Business journalists are frequently accused of making the economic crisis worse by focusing on the bad news. “The media are talking people into this,” frustrated businessmen say.

Our job, however, is to tell it how it is, to report what we see and hear. And what we see and hear at the moment is grim.

Anyone still holding on to hopes that the financial problems have been solved and that we will not have problems in the wider economy is living in cloud cuckoo land. Over the past year we have seen an excess of debt being blown out of the banking system and the same will now happen in the real economy.

Every day I am hearing first hand from small and medium-sized businesses that are getting bullied by banks. As a result, the corporate casualty list, which so far has been contained, is going to grow rapidly. All companies that I speak to have put capital-spending programmes on hold for the next 12 months, staff numbers are being cut and profit forecasts that looked attainable only six months ago are being trimmed back.

From the collapse of Northern Rock to the part nationalisation of HBOS and Royal Bank of Scotland, it took more than a year to recognise the depth of the problems in the financial system. It may take the same length of time for the British economy to sort itself out. The stock market has already priced in a lot of this pain and has singled out those highly indebted companies that are going to struggle to survive. But so far there has been a lag between the rapid fall in UK equities and the corporate news that will inevitably follow.

It is going to be a very demanding time for company bosses, who will have to make tough decisions. Britain will pull through and the government appears keen to prime the system, but anyone who is delaying taking action should think again. This is the time that British business has to show its mettle and, if it does, it will come out the other side in much better shape.

As a newspaper we will endeavour to identify success stories. But I have had too many conversations with too many senior industrialists and other businessmen to ignore the shake-out that is coming.

Mining in a hole

COVER UP the share-price chart on the right before you answer this question. Which sector has done worse this year, mining or banks? Most people would answer banks. I did when someone asked me last week. But I was wrong. Over the past year the miners have actually suffered a bigger fall.

This piece of counter-intuitive City trivia is evidence, if more were needed, of the current extreme volatility of markets. Investors had piled into commodity stocks since 2005, lured by the seemingly copper-bottomed reasoning behind the “stronger-for-longer” argument. Its proponents said the emergence of China, India and Brazil onto the world stage, and the investment needed to bring their enormous populations first-world standards of living, meant companies producing essential raw materials such as iron ore and aluminium were sure-fire winners. Now as fast as they rushed in, investors are rushing out.

There are two causes for the exodus, one related to the demand for commodities, one not. The first is a slowdown in China, which has dented for the moment the stronger-for-longer thesis. The second is to do with the credit crisis. Hedge funds that have borrowed heavily to play the markets are now facing cash calls that they are struggling to meet. The liquid stocks they can sell — like the big mining companies — they are dumping as quickly as they can.

Like the bank debacle, the mining sell-off is not a victimless game. Many mining entrepreneurs — particularly those from the former Soviet Union — are likely to have used their inflated share prices as collateral for personal loans. Now the shares are looking decidedly deflated, they, and the banks that lent them money, will be feeling the pinch. What has compounded the problem is that a number of oligarchs used their shares as collateral to play on the Russian stock market. The result has been carnage. We now know that a lot of the planes and yachts they bought on the back of the commodities boom were paid for with borrowed money.

As for the mining companies, the 64,000-carat question is whether the bursting of the commodities bubble has returned share prices to a more rational level, or whether they have fallen too far. Call me a hopeless optimist, but I think the latter. The China story is so powerful — and its reserves of cash so great — that it’s hard to see the likes of BHP Billiton, Rio Tinto, Anglo American and Xstrata being anything but long-term buys.

Blame the auditors

LORD HESELTINE, the Tory grandee, identified an interesting issue at a dinner on Thursday night to celebrate Britain’s biggest mid-market private companies. He asked why auditors had so far escaped the blame game in who should have foreseen the financial crisis.

The auditors’ role in exacerbating this crisis should be scutinised. Did they fully understand the toxic timebombs they were signing off in the accounts? The answer is no and yet again it exposes the cosy relationship between auditors and the big companies. Auditing fees are too big to lose and so are the spin-off consulting jobs that go with auditing.

Heseltine favours setting up an independent commission with the power to appoint auditors to firms for a fixed period of five years. I am not saying this is the answer but it should be examined. Regulators have accepted their role in inflating the credit bubble, so far we have not heard a squeak from accountants and we know why. What usually follows is an explosion of legal action.

Premier’s festive cheer

THE PROBLEM for Premier Foods, the branded-foods group, is that it is close to breaching debt covenants, but it is not going to. The result is a lot of speculation about fundraisings and disposals.

I will stick my neck out on this and say the company is not about to raise capital — its share price is too low. Nor will it sell anything. It tried to recently but the buyer was backed by an Icelandic bank. Premier will also have a good Christmas. People won’t eat out but they will buy branded staples. And with inflation coming under control, this group generates a lot of cash. Next year the £1.7 billion debt problem will be solved but now is a hard time for the company.

john.waples@sunday-times.co.uk

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