Why The World Will Avoid Armageddon

They will also be schooled in efficient market theory and program-trading as a norm. Electronic screens tell you everything and when they turn red few are brave enough to do nothing. Fear breeds fear and panic breeds panic. It is fairly clear from this week's events that a company's share price under these circumstances does not necessarily relate to the underlying soundness of the business.

Hopefully we are now entering a more reflective period of this downturn. The denial stage was brief and has long passed; the anger stage is likely to be more protracted with the search for "who is to blame." Now we are moving toward an acceptance that financial services are experiencing a unique series of challenges and may well change significantly in the future.

Most of our activity of late has been to ensure the regulatory response to all of this in the U.K. is appropriate—and crucially, looks to what is happening elsewhere. Precipitate action drives business away: one only needs to look at the effect of Sarbanes-Oxley in the U.S., or the U.K.'s gold-plating of some EU directives. Our prime minister has vowed to "clean up" the financial system, and has helpfully said that this needs to be done globally rather than locally.

Looking to the future we can be assured of a stronger banking sector. The U.K.'s banks have already strengthened their capital bases. Now we can work together to strengthen the global regulatory environment, recognizing that failure to make the right changes now would lead to years of uncertainty, doubt and missed opportunities for banks and their customers alike.

Prudence Pays Off in Europe
Holger Schmieding, chief European economist for the Bank of America, on why the Continent won't feel too much pain.

The renewed turmoil in financial markets is bad news for the eurozone, as it is for the world as a whole. It adds to the risk that the economy, which seems to be stagnating at the moment, could soon fall into a mild recession. But the eurozone will likely not suffer as much as the U.S. or the U.K.

In many parts of the eurozone, consumers tend to save more than they do in the U.S. and the U.K., where the personal savings rate is virtually zero. Most eurozone consumers are less indebted, depend less on easy access to bank credit and react less to sharp swings in house and equity prices than their British and American counterparts. Remember that, after the first wave of the financial crisis hit in August 2007, the eurozone economy continued to expand rapidly for more than six months. In the end, it took a dramatic spike in oil prices, a major surge in the euro exchange rate, slower growth in many trading partners as well as a downturn in domestic real-estate markets in some eurozone countries such as Spain and Ireland to finally put an end to the eurozone upswing this summer. The credit crunch did not play the major role in the slowdown.

So far, the eurozone does not seem to be at the center of the current financial storm. Its impact could still be felt if major trading partners now succumb to recession and if, amid the turmoil, eurozone companies decide to play it safe by postponing investment decisions and hiring fewer workers. For an economy already struggling with stagnation, even a modest extra burden could tip the scales toward recession.

But not all recent news for the eurozone has been bad. Amid the financial storm, oil prices and the euro exchange rate have fallen back sharply since mid-July. Over time, these two moves will give eurozone consumers the chance to spend more on other goods and services as their energy bills come down. Eurozone companies will find it easier to compete on the global market at a less overvalued exchange rate, which had started to price many of them out of their markets.