One year on, this crisis is very far from over

Despite optimism in some quarters, there is plenty of evidence to suggest that we are just at the beginning of a profound and extended financial upheaval, says Alex Brummer

On 9 August, the credit crunch will mark its first anniversary. No one could have anticipated that almost a year after three investment funds at BNP Paribas were suspended (because of valuation problems) and the European Central Bank stepped into the money market with a massive €95 billion intervention, that the world would still be feeling the aftershocks.

Indeed, despite optimism in some quarters that the worst of the crisis is over, there is plenty of evidence to suggest that we are just at the beginning. The big freeze in the credit markets is persisting and the spillover into the real world of growth and jobs is only just starting.

There was a view that the rescue of the investment house Bear Stearns by JPMorgan, backed by the Federal Reserve in mid-March, marked the peak of the credit crisis that began in America’s trailer parks. Certainly, the willingness of Fed chairman Ben Bernanke, an expert on the Great Crash, to step in, was seen as a great confidence builder. Indeed, soon afterwards, the Bank of England – which found itself at the vortex of the credit crunch when Northern Rock ran into difficulties in the autumn of 2007 – ventured to suggest in its Financial Stability Report that the worst might be over.

There was no such complacency at the International Monetary Fund. When it produced its World Economic Outlook Report in the spring, it asserted that the total bill for the credit crunch would be a whopping $975 billion, described it as the greatest financial problem since the Great Depression, and slashed all its economic forecasts.

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