Blog: Dave LeggettWould you invest in a hedge fund run by Mr Made-Off?

Dave Leggett | 17 December 2008

You just couldn’t make it up could you? Bernard Madoff’s hedge fund attracted investment funds from some pretty respected sources but it was all a bit, as we like to say in England, dodgy. In fact, it was a gigantic fraud, all smoke and mirrors. And his surname is pronounced as ‘made off’. Only it’s not a comedy sketch.

Our collective faith in the financial world is chipped away at a little bit more. Let’s hope the regulators are on a steepish learning curve, past mistakes duly noted.

But, startling figures I have seen on the BBC website suggest that the ability of (or should I say failure of) businesses to be able to negotiate funding from their banks will bring the credit crisis storming to the front of the agenda once more in 2009.

The figures, reported by Robert Peston, the BBC’s business editor, are from the Bank of England’s quarterly bulletin and show that, in 2009, there will be a massive bulge in the value of bonds issued by European companies that have to be repaid.

Peston says that close to US$1000bn of what he terms "old world" companies' borrowings in the form of tradable debt has to be paid back during the next 12 months - with something like $800bn of this owed by financial companies and $200bn by non-financial companies.

“That would be a colossal sum to pay off at the best of times, and is equal to about five times what's been repaid in 2008. It is a disturbingly huge amount, at a time when even the bluest-of-blue-chip companies are finding it difficult and expensive to raise money by selling new corporate bonds,” he says.

It’s something else for the negatives column as far as the economic outlook is concerned in Europe. On the plus side, at least interest rates are coming down at an unprecedented rate. If the banks do start lending around the world (notwithstanding the above) then a slight improvement, coupled to cheap capital might bring a relatively sharp upturn. And there will be an element of pent-up demand building. And inflation is low.

But confidence will obviously be key and if you listen to the financial commentators, that’s still some way off. Are there many more nasty surprises out there?

GI Top 10 economic predictions for 2009


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