Sean O'Grady: Soon there will be nowhere left for the losses to go

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The echoes of 2007 and 2008 are striking, and terrifying. Instead of worthless mortgage-backed securities backed by sub-prime mortgages, we now have worthless Greek government securities backed by a sub-prime economy. Instead of the litany of famous Wall Street names that went under then – Bear Sterns, AIG, Merrill Lynch, Fannie Mae, Freddy Mac, and of course Lehmans – we now have great civilised nations with glorious histories being picked off by the markets, with the predators showing the same habit of successively picking off the weakest member of the pack first: Greece, then Portugal, Spain, Ireland, Italy and maybe even the UK.

Now, once again, many of the banks are refusing to be open about the scale of their losses on the devalued securities they hold. So the suspicions are growing again and they are starting to be wary about lending to each other, freezing the money markets. And that, if we need reminding, will mean an even nastier contraction in lending to businesses and households. The credit agencies have shown more alacrity at downgrading sovereign debt than they did with mortgage-backed securities, but perhaps this time, seared by the previous experience, they are downgrading debt too readily.

More than anything, there is the same wearily familiar failure of "the authorities" – governments, the central banks and the IMF – to intervene early and effectively. Then it was the US Federal Reserve and the US Treasury that dithered and made the catastrophic mistake of allowing Lehmans to go under, triggering a global recession. Now it is the European Central Bank, the European Commission and the German and French governments that have failed to get their act together, turning what might have been a routine sovereign debt crisis into a threat to the single currency itself.

They must not let Greece default, the equivalent of the Lehmans moment. For the truly terrifying bit is that governments can no longer pay for bailing out the banks by issuing securities – except by inducing their central banks to buy them, a sure recipe for inflation. The losses have moved from markets to banks to taxpayers and then taxpayers in stronger economies such as Germany. Soon there will be nowhere left for them to go.

British elections sometimes coincide with more momentous events abroad. In October 1964 the arrival of Harold Wilson in No 10 was overshadowed by the departure of Nikita Khrushchev in Moscow, and China testing its first nuclear bomb. We must hope that the general election of 2010 doesn't coincide with the arrival of a second credit crunch.