Belfast Telegraph

A decade after crash, experts warn over new downturn

By Margaret Canning and PA

Northern Ireland economist Dr Esmond Birnie has said another financial crisis could strike the global economy, a decade after the credit crunch began.

Dr Birnie, senior economist at the Northern Ireland economic policy centre at Ulster University, spoke 10 years on from the beginning of events leading to the credit crunch.

He spoke as former Chancellor Alistair Darling warned that the "massive uncertainty" of Brexit was adding to other pressures of the economy.

Dr Birnie told Radio Ulster that there had been a "regular pattern" of recessions through recent history.

"We got used over the years to a regular pattern in economies of going up and down, and it tends to be after a period of time people forget what can go wrong and that's the point where you need to get worried that maybe the next recession is coming," he said.

"The standard regular pattern has been for one to happen every seven to 11 years over the last two centuries, but unfortunately another downturn is probably due about now.

"But it doesn't need to be as severe as the last one, which was unusually bad."

Ulster Bank chief economist Richard Ramsey said the credit crunch had been the result of "multiple failures from multiple factors". There had been a glut of savings coming from China, while a backdrop of low interest rates led lenders to seek higher rates of return by increasing risk.

And it was distinct from most other financial crises in its global spread. "It did go global and it crossed all boundaries - and what got us out was China, which pumped investment into the global economy."

But he added: "The danger is that China is one of the few countries which has never had a financial crisis.

"While the last financial crisis was born in the USA I think the next one will be made in China."

The crisis is said to have its roots in the decision by French bank BNP Paribas to suspend three of its funds with major exposure to bonds backed by US sub-prime mortgages.

It was unable to value them because the market for these products, or "securities", had dried up completely.

BNP caused other banks, concerned by the possibility of more bad debts coming out of the woodwork, to cut back on everyday lending to each other by hiking their own interbank rates - and so began the credit crunch.

Speaking about the events of 2007 and 2008, Lord Darling told of "the most scary moment" of the financial crisis as customers concerned about their savings and mortgages queued outside branches of institutions such as Northern Rock.

Taxpayers' money was used to bail out banks at risk of collapse as global banks stopped lending to one another.

Then a Labour MP, Mr Darling told the BBC he received news of a run on Royal Bank of Scotland in a shocking phone call in 2008 from its chairman Tom McKillop "who said the bank was haemorrhaging money".

"Remember this was not only the biggest in the world, it was about the same size as the entire UK economy. I said to him: 'How long can you last?' And what he said to me shook me to the core. He said: 'Well, we're going to run out of money in the early afternoon'."

He said there would have been "blind panic" had the Government chosen not to intervene and added that the biggest danger regarding a future crisis was complacency.

He warned that memories of the severity of the last crisis could fade and said high levels of consumer debt could trigger another crisis.

"The lesson from 10 years ago is that something that can start as apparently a small ripple in the water can become mountainous seas very quickly."

Belfast Telegraph