Tim MacIntyre-Bhatty, Dean of the Business School, University of Wales, Newport, brings you his monthly column

Credit Crunch. The headlines are full of the term at the moment and it looks as if we are all in one way or another likely to be effected by it. But what exactly is it and how real is the personal impact likely to be?

The term, which is not new by the way, refers to a period of economic instability that as the name suggests directly affects the flow of credit.

And therein lies the issue - the credit that we are talking about is in fact the credit flows between the financial firms and of course primarily the banks.

In effect it means that the banks are less inclined to lend to each other - the basis of the recent lack of credit confidence has been that some banks have been a little less than careful about what they used the loaned money for - a bit like asking the bank for a loan for home improvements and then blowing it all on a holiday in the sun - and when the loan needs to be repaid all you have are some holiday photos as assets.

This is what sub prime was about - high-risk loans for low asset based investments.

The big problem for us here in Newport is two fold.

Firstly the huge amount of negative press speculation could fuel a self-fulfilling prophecy' as Mervyn King of the Bank of England recently stated.

This is because as at the moment the credit markets have overreacted and are now not even willing to lend to credit worthy firms and projects.

Secondly this lack of confidence has in the short term hit a credit worthy project here in the city. The Modus retail development of Friars Walk was reported last week to have been put on hold as the £200m development had found that finance was now more difficult to raise.

My opinion - financial markets are notoriously fickle and within two years everything will be back to normal'.

The Modus development is an essential part of the city centre development and we need to continue talking with a collective and confident voice about the future of our city and create our own positive self fulfilling prophesy'.

Our city deserves it!

1:38pm Tuesday 6th May 2008

Print

Email this