The blog is delighted that the Financial Times’ Gillian Tett has been named Journalist of the Year, in the annual UK awards. She was the first journalist to call attention to the dangers developing in financial markets, and has been an invaluable source of information.
Two postings, from March 2008 and December 2007, illustrate her ability to spot potential problems long before they became major issues:
Readers will know that I am a great admirer of Gillian Tett’s analyses of banking issues in the Financial Times. Today, she has another thought-provoking article, this time on the emergence of Iceland as ‘the world’s first country run like a hedge fund’. The article is worth reading in itself, but also for the question that it raises in conclusion. This is whether the leverage used in recent years by some banks now means that they are ‘not just too big to fail, but also too big to rescue’?
Helpfully, Gillian Tett has separately summarised the 3 major scenarios that describe how the current crisis might play out next year:
Consensus. The US narrowly escapes recession. US housing and banking markets stabilise in Q1, and there is little spillover into the rest of the economy, although auto sales growth and jobs growth decline. Emerging markets continue to boom, helping to balance slower Western growth.
Muddle through. The credit crunch slows global growth. Western economies come under pressure, and high levels of debt reduce corporate and individual flexibility. The US$ remains under pressure, as investors reallocate portfolios to other currencies.
Downturn. Today’s credit worries spread. Banks severely restrict lending as their current business model of securitising loans to 3rd parties stops working. They also suffer losses in other consumer areas (eg credit cards). A US recession leads to a second wave of financial turmoil, as highly indebted companies go bust.
What worries me about the consensus view, as with the consensus on oil prices that I discussed in October 2007 in ‘Budgeting for a Downturn’, is that it is not a true base case. It is easily the most optimistic scenario. The other outcomes are both downside cases in terms of the 2008 outlook for the ‘real world’ in which the chemical industry operates.
The need for chemical companies to develop robust contingency plans, in case the consensus is wrong, is looking ever stronger