July 12, 2008
The British economy is braced for further turbulence this week as the fallout from the second largest bank failure in US history spreads across the Atlantic. Last week’s extraordinary decision by the US Federal Reserve to take over the Californian bank, Indymac, comes as the Bush administration attempts to quash speculation that America’s two largest mortgage lenders, Fannie May and Freddie Mac, also face nationalisation.
Rumours swirled last night that they may have to be bailed out this week after their shares fell sharply on Wall Street. And City experts are now warning that the problems facing the US are a harbinger of things to come in Britain.
Terry Smith, an influential City commentator and chairman of stockbrokers Collins Stewart, said: ‘It is every bit as true today as it was in the Thirties that, if America sneezes, the rest of the world will catch a cold.’ Asked if he thought the crisis had reached its zenith, Smith said: ‘We are nearer the beginning than the end. I’m afraid there is going to be more pain – quite a lot, actually.’