Is the credit crunch affecting the “real economy”
Posted by markharrison on October 14, 2008
One of the things I learnt from Nassim Taleb is to not particularly bother about keeping up to date with every piece of noise that goes on in the media, but wait until conversations are filtered. Taleb reccomends parties as a good solution – once subjects are being talked about there, they have probably become mainstream enough to affect markets.
Well, at a party last week (OK, technically a committee meeting for the trustees of a local charity) the subject turned to the credit crunch. One of my friends – Penny – is a stock market pro, and expressed the view that, actually, the credit crunch is really only affecting those who work in the finance industry, and while the media are heavily reporting it, it isn’t really affecting those “in the real world.”
So, I’ve done an incredibly unrigorous straw poll of my friends.
- Susan, early 40s, recently divorced mother bringing up young child and hoping to go back to University next year. Now renting, paid for by Local Housing Allowance. Next to no practical impact.
- Mike, late 30s, runs an IT consultancy. Working with leisure company on the planning of a multi-million pound IT project. Real danger that the project will be shelved for 2 years since the company’s owner was considering a bond issue to pay for it (to improve cashflow), and that issue no longer looks viable. Impact on Mike personally – about £70k over the next year.
- Simone and Nigel, late 40s, landlords. Had to refinance their portfolio putting BACK about £80k worth of equity this year. Fortunately, they have cash reserves that meant they could afford to do that easily, but the days of refinancing to take money OUT aren’t currently with us.
- Umesh, early 30s, network manager for a high-street name large company. Recently had to take “grade reduction” and pay cut, along with the rest of the department he works in, as part of the company’s cost-reduction excercise. The job market is currently sufficiently poor that he accepted it rather than leave.
- Liz, late 30s, office manager. Was made redundant by a publishing company late last year because of cash-flow problems related to sales of non-fiction books.
- Chris, early 50s, property developer / financier. Currently owed about £100k by a joint venture partner after a deal went south. The JV partner – an established industry pro – has, on paper, several million pound worth of equity, but nothing like £100k in cash at the moment
[Some names have been changed to protect identities.]
Now, I concede that not all of these are directly related to the credit crunch – Liz and Umesh might be better pinned on overall cost-savings maybe caused by an economic downturn – and the nearer you get to the property or finance industries, the more you’re affected… but Mike in particular commented that he’d never been affected by a client’s ability to raise capital before this year!