The announcement of large losses at AIG and a further US taxpayer injection into the US insurer came alongside HSBC announcing the wish to raise more money from shareholders to buttress its capital position.
There is no easy way out of this mess. The banks and insurers need to work their way through their problems, cuttting risks and costs as quickly as possible. Too many state bail outs delays the adjustment and wrecks the public credit. The markets are beginning to worry about state borrowing plans because they are so huge.
The Monetary Policy Committee when it meets this week should not cut interest rates again. It will doubtless announce “quantitative easing.” All eyes should be on how much and how it intends to do it.
It is high time the government announced how it plans to get public finances back onto a sensible path. Watching this government is like watching a man with a bonfire. He had a big blaze.(easy cash and capital rules, low interest rates) In panic he doused and doused it with water (high rates and tougher rules) until it appeared to have gone out. Now he is busily tipping ever more petrol onto it in the hope that there is still some heat which will ignite the petrol. One way or another it is not going to have happy ending.