The bad news keeps on coming. We can only hope that plans to print money will start to turn things round.
This week has got off to a rotten start. London's FTSE-100 index has fallen by close to 8% in just two days. Shares are trading at their lowest levels since 2003 - lower even than the days after Lehman Brothers' collapse last September.
This fall was partly triggered by HSBC's decision to ask for £12.5bn from the stock market. HSBC has been seen as one of the few 'safe' banks in the financial turmoil, so it's worrying that even this bank felt the need to boost its balance sheet. Still, at least HSBC has been able to persuade non-government investors to stump up the cash - unlike RBS and Lloyds which needed a government bail-out.
The rock
I thought Northern Rock's latest financial results were pretty depressing too. The state-owned bank reported a loss of £1.4bn in 2008 compared to a £243m loss a year earlier.
The Rock also revealed that mortgage arrears have jumped. Only 0.45% of the residential loan book was in arrears at the end of 2007 - that figure rose to 2.92% a year later.
When you see those kinds of numbers, it's easy to understand why house prices are falling.
Optimists will point to Northern Rock's promise to increase lending this year. It plans to lend about £5bn in new mortgages this year rising to £9bn in 2010. Royal Bank of Scotland has made a similar pledge.
This extra lending should make a difference, but don't expect a housing boom just yet. According to the Royal Institution of Chartered Surveyors (RICS), the extra lending will only boost the amount of available mortgage finance by about 10% compared to 2008.
Any hope?
On the plus side, both the government and the Bank of England are trying to turn things around. The Bank is widely expected to cut its base rate to just 0.5% on Thursday. And Alistair Darling hinted today the Bank may start quantitative easing this month.
Quantitative easing means that the Bank of England will pump newly-created cash into the economy. People often talk about ‘printing money’ but that’s not what will literally happen. Instead all the commercial banks will find one morning that a computer has miraculously added extra cash into the accounts that they’re obliged to keep with the Bank of England. The theory is that the banks will then go out and lend that newly-created cash.
I don’t know for sure whether quantitative easing will work. Or any of the other emergency measures for that matter. But it’s worth a try. I also remain convinced that we will get out of this mess eventually. No financial crisis lasts forever.