Reasons to be cheerful amid financial apocalypse

On Monday afternoon I rang a Wall Street friend who used to work at Lehman Brothers. ‘What’s the mood?’ I asked him. ‘Do you think this is the turning point?’

‘Hold on a moment,’ he replied. ‘Let me just climb back in off the window ledge.’ There was a pause, then a nervous chuckle. For the half-second of that pause, I actually wondered whether he was serious. And that was just Monday: since then, things have got really frightening.

The former Federal Reserve chairman Alan Greenspan says the current financial crisis is ‘a once-in-a-half-century, probably once-in-a-century type of event’, but he’s wrong. There has never been a situation like this: the global interconnectedness of today’s markets, the speed of internet communication, the extent to which markets impact on ordinary folks’ pensions, savings and aspirations of home ownership, all make this utterly different to 1929 in New York or 1866 in London.

The pace and reach of the contagion is astonishing. The US insurance giant AIG, an icon of financial sophistication, went from rumour to rescue in 24 hours. By the time you read this, the spotlight in the US may have shifted to Washington Mutual — a Seattle-based savings and loan association that turns out to be America’s sixth largest bank, and may or may not be seriously strapped for cash.

On this side of the Atlantic, all eyes are on HBOS, the merger of Halifax and Bank of Scotland which is the biggest UK mortgage lender, and which has seen half of its market value wiped out by short-selling share speculators in the past few days. No serious commentator believes HBOS is about to be ruined by its domestic mortgage book — and yet rumour feeding upon rumour, malicious or innocent, could rapidly cripple its ability to fund itself.