Is the panic over?

So far, so good. But we’re still in uncharted territory. Hank Paulson’s stern but soothing tones have reassured the stock markets mightily. The US Treasury Secretary will help American banks to offload their toxic waste – the near-worthless sub-prime mortgage-backed securities that caused their woes. Britney Spears summed up the confidence-sapping effect of these investments on the banks in her lyric: “You’re toxic, I’m slipping under.”

Why did a US announcement have so much impact here?

British banks have the closest of links with their US counterparts. In the same way that sub-prime slime spread across the Atlantic, so will the restorative powers of the Paulson bailout. Shares in British banks also rose, thanks to the new ban on short-selling by hedge fund managers or anyone else.

Explain to me again what short-selling is?

This is how you go short: you borrow shares, then sell them immediately in the hope the price goes down. If it does, then you make money from buying back the shares at the lower price, returning them to their owner and pocketing the difference. The ultra-risky practice of naked short-selling is not about trading in the buff: it’s shorting without first borrowing the shares, such is your conviction that the price is headed downward.

So are the Mayfair mafia today counting their losses?

Yes, but it’s up to you whether you decide to feel their pain or not. Some were wrongfooted by the ban on short-selling and, as prices surged by as much as a third, the short-sellers were scrambling to buy back the shares, which they are required to do to complete the transaction.

I have a few shares in HBOS: should I exploit the Paulson bounce to sell now?

Wow! What a week you’ve had. We are sure that you are still recovering from the news that the bank, formed from the merger of Halifax and Bank of Scotland, is now itself to be taken over by Lloyds TSB, a white knight, albeit on a black charger. Only a year ago your shares were worth 989p. The subsequent decline – to as low as 88p on Wednesday – was caused by HBOS’s exposure to mortgage-backed securities, concerns about the creditworthiness of some of its borrowers – and short-selling. Yesterday the shares closed up 28.9 per cent at 222.50p, still below the price at which they are valued under the terms of the Lloyds TSB rescue. You may as well sit tight and watch events unfold.

I am still worried about my savings with another high street bank? Are they safe?

You might stop waking up in a cold sweat at 4am if you were better acquainted with the compensation rules. A 100 per cent guarantee covers every penny invested with National Savings & Investment and also Northern Rock. Should a bank collapse, savers will receive a maximum of £35,000, so it makes sense to spread your cash among several banks.

Could mortgage rates now start to fall?

Sorry to disapoint you, but rates are expected to increase as early as next week, reversing the trend of the past month. Why? Because banks remain reluctant to lend to each other – and so to us. There may be a bank base rate cut next month, but this would not immediately bring cheaper borrowing.

What about the housing market ?

It all depends on when the banks loosen their purse strings. Cheaper borrowing is not the only issue. Liam Bailey, of Knight Frank, the estate agent, says: “The events of this week have spooked the market at a time when there was evidence of a slight recovery . . . the wider story is one of lost jobs and further uncertainty. Recovery will seep through eventually, but not until spring next year at the earliest.” Other observers believe, however, that we will have to wait until 2010.

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