ΒιΆΉΤΌΕΔ

Helicopter Ben lives up to his name.

I've made a mint this morning, god bless america.

Nothing like fighting fire with fire. This strife was caused by Interest and it is now being attempted to solve it by Interest. When will everyone wake up and realise that the current interest based monetary system is flawed, creates no 'real' output. Ever wondered how the divide between the rich and poor has been growing globally? It doesn't bother the elite whether interest rates rise or fall, they still make money! Its about time we put our foot down and demanded a more equitable system based on profit sharing between lender and borrower, in which risk is looked at more seriously.

it really it starting to get very very scary. Global financial meltdown is becoming a real possibility.

Let's hope the BoE doesn't follow suite..

Although it may not impact on the FTSE either way as sure as eggs is eggs the banks will quickly resume their bad habits and house prices will start going up again as cheap mortgages come on the market again, those useless and pointless private equity companies will be let off the hook and the mindless consumer will help suck in more imports.

In fact, if the BoE had any sense they'd do the opposite to the Fed and put at least a quarter point on the based rate!

This post is spot on!

The leaks re the cut seem to have been an attempt to stop freefall on the US Stock Exchanges.

At times like this I am reminded of the phrase "talk softly and carry a big stick".

It seems Messrs Bernanke and co seem to be talking loudly and have nothing to hit the markets with.

This whole scenario sounds eerily similar to the one way bet on sterling immediately prior to the breaking of the tie to the ERM and we all know where that led.

I fear it is goping to get a lot worse before it gets better.

Every cloud has a silver lining
Richo
Insolvency Practitioner

Yes it's a sign that the Fed are concerned but that's not a bad thing. It may not have an immediate effect but it has to be the right short and long term decision. The market is largely being driven down by sentiment rather than fundamentals. It will take a while for consumers to regain confidence however this is a great first step and one our own Bank of England should follow - they really should have cut rates again in January and must now be bitterly regretting not doing so.

Couldn't agree more. The markets will soon realise that this is pure panic on the part of the Fed. The bounce will be short-lived I'm afraid.

Action = Panic
Do Nothing = Fiddling While Rome Burns

Isn't it easy writing a blog. You just cant lose!

Humph!

Doom-mongers it is then. I hope that being 'right' will keep them warm when their self-fulfilling prophecies come true and they, along with thousands of others, lose their jobs.

Robert,

I find your analysis fantastic. I have always been interested in ecomomics, but your analysis is very clear and full of insight.

Fancy setting up an online course in economics?

David

So Robert - is this big kneejerk move, which clearly smacks of panic, whereas it could have waited a week to appear much less jittery, is in fact a rational move because the Fed knows something we don't? i.e. is it trying to create an optimism and impression there are buyers in the market, ahead of something really dire that is due to happen before the next meeting?

I'm thinking of a multiple monoline ratings downgrade or even insolvency - so bad and with such bad consequences that to leave the rate move a week would be too late?

Many ordinary people would be grateful if Robert could tell us (preferably on the 10 o'clock news!) how this might affect us in terms of ordinary things e.g. employment, house prices, where are our savings safe?

Fed chairman, Ben Bernanke's writings as an academic indicate that that he takes the view that, in the past, central banks have been too slow to act as economic downturns take hold, especially when the inflation picture is confused by rising oil prices. He's probably right.

Once again, the US consumer is asked to spend us all out of recession.
Maybe the BOE will follow suit and encourage the UK consumer to spend, spend, spend until we're all spent out.

If this succeeds, UK house prices would continue to remain out of reach for first time house buyers.

For somebody whose planning to move to the US in the near future I'm not sure if this is good news or bad news.

Good to pick up a cheap house, bad for a job perhaps?

so so irresponsible. Fed the lap dog of US investment banks. Greenspan would have known better.

The US stock market isn't cheap, so why take such drastic action to try and prop it up? Alan Geenspan got a reputation for repeatedly misusing rate cuts to try to prevent the stock market falling back to a sensible level. He did a lot of damage in the process.

Lets hope this rate cut fails to push stocks up but that the US doesn't fall into a recession.

Since the Fed doesn't mind stocks going up too much, it shouldn't mind them going down sometimes.

All Fed employees should be investigated and if any of them are found to have leaked information of an interest rate cut prior to it being announced then they should be charged accordingly.

Can one imagine what our economic situation would be in such a global recession (according to the ΒιΆΉΤΌΕΔ - the biggest since 1945) if we had a Tory Govt. managed by the Lamont adviser, PR Boy Dave Cameron?
Let us ex Tories, sorry conservatives, remind you:
3.5 million unemployed, 59.7% of GDP in national debt, 16% interest rates, and 7 to 9 per cent inflation rates! All that when we had to wait for 2 years for a heart by-pass, and 4 years wait for a hip replacement!
The Tories gave us recessions when Europe and USA were having increases in their economies of 4 to 6 per cent every year!
Thank God we voted Labour in 2005. Yes, I know, it is very painful to digest the truth, but hey, who said that Cameron is going to last another year as leader?

It is good to see the Fed is not ageist and is employing the erstwhile Corporal Jones in a senior role.

The bankers have to take the responsibility for all this panic. There is enough activity in the economy with people getting by in their lives, working, selling and buying what they need. Why change it?

Then bankers decide they can make a killing lending money to people with nothing. Then when it goes sour, as it inevitably would, the bankers then refuse to lend money to anyone.

The bankers have lost the plot. They have a death-wish so perhaps we should just let them die.

I have been here before US equity in 1987. FX 1991 Because we had such a long boom this time around - ie since 1996 I would say. We can expect a long recession in the west. Pobably 5 years? However I think Asia will continue its expansion albiet a slower pace.
The real loosers - UK Mortgage owners on 100/- plus borrowing and people coming up for retirement.
Feds 3/4% drop will bring sterling under massive pressure - I bet we wish we were in the Euro now!!!

The last time I saw a central bank behaving like this was in 1992 and it didn't save us that time either.

There's no pleasing some folks, is there!!!

If interest rate cut is the only weapon in your armoury Don't you think you should use it wisely?

Because once you have used all the bullets you are dead.

Having just accused the US Government recently of doing "too little, too late" commentators are now accusing it of panic. Bringing interest rates down fast and hard is needed to bring liquidity into the financial sector; there was little point in delaying that decision for another week and then making a small adjustment that would have had little effect. It seems the FED did what they had to do and will now have to suffer the cat-calls accordingly from its critics. Let's hope a good old dose of practial realism creeps back into markets and we don't talk ourselves into a full blown recession.

> A disturbing victory for the forces
> of darkness.

Hold on! Why should a rapid inflation
of the value of my cash and property
assets be called "dark"? This is great
- we can buy more company shares than
ever, thanks to this! Let's pig out,
once it hits bottom.

Now there's something you can do ...
let us know when it's safe to buy!

Perhaps the best confidence raising measure is for the various financial institutions to claw back the $66bln of bonuses (paid this year on dubious value creation) and recapitalise.

The credit crisis has its roots in trust and the reputation for initially banks and now politicians is suffering. An even hand is needed on the tiller - and measures to curb excessive reward/greed may just help bring the ship around. These are the people who are supposedly stewarding funds not just stealing the milk.

As you mentioned this morning, Robert, this is a crisis of SOLVENCY not a crisis of liquidity.

"When the only tool you have is a hammer, everything looks like a nail" (Abraham Maslow)

Flushing the market with cheap dollars will flush the dollar down with it and not make a jot of difference to bank solvency.

Recession is coming to the US and UK, and unfortunately cheap money (and central banks' nasty habit of solving problems with cheap money) is largely responsible.

Let's hope the UK has a little more sense than the Fed.

There is still time not to repeat their mistakes.

quick, print more money!

At 2.45pm on News 24 I have just heard the worst example of a journalist spreading panic.
A dark haired woman referred to the bear market saying that it was just like the bear market of the 30s and implying that there had not been anything like it since.
This is totally irresponsible as we all, who have been investors for a long time (in my case since 1955), know these things come and go and that one absolutely must not panic but just sit tight. Don't spread panic.

"worst January stock market falls since the 1930's"

It's life Jim BUT not as WE know it !!!!

David, post 12 and anyone wanting to know more about economics would be strongly advised to read Paul Krugman's book The Accidental Theorist: And other dispatches from the dismal science.

It is published by Penguin and available widely. It is easily accessible and in small doses deals with key economic and financial issues. It is ten years old but no less relevant for that.

Helicopter Ben fires yet another dud...

He can cut rates back to 1 percent, and all it will do is inflate another bubble in another area of the system. The problems we have right now are a direct result of the easy money policies of the Federal Reserve. More easy money is not the solution. We're going to have to ride this recession out. Things have gone too far. Anyone who is not worried about inflation clearly has not had a look at the prices of commodities recently.

My predicition is that the Dollar is going to become the funding currency of choice and the USA is going to go into a recession for as long as Japan has been in recession.

As an offset mortgage holder in the UK, with a rate which tracks the BofE rate I certainly do hope that the BofE follows the foolishness of the Fed and cuts our rates by 75bps....

5. At 02:26 PM on 22 Jan 2008, Scamp wrote:
Let's hope the BoE doesn't follow suite..

In fact, if the BoE had any sense they'd do the opposite to the Fed and put at least a quarter point on the based rate!

Interesting point scamp but surely that's madness. Explain your thinking.

Daft reducing rates in a panic in the US - I feel they should be going up in UK to encourage us to tighten our belts further (cure obesity as well!)and help us keep the sliding pound up. Everyone who is in the real world knows that we import just about everything in the UK and inflation, now running at nearly 20% for most pensioners ( food,fuel, insurance)will rocket still further if the pound is allowed to further slide. If I want economics I will read this blog - the FED, Brown and Darling and the BOE are only interested in politics.

What a doom merchant Mr Peston. If the Fed had taken no action, you would have been the first to criticise their inactivity. Instead, they take decisive action and are deemed to be panicking! They can't win. The real panic is emanating from the sheep at the stock markets who are unable to place accurate valuations on companies and simply choose to follow the masses.

Based on the fact the Fed has access to better economic data than probably anyone else there must be some big, big downside risks.

It does smack of panic. Shock cuts.

I don't think the FTSE has bottomed out. Values of around 5200 are being discussed by commentators.

Let's all hope not.

The US and the UK have been in denial for years. We chose to overlook overheated commodity and asset price inflation for years as long as we were all making a quick buck or being re elected.
Those who saw this coming were happy to play along : as long as the next bonus/ election was in the bag why would they rock the boat.
Recession is unavoidable and if it doesn't kill us, might actually do us some good.

Cutting rates to stop a recession is like pushing on a string

As we watch this wretched mess get steadily worse pause awhile and reflect....

Perhaps we should rue the passing of Captain Mannering style banking.

I wonder what Ben Bernanke's torch song of choice is?

We all know Norman Lamont had a taste for Edith Piaf and "Je ne regret rien".

I can see him as the Emcee in Cabaret singing "Money makes the world go round" but then again he might not have the legs for it.

Panic at the Feb. Perhaps they have been reading your blog Robert!

I'm suprised some people do not know the link between US rates and rates in the UK. You just need to look at globalisation and that money markets stretch across the globe.

Although this problem started in the US it remains a mainly US problem but involves most countries around the world as most banks have exposure to the sub prime markets and are having to make massive write downs resulting in them conserving cash to their borrowers in their own respective countries.

This results in a sharp reduction in credit/investments funds to borrow for both residents and companies alike thus resulting in less money being spent and then less people being employed, less tax receipts and less profits. The idea that house price falls will help the first time buyer is laughable in this climate as quite clearly job security is at risk.

People may say inflation is a problem, i'm sure it is but this worry will fall out of the window when a deep recession hits or that inflation targets may need to be revised from 2.1% to 3.1% in order to take into account the new oil price levels.

Either way I agree with Hassan that interest should be done away with altogether.

Clearest yet effect of the knee-jerk nature of the global economy. Markets dropped when the President announced tax cuts. Rates cut when markets dropped. Markets dropped when Fed announced rates cut.

it seems Pessimistic Peston only delights in bad news. when was the last time he ever posted anything positive on his blog.

This current situation is becomong a self fulfilling prophecy. If enough people say we are in economic melt down then it may just happen.

The fundamentals in the UK economy are no different then they were 6 months ago. The current situation is nothing more than a buying opportunity. Thanks very much Peston

Its the hint of triumphalism in Peston's update (15:19) that sickens me. The economic media are loving all this gloom and doom.

Ever noticed that when world markets fall they get posted on the front page, when they rise by a similar amount it gets hidden away on the business page.

No news really is good news!

It seems to me that Robert Peston takes the greatest pleasure from the falling markets and the liquidity crisis (not a credit crunch!!!). He also seems to have a following of like-minded malcontents who seem similarly staistfied when the markets fall or the news is bad.
I may have got this wrong but it is my understanding that reporters are supposed to report the news objectively whether the news is good or bad, instead in Mr Peston I see a reporter who is not objective and who's reporting style can be best described as 'tabloid'. The last sentance on his blog today continues to prove my point!!!

As a fairly long term investor myself, I agree with Joy Hodgkinson's comment. These things are cyclical - it's not so long ago for example, that the Footsie was languishing at around 3,500! It's not the end of the world and it's not helped by irresponsible doom-laden media comment.

Looks to me as if the players (stress on the play aspects here??) in the market can behave just as they like, and, as one of them comments, still "make a mint" and also be absolutely certain governments will try to bail them out because of the pensions position of so many people at least in the more developed economies.

No real market forces in evidence here whatsoever. I thought banks making bad loans were supposed to go to the wall?

And is it just me, or do stock markets do rather well just before city bonuses get paid and then fall back afterwards on some lame excuse? Only this time people seem to be having trouble finding the excuse.

Time we got some ethics and morals into the economy and the stock market in particular. These are factors that affect most normal people's decision making but that are absent from so much of the Game Theory basis of modern capital and share markets where the emphasis is far too much on "making a mint".

The real problem is that thanks to Gordon Brown's constant changing of the goal posts on his so called "golden rule" the situation economically is that the UK economy is in a deep and horrible mire with the only hope being that today's Fed cut in intetrest rates will stabilise things for a while. Otherwise thanks to "prudent" Gordon the UK economy is in for the deepest and longest recession for many many years possibly since the 1930's depression - or possibly worse.

All this kind of talk does is scare people, I've worked in finance for a few years and even people in my office are in a panic and all about not a lot, if we're honest.

We all knew that this was coming, property and America has been in freefall for sometime and now it has finally come to a head, rather than scaremongering and making it worse can we please have some calming and soothing words to stop the panic before it DOES become serious.

Bob cant control the market, neither can the BoE or banks ( UK or US).

Its a market and its driven by fear, greed and the laws of supply and demand. Period.

What we are seeing is no different to the other 'crisis' ( so called and ever hyped by the media)

Some calm mature reflection please and remember if you dont know how stock prices are worked out you would be well advised to keep your opinions to yourself.

Markets are driven by sentiment and greed. This is a typical knee-jerk reaction to market panic and market greed. Nothing will ever change. There is no collapse or doomsday on the horizon, just a few bankers who have lost their shirts buying and flogging crappy junk bonds. The best thing the media could do is stop fanning the flames with over emotional prose (and that means you Robert).

What a doom and panic merchant Robert Peston is. If the fed had taken no action, they would have been called indecisive - instead they are deemed to have panicked. The real panic is coming from the trader sheep who all run up or down the hill together and seem unable to value a company accurately (remember N Rock).
Even if it is a repeat of 1992, so what? Did the world end then?

In the current situation and when reading or hearing Robert Peston I am reminded of that famous quotation from FD Roosevelt's inaugural speech in 1933: "The only thing we have to fear is fear itself". Let's get things in proportion. What percentage of the US and global economy are the sub-prime mortgages that have gone bad? The bad loans were made in the USA and they are only a proportion of the USA housing market. That is only a relatively small proportion of the USA economy - think about oil, automobiles agriculture, financial activity etc.
In the UK we have low unemployment and record employment, relatively low inflation and interest rates and a slowing but not collapsing housing market. Not a recipe for disaster.

The rest of FDR's speech is worth reading as well.
"Yet our distress comes from no failure of substance....Primarily this is because the rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men."
Hear hear!

Hmmm, lets see FTSE gained on the news because it is now pricing in a similar cut from the Bank of England. Which of course means the pound is about to become as valuable as manure in a pigsty.

Gold looks good still (mainly because it is shiny)

Panic!

Did you say Panic!

OMG PANIC!!!!!!!!!!!!!!!!!

I was just wondering how the conversation at the Fed went this morning.

Economies all over the world have bitten off more than they can chew, now they’re choking and if this recession doesn’t come soon enough it’s going to get worse! No one wants recession, but maybe just maybe its about time that we wake up and realise this global society and its frivolous spending culture can NOT survive…….

COBs need to be reviewed…I thought there job was to provide stability in the financial markets yet this is exactly what is not being done.

Perhaps now is the time for you Robert, and all those people who manage large investment houses and trust funds etc to remember the words of Harry Trueman the American President funds when he said "we have nothing to fear but fear itself" or something similar.

Now is the time for some of these grossly overpaid executives to show some spine and common sense and get on with things. Instead of waiting, waiting and waiting (head in hands) to see if someone else can lead them out of this mess. Or to hang on even longer to see if they can exploit the situation any further simply for personal gain.

Could be really effective..could cause inflation...could be remembered as Brilliant Ben Bernanke or maybe Ben 'Bubblicious' Bernanke

The US is pretty much in recession now and there isn't much we can do, I have a feeling that this is going to get worse for a while, we may as well accept what is going to happen and try to deal with it. It may be 2 years before we get back to where we were in the middle of 07 so lets just deal with it. Also the fed cutting interest rates was not a good idea.

As an alternative view a 3/4% interest rate cut in rates may be seen as decisive action in a money market suffering from a lack of liquidity ?

You're also doomsaying based on a one day decline on the stock market (albeit a big one) - and currently the FTSE is up 2.2% on the day.And is the market below its long term trend - don't think so

Ever since Northern Rock broke as a story you have been acting as a 'what if, worse
case' pundit. My point is that I now discount what you say because you always paint the blackest picture possible. Evan Davies gives you both sides, then his opinion - that works for me

Post 21 - Albert

Yes, 'cos plundering people's pensions, presiding over a bank run caused by setting up a weak reglation system and encouraging the country into 1.6 trillion of personal debt is soooooo much better a situation, oh yes, certainly!

Please go back to Labour HQ and be quiet.

The Starship Free-Enterprise:

Cap'n Kirk. "Scotty, we need more power!"

Scotty."But, the engines ca'nae take it Cap'n!"

Cap'n Kirk. "Give it to me anyway, Scotty. The Free-Enterprise is being sucked into the maw of a Black Hole! The anti-gravity drive no longer functions, damn it!"

Scotty."But Cap'n we hav'nae got more power!"

Bones. "Jim, get a grip on yourself! If the crew thinks you're panicing, we'll never figure out a way to get through this!"

Mr. Spock. "Captain, I concur fully with, Dr. McCoy's analysis. It's illogical, though an understandable human trait, to use precisely the same strategy that got us into this mess in the first place."

Bones. "Mr. Spock, you surprise me, you're sounding more and more human everyday!"

Mr. Spock. "I fail..."

Cap'n Kirk. "Gentlemen, I need some positive suggestions here. What do you advise we do? Times running out! We're falling into a Black Hole!"

Mr. Spock. "We need more power, Scotty!"

Bones. "We need more power, Scotty!"

Cap'n Kirk. "Lieutenant Uhuru?"

Uhuru. "Yes, Jim, sorry, I mean, yes, Cap'n?"

Cap'n Kirk. "Do you still have some of that Dreamweed we discovered on Chimera?"

Uhuru. "Yes, Cap'n. It's in my cabin."

Cap'n Kirk. "Good, let's get stoned!"

The rate cut is like, beating the bush around.Why don't you people sack Mr.Bush.It will be the ultimate thing to save American economy.

#21

The Tories also gave us the "Big Bang" when they deregulated the City. Since then our trade deficit has risen out of all proportion as they shifted the balance of the economy away from manufacturing, household debt is now over Β£1.4 trillion and house prices have gone through the roof preventing many sectors of society from ever getting on the so called property ladder.

The Northern Rock fiasco, sub prime stuff and the fall in the shares is all down to this Govt being too scared to pull the financial institutions back into line.

MWAHAHAHAHAHAHAAAAA-HAAAAAA!

Hi All

Hope the floor doesn't drop from under the stock market - that'll bring hardship to many (and greater asset portfolios for a few.)

Correct me if I'm wrong, but it seems that our financial/monetary system of private limited reserve banking requires constant growth in order not to go into recession or depression.

Don't you ever wonder how this planet with its finite resources can sustain endless growth?

Peston you are a muppet. No doubt more people read your posts when you speak of doom and gloom. Its because of people like you that the market is bearish - 'oh no they cut rates, must be bad' or 'oh no, they raised rates, must be bad coming' or 'oh no they cut taxes, economy will suffer' then 'oh no, the tax cuts weren't enough and they must be panicking'.

Thankfully, the market thinks a fair bit more raitonally than you. The interest rate cut, like all monetary policy, does not have an impact overnight. Funding just got 75bps cheaper, which will work through the economy. It is pure stupidity to think that Bernanke woke up this morning and said 'oh no, the share market is falling, I better cut rates'. Rather he will be taking a medium to longer term view.

Grow up, read an economics book or two, get your head out of the bear trap and write something sensible.

I would be fascinated to understand whether the subprime is purely related to easy money supply and poor banking regulation, or more worryingly - due to a constraint on growth as a result of increasing energy prices. If the latter and the peak-oil theories are to be beleived, then it is quite possible that we have reached the peak of GDP and consumpion, and economic contraction is inevitable that will extend for decades. Short term fixes by the central banks won't help one bit.

If something sells for Β£40 in January, Β£75 in June and Β£50 in December, is that a problem come December? Are high house prices good or bad? Are high stock prices good or bad, and for whom?

The dollar is surely very vulnerable now.

A ΒΎ of a percent cut is the largest cut in 26 years. So what dose it say to investors when the Fed announces the largest interest rate cut in 26 years and announces a week early which hasn’t happened since after 9/11 and they leak the info before the cut. This whole situation reeks of panic and shows that Bush owns the Federal Reserve Chairman. I find it disturbing that our rate of inflation according to December 2007 is 4.08% and now our interest rate is 3.5%. If I was an investor I would be pulling my money out of the US economy or moving my assets to Gold (Oh wait that is what is currently happening). With the all the US stock markets dropping, unemployment on the rise, and a president announcing a 145 billion dollar stimulus package that will only make our defecate situation worse (which will mean higher taxes) its not hard to believe that our economy is already in a recession.

All this will deliver is a long visit from Mr Stagflation.........

I'm not sure how you could manage to argue there's been a muted reaction to the 75bps cut.

The FTSE 250 is up 3.9% for the day, having opened DOWN 3.8%. The Fed move was being rumoured from the market open in London this morning - suggesting that we've had an eight percentage point move on the back of the cut. So your comment that "the Bernanke bounce was short-lived" seems a little bit unfair to me...

Interesting arguments, folks. First, the idea that US rate reductions without corresponding UK ones would make sterling drop. Surely not, as money will tend to move to the highest interest rate return, all other things being equal.

UK interest rates have been calculated for 10 year on a measure which ignores all housing costs. No wonder house prices have gone through the roof, as house price inflation never directly affects the CPR measure, so the BofE monetary committee never tries to moderate house price inflation.

Eventually, logic suggests that a large percentage of the work force will not be able to afford to buy, and we'll be back to a primarily rented housing market, just like my parents had in the thirties, forties and fifties. Believe me, they were far poorer than we are!

#43 " defecate situation" - just about sums it up.

A bold move by the Fed, they know it will take around three months for this cut to turn into extra money in the pockets of consumers and by then things are bound to be worse. It is likely that UK interest rates will follow suit as we are in a global economy but the difference will be that it will take the BOE a lot longer to act.

Hi Robert,
Could you tell us where Tobin's Q and any other objective measures of stockmarket valuation would place the FTSE 100 right now? Tobin's Q isn't a good predictor of where markets are going - but it would be useful to put things in perspective right now.
Would be really useful in putting things into perspective.
I believe UK data is a little hard to come by (does Andrew Smithers compile it?), but more available in US, and even valuations of US stocks would be handy just now!

A lot of this sort of panic is very self-fulfilling. If somebody thinks the market will crash, and an irresponsible media pundit reports this as "the market is afraid", then that will make the market afraid, and it'll be more likely to crash, and so on...

If you regard the stock market as something you invest in over the course of years at a time, this will all turn out to be a temporary blip, just like all the other 'crashes'. But if you're a day trader trying to get rich quick, you deserve the heart attack these sorts of days will cause you, given the grief your short-sighted knee-jerk reactions cause to real people doing real jobs, who will be badly affected when their companies have to downsize.

"Once upon a time in la-la land in the mid 1990's in Amerika, when things weren't looking so good economically because of an already overstretched fiat monetary system, a bright spark of a banker had a wonderful idea that could allow his country to live the high-life for at least another 10 years.

It was sheer brilliance - package up all the American citizens debt and sell it to foreigners! Offer them a good deal - sell them $100 of debt for $90, but assure them the interest they received on this 'package' would be such a high rate that they couldn't fail to make money! And what's more, since deregulation was in place, even GUARANTEE these bonds were triple-A rated, the same type of bonds that governments issued, so effectively the original $100 bought by the buyer will always be redeemable for $90 in the future if they needed the capital back!

YAY, now the Amerikans could keep buying Humvees and Plasmas! And guess what, all the interest from these packaged debts were pushing the value of property up too - allowing even more money into the system to buy Humvees and plasma TV's! Boy, this was good!

Wow. What a coup. But wait - oh goddarnit, now the whole of the world has caught on, and everyone is buying and selling this type of package to everyone else, especially those old bastions of free enterprise, the goddarned English! Goddarnit, even Amerikas own banks were buying them!

Anyhow, it didn't matter, because the good times were rolling. Everyone, all around the world, was filling up their pensions and investments with these miracle bonds, and everyone was happy.

But then someone noticed that there was something wrong. People who didn't own houses couldn't afford to buy them unless they committed themselves to monstrous amounts of money for the rest of their lives. And there was another problem - there were rather a lot of these miracle bonds lying around the place, and the man that was supposed to insure these bonds (so that everyone would get their money back if they needed it), well, he didn't have enough money to pay out what the bonds were worth. So another very honest man told everyone that their bonds weren't AAA rated anymore, they were now only AA rated. Which is nowhere near as good as AAA. I mean, AA still looks pretty good, doesn't it? but it really isn't.

Which was a problem...

Everyone had spent the money in their bonds on Humvees and plasmas, so they all needed the insurance payouts to be able to get their money back, especially because pensions and many other financial investments that kept paying out even more money for Humvees and plasmas can LEGALLY only have AAA rated bonds in their vaults!

So suddenly, there was $2.4 trillion of bonds that were almost worthless, because no one had any money left to buy them, and no one really knew what they were worth anymore!

Now the scary part of this fairytale - there was another $400 trillion of miracle bonds sitting in pensions and investments, still waiting patiently to be downgraded. This was enough to bankrupt every bank, pension and investment in the world! Oh, what a mess!

But everything was ok in la-la land, because the man on the television set told you it was so."

Maybe the Fed has learned the global debt originating from the Sub-Prime problem, it's about due.

if i didn't have 10k tied up in shares i'd laugh at this 'sheep' menatlity of over reaction...

what do i do now lump more on to bring down the average price and hope for it to bounce back or keep my money for a deposit on my first house????

What an ineffectual Fed panic!
I have just come back from the USA and nearly everyone I know there is feeling financial strain - falling house prices, expensive gas/heating, food price inflation and large increases in property taxes against a background of negative pay growth in real terms.
The days of bridging the income gap using your own home as an ATM are finished.
The USA is in big trouble - you ain't seen nothing yet - wait till one of the Monoline Insurers goes to the wall.
The USA is in recession already and has been since November 2007.

A bit ridiculous your article Peston. If they were planning to cut next week might as well cut it now. If they were planning to bring it down to around 2.5 anyway might as well do it rapidly. The actual economy takes more than a year to feel these cuts and it will help assuage some of the problems in financial markets.

Just to bore some more on Northern Rock,did you all know it is offering existing borrowers additional funds to move AT THE RATES THEY ORIGINALLY TOOK OUT THE MORTGAGE-IN SOME CASES 4.69%!
That's our (taxpayers) money subsidising their borrowers.Outrageous!

US Dollar
1785-2008
R.I.P.

When in panic
When in doubt
Run in circles
Scream and shout!

At the risk of prosthletising I would just like to point out that what goes up must come down. It's not as if there is no precedent for the current stage of this particular cycle. The main thing is not to forget that what comes down will eventually go back up.

Smells like teen spirit to me. Lord Lawson didn't take any notice of the teen scribblers....and look what happened to him.

Watching this financial history unfold is breathtakingly interesting and I think that you are to be commended Robert for striking just the right note in your reporting. Very much more realistic than all the preventative incantation that largely got us where we are in the first place.

I heard a fascinating story the other day about the boss of a major clearer who was absolutely obssessive about the planning of his firm's splendid new greensite HQ building. He knew exactly which conifer was to be planted where. It's just a shame that he obviously hadn't been paying such close attention to the books of the US subsidiaries that he had been buying...

I agree with many comments here that the continued criticism and doom and gloom offered by Robert Peston about every decision made by every person at every stage became boring months ago.

I think it was former Brasil coach Luis Felipe Scolari who said that the press were 'the great untouchables' because they never made any mistakes. Ok, he's not a famous economist, but he makes a fair point.

What would you do if you had the responsibility Mr Peston?. Tell us - I'd read it.

The losses over the past two days in particular have been very severe (unless you hedged cleverly). I suspect that the fed cut rates more or less suddenly today because it learnt the obvious very suddenly. A number of banks and funds were about to have their markers called in (automatic defaults) and then the proverbial mulch would have hit the fan. I don't have a better explanation for such a highly irregualr departure from the schedule. But various clever funding instruments are coming unstuck daily though little gets out. I suspect the 'story' behind the cut will leak out in the next couple of days. Once agency's funds valuation fall below a certain threshold, things get nasty and 'loans' become due for automatic repayment. If this is not at the heart of the decision I'll eat my kippah.

Look on the bright side - low stock prices means more stock for the pension fund.....unless Gordon (sorry, Alistair) decides to raid that as well.

BoE just need reminding that keeping inflation locked up is their job, NOT trying to prop up their pals in the market or assist our exporting companies. I think a letter to the Treasury is already overdue and now King is talking about inflation going to 3%.

I agree with those who say interest rates up, not down. Cheap money is like petrol into a fire. If the UK wants to leave the vicious circle and not spiral down behind the US it needs to apply the emergency break and put an end to the life on debt culture. There is no way out but to suffer the hangover and get healthy!

DeAnne Julius told us (C4 News) what should happen next in England regarding bank base interest rates.

That is, they should be driven down to at least the 'neutral' level of 4-4.5% and possibly just below to provide some 'stimulus' to the economy.

That will happen but in what timescale?

Re: post 68 - A non

Who will be responsible for those pension funds bottoming to virtually NIL when the markets loose more value?

Will it not be the same persons who gambled with their money?

Investing in stocks and shares is first and foremost a gamble?

You see Robert, why it is very difficult to digest the truth!

Grow up no: 68!

I just hope that Mervyn King and the MPC remember that their role comprises two and only two responsibilities: acting as lender of last resort, and controlling inflation through the setting of interest rates.

Looking after investors who might lose money they gambled on the stock market doesn't fall under this remit.

Just so long as the MPC's decisions only have inflation in their sights and not the interests of their buddies. They need to be gently raising interest rates over the course of the next two or three years, not being emotionally blackmailed into reducing them.

We've been spoilt for the last few years, and now what's called for is a bit of Tough Love.

I'm really more afraid of what Bush utters from his mouth than the feeling of the FED right now. Its a 1 way road, either decrease it, or let adam's smith's invisible hand command the US stock exchange and handle the world crisis.
As for now, all I'm concerned with is that the next big fall, which will happen for sure, since there is no immediate sanction on those banks that fooled people, will happen on a holiday...again. This seems to weird, US bankers new that if this black Monday had happened in a normal business day, the US would have grabbed momentum and their fall (although present today) would have been much bigger.
Next time, let guide the banks into a serious reflection that interest rates are not the only measure of risk, and as such, there should be other legal means by which such profits and opportunity costs be shared between lenders and borrowers. This will help close the gap between rich and poor and someone above mentioned.

To Mark #96

Bush's statement on Friday had nowt to do with it - it was Standard & Poors after trading hours downgrading of one of the monolines on Friday that spooked the market. And continues to.

It's nothing to do 'recession' either - that's the polite term used by men in high places and the media to stop a panic on the streets. The banks in the UK and US are facing collapse.

#106 what has that got to do with your original drivel about how mean the nasty old tories are?

You do know where you are don't you? Should I call the nurse for you?

Why dont we talk about the balance of payments anymore? our economy needs to be fundamentally underpinned or we are just putting off the inevitable if we do not somehow control unsustainable imports.

Why bother following it down now? We've gone beyond support levels, the only question left is how far down to fit the safety-net, and how strong to build it. Unless someone's really out to plumb the bottom bedrock...and if so, then another viewpoint might be to wonder whether ever leaving there again's a good idea. Bubbles are pretty, but it's no way to run an economy.

MOST OF THE WRITERS DO NOT UNDERSTAND THAT THE STOCK MARKET
IS THE ECONOMY OF THE WORLD.
IF THE CENTRAL BANK SUCH AS THE
B OF E DOES NOT FOLLOW THE USA ACTION UK JOBS AND PENSIONERS WILL BE AT RISK.
FOR MANEY INDIVIDUALS IN EUROPE THEY DO NOT BUY SHARES THIS IS DONE BY THEIR COMPANY PENSION SCHEME HENCE THE LACK OF UNDERSTANDING THAT WHEN THE STOCK MARKET COLLAPSE SO DOES THE JOB AND UNEMPLYMENT RISE.
THE 1929 COLLAPSE OF THE STOCK MARKET
CREATED BREAD LINES AND BROUGHT ABOUT HITLER ETC.
EUROPE WAKE UP AND JOIN THE USA CENTRAL BANK TO SAVE THE JOBS OFG THE EUROPEAN.

No.69 - very funny

No.73 - finite resources yes, but technology is your answer, or at least its working for us so far.

No.77 totally agree (95, a bit too far)

No.109 agree also

Politics has little to do with this. Deregulation maybe but we've benefitted so much in the UK we can hardly complain now.

Doomsayers - despite falls today, panic or no, I think 75bps should be irresistible once they work through the system

I would recommend everyone read George Soros' article in the FT today

Most of the focus of recent articles and the blogs has been on economic policy, interest rates and not on fiscal policy.

I know interest rates are important and are key to asset prices. But economists (FED,etc) knew at least 2.5 years ago that an asset bubble had been created, particularly in property, which had the potential to burst, and had started to lose steam in 2005.

Interest rates were lowered after the dot.com crash, partly to encourage economic activity but also because it was assumed the US would have massive budget surpluses to 2010.

However what the economist failed to realise was that these surpluses were reliant to a large degree on a bouyant stock market and capital gains tax.

I can understand why the FED cut rates by 0.75% when stocks started to drop. If a bear market starts the US deficits will become an immense problem. A similar situation is probably true of the UK.

I not sure the tax cuts, etc just approved in the US are going to change the underlying problems.

It's interesting that blame has been laid at Alan Greenspans door for keeping interest rates to low for too long. But this just seems to deflecting the blame from George Bush who has passed profligate spending and tax cuts since 2002.

Because of the deficits the stock markets have to be propped up.
I think this is why international flows of capital and Bankers are so powerful and influential.

A few days ago would have been a very good time to invest in the stock market. Government's need to keep them bouyant and that will keep the bankers rich.

Let's hope the super rich bankers are benign and spend and invest their money wisely!

Is it too late for another update from Mr Peston? Much better to be a commentator and to have your mistakes quietly forgotten than to live in the real world and have to make real decisions.