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Commentary: Be patient, this will be a slow process with lots of hiccups
Chris Blackhurst10 Oct 2008
Hold your horses. Did we really believe the Government's rescue plan would kick in immediately and shares would race ahead?
This is a global crisis, not one confined to the UK. Every country is working out its problems, banks pretty much everywhere are struggling. Until the full extent of their difficulties is known, there is little chance of the market turning. They need to start believing in each other again — then the red should start to disappear from traders' screens.
It's like the breakdown in any long-term relationship — rebuilding trust will take time. The significance of Tuesday's bailout wasn't so much in the huge dollop of taxpayers' cash being thrown at the problem, but in the concerted nature of the response.
The coordinated interest rate cuts was the first occasion when governments around the world gave the impression of coming together and tackling it head-on. Until then, countries acted unilaterally, to no effect. What may be required is more of the same cooperation.
It may also need other nations to follow Britain's lead and go down the cash for equity route. The Americans are now thinking along the same lines — evidence, surely, that they regard the British initiative as far from poor, but one worth copying. Until all the governments get their ducks in a row there is no possibility of the credit crunch being lifted and funds starting to flow again. The banks may bear the hallmarks of their home nation. But they're not national, they're multinational. Their dealings are interlocked with other banks and finance companies around the world. Until the banks are satisfied no more horrors exist anywhere, they are unlikely to begin lending to each other on a serious level.
They've seen banks go down — the shock of Lehman's failure and the US government's refusal to save it, must not be underestimated and, understandably, they are not willing to have the same happen to them. The other unknown they face is the underlying economy. It's bad, but nobody is sure just how bad. The one is feeding on the other so the lack of credit is pushing the downturn which is impacting on bank profits.
They are locked in a downward spiral and reversing it is going to be a slow process, with plenty of hiccups along the way. And because the banks are so central to business, we're stuck on the same slide. We need to be patient and on days like this, it isn't easy.
