As I pen this article, the complexity of
the 'credit crunch', the problems of the sub
prime market and the position of the Governor of The Bank
of England seems to be emerging, but I cannot help to wonder
how HMG allowed the stability of the UK financial markets
to get into its current state. But there are some clues:-
- HMG is a profligate spender
- Nobody seems to worry about
the balance of payments
- Nobody seems very concerned about
the extraordinary amount of personal unsecured debt
- Nobody
seems to worry about the savings ratio – presumably
in an increasingly celebrity culture it’s not cool
to save
- The dangers of lending long and borrowing short
seem to have been forgotten
So where do we go from here? Changing the
rules, as proposed, on investor protection can only mean
a cost to the taxpayer – that hardly seems fair when
the plight of pensioners was ignored in some recent company
failures, but maybe it has something to do with long queues
in the High Street!
The depoliticisation of the Bank of England
10 years ago, hailed as the financial reform of the century,
seems to have some flaws when applied to market stabilisation
- just read the terms of reference for the responsibilities
of
the Bank of England, the FSA and HM Treasury and you will
see
that it's not exactly a 'who does what and when' document.
Will the problems spill to the wider commercial
market? We will be lucky if they don't. I say that
because the economy has grown on the back of an over funded
and therefore buoyant housing market and the credit card
funded retail market.
If banks and other lending institutions
cannot offload their collateral 'lite' loan books
then the supply of money fuelling the commercial markets
dries up. In these circumstances the focus of these institutions
will move rapidly from sales to loan quality and Risk Directors
start earning their salaries. That moves us quickly into
a downturn in the economy and its time for businesses to
tighten their belts and dust down contingency plans. Seek
guidance from your accountant and ensure that you get regular
information on the state of health of your business. If
you start running into problems speak to me - but
don’t
delay, there are far more options to protect you, your
business and your family at the first signs of trouble.
A familiar position that we have seen before,
and unfortunately lessons learned in the past seem to have
been quickly forgotten.
21st September 2007
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