Will the markets start acting normally after a wide range of Government interventions? The entire problem, sorry, the majority of the problem, has been the lack of confidence in the interbank lending markets. There have been huge funds sitting on the sidelines, funds not willing to risk depositing with banks which might not be secure. The effective nationalisation of three of the major banks in the UK and the huge addition of liquidity elsewhere might get these funds moving again.

For all of the euphoria surrounding Government bailouts in the equity markets it is important to note that Libor rates are still considerably higher than base rates. This is even though we are anticipating rate cuts in the coming months. 3 month Sterling Libor is around 6.25% and that is with base rates at 4.5%. This is lower than before EU Governments started buying large portions of the various European banks but is still extraordinarily tight by historical standards.

I recently put this to Simon Denham of who said, ?Unfortunately for those talking about the end of the current financial crisis this [high Libor rate] does not quite indicate such a rosy scenario. Outside of the major trading nations (who can afford, for the moment, to stand behind their financial institutions) the rest of the globe might well start to experience a sharp decrease in available liquidity. Many corporates and wealthy individuals may well reallocate assets to the G8 nations?.

The nature of this crisis might well be that as we attempt to extract ourselves from the mire all we succeed in doing is stepping on someone else and pushing them further down. In desperation they then grab hold of us and pull us back in.

The loan books of the big banks are truly massive and we have all grown fat on the back of easy credit. Much of this debt is built into the value of our property. I am particularly worried that the well meaning attempts of the government to prop up the housing market by adding liquidity will backfire spectacularly. The idea that we are in a better position than others on the housing front ?because we have excess demand? presupposes that there are jobs available that pay well enough to afford housing at the current levels. The falls in general values of around 12% from the highs can be seen as just ?the froth? being knocked off. We have still to see real asset depreciation on a par with other asset classes.

Equity markets dropping by almost 50% might well trigger a similar (not 50% but maybe 25-35%) long term depreciation in property values. If this happens then the injection of ?50bn into the banks might not be enough especially if they are forced to start lending at 2007 levels once the Government assumes control.

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