More Viagra, less beer and a cannabis farm next door

Millions have been wiped off markets and bonuses, but the crunch has also created more royalties for Morrissey. Simon Evans reports
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The Independent Online

Twelve months after the start of the "credit crunch", those two words are now embedded in the collective consciousness of British households.

Hardly a television news bulletin goes by without a liberal smattering of the phrase – the origin of which has been claimed by many people.

The crunch has spawned a plethora of hitherto arcane financial terms, some making use of alliteration: mortgage meltdown, stock slide etc etc. Hands up who knew what securitisation was 12 months ago? OK, how about Cov-lite, Libor or SIV? Who could have expected Fannie Mae and Freddie Mac would enter the British vocabulary so seamlessly?

The credit crunch has come to signify a downturn that many City veterans believe could be one of the worst ever. Back last August when the wheels of the wholesale financial lending markets were grinding to an abrupt halt, the world was a very different place to now. Few could have predicted the precipitous slide in the fortunes of global banks, for a start. Estimates suggest that $205bn (around £100bn) has been written off by banks for the year to the end of June. But bonds guru Bill Gross, from the American investment house Pimco, reckons the eventual figure could top the $1 trillion mark.

Britain's FTSE 100 index of leading shares has slumped by some 1,000 points and is now sitting at around 5,400. Strip out the positive effects of energy companies, which are bucking the trend with record profits, and things look much worse.

Mergers and acquisitions activity has fallen of a cliff, and the number of companies ditching their private status for the lure of the public arena has suffered similarly. Global M&A activity came in at $1.6 trillion in the first half of 2008 – a 36 per cent slump on the record-breaking first half of last year.

Dealogic, the financial data group, said recently that 177 initial public offerings (IPOs) were either postponed or withdrawn worldwide in the first half of 2008 – more than the 169 pulled during the whole of 2007.

The knock-on effect for those that had feasted on the spoils of buoyant corporate markets since the Baghdad bounce of 2003 has been staggering. An analysis of statements from Wall Street's financial powerhouses shows that companies plan to hand out $18bn less to their employees in bonuses and related payments this year. A recent report from the Centre for Economics and Business Research (CEBR) predicts a 2008 bonus pool for London City workers of around £5bn – down from the near-record £8.5bn payout for 2007.

The so-called "masters of the universe" have also suffered. Leverage-fuelled private equity deals were down 30 per cent in the first half of the year, the accountants PricewaterhouseCoopers recently reported, while the average hedge fund posted a loss of nearly 1 per cent in the first half, according to the Hedge Fund Research group.

Feted funds such as Polygon and The Children's Investment fund (TCI) have suffered alarmingly. In June alone, the latter is reported to have lost $1bn for its investors.

The Big Four accountancy group Ernst & Young, meanwhile, recently told some graduates expecting to take up new jobs in the autumn that they won't be needed until next year.

If the financial arena has been at the centre of the crunch, the reverberations are now being felt in the wider economy, defying those who once thought a so-called "contagion" was unlikely. A 10 per cent decline in the value of the average British house over the year will be revealed this week by the Halifax, in the wake of figures from the British Bankers' Association showing mortgage approvals down to their lowest level in more than a decade.

Ratings agency Standard & Poors has estimated that as many as three million homes are worth less than their owners paid for them. Last year 25,000 homes were repossessed; the gloomiest estimates suggest that figure could almost double in 2008.

For those people fortunate enough to get a home loan approved – the number of mortgages being offered to customers has contracted from around 1,600 to 400 in the course of the year – the costs of financing that dream house purchase have rocketed. The average two-year fixed rate mortgage climbed to more than 7 per cent last month – the highest for over a decade.

Personal bankruptcy figures have soared by more than 30 per cent on the same time last year, with insolvency practitioners forecasting that things are set to get much worse. Britain's savings ratio has now dipped to its lowest level in close to 50 years.

Meanwhile, energy bills are rocketing, with British Gas hiking prices for some customers by 35 per cent last week. Consumers are bracing themselves for more increases from other providers before the end of the summer.

With less cash in our pockets, many foresee meltdown on the high street. In the second quarter of the year, there were 98 profit warnings from UK listed companies, 13 per cent of which came from general retailers.

Although peering at the world through the bottom of a pint glass may be preferable for some, fewer people are turning to alcohol to get through the rigours of the crunch, with pub beer sales slumping by more than 10 per cent last quarter, compared to the same period last year. Brits now sup 1.2 million fewer pints each day compared to 2007.

Beer sales may be down but on effect of the crunch, say some reports, is that Viagra sales are on the up as people whose sex lives have been blighted by financial worries look to the wonder drug.

The credit crunch was cited as the reason for the recent cancellation of a dance music festival in Leeds. The website TheFilter.com recently said that the number of people listening to downbeat music from the likes of Morrissey and The Smiths has soared in the past months too. Heaven knows we're miserable now!

A recent headline in one Scottish newspaper read: "Latest sign of the credit crunch – more neighbourhood cannabis farms." Hamstrung flat owners forced to abandon sales are apparently renting out property to less salubrious characters, the report claimed.

An upsurge in back pain, breathlessness, gut complaints, diarrhoea and migraines is being ascribed to the credit crunch, with Dr Nick Read, a British physician, saying: "Many will feel overwhelmed and worried they can't cope. [The crunch] is bound to affect people's health."

The economic crisis is forcing "Middle Class Americans to live in their cars", a blog site across the Atlantic tells us, with "four wheels replacing four walls".

Over the pond, the credit crunch is leading to ever desperate sales tactics from property developers. "Buy one, get one free", the lure of communal naked swimming pools and acoustic music sets from the likes of Bon Jovi for prospective buyers are some of the more outlandish tactics being employed.

Twelve months on from the beginning of the credit crunch, Britain and the world is a much- changed place. The serenity of yesteryear's landscape is now a distant memory.

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