Pensions, life savings, dreams – all shattered

Bill Jamieson on an epochal storm

WE CAME into the world with nothing and we will leave with nothing. In five catastrophic days – especially in the last 48 hours – the life savings and retirement dreams of tens of millions of the baby boom, post-war generation plunged and rose on epic waves of fear and panic.

In the worst week of the global crisis yet, the Dow Jones plunged 678 points on Thursday, and bounced violently yesterday like a drunk on a trampoline.

Within 15 minutes of opening, it had fallen 696 points, only to recover later to be 276 points ahead. It finally closed at 8,451.19, down 128. It was the Dow's worst week in its 112-year history. In London, the FTSE 100 ended down 381.7 points – 8.85 per cent – at 3,921.10.

With every moment yesterday, history was made. A history of charred dreams and blackened hopes. A history to scar the world for a generation. The selling was massive, persistent – and indiscriminate. And the mightiest government in the world stood helpless.

The casualties are massive – the baby boomers with pension savings are the biggest demographic bulge in the world's population. IT workers, doctors, café owners, project managers, small family businesses, sales and marketing people, rank upon rank of middle managers – that whole vast swathe of the Western world which built its hopes on savings has watched, helpless, as those savings were tossed in an epochal storm. Somewhere in this mayhem, mine, too, vaporised.

Yesterday, amid fresh panic, rumours spread of huge bankruptcies, of massive intervention by the US Federal Reserve to try to beat back the inferno. Investors were even dumping lower-risk government debt in a mad scramble to turn any investment into cash.

The total loss in the US this week is now in excess of $3.5 trillion. And the loss since a year ago now extends to an incredible $9 trillion. Pensions shattered. Life savings gone. The dreams of millions for a decent retirement blasted in one voluptuous panic that seemed to swell with every overnight roll round the world.

This was the week of extraordinary and dramatic solutions that were supposed to turn the tide. Central bankers stepped forward and prime ministers posed for group photo shoots. In Britain, we partially nationalised the banks and prayed it would work. In Europe, desperate emergency actions were taken to halt a systemic collapse. In Iceland, the entire country has crashed into bankruptcy.

ONE by one, the central bankers and the "solutions" were swept aside as shares crashed, banks tottered, countries reeled – and hope drained away from millions of hearts.

We tried not to show how worried we were, but with every bulletin, with every TV cutaway to "our man in the market", that wall of hidden worry just kept on building.

The mayhem began late on Thursday. In one frenzied hour of selling on Wall Street – fuelled, incredibly, by the lifting of a ban on short-selling – the Dow plunged more than 7 per cent.

Fear spread from financial institutions to industrial giants. The spectre that gripped the markets was more than recession. Shares in General Motors crashed 31 per cent on Thursday and tanked again yesterday, plunging to their lowest level in more than 58 years after the Standard & Poor's Ratings Services said the car giant's credit could fall further into junk status.

AND amid this fiery liquidation, what everyone watching felt through the heat was an ice-cold finger of Depression touching on the spine.

Overnight, the Tokyo market crashed 10 per cent. And as the moment markets opened in Europe yesterday, the selling frenzy began again. The FTSE100 – already back to pre-1997 levels – spun down 10 per cent. All the gains seen in 2003 after 9/11 in 2001 have now been wiped out.

So much for the liquidity injections and the $700 billion bail-out, the Brown Rescue Plan and the central bank interest rate cuts. Every new fire appliance brought in to staunch the flames of this inferno is itself engulfed, as if the hoses themselves are spraying kerosene.

Here in Britain, 20 million people have their pension savings exposed to equity investments round the world. In the US, millions of homes are directly linked to the market through savings schemes and retirement plans.

But this epic crisis has shattered US consumers' faith in financial institutions, including the Federal Reserve.

And it is likely to trigger the biggest drop in consumer spending in more than three decades – and a deep recession.

According to the authoritative Reuters/University of Michigan Survey of Consumers, published yesterday, faith in banks, brokers and mutual fund companies took hits across the board. Only credit unions were spared.

All the sophistry of finance is reduced to flammable paper. And everything that is paper is being burned.

When will it stop? Extraordinary actions by central banks, finance ministries and governments in the last few days have failed. And trust among banks is so depleted that the inter-bank market remains virtually paralysed. Three-month Libor (London Inter-Bank Offering Rate) rates even rose, despite Wednesday's base rate cuts.

There is a classic stock market cycle that has endured through the decades. It goes like this: hope, recovery, confidence, euphoria, doubt, panic, then funk and capitulation.

This time around, it seems as if every week has been an endless, relentless capitulation. "Week Zero" is followed by another one; every flickering, tentative rally battered down and convulsed into yet another rout and yet another multi-year low.

THIS week has seen the crisis of confidence spread from the financial sector right across the global economy in an awesome, reinforcing loop: slowing activity reinforcing market falls, and the falls in turn draining confidence across households and firms.

Now there is talk of "Plan B" and the US Treasury coming forward to fire a "Super Bazooka" – authority under the Troubled Assets Relief legislation to make direct capital injections into the US banks and provide other support. It threatens a political explosion in America.

But the alternative is – as it was last week and the week before, and the week before that – a spectacular failure of the central nervous system of the world's economy. It is a prospect too awful to contemplate. Yet with every week, it has drawn frighteningly closer.