Credit Crunch

Darling tries some moral suasion

Darling and Brown appear to be getting seriously worried. Darling was handed an explosive legacy by Brown when he took over the reins of Number 10 last summer and his early months as Chancellor have been dogged by the emerging financial crisis and by mounting media and political pressure over his poor performance at the Treasury. His budget speech was just about the worst I have ever heard in twenty years of listening to them. Darling is reported as saying at a meeting of G7 Finance Ministers that present turbulence was “the biggest economic shock since the Great Depression.” This is pretty strong stuff - and I question the wisdom of coming out with such a loaded sound-bite.

Declan and Stephanie in Discussion

This is a really good BBC video clip - an informal discussion between Declan Curry and Stephanie Flanders on some of the policy dilemmas facing the Bank of England and the different strategies open to the monetary authorites for coping with the credit crunch. There is a lot in here hidden just beneath the surface of the discussion.

Economic Resilience?

Gordon Brown and his Chancellor, Alistair Darling, have been keen to stress that the economy is ready to weather any storm that hits it. Although the economy remains standing, despite recent turbulence in the financial markets, it does seem like tempting fate to claim that the economy is so resilient, and capable of withstanding any disturbances that might come along. So what supports their statements, and what are the risks to the economy? This post looks at a few of the problems on the horizon.

A bubble waiting to be pricked

Roger Bootle has been a long standing critic of rampant asset price inflation. In the Business Telegraph he provides a caustic and hard-nosed look at the housing market recession.

“There are two major causative factors at work. First, houses have become extraordinarily expensive, to the point where ordinary people can barely afford a shoe box. And second, the ample supply of credit which allowed this to happen is now tightening. The second may be the proximate cause of the coming fall in prices. But don’t let anyone fool you into believing that it is the fundamental cause. That prize goes to the ludicrous over-inflation of prices. In order to get on the “ladder” you have either to own property already or mortgage yourself up to the eyeballs. This has been a bubble waiting to be pricked.”

The rest of his article which is excellent for students preparing for the housing market paper (AQA unit 3) this summer can be found here

Over at the Independent, the superb Stephen King looks at the credi crunch and market failure

From Pope Pius VII to the credit crunch, market failure lives on

AZ of the Credit Crunch

put together this excellent A-Z of the credit crunch

From Adam Applegarth to a Z Bond, Sean Maguire of the Independent has put together this excellent A-Z of the credit crunch. Really good!

Chart of the Day: Global Hedge Fund Investments

Love them or loathe them, hedge funds seem to have an aura and gravitas in financial markets, a mystique and attraction that perhaps go well beyond what they deserve. Perhaps this is because many funds have been spectacularly successful attracting enormous interest in the financial media. However, they still remain largely out of reach of the smaller investor as hedge funds are unregulated and not for the feint-hearted.

Despite the failure of several high profile hedge funds in recent months and forecasts that the boom for hedge fund activity is drawing to a close, the scale and scope of hedge funds is staggering, over $1.3 trillion has been invested in thousands of funds across the world; to put this into context there is a global investment ‘universe’ estimated to be worth $50 trillion, including currencies, bonds and equities. So more than one in every fifty dollars is now invested through a hedge fund. So-called ‘sophisticated investors’ entrust their capital to these funds, the money is pooled together and invested by the fund’s chief investment officers.

Keeping cool in a crisis

Armegeddon? Armegeddon out of here!

Exiting Mortgages - Subnormal Profits

What is happening in the UK mortgage market? Rarely a day goes by without news of another mortgage lender reassessing the risk of their housing loans and deciding to pull the plug on some of their mortgage products. Following on from the Northern Rock which has virtually stopped lending at all and wants to shift a sizeable portion of its mortgage book onto others. The Co-operative Bank, Lehman Brothers and First Direct have all announced that they are withdrawing two-year fixed rate mortgage products for the time being ans there are rumours that Halifax Bank of Scotland, the UK’s biggest mortgage lender is poised to do likewise.

All of this is one of the direct results of the credit crunch. The lenders are spinning this as a way of providing better service-levels to their existing customers but the reality is that the supply of finance in the wholesale money markets has been badly squeezed and this is now feeding through to the retail market for housing loans. It is costing the mortgage lenders more to borrow funds and their profit margins have been squeezed to a level where sub-normal profits are being made. Little wonder that some of the major players are effectively exiting the market by withdrawing some mortgage products from sale.

Bernanke almost admits that the US economy will enter recession in 2008

Ben Bernanke is getting closer and closer to using the dreaded R word.

The Rock and his Millions

Geoff’s entry today here prompted me to write something topical for once, so I’m going to follow up on this enlightening review. Despite everyone clamouring for change (from more staffing to a rehaul of the entire system), nobody actually knows what actual reforms are going to be implemented, aside from how we’re promised that things will be “better”. Somehow it reminds me of a certain someone’s campaign, but let’s not get into that. Instead, I’m going to discuss the theoretical side of how this discovery may affect the future.