The Credit Crunch is a fierce fiery beast that doesn’t seem to want to lie down. Those who are wise after the event say they saw it coming many months ago. Most of us were unaware, if a little uneasy, about the way things were going in the middle months of 2008.
People talked of the bubble bursting and of previous historical comparisons. Many said that those bubbles were different and had all been based on hot air. Yet there seemed to be anomalies. House prices are one measure everyone comes across in their everyday life and prices seemed to be heading inexorably upwards. Mortgage lenders were forced to accommodate this by relaxing their multipliers and thinking of wizzy new ways to gain an edge over the competition. There were even mortgage products that recognised you were never going to pay it off and included other generations in the long term perspective. Credit card offers showered through the letterbox. Any large trader felt able to offer financial products starting with travel insurance and their own branded credit card.
Then the shocks hit the headlines. Confidence is such a fickle thing. The papers and the media did what they always do and revelled in the excesses of bad news. Confidence trembled some more. The more shocks there were the more the news media reported and speculated. Queues round the block such as we hadn’t seen in our lifetimes. The number of Mortgage products went from 15000 to 3000 overnight. The Government stepped in, actually with rapidity. Normally things take an age to put in place. But the fact that they did so was not only reassuring, but also confirmation that there really was a crisis.
The News speculated some more and away went any reassurance. The RBS Rights issue had been 95% subscribed at a bargain £2 per share. Three months later, the boot was on the other foot and the issue of shares at 65p was almost completely spurned by the same share holders, leaving the Government to pick up the tab. What had been a Bank worth £125 Billion or so was now worth £20 Billion. The change in its Rating by the curiously aptly named Standard and Poors hit the news and sent anyone with savings looking for the on line credit ratings of major international institutions. Confidence is a fickle thing.
Then there was the Icelandic Saga. People found out their favourite charity and their local Authority has millions lodged in high interest accounts that suddenly weren’t guaranteed. The comedians wondered what the cats’ protection charity wanted with all that money anyway.
So the bubbles were popping. We now realise at the height of confidence there was all the fluff and hot air that drove the prices to extremes, encouraging a spiral of greed with ever more speculative energy, feeding press and pub pundits’comment on the excesses available. At the depths of a recessionary spiral the slurry of despair amongst the wreck of long trading institutions, reports of wholesale job losses and speculations of deflation, zero growth and all the knock on effects of a fall in consumer confidence fully illustrate the opposite extreme.
On the way up the spiral feeds on greed. On the way down the spiral feeds on fear. If you want to know how your business fits into what is going on talk to Bob Shepherd Associates.
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