to sell once shares reach a certain level. It's just a way of limiting losses to manageable levels — these investors weren't panicking either, merely exercising caution.

For market makers and brokers who make a commission from each trade, whether a buy or a sell, last Friday was actually one of their best days in months. Volumes were up and so were fees. For most of the City, volatility is what pays for lunch.

One influential dealer told me: "No one was jumping off a cliff. Most of us were relieved to be busy."

The real story of Friday wasn't the multi-billion losses, but the people who made money — wheelbarrows of it. For months hedge-fund investors, perhaps including George Soros, have been placing huge bets that the FTSE was heading for a fall by going short of the index.

On Friday those bets came good. At offices where cameras are not allowed, in Mayfair, Monaco and New York, men with meaty watches in open-necked shirts were going berserk.

Reasons for young to be cheerful

Acting from enlightened self-interest is supposed, somehow, to be good for us all in the end. In that spirit I'm thrilled shares and house prices are sinking.

Cheering as the FTSE 100 craters once more earns frowns of disapproval but I'm just doing what economists say I should. If you're more than 25 years from retirement what you want is for stocks to crater — for the index to pass 3000 points on its way to about 1500. At which point my embryonic pension fund can buy shares cheap ahead of a bull market that might last until I stop work.

Houses are also still too expensive and a proper crash would be welcome. What I am after is a massive transfer of wealth from those 50 and above to those 40 and below.

Don't say this is wildly mean-spirited and irresponsible and selfish. It's you folk who want house prices to rally and shares to recover who should be ashamed.

Soon Darling may be your landlord

If you are here in search of optimism, try elsewhere. One day into the great bank nationalisation and it already looks troubled. The main problem is the plan is unsure what it's supposed to achieve, beyond gobbling up massive amounts of our money to save banks that deserve to die.

They have been recapitalised, but to what end? One quid pro quo is that they will agree to lend at 2007 levels, which just seems to encourage more frenzied borrowing.

With the housing bubble still in the throes of going pop, trying to reinflate it seems bizarre. Banks need to lend less — it's going to be painful, but that's how it is.

Alistair Darling wants borrowing costs to come down, but the capital injections have given banks an incentive to widen margins as the only real way they can pay the Exchequer back. If borrowing costs stay high, bad debts will rise and mass repossessions will follow.

Graham Turner, whose credit-crunch book was well ahead of the curve, said yesterday: "It is deeply troubling to hear Mr Darling declare that banks would be run at arm's length'. He was trying to reassure markets, but he merely underlined the flaw in his plan."

Turner believes that the nationalisations are far from over, with the homebuilders next. Labour will be able to keep the housing market alive only by buying up foreclosed properties. "The government," Turner reckons, "will have to become a major landlord".

The Credit Crunch, Graham Turner (Pluto Press, £14.99)

Oil up or no growth – it's up to you

A few spicy remarks have headed this way now that the oil price is hovering below $80 a barrel.
My fondness for quoting oil "experts" you've never heard of, predicting that the long-term cost of a barrel of oil is going to be $200 at least, was always asking for abuse.This call has been answered.

But the oil bears might note that it took the arrival of a spectacular financial crisis and growing predictions of a 1930s global depression for them to be temporarily right.

Demand for oil has fallen a little of late, but assuming there is an economic recovery at some point, it will still run ahead of supply. Opec isn't pumping more oil this year than last year, because, as President Bush recently admitted, it can't.

The future options are these: zero economic growth for perhaps a decade, or oil back towards its all-time high of $147. Take your pick.