Judgment day for world economy

Published on Sunday 28 September 2008 22:34

TWO major deals on either side of the Atlantic were announced last night as Bradford & Bingley became the latest British bank to lose its independence and US politicians published a $700 billion (£380 billion) plan to bail out Wall Street.

Democrats and Republicans were confident the rescue plan, the largest US government intervention in markets since the 1930s, will meet voter concerns and be passed by Congress today.

Nancy Pelosi, the Democrat leader of the House of Representatives, said the message to Wall Street was that "the party is over".

In the UK, Santander, the Spanish banking giant, confirmed it is to take over B&B's branch network as Treasury officials negotiated to nationalise the rest of the bank, with its 40 billion mortgage book.

Not only does this drive up potential liabilities to the government and taxpayer, but the effective withdrawal of another mortgage provider almost certainly means house prices will fall further in the months ahead.

Today could be the cathartic moment in determining if the crisis has been overcome – or if we are destined for a massive slump. It is hoped the US bail-out will lift confidence around the world. The real test will be the reception given to the US package when markets open.

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