Don't bank on world's leaders to rescue us

Anthony Hilton
5 Mar 2009

A word that had gone out of fashion is cropping up more and more these days. It is leadership - as in the question "where is the leadership?" It plays to an increasing anxiety with the public that the financial crisis, far from responding to treatment, seems to be getting worse.

It reflects an unease that behind the façade of Government initiatives, bailouts and announcements, there is a Government that does not know where it is going but is in denial about being adrift.

People have been badly shaken by what has happened, and they have lost a lot of trust in the institutions of the state and the financial sector. They want something in which they can believe and have hope. They want someone to say: "Follow me, I know how to lead us out of this."

Absent that, they want their leader to say: " Sorry, I am partly responsible for this mess...but we now have the best brains working on the problems, and we are doing our best to sort it out." With Gordon Brown, one gets neither.

The inability to admit to a mistake or to being wrong is not a fatal flaw but it counts against the Prime Minister. He would find it easier to connect with the voters if he could show the occasional flash of humility. But instead we get the constant build-up of hype and expectation, and subsequent disappointment.

Latest to fall victim to this is the G20 summit, which is scheduled to take place in London on 2 April.

Now it may be that a meeting of heads of government is a good idea and, if there is going to be one, it makes sense to have round the table the fast-growing economies of Asia and Latin America as well as the established "old" nations of the G8, because going forward much of the wealth of the world will be in the hands of these new players.

The problem arises because we are already being briefed to expect too much - that the Prime Minister will lead this group to recognise the need for some sort of co-ordinated fiscal action and get all nations to work together to turn the tide against protectionism.

But summit conferences do not work like that. The idea that 20 of the world's biggest egos can be put in one room for one day and come up with an agreement that will deliver something concrete to all their respective constituents may be wonderfully romantic but it is not the way to bet.

The sherpas to the conference will no doubt produce a communiqué that uses the right phrases and delivers a semblance of unity.

But that risks making the disappointment and the sense of drift even greater if subsequently nothing actually happens.

Property set to crumble further

The property-sector carnage has continued this week, with the chief executive of Brixton the latest casualty of problems caused as plunging asset values erode the security for the debt on which business depends.

The property companies, like the banks, have been undone by an excess of debt. Faced with demands for new capital from Hammerson, Land Securities and British Land, investors are at last asking what if anything differentiates these businesses from each other.

They want to know why they should buy the shares now, given that a 16-year boom has ended, what benefit comes with size, and whether the business models are genuinely scalable. They even question where, if anywhere, property firms actually add value.

Those questions might better have been asked two years ago when share prices were 10 times higher than now, but at least they are now being asked.

The trouble is that even if investors get the answers, they will come too late. The outlook for commercial property grows darker by the minute. Every retail insolvency and pre-pack decants more empty shops on to the market. A couple of years ago, about 25% of the shops would be ditched in a reconstruction. Now it is often above 50%.

The development pipeline, though not as over-extended as in previous booms and busts, will deliver a raft of office blocks, retail parks and shopping centres for which there are no visible tenants. Occupancy levels will fall as businesses fail or retrench. Even when tenants stay, rents will fall as they pressure landlords to cut the price.

Someone said the other day that it will be 2020 before property prices get back to the levels of a few years ago. No one can possibly know. But just because the shares can now be had for a fraction of last year's prices, don't be fooled into thinking they are a bargain.

Thus far, the only thing that distinguishes this property recession from those of 1974, 1982 and 1992 is that no major property company has yet gone bust. Give them time.