Most people in this country never took part in the boom in financial markets. They may have enjoyed a rise in their house price, but the multi-million-pound bonuses and the mergers and acquisitions that generated huge fees for the City were just headlines in parts of the newspaper they didn’t normally read.

They had assumed that it was all above board, that the opaque financial instruments that were being dreamt up by “rocket scientists” straight out of university were being policed by regulators and the government.

The public has since discovered that they have been let down on a grand scale. The size of the financial bailout in America and Britain is unprecedented and we will all now pay the price. Those rocket scientists may as well have been reading Harry Potter.

As a consequence, nearly every single large company in Britain is now trying to massage down its earnings forecasts for the next two years. What that means is chief executives know they will be unable to sustain growth — and that is bad news. Lay-offs are inevitable.

The financial-markets rescue plan by Hank Paulson, the US Treasury secretary, which will involve the creation of a government vehicle to take on toxic assets, should continue to settle the stock markets when they open tomorrow. But the damage to the wider economy is of real concern.

Whichever way you look at it, the immediate outlook is not promising.

I offer you three possible scenarios.

The optimistic interpretation is that we are watching the last round of market turbulence, and that we are close to counting out the last of the fragile institutions that could not withstand the relentless battering from a combination of forces.

This scenario relies on the doubtful assumption that the crisis has been stemmed by government intervention.

It is an outcome we would like to believe, but is unlikely.

The second scenario is more pessimistic but more probable. It is that we will see the turmoil spread to other institutions that had been seen as strong and at the same time it will seep deeper into the wider economy. This will have big implications for business banking as companies struggle to pay loans. It will lead to company closures and a rapid rise in unemployment. This will result in a rise in bad debts, which will test the balance sheets of even well-capitalised banks. It will lead to the unwelcome return of “jangle mail”, where property owners are so underwater that they simply post back the keys to the banks.

The third scenario is the worst. We will witness a systemic and apocalyptic collapse in financial markets resulting in governments effectively nationalising dozens of financial institutions. This will have devastating consequences for the international money markets and result in a depression to match the painful years of the 1930s. However, I believe this outcome is remote.

If you had been asked six months ago to write on the back of an envelope those financial companies that you thought were in trouble, the names of Bradford & Bingley, Lehman Brothers, HBOS, Merrill Lynch and AIG would have been there.

All those situations have been resolved but there are a few more to come. Within two months I suspect Morgan Stanley, the American investment bank, will have found a new partner. But those predicting the demise of Goldman Sachs are wide of the mark. It still has many options. Don’t forget that when it was in private hands, Sumitomo held about 12% of the company. If the markets continue to deteriorate the most probable outcome is it will find another strategic investor, but we are a long way from there.

Lloyds TSB’s picky pair

ASSUMING the takeover of HBOS takes place, Sir Victor Blank and Eric Daniels, chairman and chief executive of Lloyds TSB, will head Britain’s strongest domestic bank. And after integrating the two — which could take three years — they will look overseas to grow the business. But do not think they will repeat the mistakes of Royal Bank of Scotland, which, after integrating National Westminster, made a series of earnings-dilutive deals in America. Blank and Daniels are conservative by nature and they will be very picky about what deals they do.

Darling’s priority

THE chancellor Alistair Darling has had a good week. He handled Lloyds TSB’s rescue of HBOS well and was decisive in his action. It was a far cry from the fiasco of Northern Rock. Let us hope we are seeing a new Darling.

The first thing he must do is stop the continuing exodus of companies moving their domicile overseas in protest against the taxation of offshore earnings. Last week Andy Haste at Royal & Sun Alliance, the insurer, suggested that his group could move to Dublin within six months. It would save £50m of pre-tax profits, and in the insurance business that money can go a long way. There are plenty of others behind him.

And the way that Lehman Brothers ditched its UK arm shows how, when times are tough, America holds little loyalty to London.

john.waples@sunday-times.co.uk

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