Commentary: This behemoth can't be allowed to go down

After Lehman and with Merrill Lynch having found a bolthole, it looked as though AIG, the giant US insurer, was destined to be the next in trouble. It is impossible to underestimate the gravity of the crisis if AIG goes. The company isn't just an insurer - it is the biggest insurer and not only of commercial insurance but life assurance and, critically, in the current drama, of financial products. In financial derivatives alone, the firm has exposure of £247 billion.

The consensus is that while Lehman was small enough to be allowed to collapse and Merrill was not, AIG is also of a different order - it simply cannot go down. So the authorities are working frantically to keep it afloat. In due course this behemoth of a corporation may be broken up but that is very different from the signal a filing for bankruptcy would send.

Will they succeed? Who knows. This morning's downgrade from credit agencies S&P and Moody's of AIG is not what the City and Wall Street wanted to hear.

In this country, HBOS, to use a medical phrase, is giving cause for concern. As with AIG, what is driving the shares is confidence. Once that ebbs, they fall. If it doesn't return, and quickly, then the condition is lifethreatening. That is the pattern we've seen throughout the credit crunch of the past year.

It's not helped by the seeming inability of those in charge to act. Unfortunately, this is a different crash from those in the past. Today, there are too many hedge funds stalking the markets for calm to be immediately restored. They feed on volatility and they can make money out of shares going down, by betting they will drop. So the rumours and with them, the roller-coaster ride, is set to continue.

But amid the chaos, there must be hope. Merrill's did not go bust. In time, the job losses from its merger with Bank of America may dwarf those at Lehman but at least we've been spared the undermining sight of tearful employees exiting clutching their possessions.

If AIG hangs on, it could be okay. Likewise, if HBOS can brave the storm. The other banks look to be safe. Fortunately, both Royal Bank of Scotland and Barclays managed to strengthen their balance sheets before this latest hurricane.

The Lehman experience, too, has taught a salutary lesson: Dick Fuld, the bank's imperious leader, clung on too long, holding out for a better deal than the one offered to him by potential rescuers from South Korea. In the end, there was no saviour. At Merrill, John Thain, aided and abetted by the US government, moved quickly and decisively - he conceded independence but he avoided a worse fate. Ego and pride have gone. It's all hands to the pump now.