Bank of England chief warns of ‘worrying echoes’ of 2008 financial crisis
The governor of the Bank of England, Andrew Bailey, has warned recent events in US private credit markets have worrying echoes of the sub-prime mortgage crisis that kicked off the global financial crash of 2008.Appearing before a House of Lords committee, the governor said it was important to have the “drains up” and analyse the collapse of two leveraged US firms, First Brands and Tricolor, in case they were not isolated events but “the canary in the coalmine”.“Are they telling us something more fundamental about the private finance, private asset, private credit, private equity sector, or are they telling us that in any of these worlds there will be idiosyncratic cases that go wrong?” he asked.“I think that is still a very open question; it’s an open question in the US.”He added: “I don’t want to sound too foreboding, but the added reason this question is important is if you go back to before the financial crisis when we were having this debate about sub-prime mortgages in the US, people were telling us: ‘No it’s too small to be systemic; it’s idiosyncratic.
’ That was the wrong call.”When a mortgage-lending frenzy ended in a housing market bust in the US from summer 2007, it kicked off a wave of financial turmoil.Banks on both sides of the Atlantic had made high-risk bets on billions of pounds’ worth of US home loans, often funding the spree with short-term borrowing.The resulting crisis, which rolled on for many months, eventually led to a deep recession and a string of costly bank bailouts in the US and Europe, including of RBS and Lloyds in the UK.Bailey said the complex nature of some of the financial engineering now in use in the private credit markets had echoes of that period.
“We certainly are beginning to see, for instance, what used to be called slicing and dicing and tranching of loan structures going on, and if you were involved before the financial crisis and during it, alarm bells start going off at that point,” he told peers.“That stuff was a feature of the financial crisis, so that’s another reason why we’ve got to use these cases as another reason to have more drains up, frankly.”He also made clear he was not reassured by the relaxed attitude of some in the sector.“I sat in a session with people from the private equity and private credit world some months ago who of course told me everything was fine in their world, apart from the role of the ratings agencies, and I said: ‘We’re not playing that movie again are we?’”Sign up to Business TodayGet set for the working day – we'll point you to all the business news and analysis you need every morningafter newsletter promotionThe lax approach of ratings agencies – sometimes relying on banks’ internal models to determine how risky their own products were – was an important aspect of the 2007-08 crash.The deputy Bank governor Sarah Breeden, appearing alongside Bailey, said the Bank would be carrying out a war game exercise in private credit markets, to test the linkages between private credit and other sectors.
She underlined some of the concerns about the private credit sector.“It’s about high leverage, it’s about opacity, it’s about complexity and it’s about weak underwriting standards.“Those are things that we were talking about in the abstract as a source of vulnerability in this bit of the financial system, and those appear to have been at play in the context of these two defaults.”The collapse of the car parts firm First Brands and the auto lender Tricolor prompted concern on Wall Street, with the JP Morgan chief executive, Jamie Dimon, comparing them to “cockroaches”, and saying that more could emerge.“My antenna goes up when things like that happen.
I probably shouldn’t say this but when you see one cockroach, there’s probably more.And so everyone should be forewarned at this point,” Dimon said.The International Monetary Fund’s global financial stability review last week highlighted concerns about the close connections between private credit markets and mainstream banks – and the IMF’s managing director, Kristalina Georgieva, said it was the issue that kept her awake at night.The best public interest journalism relies on first-hand accounts from people in the know.If you have something to share on this subject you can contact the Business team confidentially using the following methods.
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Scottish hospitality coalition urges chancellor to protect whisky industry
A coalition of drinks, tourism and farming bodies has urged the chancellor to protect the Scottish whisky industry from a steeper sales slump and further job losses by freezing spirits duty in her budget next month.The grouping, which includes the Scottish arms of the National Farmers’ Union, the Institute of Directors and UKHospitality, has written to Rachel Reeves to argue that a freeze in duty would be a “strategic investment” that could increase tax revenues.They said recent rises in spirits duty had taken the overall tax paid on the average bottle of whisky to at least £12, or 70% of the retail price, contributing to about 1,000 redundancies in whisky production since last year’s budget, when spirits duty rose.“The current duty regime, combined with wider economic headwinds, is placing significant strain on both producers and venues,” the joint letter said. “Some businesses are halting investment or looking abroad, while others are being forced to cut jobs
‘I felt my soul leave my body’: 13 readers on the worst meal they ever cooked – from ‘ethanol risotto’ to gravy cake
There are lots of potential errors a home cook can make, whether mistaking a bulb of garlic for a clove or experimenting with a banana sauce for pork. Here are some culinary experiments to avoidI’m very fond of steamed vegetables with lemon and black pepper. When I was pregnant, my loving partner took it upon himself to cook for me. We didn’t have any lemons. We did have kiwis
670 Grams, Birmingham B9: ‘A cascade of small, meaningful bowls that just ooze flavour’ – restaurant review | Grace Dent on restaurants
Birmingham’s dining scene often leans towards the intense. I recall a hazy afternoon seven years back at the Digbeth Dining Club, a ramshackle food market inside an old factory with few seats, loud music, breakfast cocktails and baos; it was a thoroughly chaotic way to take on board calories. More recently, I loved the city’s Albatross Death Cult, which served 12 courses of scintillating, seafood-focused finickiness to a pounding, darkwave industrial-goth soundtrack.The Guardian’s journalism is independent. We will earn a commission if you buy something through an affiliate link
‘£30 for a ready meal?!’ Do Charlie Bigham’s new dishes really beat going to a restaurant?
Like Tesla cars and the ending of the Sopranos, Charlie Bigham ready meals seem to be rather divisive. On the one hand, people clearly love them: about 31m dishes were sold in the past year alone. On the other hand, they generate a heap of mockery. The critique seems to be that only a gullible idiot would shell out up to a tenner on an oven-ready fish pie, chilli con carne or – as one commentator once memorably labelled it – a tray of “Tory slop”.Those critics will be sharpening their kitchen knives because Bigham, who is a kind of Tim “Wetherspoons” Martin for centrist dads, has just announced the launch of his Brasserie range: deluxe versions of his meals with prices that fetch up to … wait for it … £30! Thirty whole English pounds!With a menu consisting of venison bourguignon, coq au vin, confit duck (all at £16
‘It’s about weaponising opinion’: the power of Topjaw’s online foodie show
When the presenter Jesse Burgess goes to a restaurant, the kitchen always sends him dishes he didn’t order. One of the ironies of fame is that the more you can afford, the less you have to pay for it. Except that Burgess isn’t a celebrity, he says. “I’m just a guy who really likes food.”Burgess is the 34-year-old host of Topjaw, a small but mighty internet platform featuring chefs and foodies, whose “Best of” series, for better or worse, has changed the way Londoners – and those beyond – eat out
Benjamina Ebuehi’s recipe for peanut butter banana french toast | The sweet spot
I can’t be the only one who is a bit ambitious when buying bananas. Despite my best efforts to get through them, a couple of well-ripened, black-skinned bananas in the fruit bowl is an all too common sight. Banana bread feels the obvious choice, but sometimes you just don’t have the time or enough people to share it with. A quicker option that I like to make at weekends is french toast, though I tend to lean into the Hong Kong-style in which the slices of bread are stuffed with peanut butter and drizzled generously with condensed milk and butter. Delightful stuff
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