Blimey, what a few days it’s been. Every Tom, Dick, and Harry of a financial expert has been jumping on the bandwagon using the word ‘crisis’ to describe the current banking chaos enveloping the United States and beyond. And they’re not wrong. The astonishing collapse of the Lehman Brothers investment bank (the fourth largest in the US) and the even more astonishing bail out of insurance giant AIG has left financial analysts and institutions rooted in the headlights of pure panic, horror, and disbelief.

AIG was saved by a massive $85 billion (£47 billion) Federal Reserve loan, in exchange for an 80% stake in the company. Unprecedented. As I write this, there’s even unguarded talk of the US government actually considering buying the country’s entire stock of unsold homes as a way of drawing a line under the entire sub-prime housing problem in one fell swoop. Unlikely, but even just the fact that it’s on the list of options is truly staggering. And how much would that cost? A trillion dollars? Or maybe more? Is it viable? Would that undermine the entire capitalist market system? Who the heck knows?

What we do know is that the banking industry has been shaken to its core. And yet, perhaps we should have seen it coming. The problem with huge financial institutions is that they get complacent. The big offices, and even bigger bonuses, sometimes lulls them into a false sense of security. At the end of the day, the entire banking system is based on only one thing. Confidence. That’s the bottom line. If investors believe their money is safe, then everything is fine. But if they don’t believe you are being on the level, then you’re in real trouble. And no matter how many statements you release saying ‘don’t panic’, the damage has already been done. In fact, saying ‘don’t panic’ almost makes the situation worse, as people ask themselves ‘if there’s no reason to panic, then why are they having to say it?’

If every single client of a particular bank goes into their branch tomorrow to demand their savings, then that bank will collapse, because the reality is, they don’t actually have all that cash in one place – it’s all been lent out in various places in order to generate interest for the bank. You’d have thought that banks would have learnt that by now.

And so now, many of those fat cats are learning the lessons of their folly. Only those – probably smaller – institutions and banks who still understand and implement basic economics, will survive. That’s because they kept back enough of their cash for a rainy day. Meanwhile, what is the property investor to do? Well, I would say they should do what they always do, ie. invest in property, especially while it’s cheap. If you’ve got the capital upfront then you can’t go wrong. Over the long term, property in the right location has always prevailed. If you need finance, then check out the institution you’re borrowing from. How much of their stock is based on actual deposits, and how much is based on projected income from interest on loans? As they say, it’s not rocket science.

Even as you read this, the turmoil in the markets may have moved on to even further lows, or may have finally bottomed out, such is the speed of what the US government glibly calls the ‘market correction.’

My guess is there’s probably more to come. And who am I to judge? Well, my degree in economics might not be the most high-powered in the world, but I do know that if you order a crate of apples from a farmer and he comes up with a lot of rotten fruit, then that farmer isn’t going to last long in the trade, is he?

As Nils Prately recently commented in The Guardian newspaper, in response to the current Wall Street crisis: “There are not enough firefighters, and not enough water, to go round. Some fires are simply being left to rage and the danger is that new ones break out.”

Let’s hope the fires will eventually run out of fuel, or we get some natural respite from the heavens. The banking industry is going to need it.