People have finally realised that the days of cheap, easily available credit are over.Banks have realised that irresponsible lending to self assessment and BTL investors mixed with rather odd inter-bank financial packages were probably not a sustainable idea.
A lot of people have based their 'wealth' on the value of their property which is always intrinsic or their ability to hold a job so that loans can be serviced. These people gambled for high stakes in a complicated market which was never geared to individual investors. Curiously the same people would recoil in horror if you asked them to put £50 to win on a nag in the 2.40...which is probably a better, fairer sided bet.
There are also a lot of redundancies looming and people tend to be cautious as no one is really safe. The problem is that the market has been talked up beyond belief during the last 10 years (Tulipomania and The South Sea Bubble spring readily to mind when the manufacturing base, which provides real wealth, has greatly diminished in the West) Scraps of paper suddenly had high and improbable values. hedge funds have been *ahem* investing in businesses for their hapless clients and paying 10 times the best market value (Fat Face and PizzaLand) for compnies that are wide open to competition and people's foibles. When someone actually realised that these papers were actually worthless (an Emperor's new clothes moment)then the whole, rather shaky house of cards collapsed. When commentators talk of 'a generation' to sort this out, they are not far off the mark as this really is a sorry state of affairs compounded by people not being able to, or wanting to, see the real situation. People warning of this approaching cloud were often labelled 'doom mongers' and 'talking the market down' If a market is that unstable to be affected by individual's views, then the problem is a little deeper. I'm afraid confidence and optimism is what got us into this and you cannot buy your weekly shop from Waitrose with either.
The real test will come at the end of this month when banks have to settle their Credit Discharge Waiver bills. basically they have been insuring themselves against losses in a style that one has to raise the old eyebrow about. The amount of liability is greater than the GDP of the World...$68 trillion. The financiers in The markets in The States know this which is why the markets slipped further when Bush announced a $700 billion rescue plan, which is errrrrm, 1% of
the highly toxic debt.
Should be an interesting time around Hallow e'en then.