HAVING watched and read some of the media reports about the crisis on Wall Street, I wondered if it was worth writing a column at all this week. Some pundits obviously believe that we’re all doomed.

Mind you, I am becoming very wary of some of our TV experts following a report I heard last week from one of TV’s top journalists. He was talking about a propaganda video made by the Taliban which he said, with obvious pride, had been ‘acquired by the BBC’. Perhaps it was secret propaganda.

Other TV experts aren’t helping much in explaining to us non-experts what’s happening on Wall Street and why it’s important (or not). I say Wall Street because, although the problems affect many more people than just those in a tiny area of New York, the problem is basically one created on Wall Street. It would be as well to remember that.
The impact of the credit crisis is obviously much wider than that, but it’s still basically an American problem.

The collapse of several financial institutions which were household names in the USA (although most were not on this side of the pond) is going to give a lot of people a lot of pain. But it’s not the end of the world as we know it, as some breathless commentators like to report. It may be the end of Wall Street, perhaps even the end of the United States as a global financial player, or even the end of capitalism, but life in tiny Jersey will go on — and we might even continue to prosper.

The TV pundits have latched on to the word ‘contagion’ which gives the impression that the problems on Wall Street will spread from risky property lending to banking, to other financial services, to other industries starved of credit and then to other countries. Naturally that scares the living daylights out of people even more than the much more likely prospect of a flu pandemic.

I’m not trying to belittle the significance of the dramatic happenings in the USA and to a far lesser extent, the UK. I’m just suggesting that we should retain a sense of proportion.

Of course that won’t stop everyone blaming the credit crunch for any bad news that happens from now on. For example, news that a British building society has had to lay off a few staff would have hardly got a mention a few months ago.

Now it’s at the top of the news bulletins because obviously it’s all part of the global credit crisis. That building society could have survived but for the panic created by Wall Street.

It’s true that we can’t protect ourselves entirely from the contagion, and that if the US sneezes we all catch a cold.
But that is nowhere near as true as it was. We shall undoubtedly experience a slight chill at the very least, because the US still has the largest economy and is a dominant force in global markets.

But it’s by no means as dominant as it was (those supporters of a strong EU to counterbalance the influence of the USA must be feeling pretty smug at the moment). The UK will probably suffer much more of a chill than most, because it has many of the factors that contributed to the Wall Street fuss — risky lending, greed, and complex financial instruments in which no one knows where the risk lies. So that means that Jersey will suffer too, although again perhaps not as much as some people fear.

Jersey is obviously totally reliant on the provision of financial services, and its fortunes are largely tied up with those of the UK, and the City of London in particular. Redundancies in London are unlikely to have a direct impact on Jersey’s financial institutions, although they will have some impact — particularly on confidence, which is in very short supply at the moment.

But Jersey is certainly not as reliant on the UK as it was, and while the Island will probably always look towards the mother country in the north, it is now looking further afield for business. Much of what Jersey’s finance centre does is no longer reliant on the UK, and it certainly isn’t dependent on the health or otherwise of the credit markets.

Indeed it’s at times like this that we can see the wisdom of diversifying our economy. That means diversifying not only the products and services we supply, but also the markets we serve. The Economic Development department has made a start in India and China, and with luck the Island can capitalise on those opportunities.

Another lesson to be learned from the problems on Wall Street is not to panic. This isn’t easy when people around you are predicting the end of the world as you know it. But it’s those with a cool head who will survive and perhaps even gain an advantage in times like this.

Then Jersey should also realise how important it is to protect and grow the economy whatever the stage of the economic cycle. Those States Members who complained last week that there is very little social legislation being worked on, compared to business legislation, have really lost the plot. Apart from the fact that few social ills can be solved by legislation, it’s only by having a thriving economy that we can afford to do anything about these problems.

Perhaps another lesson we can learn from Wall Street is the importance of cash. Credit is useful, but at the end of the day, when everything else is collapsing around you, it’s comforting to be sitting on a pile of cash. Jersey has been prudent in building up considerable reserves, not all of it in the stock markets. This provides the Island with a comforting buffer, even though some States Members would have put it at risk to avoid the introduction of GST.
Peter Body is editor of
Business Brief magazine