Resident Fellow Desmond Lachman

Sir, In her admirable and in-depth analysis of the current credit crisis, Gillian Tett is certainly right to identify the crucial issue as being one of "a race against time" ("The financial system needs time to gather its strength", Insight, May 9). However, one has to wonder whether she is being overly sanguine about the chances that market sentiment can be stabilised and the system can be recapitalised before fresh signs of credit deterioration emerge.

Missing from her article is the fact that the deterioration in the US housing market appears to be gathering considerable pace as evidenced by an accelerating rate of price decline, an escalating pace of foreclosures and a rising rate of unsold housing inventories.

Similarly, no mention was made of the fact that the US economy is simultaneously being hit by massive international oil and food price shocks, which will more than nullify the temporary fiscal stimulus package.

We can only pray that these shocks do not push the US into a prolonged recession that will further intensify the credit crisis once the temporary tax rebate plan fades. However, we should do so in the full knowledge that the historical international experience with housing and credit market busts would point in a very different direction.

Desmond Lachman is a resident fellow at AEI.