Here's the good news.
Sir John Gieve, deputy governor of the Bank of England, reckons the credit crunch is drawing to a close. In the Financial Stability Report, out today, he says that "the most likely path ahead is that confidence and risk appetite will return."
The prices of the dodgiest asset-backed securities might now be so low as to inspire bargain-hunting among investors in a position to do so. "Downside risks" remain, but overall "the pricing of risk in credit markets seems to have swung from being unsustainably low last summer to being temporarily too high relative to fundamentals."
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Of course, he may well be being too optimistic. But the real bad news is that, even if he's right, a recovery in the financial markets would still come far too late to do anything for the real economy
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Is the credit crunch really ending?
The Bank of England reckons the credit crisis may be coming to an end.
Now, this view is probably too cheerful. As the Bank itself points out, there could be another "lapse into a vicious circle'" of falling confidence. The trouble is, there are still plenty of areas of the real economy where losses are yet to feed through to balance sheets. Even if the credit crunch eases up, banks won't be keen to lend for a long time to come.
There's the small matter of the commercial property market. The Financial Stability Report points out that even though commercial property is "in the midst of its biggest crash in more than a decade", banks haven't yet reported any serious write-downs from the slump. The Bank reckons that if 10% of commercial property loans turn bad, the banking sector is looking at a £5.1bn loss that's about a fifth of annual profits, says the Telegraph.
And commercial property is far from the only problem. There's all the leveraged loans (giving too much money to private equity groups to fund buy-outs), not to mention exposure to companies going bust as the economy hits the wall.
We covered the vast range of other nasties still waiting to erupt from banks' balance sheets a couple of weeks ago in MoneyWeek. If you're not already a subscriber, then you can pick up your first three issues free by clicking here.
While all this stuff is still lurking on balance sheets, the idea that banks will return to lending individuals reckless amounts of money to buy houses is a forlorn hope, which only Gordon Brown and Alistair Darling still cling to.
It seems the UK residential property crash is no longer even news. There's been so much about it recently Monetary Policy Committee member David Blanchflower's warning of a 30% crash in prices over the next two years, for example that the news that Nationwide building society recorded the first annual fall in 12 years in April barely made the news pages.
But this is a big deal. This is one of the most respected of the house price indices, and it's based on real sales. It's not one of the Johnny-come-lately statistical releases that jumped on the property boom bandwagon. It's not a survey', or based on opinions'. It's the real thing.
So the fact that Nationwide says house prices fell 1% year-on-year in April, and 1.1% on the month, is quite a watershed.
Brown blames America - but who's really responsible?
The Government is still scrabbling to convince us that it's on the case. Mr Brown told the Today programme on the BBC yesterday that one of his main priorities was to lead Britain through these hard times. He kept blaming America. It's all down to subprime, was his message. We're the innocent victims. Just as he'd lead us through one slowdown as Chancellor (the post-dotcom collapse - also America's fault, reminded Mr Brown), he'd do the same as Prime Minister. Now there were falling house prices, that "we've got to deal with."
But "deal with" how? As I've argued before, the state of the housing market (by which I mean, the fact that prices are so much higher than average earnings, not the fact that they're now falling) is a massive indictment of the Government, however you look at it.
If prices are artificially high largely because of careless lending as MoneyWeek has always argued - then there's been a massive regulatory failure. The Bank of England should have been allowed to pay some sort of attention to asset-price inflation instead of fiddling with dubious consumer price statistics. We're also looking at a mis-selling scandal of massive proportions. All the nave unfortunates who were convinced by brokers that borrowing 100% on a house interest-only was OK, because mortgage rates wouldn't go up, will be lining up to make claims as the repossession notices come through their doors.
If as Mr Brown would probably rather argue they are high because of a lack of supply, then the failure is on the part of a planning system which can't even supply a sufficient amount of housing for its population in the middle of the biggest property boom in history. That's down to bad Government too.
Of course, now that prices are coming down, the supply and demand argument looks a lot weaker, and meanwhile, affordability for all those key workers and first-time buyers will eventually stop being an issue. Problem solved.
But I suspect this Government won't survive to see it.
Turning to the wider markets
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The FTSE 100 closed broadly flat again, shedding 2 points to end at 6,087 as investors bided their time ahead of the US interest rate decision. Miners were among the main fallers as metals prices eased as the dollar strengthened.
Across the Channel, the Paris CAC-40 rose 19 points to end the day at 4,996. And in Frankfurt, the DAX-30 gained 63 points to 6,948.
On Wall Street, US stocks first rose then slipped back as the Federal Reserve cut interest rates by a quarter point to 2%, while suggesting that further cuts weren't necessarily on the cards. The Dow Jones fell 11 points to end at 12,820. The broader S&P 500 closed down 5 points, at 1,385, while the tech-heavy Nasdaq lost 13 points to close at 2,412.
In Asia this morning, the Nikkei 225 fell by 83 points to close at 13,766, with banks among the main fallers amid fears they won't be able to raise lending rates, with the Bank of Japan looking increasingly unlikely to raise the Japanese base rate.
Crude oil was trading at around $114.70 in New York. Meanwhile Brent spot was trading at $111.86.
Spot gold was trading at around $874 an ounce this morning, while silver was trading at $16.84. Platinum traded around $1,911.
Turning to forex, sterling was trading at 1.9813 against the dollar, and at 1.2716 against the euro. The dollar was last trading at 0.643 against the euro and 103.96 against the Japanese yen.
This morning, property developer Hammerson said that UK commercial property prices fell in the first quarter and warned that "the banking sector has remained cautious about advancing new loans."
Our recommended articles for today...
Crisis over, the old crisis returns
- The US relies heavily on foreign buyers of its government debt - and since the credit crunch blew up last year, outstanding debt has ballooned by $1 trillion. But foreign buyers of US government bonds are starting to disappear, just when the Treasury needs them most to pay for tax rebates, investment bank bail-outs, and the first raft of post-election housing aid, writes Bullion Vault's Adrian Ash. To find out what this means for the dollar and gold, read: Crisis over, the old crisis returns
Is the French economy holding the Eurozone together?
- The French economy seems to be underpinning the recent record levels in the euro, and currently acting as a buffer within the Eurozone. But how can an economy that everyone has spent the last five years or so trashing, turn out to be weathering the global slowdown relatively well? To read more on why the French economy is proving so resilient, click here: Is the French economy holding the Eurozone together?
