This week has seen the biggest movements ever on the FTSE 100 – when at the end of the week the index jumped 8.8% on news of the US government has pledged to bail out the troubled US banking system!

The FTSE has been on a roller coaster starting the week at 5,417 and dropping to 4,880 during the week to jump 431 on friday to end slightly lower thatn the beginning of the week at 5311! Earlier in the week the Glbal Central banks pumped $180bn into the markets to lift the amount of funds available to the world banks. On Friday the US Treasury is proposing to buy back up to $800bn of the bad debt in the US mortgage market, as the US debt plan takes shape.

It will be interesting to see what happens in the mortgage markets over the coming months where we have seen a 36% slump in mortgage lending in August this year over August of 2007, once the above measures start to kick in. The lending market has stalled because banks are reluctant to lend to each other and the inter-bank lending rates are at a high – I was speaking to my friend in Australia and he commented that “getting a mortgage in Australia at the moment is like winning the lottery!”

The core assets and business of Lehman Brothers is to be purchased by Barclays Bank for $1.3bn, which incredibly includes Leham’s Manhatten Skyscraper worth on its own around $1bn! So in a market of turmoil the vultures circle and there are bargains to be had. Judge approves Lehman deal.

As with last week the travel industry has seen trouble with Italian airline Alitalia being on the edge of going into liquidation. What seems crazy is that there have been two rescue packages open to the company, which have been turned down by the unions to block redundancies. So the unions would rather sit there and block a rescue where a few jobs are lost in preference to the whole company going under where everyone losses their job! CAI consortium was only approved by 3 out of the 9 unions to block 3000 job losses!

On the bright side is that the petrol retailers have are reducing fuel at the pumps in the UK on the bakc of dropping oil prices. BP and supermarkets Asda and Morrison were leaders in cutting prices.

End of the week saw:
Stock exchanges:
FTSE 100: 5,311
DOW: 11,388
S&P: 1,255
Nikkei: 11,921

Currencies
UK Sterling £ to US Dollar $ 1.83070
UK Sterling £ to Euro € 1.26995
US Dollar $ to Euro € 0.69370

Details are emerging of an emergency plan by the US government to tackle one of the worst crises to hit the world’s financial markets in decades.

The US Treasury is proposing a fund worth up to $800bn (£440bn) to buy back a large proportion of the bad debt in the US mortgage market, reports say.

President George W Bush hailed the move as “unprecedented action” in the face of “unprecedented challenges”.

Congressional and Treasury officials will meet later to work on the plan.

Talks will continue throughout the weekend and the package is expected to be signed into law within days.

It is believed the intention is to find a way of bringing all the bad debts into one organisation whose task will be to hold them on behalf of the taxpayer until they can be sold off at some point in the distant future, says the BBC’s Justin Webb in Washington.

There are some members of Congress who are queasy at the thought of the taxpayer taking on hundreds of billions of dollars of currently worthless debt, he says.

But the leader of the Democrats in the House of Representatives, Steney Hoyer, said he expected quick action.

After a week of turmoil, stock markets around the world rallied on news of the rescue plan, with the UK’s FTSE 100 closing on Friday with its biggest one-day gain.

‘Maximum impact’

President Bush said swift, politically bipartisan action was needed to keep the US economy from grinding to a halt as problems sparked by the credit crisis had begun to spread through the entire financial system – leaving jobs, pensions and companies under threat.

President Bush on ”a pivotal moment” in the US economy

“These are risks the US cannot afford to take. We must act now to protect economic health from serious risk,” he added.

Treasury Secretary Henry Paulson said a “bold” move was needed to restore the financial system’s health.

Giving few details, Mr Paulson said the Bush administration was stepping in with a plan to remove so-called “toxic debts” from US banks’ balance sheets.

The programme, he said, must be “large enough to have maximum impact”.

“For us here in the UK the big question is whether what Paulson’s proposing makes it more or less likely that our government will have to launch a similar rescue scheme for our banks” President Bush

In the meantime, he said that the government would be stepping up action to increase the availability of capital for new home loans.

Once this difficult period was over, Mr Paulson said, the government’s next task would be to overhaul bank regulations.

The chairman of the Senate Banking Committee, Christopher Dodd, said he and his colleagues would need to see the details of the plan first, but he accepted that quick action would be needed.

“We understand the gravity of the moment,” said the Democratic senator.

Rescue moves

Earlier on Friday, the government announced plans to guarantee US money market funds – mutual funds that typically invest in low-risk credit such as government bonds and are often used by pension funds – up to a value of $50bn, in a move to further restore confidence.

“The Treasury and the Fed have finally realised the depth and systemic nature of the crisis” John Ryding, economist

Will the plan work?
McCain attacks bank assistance

Meanwhile, the Securities and Exchange Commission temporarily banned “short-selling” in the stocks of 799 companies. Short-selling is a form of trading which effectively bets that the value of a company’s shares will fall.

“The Treasury and the Fed have finally realised the depth and systemic nature of the crisis,” said John Ryding, an economist at RDQ Economics

“We believe that these actions will constitute the wider firebreak that will contain the crisis.”

Mounting fears that the credit crisis is beginning to spread out through the financial system have rocked shares and companies recently.

Investment giant Lehman Brothers collapsed this week, rival Merrill Lynch was bought out by Bank of America, and the US government has bailed out insurer AIG with an $85bn rescue package and state-backed mortgage lenders Fannie Mae and Freddie Mac.

News reported by The BBC

The financial impact of the demise of Lehman Brothers is emerging as firms worldwide state their degree of exposure to the bankrupt firm.

Three Chinese banks have some $297.4m (£166.1m) in Lehman Brothers bonds, state media and local reports said.

Swiss Life said it had exposure of $20m Swiss francs (£9.9m) and Swiss Re had exposure of 50m Swiss francs.

German bank KfW transferred 300m euros (£237m) to Lehman after it collapsed on Monday, local media reported.

However, a spokesperson for KfW said the transfer had been done in error.

“There was an erroneous swap payment on Monday… for reasons for which are being investigated internally”, the company told the Frankfurter Allgemeine Zeitung newspaper.

Lehman Brothers collapsed after seeing billions of dollars of losses in the US mortgage market.

UK deal

Of China’s exposure, Industrial & Commercial Bank said it owns Lehman bonds worth $151.8m, according to the Xinhua agency, while Bank of China has $75.6m in bonds and China Merchants Bank had $70m in Lehman bonds.

Meanwhile, UBS said on Tuesday that its exposure to Lehman Brothers was less than $300m.

But Japanese firms’ total Lehman exposure was far greater at 440bn yen (£2.3bn), according to an earlier Kyodo news report.

Bank of Japan governor Masaaki Shirakawa that while Lehman’s collapse would harm Japanese firms, those hit had enough funds to cover losses.

“I am not concerned that the recent events will destabilise the financial system in Japan,” he said.

The news comes as UK bank Barclays has acquired certain core assets of Lehman Brothers for $1.75bn.

Barclays bought Lehman’s North American investment banking and trading unit for $250m, and paid $1.5bn for its New York headquarters and two data centres.

The administrators, PricewaterhouseCoopers, said it had a keen interest in developments with Lehman Brothers in the US.

The administrator said that all UK employees at Lehman still attending work will be paid by the end of the month.

News reported by The BBC

The fourth-largest investment bank in the US, Lehman Brothers, has said it will file for bankruptcy protection, amid a growing global financial crisis.

Lehman had incurred losses of billions of dollars in the US mortgage market.

The move threatens to deal a further blow to the global financial system, as banks unwind their deals with Lehman.

Merrill Lynch, also stung by the credit crunch, has agreed to be taken over by Bank of America in a dramatic weekend of events for Wall Street.

Stock markets in Europe and Asia dropped sharply and the dollar tumbled against the euro and the yen as Lehman’s failure raised fears about the strength of the global financial system.

“The global financial economy has never in recent years been tested by quite such a combination of accidents and jolts to confidence” Robert Peston, BBC business editor

The FTSE 100 index of leading UK shares was down 160 points, almost 3%, at 5256.50 in early exchanges.

Wall Street is also expected to open lower in what is likely to be a tense day of trading.

The Bank of England and the European Central Bank said they were monitoring money markets and stood ready to intervene if necessary.

Talks collapse

The chance that Lehman Brothers could collapse increased sharply after the strongest potential buyers pulled out at the weekend.

Barclays and Bank of America had been in talks to rescue the bank but negotiations faltered when it became clear that the US Treasury was strongly opposed to using government money to help clinch a deal.

Greg Wood, the BBC’s North America business correspondent, said that police had cordoned off the bank’s headquarters in New York and staff were leaving with cardboard boxes as onlookers gathered to watch the bank’s demise.

“I think the whole history – 150 years of effort and hard work – that’s the most saddening part for me,” said one Lehman employee as she left the building.

The bank, which employs about 25,000 staff worldwide, including 5,000 in the UK, was founded in 1850 by three brothers.

‘Extraordinary 24 hours’

Lehman Brothers said it intended to file for Chapter 11 bankruptcy protection, which allows a company time to reorganise and devise a plan to pay creditors over time.

It said that its broker-dealer division and asset management division Neuberger Berman Holdings would not be included in the filing.

The accounting firm PriceWaterhouseCoopers said the UK operations of Lehman Brothers have been placed under administration, and the business would be wound down in an orderly fashion.

Bank of America said it had agreed to buy investment bank Merrill Lynch for $50bn (£28bn), in a deal that will create the world’s largest financial services company.

Three of the top five US investment banks have now fallen victim to the credit crunch. Lehman and Merrill join Bear Stearns, which was sold to JP Morgan for a knockdown price in March.

The BBC’s business editor, Robert Peston, said that it had been Wall Street’s most extraordinary 24 hours since the late 1920s.

He said that Merrill’s sale was almost as shocking as Lehman’s demise.

“The global financial economy has never in recent years been tested by quite such a combination of accidents and jolts to confidence,” he said.

Insurer in trouble

In addition to Lehman and Merrill Lynch, problems at AIG, once the world’s largest insurer, are also mounting.

Reeling from losses on its exposure to real estate, AIG has sought $40bn from the Federal Reserve to shore up its finances, the New York Times has reported.

To help prevent panic on financial markets, the Federal Reserve said for the first time it will accept stocks owned by banks as collateral for short-term cash loans, broadening its emergency lending programme.

Also 10 of the world’s biggest banks on Sunday agreed to establish a $70bn emergency fund, with any one of the banks able to able to tap up to a third of it should they face any liquidity problems.

News reported by The BBC