updated 9/18/2008 5:34:13 PM ET 2008-09-18T21:34:13

This is a bad time to be a purveyor of $1,800 pens. Or a seller of champagne, sports cars or big bouquets of flowers.

Few people feel like splashing out in the City, London's financial district, which is convulsing from the aftershocks of Wall Street's financial crisis. Thousands of jobs have already been lost, financial institutions have disappeared overnight, rumors swirl — and no one knows where it will end.

After years of economic boom in which City workers became famous for six-figure bonuses, lavish lunches and champagne-fueled parties, the mood has turned somber.

"The City is run by two huge emotions: greed and fear," said Geraint Anderson, a former banking analyst who chronicled a lifestyle of decadent excess in "Cityboy: Beer and Loathing in the Square Mile."

"People think the party is over."

Britain takes beating, Ireland hit hard
It's not just the bankers, brokers and analysts who are worried, but tens of thousands who rely on them for a livelihood. Some 350,000 people work in the square mile of the City — about 60 percent in finance, the rest in other businesses and support services.

"This time last year, people were spending a lot of money," said Luis Rosete, manager of The Pen Shop, a boutique selling exquisitely expensive writing implements in the heart of the City. "We have pens for 1,000 pounds ($1,800) — and people were buying them. Now, there are lots of people coming in, but it's mostly just browsing."

In cafes and pubs and on trading floors, everyone is talking about the crisis that — this week alone — has seen the bankruptcy of American investment bank Lehman Brothers, the U.S. government bailout of insurer AIG and the takeover of foundering British bank HBOS by rival Lloyds TSB.

"People are fearing for their jobs," said John Allsopp, who works in IT for an American investment bank. "And you just wonder how it got here."

The financial earthquake that began in the U.S. subprime housing market has shaken economies across Europe.

Ireland has been among the hardest hit. An economy that boomed by wooing hundreds of American companies with low corporate taxes is now on the brink of recession.

"You'd have to go back in history to find things going so badly," said John Mahoney, 39, a stockbroker taking a smoking break outside his office on Dublin's riverside. "The Celtic Tiger seems a long time ago."

Spain, whose buoyant economy was once Europe's envy, also is watching the financial turmoil with particular worry. Following the collapse of the construction boom that drove a decade of economic growth, Spain is saddled with stagnant growth, 10.7 percent unemployment and inflation at nearly 5 percent.

"There is a lot of mistrust, and in the stock market that means great volatility, and a lot of rumorology fueled by news from the United States," said Oscar Moreno, an analyst with Madrid-based brokerage Renta 4.

Vulnerable economies
Other European countries are less exposed. The Lehman Brothers collapse sent chills through Europe's financial sector but may cause only limited losses. Ratings agency Standard & Poor's said potential losses at Europe's banks and insurers from Lehman's bankruptcy were "moderate and manageable."

But even France — whose strong state involvement in the economy offers a measure of insulation — is not immune to the gloom. The finance minister has warned that mortgages will be tougher to come by as banks tighten lending. The media are feeding consumer jitters with stories about families struggling to get credit and French bankers in London fearing for their jobs.

The British economy is particularly vulnerable, thanks to a fast-deflating housing market, high levels of personal debt and a heavy reliance on the financial and business services sector, which accounts for more than 6 million jobs — or a fifth of all British jobs.

Lehman Brothers' collapse alone could cost 5,000 jobs in Britain. The HBOS takeover will see more go. Estimates of the number that could disappear in the City in the next year range from 25,000 to more than 100,000.

'I don't anyone is safe'
Tudor Taylor, 53, who works in financial services in London, said the mood in the City was "pretty bleak." He said the crisis had made him change his own behavior.

"I drive less. I consider major purchases to be major decisions. I've become more of a bargain hunter, and I look for discounts. I'm constantly asking myself, 'Is this a good price?' I'm more cautious, I've cut down on frivolous spending."

For now, some are keeping faith in the resilience Britain's august financial institutions.

"Until we see the collapse of Lloyd's of London, we won't panic," said Alan Booth, who runs a florist shop in the shadow of the 320-year-old insurance market's high-rise headquarters.

But Lehman Brothers was an institution, too. So was the 300-year-old Bank of Scotland, which merged with mortgage lender Halifax in 2001 to become HBOS and will now see its venerable name disappear as it is absorbed by Lloyds TSB.

"I don't think anyone is safe," said Allsopp, the IT worker. "I spoke to a friend at HBOS two days ago, and he just laughed at me when I said I'd heard the rumors."

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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