There could be more squalls to come, but it’s not yet a perfect storm

The skies over Britain may have cleared, but in the City the storm rages on. However, whilst most believe that there is more fallout from the US housing market to come, there are also reasons for cautious optimism.

I was on holiday in the New Forest last week, copping the atrocious weather but missing the storm in the City. The sun has, thankfully, returned again to London, literally, if not metaphorically. Hopefully it means the worst is over for those parts of central England that were flooded. That's unlikely to be true for the markets, where there is a clear sense that we're now into a new season and there is sure to be more bad weather to come. But as bankers and investors survey the damage, I sense a prevailing mood of guarded optimism that the markets can come through this deluge.

The main reasons for cautious optimism are, firstly, that the problems in the credit markets are so far focused on one area: US housing. Clearly, there was a vast bubble in US house prices fuelled by reckless lending to people who should have never been given mortgages. Now, thanks to rising interest rates and falling prices, these homeowners are going bust, leaving banks and hedge funds that hold the mortgage debt nursing huge losses.

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Simon Nixon

Simon is the chief leader writer and columnist at The Times and previous to that, he was at The Wall Street Journal for 9 years as the chief European commentator. Simon also wrote for Reuters Breakingviews as the Executive Editor earlier in his career. Simon covers personal finance topics such as property, the economy and other areas for example stockmarkets and funds.