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Crisis ignited unwinding of 15-year boom

Jupiter head of independent funds John Chatfeild-Roberts says 2009 has become a battle between deflationary and reflationary forces.

The multi-manager guru says the current crisis is different in terms of leverage and because this is a global financial problem.

He says: “Some people still call this the sub-prime crisis but that really was just the spark that ignited a far bigger scenario – the unwinding of a 15-year boom in credit – and we are only part of the way through that process.”

Chatfeild-Roberts says much of the problem comes from the fact that a number of institutions were created that were just too big to fail.

He says: “We had an environment where interest rates in the US were kept too low for too long and then the Uptick rule – a move in the US to allow firms to indulge in short selling – was abolished in July 2007.

“This allowed cascading shorting to take place. We also had the introduction of mark to market accounting in November 2007, which assigns a value to a position based on the current market price. The timing of these changes could not have been worse.”

He also says the problems with today’s lending practices have effectively reached the point where people were lent money by banks and “were not expected to be able to pay it back”.

“The Credit Raising Agencies, speculators, hedge funds and, to be honest, the politicians are culpable as well so really there are an awful lot of people who are responsible and that is going to create fallout. The main impact of this is going to be more regulation and less availability of credit.”

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