Newspaper article The Evening Standard (London, England)

There Are Some Reasons to Be Cheerful; CITY COMMENT

Newspaper article The Evening Standard (London, England)

There Are Some Reasons to Be Cheerful; CITY COMMENT

Article excerpt

Byline: Anthony Hilton

BOB Parker, the investment guru at Credit Suisse, was speaking the other day at a conference organised by the Channel Islands stock exchange when he was asked to spell out what it was he was worried about when he looked at the current investment scene. It made quite a list.

He was worried, he said, about political uncertainty in the world's largest economy, and particularly the probability of political paralysis should the Obama administration lose control of Congress following the November elections.

This in turn might make it impossible to deliver further fiscal stimulus when the Bush tax cuts run out.

Also in America, he worried that the financial condition of several States was dire and he said there was a high risk of default in the municipal bond markets in California, in Illinois and in New York, to name but three.

Similarly sovereign debt problems in the eurozone had not gone away. He thought it inevitable that at some point Greece would have to restructure its debt, probably with write-offs of up to 35%. The issue was only whether this day could be deferred long enough for it not to matter, in the sense that economic recovery elsewhere would mitigate the risk of contagion. Much Greek government debt is, of course, held by German banks, which brought him to his next concern. While the problems caused by toxic loans had been recognised in American and British banks, he did not believe this was the case in Germany. Therefore he believed that there might well have to be a massive government-backed bailout when the reality could no longer be ignored.

It was a similar story with private equity and infrastructure debt in the UK. Huge loans were made to these sectors at the height of the credit boom in 2006 and 2007. Most of those loans fall due after five years, which means there is a tidal wave of debt falling due next year and the year after. …

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