Sliver linings in the credit crunch
While the financial sector goes into meltdown, some franchise opportunities are providing a vital service that is needed in economic highs and lows
The Credit Crunch is the equivalent of a large kidney stone - it will pass but it's going to hurt! Fannie Mae, Freddie Mac, AIG, Lehman Bros, HBOS, Morgan Stanley, Merryl Lynch, Bradford & Bingley...just a few weeks ago who would have thought it was possible to witness these seismic events and by the time this goes to publication what else will have happened? Oil prices down, then up again, USA banking in crisis...we are living through real financial history which will affect each and every one of us.
After 63 quarters of consecutive growth, a tripling of house prices, low unemployment, low inflation and low interest rates, consumer panic is only just around the corner. Could this crisis have been avoided or was it an accident waiting to happen? The Financial Services Authority surely could have done more in keeping a tighter rein. Could the Bank of England have included house prices in calculating interest rates? Perhaps. And could Gordon Brown have intervened to stop lending institutions from agreeing loans above 80 per cent Loan-to-Value? Probably not.
The lack of availability of credit would have been bad enough but combined with the inflationary shock, the result was nuclear. In discussing how the press is sometimes accused of talking the country into a recession, I wonder whether HBOS's own house price index that showed house prices falling dramatically was, in the end, a PR own-goal. Pessimism is undoubtedly driving the squeeze but businesses generally are coping quite well. It is the banks that are apparently in meltdown. So is there any good news?
Temporary falling oil prices offered some respite, perhaps, but the economy is at best flat and given the news of the past few days, a mild recession looks an increasing probability. Inflation might fall but only after the damage has already been done. Is this the low point? The cathartic moment? I believe that there is still more gloom on the way and that the only surprise will be if there are no more surprises. Bank of England forecasts show an uplift towards the end of 2009 and so for 18 months at least we are in for a further bumpy ride. It will, therefore, be an extremely busy time for the credit management and debt collection industry.
The banks will be outsourcing more and more cases of bad debt to specialist companies like London House to assist with recovery. It is not only the major creditors who will suffer, we should not forget the small business who has trade invoices on which they cannot get repayment within agreed terms of trade. Increasingly, these small businesses are also turning to specialists for assistance with collection of overdue accounts and, perhaps more importantly, more and more companies are investing in worthwhile credit checks at the underwriting stage before even considering whether a company has a sufficiently strong credit rating to warrant terms other than cash up front. London House managers, with their specialist skills, are certainly busier than ever - what was that about a silver lining?
Written by Godfrey Lancashire