This will pass. One day, the world's financial system will be back on a sure footing. One day, banks will regain the confidence to lend to one another. One day, when bankers tell us the extent of their losses, we will be inclined to believe them.

One day, the lurking fear that permeates the financial world and worries banks every time they put a signature to a new commitment will be gone. One day, the world's central bankers will sleep easily again.

This will all pass, but not yet. The latest tremor is seismic.

That the US Government is mulling a rescue takeover of Fannie Mae and Freddie Mac is simultaneously unnerving and reassuring.

These vast semi-official bodies are at the very heart of the trillion-dollar American mortgage market. Unnerving, because it is unthinkable that institutions of this scale and scope - total debts of $5.3 trillion - have such wobbly foundations that a former senior Federal Reserve official, Bill Poole, could describe one of them, Freddie Mac, as technically insolvent.

Reassuring, because the perceived, but unwritten, guarantee from Uncle Sam looks a bit more explicit when President Bush admits his officials

are working hard on the issue. Adding to the gloom, shares in Lehman Brothers were again being spanked last night on fears we still don't know the full nature of its exposures.

This side of the Atlantic, things are not much better. A large chunk of HBOS's £4 billion rights issue looks likely to be left with the underwriters as the market price languishes below the offer price.

Bradford & Bingley's latest rescue capital-raising is at an earlier stage but so far is similarly under water. And the first £50billion of liquidity offered to thirsty banks by the Bank of England's Special Liquidity Scheme has reportedly been long since swallowed up.

Bank chiefs were in Threadneedle Street yesterday begging for the tap to remain turned on.

Meanwhile, Northern Rock's eagerness to lend homebuyers 125 per cent of property values at the top of the market in 2006 and early 2007 makes ministers' claims that taxpayers will emerge unscathed from the nationalisation increasingly suspect.

Each fall in house prices throws thousands more Rock borrowers into negative equity. The inevitable acceleration in unemployment will seal the fate of many of its already stretched borrowers.

The latest tightening of the credit screw at least makes the decision easier for the two million small shareholders in HBOS, who soon have to decide whether to take up their rights in the bank's £4 billion capital-raising. The deadline for applications is 11am on Friday.

Smarter investors made their decision earlier in the rights issue process, when the nil-paid rights had some value, selling them in the market. The nil-paid price has now sunk from a high of 19p to just 1.5p.

Those still to make their decision have had it made for them. There is not much point in buying shares at the 275p rights price when they can be had in the market for 266p, even allowing for the free dealing service.

The curious thing is how resilent the HBOS share price has been over the past few weeks. Once it dipped below 275p, it could be expected to plunge much further on fears that the underwriters, Morgan Stanley and Dresdner Kleinwort are going to be lumbered with unwanted stock.

Even if they have managed to lay off a large chunk of the risk to sub-underwriters, one would expect aggressive short-selling of HBOS by investors wanting to hedge their bets.

If anything, though, the HBOS share price has been relatively stable in the past three weeks, bobbing about in the 260-290p range. The rights are being traded by the million.

This appears to be a highly liquid market. So, unless the more extreme conspiracy theorists are right and there is some sort of covert share support operation taking place, 275p or thereabouts really does reflect the market's view of HBOS's prospects.

A lot of bad news is already discounted in that price - tumbling house prices, a moribund UK economy and an inevitable blow-out in bad debts in the corporate loanbook as well as in the retail bank.

HBOS will weather this nasty downturn. On a ten-year view, the shares are probably perfectly good value at 275p. But nimble, opportunistic shareholders should duck the rights issue offer in the hope of picking up the shares for less in the coming months.

The agony will pass eventually, for HBOS and other banks. But not till share traders, peering into a murky future, scent evidence that house prices on either side of the Atlantic are starting to bottom out. There's no sign of that yet.

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