A mad week on the markets

One rogue trader causes Stock Market panic, Notts business leaders urge local firms to get a grip. Business Correspondent RICHARD BAKER looks back on a mad week

One of the problems with the Stock Market's knee-jerk reactions is that they're knee-jerk reactions.

Share prices have been falling around the world this week, prompting doom-laden headlines and America's equivalent of the Bank of England racing to the rescue with an emergency cut in interest rates.

There have even been suggestions that the venerable Bank of England should gather up its frock coat, get out its interest rate defibrillator and do the same here.

The Bank - quite rightly - concluded that as serious as the situation is, racing around like a financial ambulance wouldn't help.

Why? Three reasons.

One is that the UK economy has not got the same problems as the USA. More of that later.

The second is that there is evidence that some of the Stock Market panic selling that took place early in the week was related - unbelievably - to the one rogue trader who lost a French bank billions.

Finally, just because it's mad, bad and dangerous on the trading floors of the London Stock Exchange doesn't mean it's mayhem on the shopfloors of businesses in Nottinghamshire and beyond.

This was at the heart of frustration vented this week by George Cowcher, the chief executive of Nottinghamshire and Derbyshire Chamber - the third largest Chamber in the country, no less.

Confronted with wall-to-wall coverage of the Stock Exchange plummeting, leaping, falling back and making gains (all on the same day), Mr Cowcher urged businesses not to get distracted by what he diplomatically termed the 'antics' of the Stock Market.

Now, there is a breed of grassroots business that not only doesn't give a stuff for what goes on in the Stock Market, but believes it is full of people whose brazen, money-grabbing ruthlessness make secondhand car dealers look like saints.

They have a point, there.

Even those who appreciate the pull that the Stock Market has on the UK economy - and the way in which smaller businesses can now use it to raise money for growth - believe there is a huge difference between 'doing' the Stock Market and doing business.

George Cowcher's point is that we're in danger of allowing the Stock Market's reaction to economic conditions to determine economic policy - rather than the actual economic conditions themselves.

This is why all the talk of recession has to be treated with some scepticism.

While business conditions are tougher than they have been for some time - particularly in retail, which is so exposed to the consumer downturn - they are not suffering the kind of meltdown that the Stock Market?s headless chicken impressions might suggest.

While the US authorities appear to be throwing money and rate cuts at the US economy like they're going out of fashion, the Bank of England is taking a more measured approach.

Why? Because one of the reasons why consumers are so hard up is that everyday household costs have been rising. The Bank is legally bound to keep this inflation in check, which is why it doesn't want to slash interest rates sharply: the risk there is that rising spending would go haring after rising prices in a dangerous spiral.

The Bank will continue to do what it always has done: digest the evidence and then make a decision. It probably will cut rates again in February, but not massively.

Emergency rate cuts will do nothing to solve the Stock Market's problems because what's at the bottom of them is something different: the crisis in the banking system.

This week's fiasco in France provides yet more ammunition for those who believe banks have allowed parts of their businesses (the investment divisions) to chase profit wherever it takes them - spinning out of control in the process.

Whether the losses have wiped out all those spectacular profits isn't the main issue. It has cost an industry that needs trust its reputation. And its knock-on impact has become a distraction for the economy at a time when businesses have already got enough on their plate.

Governments may now have to pass laws to make the financial industry bring its house in order. George Cowcher, I'm sure, would rather everyone just got on with their job.