Only seven days ago all the chatter was about Peter Mandelson’s dramatic return to the Cabinet. Now, after the worst week for financial markets since the 1987 crash, the job-hopping antics of the “Prince of Darkness” rank as about as important as the manoeuvrings of a flea in the fur of a mouse on the back of an elephant hurtling towards the rocks below.

No one can now have missed the fact that all that testosterone-charged shouting in the dealing rooms of the City of London and Wall Street is not taking place in a parallel universe. The red dots on City computer screens yesterday were not just signalling the end of an era for traders, but danger for anyone with a job, home or pension.

Markets

What happened?
Share prices have been on a rollercoaster, but the overall direction is sharply down. Hard to believe, but the FTSE 100 closed strongly higher last week, at 4,980, as the US Congress finally approved the $700 million bank bailout. But from the off on Monday, any lingering hopes that Hank Paulson’s scheme could be a panacea to restore confidence were left in tatters. Investors dumped shares at any price and retreated to the safe haven of gold and government bonds as Iceland seized control of its floundering banks. Apart from a brief respite on Tuesday, the selling frenzy has gone on regardless. Forced sellers of shares – with creditors demanding repayment – have had no choice but to sell regardless of price. By last night’s close, the FTSE 100 had collapsed by 1,048 points to 3,932, a 21 per cent fall, wiping £237 billion from company values. Bank shares too dived. Barclays began the week at 368p and ended it at 207.5p; Royal Bank of Scotland was down from 186.25p to 71.7p, HBOS fell from 200.5p to 124.2p.

Why should I care?
If you are one of the vast majority of employees in defined-contribution pension schemes, your pension is at the mercy of markets and will be smaller unless the markets recover. If you are lucky enough to be in a final salary scheme, don’t feel too immune. The slump will cause a massive ballooning in fund deficits and, outside the public sector, will exert huge pressure on employers to axe their schemes, or force them to scrap dividends to plug the gaps. Someone will have to pay to meet past pension promises. Anyone with an insurance company endowment policy will also be hit if the share slump is not reversed. Although insurers try to smooth payouts, they cannot possibly withstand such a shock without cutting future bonuses sharply. The millions of small shareholders in HBOS, Barclays and Lloyds TSB are nursing big losses on paper and can forget that nice reliable twice-yearly dividend cheque for the forseeable future.

Bank failures

What happened?
By the end of the week all three Icelandic banks, Glitnir, Landsbanki and Kaupthing, failed and were in state control. Although based on the tiny island, the scale and scope of their deposit-taking and lending made it a major problem for other countries, particularly Britain. Alistair Darling promised to guarantee all retail deposits with the three, but as of last night was resisting pressure to cover the estimated £800 million of deposits made by local councils, quangos and charities.

Why should I care?
Because you will certainly pay for the clear-up, probably through tax rises, certainly through higher bank charges and less favourable interest rates, possibly in higher charges from other financial services companies such as insurers and independent financial advisers. The main lifeboat in Britain, the Financial Services Compensation Scheme, will eventually collect from all surviving banks. The Treasury has already written a £25 billion cheque to underwrite Bradford & Bingley and Icelandic savings accounts. If Mr Darling holds firm, council taxes may have to rise steeply. If he yields, there will be more pressure to raise central government taxes.

The bailout

What happened?
The Government unveiled a radical rescue plan, earmarking £500 billion to help high street lenders. It set aside £50 billion to invest in the shares of banks, in effect offering to part-nationalise them. Of most immediate use, it agreed to guarantee £250 billion of their short-term borrowings from other financial institutions to free up the paralysed wholesale markets that ultimately determine the supply and price of loans to the wider world. It also upped to £200 billion the amount available to banks to borrow from the Bank of England in exchange for lower-quality assets such as car loans and buy-to-let mortgages. Two days on, the wholesale markets remain paralysed.

Why should I care? If all goes well, it need not cost a penny. But huge sums are now at stake. The £50 billion of equity capital, equivalent to an extra penny on income tax for 15 years, may never be repaid. The enormous scale of the bailout will make it more expensive for the Government to borrow, again pushing up taxes for years to come. The continuing big freeze in the wholesale markets means that it will for now remain very difficult or more expensive to get all kinds of debt, from mortgages to small business loans.

Savers

What happened?
Everyone had a nervous week, wondering if their nest egg was safe. By the end not a single retail depositor lost a penny, though hundreds of thousands of people were not immediately able to gain access to their money. The Government promised to cover deposits of 300,000 savers with the Icelandic bank Icesave, but not businesses, councils or charities. Most retail depositors with Kaupthing were transferred to ING Direct, the Dutch bank.

Why should I care?
Your bank charges or taxes or both are almost certainly going up to pay for the rescues. Greed, ignorance and negligence have been rewarded. The irony is “rate tarts” who knowingly put money into institutions they knew nothing about in pursuit of an extra interest are being bailed out. The more sensible majority will pay for that mistake and even now their deposits in mainstream UK banks are not explicitly guaranteed.

The economy

What happened?
It will be a few weeks before we know what has happened to the confidence of consumers and business leaders. But it would be a miracle if confidence, the lifeblood of business, has not drained away by the bucketload. In every home, purchases of big-ticket items such as cars, furniture and white goods will have been deferred. In every boardroom, business people are likely to have shelved capital investment plans and to have rushed forward cost-cutting programmes. Interest rates were slashed across the West by half a percentage point on Wednesday, but the feelgood-factor unleashed lasted only a few hours.

Why should I care?
Because the Bank of England Governor Mervyn King’s “NICE era” (noninflationary continuous expansion) is now well and truly over. Britain is almost certainly in a recession and inflation is double what it should be. Unemployment was already rising at its fastest for 16 years. The City, the housebuilding sector and some parts of the high street have already seen the axe fall. Now a much broader swath of job losses looks unavoidable.

Housing

What happened?
The Halifax revealed that house prices were sliding at their fastest since record keeping began 25 years ago. Since September 2007, prices have on average dropped 13.3 per cent to £172,108. But that average disguises much bigger price collapses, particularly of unwanted properties like inner-city flats. The carnage of the past few days could topple more people into serious financial trouble, triggering fire sales of properties and forcing prices lower still. One glimmer of hope for stability is anecdotal evidence of cash buyers, desperate to find a home for their money outside the financial markets, starting to shell out for property.

Why should I care?
For first-time buyers and younger homeowners looking to trade up, the plunge is very good news, always assuming that they can find a lender. For older homeowners thinking of trading down or selling up to fund their retirement, it’s very bad news. Until banks start looking to lend again, it’s hard to see the house price fall ending. Unfortunately, until house prices stop falling, it’s hard to see banks wanting to lend again - a Catch 22 situation.

Our ten indicators

Yesterday we gave ten day-by-day measures to gauge if things are getting better. Here’s how they did:

Gold the classic refuge, down $3 to $890 an ounce. Verdict: better

Three-month sterling Libor the benchmark for pricing UK loans: up 0.004 per cent to 6.285 per cent. Verdict: slightly worse

Savills share price a barometer for the housing market: down 14.5p to 226.25p. Verdict: worse

Brent crude oil future down $6 to $76.66 per barrel. Verdict: better

Sterling trade-weighted index economic virility symbol: down 1.2 to 88.8. Verdict: much worse

WPP share price a warning signal for consumer confidence: down 27.25p to 367p. Verdict: worse

Vix volatility index measure of traders’ mood swings, up 9.81 to 73.7. Verdict: much worse

Hays share price a proxy for job prospects: unchanged at 71.5p. Verdict: unchanged

Wheat price Western food staple: still at £93.50. Verdict: unchanged

The FTSE 100 down 382 at 3,932. Verdict: much worse

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