Contagion everywhere

By: Wolfgang Münchau

If you thought this credit is going to be over soon, as banks are gradually writing off their subprime debt, you could not be more wrong. There are many asset classes in the credit market that have still to hit trouble - securities credit market and, of course, the market for credit default swaps, possibly the biggest Ponzi game in all history.

 

Another form of contagion is the direct link between the financial and the corporate sector. Deloitte have carried out a survey in the UK, where 58% of large companies CFOs say the recent turmoil in credit markets will hit their businesses this year. In September that number was only 42%. Furthermore, three quarters of CFOs say that events in credit markets have raised the price of credit and two thirds say it has reduced credit availability.  Also, the number of companies planning to raise their gearing has similarly fallen. The question is therefore no longer whether the credit crisis has an impact on the real economy. It already has had such an impact. And more is to come.

 

(A note to my readers: this blog used to have longer column-length entries. From now onwards I am going to post more frequent, but shorter entries).

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