PITY Alistair Darling yesterday. Caught between crashing stock markets on one side and the need to keep schtum on the biggest UK bank bail-out of all time, he might as well have muttered mince or talked rhubarb.
In fact, that's more or less what he did.
There is no concerted European Union action plan or co-ordinated programme. His statement may have sounded as such, but the giveaway was in the muttered wording. It allows each government to pursue its own
financial rescue proposals.
And he repeated that the government would do what it takes to support the banking system – while keeping silent on what the Treasury has been working on.
The fact is that the UK government has now no option but to undertake a massive capital injection to save Britain's banks. A few more days in this financial tsunami and even the best defences would be smashed to pieces. And what use are high-falutin' guarantees unless backed by hard cash – billions of pounds of it?
A massive capital injection does two things. It gives the banks desperately needed capital with which to deal with the downturn ahead. And it should help unfreeze the fear that has now almost totally paralysed the interbank market. If these injections go ahead, banks should be more confident about lending to each other.
The desperate hope is that this – plus a series of rate cuts starting on Thursday – will stop the massive selling wave of shares and restore some calm.
But it is a desperate gamble by the government. The public finances are already heavily strained by previous bank rescues. This plan sends government liabilities into the stratosphere. Failure would be catastrophic for the government, the pound and the economy.
Is it all too late? Yesterday saw some of the worst plunges in world stock markets on record. If this was not Day Zero in financial markets, I really shudder to think what such a day would be like.
The FTSE100 index plunged 7.8 per cent – its biggest percentage fall since 1987. Either this plan works – or the economy as we know it is done for.
