Greenspan's cut smacks of panic

SO IS the crisis in financial markets now over? Has Alan Greenspan, by unexpectedly cutting US interest rates a further quarter point, done the trick and stopped the rot? Don't count on it.

The Federal Reserve chairman's action is what the markets wanted and thought vitally necessary. The trouble is that by doing it so soon after the last cut, by calling an emergency meeting to push it through, and by citing "growing caution by lenders and unsettled conditions in financial markets more generally", Mr Greenspan appears to be showing unnerving signs of panic.

There was something reassuring about the complacently cautious approach being adopted until this week. It was as if Mr Greenspan might know something the rest of us didn't, that by ignoring the siren calls for urgent action, he was signalling that basically everything was alright. There was no need to do anything, he seemed to say, other than sit back and wait for the crisis to blow over.

If he ever thought that, he plainly doesn't any longer, and in thinking Mr Greenspan might know what the rest of us don't, the assumption must now be rather that there is something extremely unpleasant hidden beneath the carpet. For weeks there have been persistent rumours of a financial black hole at UBS and others over and above the provisions already made, of huge open positions which banks dare not close for fear of the scale of loss thereby crystallised.

Certainly the scope of the credit crunch now sweeping world markets would indicate something rather worse than the comparatively limited provisioning we have seen thus far. Nor does the banking system's growing aversion to risk seem wholly justified by the size of the corrections experienced to date in Western markets.

One of the excesses which has come to light in the crash of 98 is that massive debt leverage was being applied by hedge funds and others to trading strategies within financial markets. The effect of the leverage was to multiply the loss of capital when these positions went wrong. We know that this is what happened to Long Term Capital Management and some other hedge funds, but the phenomenon may be much more widespread.

For Mr Greenspan to cut rates in this way must mean he has come to accept that there is indeed a real risk of financial meltdown, of the contagion that started in the Far East plunging the western world into recession or even slump.

It is still too early to say with certainty whether crisis has been averted. But at least Mr Greenspan seems finally to be taking it seriously, even if our own European central bankers have yet to lift their game. That in itself is an optimistic sign.

However, in the end there is no way of avoiding the pain of a boom to bust cycle. By taking action at the time of the 1987 crash, the Fed and others may have delayed the downturn and ensured that it wasn't as severe as it might have been. But it didn't contain the blowoff altogether. The same may be true this time round. There appears to be no gentle way of deflating a speculative bubble.

For investors the message is that while share prices may be stabilising, they are unlikely to return to the heady growth of bye gone years for some considerable length of time. If they do, if financial markets chose to ignore the terrible warning just issued and resume the merry old dance of recent years, then they will only be storing up for themselves worse to come.

That doesn't mean there isn't value to be had in these markets. For those willing to take a long term view, there is, some of it spectacularly good. But the emphasis must from here on in be very much on stock selection.

EVERYONE LOVES a David and Goliath story. This week we had one that fair warmed the cockles of the heart. Bill Gates, it emerged, thinks the greatest threat to Microsoft's continued dominance of the personal computer market comes not from Cisco, IBM, Sun Micro Systems, Apple or any of the other American computer giants, still less from Joel Klein and the US Justice Department, but from plucky little Psion, Britain's very own maker of palm held computers.

As is his manner, Psion's founder and chairman, David Potter, is proving distinctly shy about this revelation, which came to light after an internal Microsoft memo was leaked to the American press. The former academic doesn't want to discuss it at all. So does Mr Gates have good reason to feel worried? Psion has a market capitalisation of rather less than 0.2 per cent of Microsoft's pounds 136bn. If Mr Gates truly believes Psion to be such a menace, why doesn't he buy it, or merely crush it under foot, like a tiny insect? That's what he's done to a veritable legion of his US competitors, after all.

We can only guess at the answer, but perhaps the point is better put the other way round. If Mr Gates thinks Psion a threat, then Mr Potter is going to have to display extreme agility to avoid that same fate.

Thus far he's proved himself remarkably fleet of foot. Psion's first electronic organiser was followed rapidly by a host of Japanese and American copycat versions, many of them, it has to be said, superior to Psion, and for a while it looked as though Psion would go the same way as so many great British inventions.

But perhaps surprisingly, Psion rose to the challenge. Its first palm held computer, with its own tailor made operating system, was by far the best of the bunch. This served as a wake up call to Mr Gates. Palm held computers were a tiny part of the total computer market, but it was growing fast and could potentially prove a serious long term threat to Microsoft's PC operating system.

Microsoft responded in time honoured fashion, by railroading Psion's competitors in palm held computers into using a Microsoft operating system, Windows CE. Again it looked as though the game was up. Psion would become like Apple, everyone thought, condemned to a technical cul de sac.

But again Psion is defying the sceptics. Just recently it signed up with the world's three largest mobile phone manufacturers, Motorola, Ericsson and Nokia, to develop a new range of products which combine computing with mobile telephony. If you believe, as most experts do, that the retail market for computing is going to move away from the desk top and into the mobile phone, then this is a quite sensational coup. It still looks a bit fanciful to regard Psion as the next Microsoft. But as Mr Gates has correctly surmised, it's got a better chance than most.

News
Jacqueline Bisset has claimed that young women today are obsessed with being 'hot', rather than 'charming', 'romantic' or 'beautiful'
people
Arts and Entertainment
Ben Affleck stars as prime suspect Nick Dunne in the film adaptation of Gone Girl
filmBen Affleck and Rosamund Pike excel in David Fincher's film, says Geoffrey Macnab
Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
Sport
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
PROMOTED VIDEO
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvSeries 5 opening episode attracts lowest ratings since drama began
News
people
News
i100
Life and Style
A new app has been launched that enables people to have a cuddle from a stranger
techNew app offers 'PG alternative' to dating services like Tinder
Sport
Greg Dyke insists he will not resign as Football Association chairman after receiving a watch worth more than £16,000 but has called for an end to the culture of gifts being given to football officials
football
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
Sport
premier league
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Rachel, Chandler and Ross try to get Ross's sofa up the stairs in the famous 'Pivot!' scene
tv
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
Sport
Mario Balotelli celebrates his first Liverpool goal
premier leagueLiverpool striker expressed his opinion about the 5-3 thriller with Leicester - then this happened
Arts and Entertainment
Female fans want more explicit male sex in Game of Thrones, George R R Martin says
tvSpoiler warning: Star of George RR Martin's hit series says viewers have 'not seen the last' of him/her
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments