Banners for London Fashion Week, hosted at the Museum of Natural History, London.
Last week, builders were hard at work setting up temporary buildings to host runway shows.
Buildings across Brompton Road are reflected in the windows of a temporary installation.
The usual excitement of London Fashion Week is overshadowed by the shocking collapse of Lehman Brothers and the sale of Merrill Lynch to Bank of America. The Bank of England issued a statement saying it "will be monitoring carefully the conditions in sterling money markets and will take appropriate actions if necessary to stabilise those markets."
European stock markets plunged in reaction to the Lehman Brothers bankruptcy, with investors turning to commodities, including gold. The European Central Bank injected 31 billion euros into the markets, in an effort to stabilise the aftershock of Lehman's crisis.
But the fallout is expected to continue. As Stephen King, managing director of economics at HSBC writes in The Independent:
"...The breakdown of trust within the banking system relates to five factors. First, the assets which banks have lent against – notably housing – have been falling in value. Second, many banks have not only lent directly to households but have also purchased so-called asset-backed securities – effectively second-hand loans – which they can no longer offload to others.
"Third, some banks have bet that these securities, having fallen so far in value, must bounce, forgetting that a 90 per cent drop can still be followed by a further 100 per cent decline from the new, lower, value. Fourth, banks no longer trust each other, so the loans made within the interbank market have dried up, and interbank interest rates remain high relative to policy rates.
"Fifth, governments, fearing the political fall-out, are reluctant to use taxpayers' money to bail out institutions which have been abusing trust for too long already. That reluctance, in turn, has made it more difficult to arrange takeovers. After all, who knows what will be discovered upon the opening of a financial Pandora's Box?
"The result is a financial system which looks increasingly unstable. Lehmans is the casualty du jour: on Friday, its share price was down 93.6 per cent compared with a year ago. Merrill Lynch is down 71.3 per cent, Citibank down 60.7 per cent and Morgan Stanley down 63.5 per cent. Some British bank shares have not done much better, with HBOS and RBS also having experienced dramatic declines over the last 12 months.
"As trust has ebbed away, so the banking system as a whole has begun to look remarkably fragile. No one bank knows for sure what losses other banks are harbouring. This affects all of us. Over the past 12 months, banks have been squirrelling away cash and, where possible, quietly nursing their losses. No longer do they wish to lend with greedy abandon. Credit availability has dried up, house prices have fallen and, as fears of recession have risen, so too have stock markets.
"Things are likely to get quite a bit worse. As recession bites, so banks will become even more cautious. Further lending cutbacks, though, will magnify the economic downswing and reduce the impact of interest rate cuts from the Federal Reserve, Bank of England and others. This is, potentially, a market failure on the grandest of scales. The effective nationalisation of Fannie Mae and Freddie Mac was a big, if largely expected, event, but we're not yet out of the woods..."
Update 4:45 p.m. Paris time: An excerpt of Sen. Barack Obama's statement:
“...The situation with Lehman Brothers and other financial institutions is the latest in a wave of crises that are generating enormous uncertainty about the future of our financial markets. This turmoil is a major threat to our economy and its ability to create good-paying jobs and help working Americans pay their bills, save for their future and make their mortgage payments.
“The challenges facing our financial system today are more evidence that too many folks in Washington and on Wall Street weren’t minding the store. Eight years of policies that have shredded consumer protections, loosened oversight and regulation and encouraged outsized bonuses to CEOs while ignoring middle-class Americans have brought us to the most serious financial crisis since the Great Depression.
"“I certainly don’t fault Senator McCain for these problems, but I do fault the economic philosophy he subscribes to. It’s a philosophy we’ve had for the last eight years – one that says we should give more and more to those with the most and hope that prosperity trickles down to everyone else. It’s a philosophy that says even common-sense regulations are unnecessary and unwise and one that says we should just stick our heads in the sand and ignore economic problems until they spiral into crises.
“Well now, instead of prosperity trickling down, the pain has trickled up – from the struggles of hardworking Americans on Main Street to the largest firms of Wall Street.
“This country can’t afford another four years of this failed philosophy. For years, I have consistently called for modernizing the rules of the road to suit a 21st-century market – rules that would protect American investors and consumers. And I’ve called for policies that grow our economy and our middle-class together. That is the change I am calling for in this campaign and that is the change I will bring as President.”
Meanwhile John McCain's economic advisor insists the economy is sound and says the problems are exaggerated. McCain himself said today that the "fundamentals of the economy are still strong." But he failed to mention his own economic advisor Phil Gramm helped create the mess. Obama campaign spokesman Bill Burton responded: "Today of all days, John McCain’s stubborn insistence that the ‘fundamentals of the economy are strong’ shows that he is disturbingly out of touch with what’s going in the lives of ordinary Americans. ...apparently his 26 years in Washington have left him incapable of understanding that the policies he supports have created an historic economic crisis."
George Bush characterized the stunning fall of two 150-year-old Wall Street banking stalwarts as a mere "adjustment" in the economy. But former Federal Reserve Chairman Alan Greenspan strongly disagrees. In an interview Sunday he talked about the dire consequences of the Lehman Brothers' collapse and slammed McCain's proposed tax cuts that favour the wealthy and corporations.
Fasten your seatbelts, ladies and gentlemen. We're in for some rocky roads ahead.