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Banks and stable doors

Robert Peston | 13:59 UK time, Thursday, 3 April 2008

Stable doors and horses come to mind when reading the Bank of England's survey of conditions in the lending market.

Our banks have suddenly rediscovered the risks of providing credit - but it may be a bit too late for their or our good.

Bank of EnglandIn the years leading up to last summer, many banks lent too much, too cheaply and with too few strings attached.

Now that the economy is slowing down, they are pushing up the cost of credit, reining in the availability of credit, and demanding improved collateral.

The Bank of England's survey shows that's true for residential mortgages, other consumer loans and for lending to business.

But the survey indicates the horse may have already bolted.

There has been a significant rise in the rate of default by companies and individuals - and banks expect more businesses, homeowners and consumers to experience repayment difficulties in the months ahead.

So arguably our banks have behaved in a way that may seem rational for each individual bank but may be irrational for the economy and all of us.

Many of them made it too easy to borrow in the up phase of the economic cycle and may be battening down the hatches too much in this downturn.

Or to put it another way, they inflated the boom and are exacerbating the downturn.

But then that's how it's always been - and can't possibly change unless regulators are prepared to impose lending constraints on banks when the times are good, which would be removed when the economic going gets tough.

Comments   Post your comment

  • 1.
  • At 02:30 PM on 03 Apr 2008,
  • Ian Harris wrote:

Why should we be surprised by the actions of the High Street banks.

They have had a long history of over lending to people unable to repay, and at the end it is the poor mug punter i.e. their UK customers who end up paying for it.

All this so soon after multi billion pound profits and no doubt big bonuses only a couple of months ago.

Cynical, moi?

  • 2.
  • At 02:34 PM on 03 Apr 2008,
  • Brian Anderson wrote:

A bit of a bold statement that in the last few years British banks have made it too easy to borrow.

This is not my experience at all. I think you are getting mixed up with US banks.

  • 3.
  • At 02:38 PM on 03 Apr 2008,
  • Peter G wrote:

Robert,

I recall discussions last year (predating the celebrity Credit Crunch) about serious threats to the UK economy. In these discussions, the concept of a milking stool was used as a metaphor for the UK economy, supported by the three legs of high public spending, low inflation, and cheap credit.

At the time, the concern was that all three legs looked a little shaky - inflation might spiral as a result of increased costs of imports (through rising oil and commodity prices and in particular the China effect). Public spending would almost certainly drop because there's not much left in the kitty, and cheap credit will end, because of Newton's third law of motion - if it goes down, at some point something will come back up.

Inflation, way back then, was probably the greatest concern, but it seems that the end of cheap credit has pipped inflation to the post through clever branding - "Credit Crunch'.

So what about the other two. Are they no longer a concern, or are they growing quietly in the background ready to squash any good feeling that might arise once Credit Crunch has had it's 15 minutes (months?) of fame?

Be great to hear your thoughts on this subject...

  • 4.
  • At 02:45 PM on 03 Apr 2008,
  • Charles wrote:

What we need is a cut in interest rates to 5% and for Gordon's Rock to offer 5.25% mortgages to force the other lenders to drop their rates.

  • 5.
  • At 02:49 PM on 03 Apr 2008,
  • Juan C wrote:

There is a problem with your idea. If in the "good times" you rein in lending then a "new system" will surely arise out of the college of financial alchemy. Result: no change to the cycle you describe.
The other problem is who, how and when determies when times are "good" so lending will be restricted and when times are "bad" so the banks cand lend willy nilly. We all now how well the FSA regulated the banking sector (northern rock anyone?). I would be extremely distrustfull of a panel of "experts" deciding how and when to lend..
I think the borrowers (us) have a big part to play in this. but again... can we ever learn???

  • 6.
  • At 02:53 PM on 03 Apr 2008,
  • David wrote:

As middle income earners we are only just beginning to find others in our social circle starting to talk about the implications of the credit squeeze on thier lifestyles. We know friends of ours are heavily indebted, but till recently there seemed to be a disconnect between what was happening in the world of finance and how it could impact on individuals or couples in terms of thier continuing high-spend lifestyles. We are fortunate that we only have a small mortgage and are otherwise without debt but we worry for our friends - we worry that when they eventually 'wake up', here in the UK, there is going to be a lot of pain for them, and the banks and building societies that have allowed these friends to put themselves, potentially, between a rock and hard place, will not be willing to help them out!

  • 7.
  • At 03:22 PM on 03 Apr 2008,
  • Jeremy Silverstone wrote:

Robert

You talk about regulators 'imposing lending contraints'. Which regulators would this be? The same regulators who regulated Northern Rock, the same Bank Of England who maintained for 5 years that it was not their remit to prevent or assist in the formation of asset bubbles or demand in the wider economy but instead to focus only on inflation or perhaps we can rely on Gordon Brown to impose regulation on us from above by creating some new set in stone borrowing rules 'Golden Rules'

It will not work. All of the above parties have shown themselves to be nothing but a collection of rag tag and bobtail. It is simple what to do.

The taxation of income on second properties should have excluded mortgage borrowing relief. If i borrow £1m to buy shares i get no tax relief on the dividend income because i have to pay interest on the loan; not so with property. The whole economy has been powered by debt because Gordon Brown & now Mr Darling have at every turn rewarded greed, speculation and uncontrolled immigration while punishing hard working, honest small business people.

Its not regulation we need it integrity from our leaders. However, they seem more intent of spending our money on taxis to take them on shopping binges.

  • 8.
  • At 03:46 PM on 03 Apr 2008,
  • Nigel Watson wrote:

I have to disagree. The average person in the UK needs to learn two things

1. Debts have to be paid off. Therefore, it's best not to live beyond your means for too long. If you don't earn enough to buy something that you want....then tough! Why not try that old fashioned thing called saving instead?

2. A house is somewhere to live. It is not an investment. Property prices do not always go up. Without credit the demand for housing vanishes and house prices head rapidly South. According to the BBC house prices in the last 3 months have fallen by 9% in Guildford. And the crash has hardly even begun!

  • 9.
  • At 03:51 PM on 03 Apr 2008,
  • Euromac, Brussels wrote:

"But then that's how it's always been - and can't possibly change unless regulators are prepared to impose lending constraints on banks when the times are good, which would be removed when the economic going gets tough."

The banks could be liable for their bad lending, and de'il take the hindmost. That would sharpen their lending policies - not bailing them out.

And after all, that's the free market for you.

  • 10.
  • At 03:52 PM on 03 Apr 2008,
  • Deepak Chawla wrote:

Read the following in my first year of A levels about "GOING CONCERNS"

With excessive debts individuals/companies who are highly leveraged fall earlier in the down cycle of business.

  • 11.
  • At 03:54 PM on 03 Apr 2008,
  • David Williams wrote:

Until this week, there was a deafening silence about unsecured debt, and especially credit card debt.

My concern is that the myriad of offers from banks for us to transfer debit balances on which interest would not accrue for varying periods created a sort of merry-go-round for accounts that were in default. By transferring, you enabled the first bank to get the bad debt off its books and it would be clean in the receiving bank's books until the interest free period expired.

On this hypothesis, come the last quarter of this year there will be a further credit crucnch, this time on the credit card front. By then, of course, accounting losses arising from necessary provisions will appear in a later financial year. Thus instead of one Armageddon, we get two earthquakes.

  • 12.
  • At 03:55 PM on 03 Apr 2008,
  • John from Hendon wrote:

The cartel of British Banks are just acting in he way the market forces them to act. It was forcing them into imprudent lending now it forces them to cut back.

What goes up comes down and these is nothing that can be done about it - all the BOE/Treasury/FSA can do is to protect the most vulnerable as best they can - what they absolutely should NOT do is to protect the plutocrats who amplified the situation by their own imprudence.

Interest rates should now be kept high or even raised - painful as it may be - I think a short pain - rather than lowering rates and giving rise to a prolonged agony.

  • 13.
  • At 03:57 PM on 03 Apr 2008,
  • adam wrote:

my neighbour today filed for bankruptcy owing millions. his largest creditor is also in financial ruin as it was relying on payments. total loss of staff is 34. both business owners are selling their houses at knockdown prices. i fear this kind of thing is going to get far worse.

  • 14.
  • At 03:58 PM on 03 Apr 2008,
  • Gerry Lynch wrote:

The change in bankruptcy laws a few years ago made this a much more attractive option for many people, particularly those in negative mortgage equity. The banks seem very likely to loose a lot of money from this option once the credit squeeze starts to bite.

  • 15.
  • At 04:06 PM on 03 Apr 2008,
  • T.Kash wrote:

Thank you for confirming what alot of people fail to see.
Cheap credit in a boom plus
expensive credit in potential recession equals dramatic peaks and lows in the economy. This can only point to a relative recession which will be reflected in the previous prosperity the UK once enjoyed(=Recession).
How does Mr.Brown justify raising taxes for the lower income earners while those are the very people who need credit. It may be the preverbial straw that slice's the camel's throat. (I've improvised due to severity of the topic)
The Banks have failed to look after their money supply(customers) for short term greed(bonuses paid when business is shockingly bad). Two jobs are executives and footballer's who get paid for failing.(feel free to increase the list) Until there is FAIR rules and regulation for banks AND customers we will continue the trend. T5 might be considered a success when compared to the finacial system.lol

Too easy to blame the banks. Banks here do what they do better than any other country in the world. Their systems are streets ahead of anyone else. I'm with HSBC and they have ben fantastic to me and my family and my firm too.
If you want to blame someone, blame the government. Yes. There is a strong perception it seems to me that former Chancellors make good PMs. They never did. Did this one see it coming? If he didn't he was looking the wrong way.
But that aside the root cause of the money squeeze is the UK doesn't make enough stuff and doesn't export enough, imports far too much and thus the net flow of money is out. If there was more money coming in we'd be doing really well. We're not. I fear for the future of all of us. If Gordon Brown wants to ban so many things, let him ban imports from China. Sure there'll be a few less millionaires selling cheap crap, but it might give the brains in Britain a breathing space to rebuild out shattered home-grown manufacturing economy.

GC

  • 17.
  • At 04:12 PM on 03 Apr 2008,
  • Euromac, Brussels wrote:

"But then that's how it's always been - and can't possibly change unless regulators are prepared to impose lending constraints on banks when the times are good, which would be removed when the economic going gets tough."

The banks could be liable for their bad lending, and de'il take the hindmost. That would sharpen their lending policies - not bailing them out.

And after all, that's the free market for you.

  • 18.
  • At 04:12 PM on 03 Apr 2008,
  • Mark Bell wrote:

You're acting as though the banks actually lent something of value in the first place. The 'credit' offered in loans was created by fractional reserve banking practices and can simply be written off without actual depreciation of capital by the banks.

A bigger question is where the central banks are getting all these billions from to bail out the cash accounts of the High Street banks

  • 19.
  • At 04:17 PM on 03 Apr 2008,
  • Deepak Chawla wrote:

Read the following in my first year of A levels about "GOING CONCERNS"

With excessive debts individuals/companies who are highly leveraged fall earlier in the down cycle of business.

  • 20.
  • At 04:17 PM on 03 Apr 2008,
  • Rais wrote:

Wouldn't better application of monetary policy have prevented these problems, and stopped the housing market overheating?! Just seems like some aspects of the situation we are in were so simple to avoid.

  • 21.
  • At 04:17 PM on 03 Apr 2008,
  • Craig dyball wrote:

We hear about the problems of the Lending institutions securing further funds (LIBOR rates etc).

It is my belief that they are now profiteering by generating confusion as a means to increase rates and profit margins.

A cynical view, yes, but fimly based on experience in the mortgage market!

  • 22.
  • At 04:21 PM on 03 Apr 2008,
  • Robert Begg wrote:

The Banks will now reap the rewards that have been sown for several years. Unfortunateley it is also the public that has pushed house prices to the brink on the strengh of the Banks willingness to feed that greed,and not keep better constraints in place. The stigma of going bankrupt in the young especially appears to have evaporated, and this Government has not helped that situation either with their law changes on bankruptcy.

  • 23.
  • At 04:26 PM on 03 Apr 2008,
  • John from Hendon wrote:

The cartel of British Banks are just acting in he way the market forces them to act. It was forcing them into imprudent lending now it forces them to cut back.

What goes up comes down and these is nothing that can be done about it - all the BOE/Treasury/FSA can do is to protect the most vulnerable as best they can - what they absolutely should NOT do is to protect the plutocrats who amplified the situation by their own imprudence.

Interest rates should now be kept high or even raised - painful as it may be - I think a short pain - rather than lowering rates and giving rise to a prolonged agony.

  • 24.
  • At 04:26 PM on 03 Apr 2008,
  • Daren Durkin wrote:

Here is one for you Robert. A friend of mine went to a brokers this week to do a remortgage to the value of 140k and guess what the figures did not add up. This person called me and asked for my advise as the last thing they told them was that you were borrowing 149k !!!!! This is how it broke down...

Loan Remortgage £140000
Brokers Fees £5000
Product Fees £2000
Solicitors Fees £2000
Total £149000

And they did'nt even have to do a valuation on the house..must have googled it then.

I told them to see a good friend of mine which they did and they saved almost all the add ons and fees.

The point i am trying to make is why don't the banks and building societys stop these brokers from making the situation worse !!!!

  • 25.
  • At 04:27 PM on 03 Apr 2008,
  • Manus wrote:

Central command always sounds better. "Things can be planned properly", is the inference of what you say. Of course the reality is that they cannot. The central bank had control of the cost of money, which should have had at least some effect on the availability of cash. The problem is not one of lack of control, but lack of foresight. Money supply was huge and growing at significantly over 10%pa for 15 years, yet no-one thought it was odd. Inflation went up so we excluded "capital assets", like housing, to get it down again. Unofficial lending, given by pension funds to hedge funds went unregulated and unaccounted for in the national statistics. When every single capital asset was at their most expensive ever, no-one thought to curb credit to control their rise.
Now in the down turn, we give vent to the authoritarian side of our nature, and thus exacerbate the problem.
The solution is to get consistent measures of our economy and stick to them. Act on them consistently, no matter how tempting it is to allow for above trend growth for a period. Now that really would be a new paradigm.

  • 26.
  • At 04:27 PM on 03 Apr 2008,
  • Euromac, Brussels wrote:

"But then that's how it's always been - and can't possibly change unless regulators are prepared to impose lending constraints on banks when the times are good, which would be removed when the economic going gets tough."

The banks could be liable for their bad lending, and de'il take the hindmost. That would sharpen their lending policies - not bailing them out.

And after all, that's the free market for you.

  • 27.
  • At 04:28 PM on 03 Apr 2008,
  • sp wrote:

So this is what it comes down to? Lenders and borrowers alike cannot be trusted to be realistic at any point in the business cycle so its up to the state to tell them what to do without somehow distorting the market in the process. I like this idea that the magic formula is somewhere in dynamic countercyclical regulation but there is an essential problem with it. If during good times domestic financial regulators unilaterally impose constraints on their territory it just means that international finance companies will move or lose business abroad; unless regulations are the same everywhere. But, even if regulations were internationally uniform wouldn’t the regulations get the blame for every little slowdown in growth on some part of the planet or other? As seen from the cherry picking and tussle over Basel 2 (new international capital adequacy for banks) international financial regulation is far from simple to implement and looks still born as they are being updated from something that didn’t prevent the crisis to something that still won’t prevent another crisis. The biggest banks can now use their own risk models to – LOOK OUT! I jest. Do we face a problem here with the revolving door between senior staff at regulators, central banks, treasuries, and private banks? Just who is making the rules for whom? It’s all so complex that ordinary people and their governments must relinquish control to regulators who in turn end up asking the banks what they would like the rules to be. How is that ever going to make good rules? Why don't we see individuals in the dock being asked how they justified regulatory arbitraging practices – all this off balance sheet stuff for instance, simply saying “it wasn’t against the rules” isn’t enough; it’s a bit like “I was just following orders”. Surely these are people who pride themselves on being the best, highly educated extremely insightful, experienced and above of high integrity. Regulations exist primarily as a result of principle so surely a responsible banker, seeing the holes in the regulations would spend time with the regulators pointing out the error, not busy themselves making money out of it. Of course I jest again. What I think is missing is a legal duty of care rather than better rules. Institutions might be saved by the public purse during a crisis but some individuals could get locked up for their part causing it. Might that reduce the likelyhood of such practices being repeated?

  • 28.
  • At 04:28 PM on 03 Apr 2008,
  • Kv wrote:

Brian: Northern Rock made credit far too easy, as did the other banks with 100% mortgages for all. Recent actions mean deposits of 5, 10, 20k will be needed by the average first timer and we're a nation of spenders so it's not there.

Peter G: I liked the milking stool, as you mentioned cheap credit is disappearing. Inflation was beginning to rear it's head with high oil/food costs which is why we went to nearly 6%. The last inflation figure was 2.5%, way over the 2% target so the BoE is in a catch 22. Cutting rates to help banks will feed inflation.
As for public spending, uk consumers fuelled this with credit, house equity
and a booming finanical sector which we rely on for growth.

With credit drying up, banks cutting jobs/bonuses, home equity evaporating and inflation still a threat you can see how the milking stool is shakier than ever. (Maybe it's the cow that's bolted : )

David: Great post. It's clear that the news/implications is finally filtering through and a lot of adjustment in spending will be needed for some. Hold that £8 starbucks round.

  • 29.
  • At 04:28 PM on 03 Apr 2008,
  • Brian Frost wrote:

As a mortgage broker i experence on a dayly basis the damage that the shortage of funds in the market place are having on first time buyers trying to enter the property market through to people who are unable to re-mortgage their properties as they are now worth less than they paid for them two years ago. Dispite two drops in the bank rate the average mortgage rate has risen by a quarter of a percent adding to lenders profits and not offering any comfort to their customers.

The Bank of England and the government need to act today to reduce interest rates and lend money below base rate to lenders with the instruction to pass this benefit on to new and existing mortgage customers until confidence returns to the money and investment markets.

  • 30.
  • At 04:32 PM on 03 Apr 2008,
  • Deepak Chawla wrote:

Read the following in my first year of A levels about "GOING CONCERNS"

With excessive debts individuals/companies who are highly leveraged fall earlier in the down cycle of business.

  • 31.
  • At 04:34 PM on 03 Apr 2008,
  • Mark Saunders wrote:

What "risk"? Any bank that is in danger of turning a loss will be bailed out by Brown in a desperate attempt to disguise the fact that his "prudent and sustainable" ethos was nothing more than running up a huge national tab that he has no idea how to pay off.

What annoys me is that being one of the silent majority who are stupid enough to live within our means, I'll end up picking up the bill for the smart people who lived like kings on credit and who will now just declare themselves bankrupt and start over again.

  • 32.
  • At 04:36 PM on 03 Apr 2008,
  • Manus wrote:

Central command always sounds better. "Things can be planned properly", is the inference of what you say. Of course the reality is that they cannot. The central bank had control of the cost of money, which should have had at least some effect on the availability of cash. The problem is not one of lack of control, but lack of foresight. Money supply was huge and growing at significantly over 10%pa for 15 years, yet no-one thought it was odd. Inflation went up so we excluded "capital assets", like housing, to get it down again. Unofficial lending, given by pension funds to hedge funds went unregulated and unaccounted for in the national statistics. When every single capital asset was at their most expensive ever, no-one thought to curb credit to control their rise.
Now in the down turn, we give vent to the authoritarian side of our nature, and thus exacerbate the problem.
The solution is to get consistent measures of our economy and stick to them. Act on them consistently, no matter how tempting it is to allow for above trend growth for a period. Now that really would be a new paradigm.

  • 33.
  • At 04:42 PM on 03 Apr 2008,
  • Cecil Stroker wrote:

It seems odd to me that banks are claiming they are taking their products off the table as they have to many customers. Surely if I had 5 times as many customers I would give business to the ones with the best ability to repay me. I suspect issues maybe regarding overall liquidity and this is certainly a worry if UBS have had to reign in credit lines as well as companies like Goldmans who have just bailed out UBS will have reign in their lending as they and their 3 counterparts have just raised 15 billion CHF to support a failing bank.

  • 34.
  • At 04:47 PM on 03 Apr 2008,
  • Ca Ira wrote:

Robert,

I hope the Banks are selective in their help by supporting the one mortgaged home families whilst hitting hard the greedy 'buy to let' two or three property speculators using their losing value prime property as collateral.

Some stronger legislation to protect the tenants who may be made the innocent victims in these circumstances would be popular and useful but probably beyond the wit of this useless government.

Time for our traditional sense of fair play to have a day in business, it may offend the city slickers but it used to be called socialism when I was a lad.

  • 35.
  • At 04:48 PM on 03 Apr 2008,
  • Ca Ira wrote:

Robert,

I hope the Banks are selective in their help by supporting the one mortgaged home families whilst hitting hard the greedy 'buy to let' two or three property speculators using their losing value prime property as collateral.

Some stronger legislation to protect the tenants who may be made the innocent victims in these circumstances would be popular and useful but probably beyond the wit of this useless government.

Time for our traditional sense of fair play to have a day in business, it may offend the city slickers but it used to be called socialism when I was a lad.

  • 36.
  • At 04:48 PM on 03 Apr 2008,
  • Cecil Stroker wrote:

It seems odd to me that banks are claiming they are taking their products off the table as they have to many customers. Surely if I had 5 times as many customers I would give business to the ones with the best ability to repay me. I suspect issues maybe regarding overall liquidity and this is certainly a worry if UBS have had to reign in credit lines as well as companies like Goldmans who have just bailed out UBS will have reign in their lending as they and their 3 counterparts have just raised 15 billion CHF to support a failing bank.

  • 37.
  • At 05:07 PM on 03 Apr 2008,
  • robert marshall wrote:

This crisis has shown that overpaid 'bankers'no know more than any person wlaking down the street. Teh question sneeds to be asked if that is the case why are they getting paid so much? Also if a business got itself in a mess what would their bank say to them? Got to the Bank of England for a bail out, unlikely don't you think.
Make them realise they can't keep screwing their customers and take salary and bonus cuts, reduce their margins like any other firm would do and start taking a reality check.

  • 38.
  • At 05:14 PM on 03 Apr 2008,
  • Ca Ira wrote:

Robert,

I hope the banks protect the ordinary one mortgaged home family and screw the greedy heavily debted 'buy to let' speculators.

Some stronger legislation from our witless government would be poplar and essential to protect the tenants becoming victims of others greed.

Sadly, the government does not have the ability and bottle to diminish this problem, neither do the banks.

  • 39.
  • At 05:23 PM on 03 Apr 2008,
  • Sean S wrote:

The banks are shrewd enough to see a profit opportunity when it comes along and I am sure they are happy to be seen to be going cap in hand to the Bank of England for assistance. They'll get cheaper money (but use the credit crunch as an excuse to increase their profit margins by not passing the benefit on to their customers).
The way the media is reporting the situation (and the BBC themselves seem very keen to sensationalise any indications of a possible recession) only goes to help the banks in their argument that they need assistance and is virtually talking people into believing there is a recession happening now.
We have a base rate at 5.25%, low inflation and high employment. These are not the ingredients of a recession, but certain people think that if they say it enough times it'll happen. Don't look at the US, what's happening here.....people are tightening their belts (which they often do when household bills increase), but don't keep looking at every bit of data and print scaremongering headlines - statistics can be interpreted in many different ways and can be used to justify virtually any conclusion you want to reach. The banks see a way to make even more money and are taking it - watch them maintain their profit levels!


  • 40.
  • At 05:23 PM on 03 Apr 2008,
  • Bob wrote:

I read an article that said probably approximately 50% of the bad debt that had to be declared had been.

I think reducing interest rates in the US and UK would probably effectively hide some of this for a while but not eliminate it.

So its easy to see why banks are still reluctant to lend to each other and build up capital.

One route out is to reduce interest rates and accept some inflation, but that will impact on investments, particularly pensions and savings.

Debt has already been nationalised. I suppose the BoE could take some form of share holdings in other banks in exchange for debt on the basis it (or the tax payer) gets paid first or get some kind of quarterly preferential dividend until the monies paid back..but how do you do that??? You could end up with politically supported institutions with distored share prices.

  • 41.
  • At 05:34 PM on 03 Apr 2008,
  • Andrew wrote:

Anyone remember "Economic Cycles"? Same effect, different trigger, each and every time.

You can blame anyone you want but the inevitability of this downturn occuring is perhaps the only thing we can be certain of.

People would be wise not to a) have such short-term memories, and b) expect people and organisations to behave in the ways in which they are encouraged by the systems that govern them.

  • 42.
  • At 05:38 PM on 03 Apr 2008,
  • Greg Begley wrote:

Unfortunately, as with much commentary and particularly our unnerving ability to use hindsight in the present tense, this is both a simplistic and inaccurate analysis. Whilst banks unquestionably contributed to current circumstances it has been ably supported by all of us, consumer and business alike who inevitably believe the last recession will never recur. Alas the memory always wants to remember only good times and invariably forgets the bad so the old addage of never borrow more than you can repay is lost on everyone.

  • 43.
  • At 05:42 PM on 03 Apr 2008,
  • akamrburns wrote:

We have a political class who believe they can govern by inventing new policies. We're sick and tired (and very bored!)of new policies. What people require of government is that they oversee the successful management of the country and its institutions, not manage by crisis.
If the past few months has taught us anything it is that we can no longer allow the financial sector to regulate itself. Self-regulation is no longer an option. It is not acceptable that we allow the actions of unaccountable, greedy, foolish, dishonest bankers(if predatory lending isn't dishonest then I don't know what is!)to inflict such pain and misery on so many people. Of course the nature of the regulation that is put in place is important, but put in place it must be - and quickly.

(This is just the time to dust off the Dickens - what's changed?)

  • 44.
  • At 05:44 PM on 03 Apr 2008,
  • Steve B wrote:

When I check yesterday LIBOR was within 8 points of the base rate. Hardly a crisis. The borrowers in real trouble are cowboys like Carlyle with 95%+ gearing.

Only reason it’s STILL being talked up is because it’s rich bankers who are losing their jobs, not working class miners. Let’em suffer.

  • 45.
  • At 06:04 PM on 03 Apr 2008,
  • Peter G wrote:

Robert,

I recall discussions last year (predating the celebrity Credit Crunch) about serious threats to the UK economy. In these discussions, the concept of a milking stool was used as a metaphor for the UK economy, supported by the three legs of high public spending, low inflation, and cheap credit.

At the time, the concern was that all three legs looked a little shaky - inflation might spiral as a result of increased costs of imports (through rising oil and commodity prices and in particular the China effect). Public spending would almost certainly drop because there's not much left in the kitty, and cheap credit will end, because of Newton's third law of motion - if it goes down, at some point something will come back up.

Inflation, way back then, was probably the greatest concern, but it seems that the end of cheap credit has pipped inflation to the post through clever branding - "Credit Crunch'.

So what about the other two. Are they no longer a concern, or are they growing quietly in the background ready to squash any good feeling that might arise once Credit Crunch has had it's 15 minutes (months?) of fame?

Be great to hear your thoughts on this subject...

  • 46.
  • At 06:05 PM on 03 Apr 2008,
  • Paul H wrote:

The Bank of England seem to have played this quite well despite the flak, having not significantly reduced interest rates they still have some room to play with if things get worse which we might be grateful for if things are that bad.

In the case of the US you can only wonder the impact a rapid increase in interest rates will cause if inflation rears its ugly head. It just seems they are putting difficult choices back a few months or years to prevent 'it' happening on their watch.

Does anyone think some of the calls of financial Armageddon are being over played? Thus far one UK bank has gone bust which bet the house on a flawed business model. It may well be that we are just returning to a cycle where interest rates increase and we experience a downturn in the wider economy - surely a modern flexible economy can adapt to this. It might mean less jobs in finance and something many would argue to be more worthwhile such as manufacturing or industry, it might just happen before its too late and we lose all our skills.

In many ways I can't see what more the UK government can do - isn't throwing money at the problem something governments used to do and always got criticised for when they ask for their money back (taxation) when things improved!

  • 47.
  • At 06:07 PM on 03 Apr 2008,
  • Martin Hughes wrote:

Economies go in cycles and this time its no different . Morgage rates will in effect go up as the lenders increase their margins beween BOI base rate and their variable rate . This is a direct result of the international money market tightening and lenders returning to deposits to raise their capital , look at ISA rates, 6.25 % is easily available and I can see this going up.

Unfortunateley house prices will suffer as house prices are directly linked to lending availablity , however overall I can't see them dropping more than 20 % overall . However flats will suffer far more in distressed sales perhaps up to 50% from their dizzy peaks , there is simply to many for the market and service costs will be a big factor in the years ahead as they are raised 2% plus on inflation .

You can argue additional regulation during the boom would avoided the worst of above , but I believe it would be counter productive , a free market does regulate itself although the swings can seem excessive , history will demonstrate that the current climate is just the turning of a normal economic cycle .

  • 48.
  • At 06:09 PM on 03 Apr 2008,
  • Tony Stein wrote:

It's long been recognised that the house price rises of the past decade were unsustainable - 10% p.a. increases in property prices and 2-3% increases in wages!! This was fuelled by the banks greed and inability to regulate themselves properly. If they hadn't contuously jacked up the multiples of income and %'s of value that they were prepared to lend then we wouldn't have such large numbers of shaky loans now. The problem has been high housing demand which has resulted from a growing number of wealthy individuals seeing property as a good safe place to invest - who wouldn't given the risk / returns? There is a way to stop this madness. Change the UK tax system. Tax returns from residential property at 60% and reduce tax on returns from (long term) investment in businesses. Say, 0% if you hold shares over 10 years moving up to 50% if you sell within two years. This will stop the wealthy buying properties to let out, cut property prices and hence make them affordable for purchasers (and hence less risky). When will the government recognise that if the banks can't / won't behave responsibly, they will have to intervene.

  • 49.
  • At 06:11 PM on 03 Apr 2008,
  • Tony Bryer wrote:

"But then that's how it's always been - and can't possibly change unless regulators are prepared to impose lending constraints on banks when the times are good,"

If, a year ago, the boss of Northern Rock had stood up and told his shareholders that given a chance they could have grown the business by x% but due to regulatory controls the best they could do was y%, I can't help thinking that more than a few who now blame the regulators would have asked why the government was interfering in and holding back private business. Damned if you do, damned if you don't?

  • 50.
  • At 06:13 PM on 03 Apr 2008,
  • Andrew H wrote:

Brian, you've been going to the wrong banks. Go somewhere like HFC, and they fall over themselves to give you money.

For instance, someone I know (in 2003):

Five bedroom house with only four occupants,
55
Mortgage of £120k on a house worth 230k.
Struggling to repay, and moved to interest only.
Excessive credit card and unsecured debt.
Commissioned salesman on less than £30k.
Still managed to borrow £80k from HFC bank.

Responsible? Methinks not.

  • 51.
  • At 06:14 PM on 03 Apr 2008,
  • Tim Jones wrote:

The problem seems to be, at least partly, that some lenders have lent to people for houses at too high loan to value (LTV) ratios and at too high multiples of income. This has created a house price bubble which will burst.

Surely in the UK this would be easy to stop in future? But it would have to be by legislation. The banks etc won't do it themselves as the bonuses paid while the bubble is being inflated are too high for the bankers to stop it. I don't think they all care enough as individuals about the institutions they work for to forego large quantities of cash for themselves. Jobs are not for life anymore. Yes it would be a shame if the institution you worked for got into trouble, but if you have had the millions in bonuses already you will find a way to live with your conscience.

So constraints have to be government imposed.

Set limits on LTV and multiples of income and refuse to register the charge on the property if either is exceeded. (Say LTV at 85%, income multiple at 3.) An unregistered charge would be invalid. The lender would have difficulty in packaging up unsecured loans into CDOs etc so wouldn't lend unsecured in the first place.

To prevent the borrower overstating his income details of his income would be sent off to register the charge. If the registration was done by an agency of the Inland Revenue and checkable against tax records there wouldn't be a lot of overstating of income going on. If someone comes up with a scheme to get around the regulations then legislate against that scheme.

I realise that such a system would be immensely difficult to set up and have many problems to negotiate but if there is the political will there would be a way of enforcing responsible lending on the banks on UK housing stock.

Yes of course the banks would still buy toxic waste from overseas if the bonuses were big enough but at least we would have some of our own house in order.

The days when banks can be expected to behave sensibly have gone. Banks are run by individuals. The bonuses they get can make the future of the bank not their sole priority. People lie when filling in applications if they think it will be to their advantage. If you want sensible behaviour you have to legislate for it. Its very sad but true.

  • 52.
  • At 06:41 PM on 03 Apr 2008,
  • AD, West London wrote:

This is all very depressing!!

The city slickers make millions out of what seem to us now stupid decisions - buying and selling loans which were always going to go bad,or buying and selling dot com companies with little or no prospect of making money

And when it goes wrong it is us who pay the price, through higher mortgage rates, lower equity growth in our pensions and possibly recession.

How can leaders of large financial institutions be forced to behave more responsibly ?

That's the most depressing thing - we can all point to how the system's flawed but no one seems to be suggesting a way of fixing the inherent problems.

If only there was a parallel universe which was managed by cooler wiser heads where I could take my mortgage and pension!

  • 53.
  • At 07:28 PM on 03 Apr 2008,
  • David Williams wrote:

"1. Debts have to be paid off. Therefore, it's best not to live beyond your means for too long. If you don't earn enough to buy something that you want....then tough! Why not try that old fashioned thing called saving instead?"

They do eh? Well as the government and banking system just invent money out of thin air, the obvious solution to the problem in debt repayment would be to allow private individuals to do the same thing. The easiest way to do this would be to write cheques drawn against accounts with no money and then pay off the amount 'borrowed' with another cheque drawn on the same account.

Oh wait - if an individual does that its called "Cheque Kiting" and is tantamount to fraud. Funny thing is, I don;t see any bankers or politicians facing charges over this hypocrisy.

  • 54.
  • At 07:54 PM on 03 Apr 2008,
  • harry e wrote:

Seems to me there is a clamour to include housing costs in the preferred measure of infaltion introduced by Gordon Brown, the 'cpi'.

The stated purpose is said to be that if you include the costs of housing then any inflation there would lead to rises in interest rates and help prevent housing bubbles forming.

Am I being cynical, that despite people clamouring for it to be included ever since cpi was introduced by Gordon Brown, that it will now be included at the top of the cycle, and as house prices fall this will help keep cpi down?

  • 55.
  • At 08:08 PM on 03 Apr 2008,
  • Kevin McAuliffe wrote:

The should not have stopped listening to Ogden Nash in the first place then there would not be this mess. Now, suddenly, they have started to follow his advice to the letter again.

"Most bankers dwell in marble halls,
Which they get to dwell in because they encourage deposits
and discourage withdrawals,
And particularly because they all observe one rule which woe
betides the banker who fails to heed it,
Which is you must never lend any money to anybody unless
they don't need it."

  • 56.
  • At 08:20 PM on 03 Apr 2008,
  • JMatthews wrote:

The greed of the banking system is now coming out in the wash. Before the American sub-prime fiasco I was being offered mortgages left and right. Now that they're tightening their belts first time buyers like me aren't welcome any longer, regardless of the amount of savings and disposable income. Meanwhile, the banks complain about the downturn in first time mortgages and anger 'first timers' further. All-in-all, banking profits will always override their obligation to their customers.

  • 57.
  • At 08:26 PM on 03 Apr 2008,
  • jonah wrote:

I've been saying for at least two years now that the only thing propping up the economy is a tidal wave of cheap money. It's all very well leveraging based on someone else's money until they want it back.

Unfortunately just as the financial whizz-kids have tried to create silk purses from the sows' ears of subprime mortgages, so our former chancellor has tried to create a silk purse of eternal growth from the sow's ear of the normal marketplace. The results are becoming clear for all to see - an economy that wasn't booming, just floating on a sea of debt.

Just like a termite-infested building the economy has no strength to it. It looks fine, but under pressure it is likely to collapse completely. Just what happens when the consumer stops spending because they can only just pay their mortgage?

  • 58.
  • At 09:01 PM on 03 Apr 2008,
  • Toby wrote:

In fact Mervyn King was warning the banks about lending too much before last summer - but nobody wanted to listen.

The fact is that the Government could have done something, but chose not to. Borrowers were reckless, it's true, but they were cynically taken advantage of.

I am getting increasingly worried that there is a conspiracy of silence at the top level between the bankers, regulators and MPs concerning executive pay/bonuses and support for the banks from the BOE.

Even though it is clearly blatantly unfair, nobody in charge is saying anything about it. That's because they are all on that gravy train that effectively enslaves the working population.

By nature I am a capitalist, but I am thinking that something is seriously wrong here.

If the little people get chucked out of their houses and lose their jobs they will rightfully be mad as hell. At the very least Labour might find that they get annihilated at the next election. Remember how Hitler got into power...

  • 59.
  • At 09:14 PM on 03 Apr 2008,
  • Graham wrote:

Is there anyone else out there who will join me in believing that Gordon Brown's decision to change the inflation index used for monetary targetting was a major factor behind the later years of the housing boom?
The change from a 2.5% UK RPI target to a 2.0% UK CPI (Euro harmonised) target went largely unnoticed at the time. However, RPI has consistently been 1 to 1.5% above CPI so the change represented a significant loosening in monetary conditions. RPI has spent at least a couple of years in the 4%+ range...under the old regime, interest rates would have risen earlier so that this could not happen....and some of the borrowing excesses of recent years would have been avoided.

  • 60.
  • At 09:31 PM on 03 Apr 2008,
  • Len wrote:

We are currently in a strange position. We are lending money to the banks via our bank - the Bank of England (unlike the Fed it is our bank)- at lower and lower interest. The Banks are then trying to regain their profits using our money to increase their self devised bonuses - a prime cause of the current problem - by increasing the interest charged to us.
Surely our new bank - Northern Rock - should be allowed to lend our money to us at a lower rate. Properly managed and controlled this would do much to reduce the current "credit crunch". Surely we do not wish to bail out the banks for their incompetance.
Possibly the banking club and political friends might not see it this way but it is our money.

  • 61.
  • At 09:43 PM on 03 Apr 2008,
  • gary from lincoln wrote:

"i am no expert but let me have a stab!" banks have created the boom by stretching the lending critera to well above the 3.5 times salary rule, well why wouln't they it's in their interest to earn more interest on higher lending.When it all goes pear shaped they earn again as it's all underwritten;very clever the way they have played on the greed of us all.I genuinely think most of us would be better off if the average house price was still £20-30K!!yes i remember it and i am only just 40, certainly our kids would be. GC

  • 62.
  • At 10:07 PM on 03 Apr 2008,
  • Mad Max wrote:

The banks need profits. The only way forward is for them is to raise interest rates on their loans. This is inflationary.

During the boom central banks turned a blind eye to property price inflation saying it was not their concern. It wasn't then because they were not exposed to its risks.

Now they are by virtue of their liquidity measures.

  • 63.
  • At 10:13 PM on 03 Apr 2008,
  • S Farrukh wrote:

What i find very astonishing about this wole affair is that the taxpayers are continually funding the banks' gambling losses. Interset rate cuts are not being passed on to the public. The public is effectively funding an extra 1% on the entire mortgage book to provide these devious bankers with more chips to gamble on something new. 1% of over a £1 trillion mortgage book amounts to a lot of indirect subsidy. Perhaps the few billion lent to the reckless gambler at Northern Rock was not enough. All talk of unavailability of credit is just another devious extortion racket. With the real inflation running at over 15% (just see the food prices,energy and fuel prices) we all can live with some more extortion from the Labour party. Lets get a few more illegal immigrants into the country while the Britsh concentrate on waging war elsewhere. The Labour Government has done far more damage to the Uk then all the terrorists put together. Banking now is a legalised form of terrorism. No body dies but we all go broke and hungry.Thank you Mr G Brown. Your government and you are a very clear and present danger to the UK

  • 64.
  • At 10:15 PM on 03 Apr 2008,
  • Tim C wrote:

Our Confusing Economy, Explained

Fresh Air from WHYY, April 3, 2008 · Perplexed by the U.S. economy? You're not alone. Law professor Michael Greenberger joins Fresh Air to explain the sub-prime mortgage crisis, credit defaults, the shaky future of other types of loans and what we can expect from the U.S. financial markets.

http://www.npr.org/templates/story/story.php?storyId=89338743

  • 65.
  • At 10:57 PM on 03 Apr 2008,
  • I Reddy wrote:

I think the public should be made aware of the next banking disaster, which the Credit Default Swap or CDS. The sub-prime lending is under 2 trillion US$, the CDS crunch is over 40 trillion US$, it is not my intention to make people nervous, but if you prepare for something like this you will be better off, you cannot do anything about the people who are making money, they always will, you need to prepare for yourself.

  • 66.
  • At 11:16 PM on 03 Apr 2008,
  • Adam wrote:

Now feels just like 1990 to me. The BBC's tabloid-style doom and gloom reporting doesn't help, actually. We are just going through a market correction to an economic bubble. Cool it, people! We have nothing to fear but fear itself...

  • 67.
  • At 11:29 PM on 03 Apr 2008,
  • Simon W wrote:

It's all very easy to blame the banks, but as with so many other aspects of today's society, the individual seeks to avoid responsibility for his/her own actions.

Granted, the banks have made PERSONAL finance too easy, but surely some responsibility rests with the individual - banks can't force you to take credit.

There must be a distinction between personal and business finance, as it is not true to say that banks have lent too easily to business. In my experience, business finance has far more difficult criteria to satisy than a so-called sophisticated credit scoring system for personal debt. Competition in the SME market had lead to finer margins for businesses and cheaper banking rather than the availability of imprudent funds.

Any economic downturn will have its casualties and over the last 10 years almost anyone could be successful in business no matter what their skills as a buisnessman/woman. The next 6-12 months will sort the wheat from the chaff, and secondary lenders will not be immune from that either.

  • 68.
  • At 11:34 PM on 03 Apr 2008,
  • Rude Boy wrote:

When I switched mortgage a few years ago it was explained to me that early redemption would attract a penalty. I pointed out that early redemption would reduce the risk to zero so no penalty should be applied. However it was further explained to me that the lenders wanted to make X Pounds out of what they were lending. Risk just did not enter into the equation.
How times change.

  • 69.
  • At 11:54 PM on 03 Apr 2008,
  • Duncan wrote:

The fundamental problem is that House Prices aren't included in the
inflation figures. If the price of bread or petrol goes up 25% there is alot of complaining and explaining to do.

A house is the most expensive thing most people will ever buy, yet if
prices go up 25% the majority of people seem to think it is some
kind of economic miracle and celebrate by remortgaging.

p.s. I like Tim Jones idea and don't think it would need new regulation.
The IR could demand copies of all mortgage applications. If the earnings declared on them were greater than the IR records a demand for the outstanding tax could be issued.

  • 70.
  • At 12:12 AM on 04 Apr 2008,
  • Rude Boy wrote:

#46 Paul H

"It might mean less jobs in finance and something many would argue to be more worthwhile such as manufacturing or industry, it might just happen before its too late and we lose all our skills."

I wholeheartedly agree.
Except the government encourages industry by imposing university led grant funded consortia which is actually destroying what is left of industry.

Supermarkets are taking over the function of the High Streets. Universities are taking over the function of everything else. Except banks of course which are a law unto themselves.

  • 71.
  • At 12:18 AM on 04 Apr 2008,
  • TRUST_NO_1 wrote:

Brian Anderson wrote

"A bit of a bold statement that in the last few years British banks have made it too easy to borrow.
This is not my experience at all. I think you are getting mixed up with US banks"
===============================
Ha ha !!
We'll see.
They lent some of my family
£500,000 , and I can't even find out where they are now !

  • 72.
  • At 12:50 AM on 04 Apr 2008,
  • David wrote:

I strongly agree that the banks have behaved irresponsibly over the past decade. Working within the industry at times it appeared that the only criteria to borrow money was having a pulse!

But lets not forget that the media should also take some responsibility for fueling the UK's obsession to own 2, 3 or more properties both here and abroad.

I am always staggered to hear the latest 'Hard Luck' story of the 28 year old 'Property Millionaire' who has his 10 + property portfolio repossed because he could not keep up repayments on the fifteen or so credit cards he used for the deposits. I wonder how could this happen? Who gave him the idea?

There has also been one other major benefactor that has managed to avoid direct criticism about its role in the current crisis.

The goverment has done very nicely indeed from the direct and indirect taxes raised from an unsustainable credit boom, just compare stamp duty revenues to 10 years ago and you can see their reluctance to throw in the towel.

I think it is incumbent on all parties to act responsibly, but that may be wishful thinking.

  • 73.
  • At 01:23 AM on 04 Apr 2008,
  • Rob Tobin wrote:

Classic aphorism I believe - give you an umbrella when the weather is fair and ask for it back when it is raining

  • 74.
  • At 03:57 AM on 04 Apr 2008,
  • Mark_IV wrote:

As a society we continuously demand more. The results of this, in a finite world, are plain to see: insane house price inflation, bankers abandoning prudence for short-term gains, individuals up to their necks in debt, and all productive activities moved to whatever country offers the cheapest workers.
Western countries now have economies entirely without foundations. A remarkable conjuring trick, for as long as it lasts...

  • 75.
  • At 05:48 AM on 04 Apr 2008,
  • Joe wrote:

Did I read ...horses?

"Spinning Tony" and "Prudence Brown", what a pair of jiffies! They have bolted? No more bets on them then? As they say: "you pays your money and makes your choice". A balanced race (economy) from these two? Was there ever a chance? Let someone "lead them off" to the Nackers yard for their just deserts.

  • 76.
  • At 08:41 AM on 04 Apr 2008,
  • Steven Turner wrote:

Credit was far too easy. In January 2007 I enquired about releasing collateral from my property, to build an extension. I was shocked to find out that the anonymous financial institution would lend me more then 3 times what I considered I could reasonable afford. However, I was taking into consideration rising inflation and making sure I could afford repayments up to 10% interest without a drastic change in lifestyle. I don't believe banks ever thought of this in there lending criteria. If they did they would not have offered that sum.

This anonymous financial institution is also regarded as one of the more sensible ones. I dread to think what some of the others got up to!

This credit crunch could really get nasty in the UK.

  • 77.
  • At 08:47 AM on 04 Apr 2008,
  • Geoff Brown wrote:

In shutting up shop to new mortgages the banks are, at presnt, only doing what banks have always done and that is to take advantage of any given situation to improve their margins, liquidity and profits. At this point in the credit crunch they are deliberately playing on peoples fears of not perhaps getting a mortgage (re-mortgae) to to push up their borrowing costs so as to achieve their objectives. That might be unfair but that is how bankers behave and how bankers operate.

So perhaps now is a good time for governments to show some courage and put some constraints on the way that banks are allowed to operate. Hopefully they (bankers) will moderate their behaviour (greed and corruption/negligence) for the good and well being of the rest of society.

Firstly something needs to be done to restrict the ammount of leverage that banks can apply to the money they lend. This will give them better control over the business and go some way towards reducing their over exposure to unforseen risks.

Secondly banks should be made to pay windfall taxes on the excessive profits they make during the good times and not be allowed to build up excessive reserves for them to later release and go on paying themselves big fat bonuses when times are not so good.

This is necessary to ensure they are subject to the same morale and ethical rules as the rest of us. They must be made to work for the general well being of all of us and not just for themselves.

  • 78.
  • At 10:47 AM on 04 Apr 2008,
  • Ian Harris wrote:

People might be interested to note that one of the best places to put your money in an ISA, according to moneysupermarket.com, is our old friend Northen Rock.

They are offering 6% tax free fixed till March 2009. Yes even if the base rate drops trough the floor! You can operate it via their branches and make as many withdrawals as you want.

Methinks our European friends may try to scupper Ma Brown's support of them.

  • 79.
  • At 11:13 AM on 04 Apr 2008,
  • Bob Clark wrote:

Dear Sir,

Please can it be made clear that the banks are in the business of making money for themselves. They supply residential mortgages to make money but not to actually supply mortgages to people who are trying to arrange a home for themselves, a shelter for them and their family or future family.

The banks have provided the number of mortgages that they did and on the terms that they did because it enabled them to make the most money. They did make money and recent analysis has indicated that they are greedy.

Currently, when the average man is having to deal with the effects of the liquidity squeeze for example the cost of a mortgage, the banks raise their costs and mortgage rates so that they can make yet more money! MORE MONEY!

During the last week, my wife and I were asked by a merchant banker and family if we would lend our baby's travel cot because they did not have one! Perhaps we should make a charge!

The banks are a hive of inequality with power and without healthy leadership. Their power has a profound effect on everyday life, on family life, and on the quality of life of the average man.

The average man will keep his tolerance of the banks activities however the underlying level of anger will grow deeper.

  • 80.
  • At 11:44 AM on 04 Apr 2008,
  • Donald wrote:

The UK banks made it easy to borrow as the interest rates they charged were too low.

Who set the criteria for measuring interest rates?

The UK government.

  • 81.
  • At 02:56 PM on 04 Apr 2008,
  • Richard East wrote:

The banks' approach to 'selling loans' over the last few years seems to have been very similar to the approach to selling adopted by other industries in which major problems have resulted, mainly for the customer. The policy is the use of employment/agency contracts which reward a selling activity, without the supplier putting in safeguards to prevent abuse. It was prevalent in the competitive market for domestic energy supplies, where commission-only salespeople were used, and more recently in the mobile phone market. The policy leads to misery and frustration for the customer and yet, despite the sales staff acting fraudulently, no punitive action appears to be taken against them. So they simply move on to a new selling activity. In loans, particularly mortgages, it appears that employees/agents have actively encouraged fraud by the customer, or have simply engaged in fraudulent borrowing themselves, and the lenders didn't appear to have systems to prevent it - perhaps because they thought that in a growing economy there was very little risk to themselves! Now we all have to pay for their gung-ho attitude.

  • 82.
  • At 03:58 PM on 04 Apr 2008,
  • adam wrote:

off the subject, i know but whilst on the overall topic of greed etc...I notice that John Prescott claimed £4k in MP expenses how many bags of chips is that?

  • 83.
  • At 05:08 PM on 04 Apr 2008,
  • Ben Woollard wrote:

It really is interesting to note that yet again banks etc are being blamed for current situation that the UK finds itself in.

Certainly they are not blameless, they are after all in the business of making money, however has personal responsibility ceased to end in the UK?

A couple of things to mull over, firstly when people (not all of course) buy houses these days, it seems to be that the holidays, new furniture, new cars, going out, new clothes also continues. Secondly I don't think the media will be happy until the UK is in the grip of a full blown housing freefall and recession its all they have banged on about for about the last year.

  • 84.
  • At 07:20 PM on 04 Apr 2008,
  • cdc wrote:

I think that what we are seeing is a re-assessment of risk given the credit crunch going on right now. Mortgages and loans have been too easy to obtain - banks have taken a more realistic view of the risks they have, hence less lending.

Let's not forget lenders (banks & building societies) have been largely responsible for supporting runaway house price inflation. Each time prices rose beyond buyers afforability, they found ways to loan more - more times salary and longer repayment periods. Also deposits became a thing of the past with 100% and even 125% mortgages being made available. You found the house you wanted, lenders found a way to loan you as much as you needed before the house 'got away'

Now lending has been curtailed, the property market has significant exposure and vulnerability. Who was to blame? I guess the 'feel good' factor made all involved want the party to go on and on, then how can house prices rise at 20% a year when salaries rise at 2% ?

My view is the current mortgage and housing market is an overdue normalisation of the marketplace, lenders woke up to increased risk, housing market drops back. Then can we all say we didn't see it comming?

  • 85.
  • At 08:45 PM on 04 Apr 2008,
  • Terry wrote:

It was as plain as the nose on Jeremy Paxman's face that cheap credit would lead to trouble. You don't have to be a brain surgeon or even Evan Davis to work that out. In conjunction with this was the introduction of an "insolvency lite" system which led to quite obscene advertisements on the TV and radio saying how you could write off up to 75% of your debts under a Government scheme. So we enjoyed a bubble built on cheap credit and increased Government spending and if the mess ever hit the fan then at least there was a cushion paid for by the banks - ie writing off up to 75% of the money they lent. Who ever really believed that the good times would come to an end, except that is for those who saw what the Government was letting us in for?

  • 86.
  • At 09:03 PM on 04 Apr 2008,
  • John Corney wrote:

If I were in the banking industry then I would be talking up the "credit crunch" too. After all the banks need to restore their balance sheets, because of their losses. The improved margins I suspect will be there for some considerable time after LIBOR settles down. I would like to hear more about those banks not affected by huge sub-prime losses. They deserve our custom!

  • 87.
  • At 11:51 PM on 04 Apr 2008,
  • becky mason wrote:

I wish to goodness they would listen to you!! You make so much sense.

  • 88.
  • At 03:06 PM on 05 Apr 2008,
  • stevo wrote:

The UK is very, very lucky that this blew up in August 07. The second half of the year saw house prices starting to sky-rocket again. So whilst their will be some pain, because sub prime lending is nowhere near as big in the UK (8%) vs US (25%), it will be a softer landing. I can't help but laugh when i read that (shock horror!!) you won't be able to borrow without at least a 5% deposit (95% LTV). Cheap money turned property investment into a Pyramid get-rich-quick scheme (which by the way is illegal)...a welcome correction i say.

  • 89.
  • At 10:35 PM on 05 Apr 2008,
  • Casual observer wrote:

The problem is that the interest rate was set too low for too long. As a result we are seeing asset bubble. A correction is necessary even though there will be short term impact. But the longterm benefits will be good. Btw, Dont listen to speculators. We have been hearing this housing bubble etc in the UK since last year. I've not seen anybody is in negative equity. Yes, the pace of house price rise has slowed down a bit. The house prices have doubled in the past 5 years. So owners would still be in the money even though there is a 30-40% correction (unlikely because we dont have enough houses in the UK).

  • 90.
  • At 06:32 AM on 06 Apr 2008,
  • mark harbin wrote:

Hmmm,
maybe the uk shud bring back king george
and the north american colonies, but
include mexico this time.

anyone caught in a sp scam would be
sent to debtors' prison in queensland;
but without a ticket of leave ala
prior to the 49'r goldrush.

these scams or ponzis have occurred
before the american revolution,
but your king usually handled
them pretty well with the able support
of his then royalists like
alexander hamilton (a economics guru
from the carribean that handled
the kings sugar plantations there
at the tender age of 14).

I'm afraid the fed created at at
1907 florida convention of german & english banking houses got poor
old wilson to do a lot more than
fund europes 'ww1 activities; the
leverage of 10% for normal banks
has gone out the window; now
33 to 1 or even greater is common
in world banking sections.

cheers, wee'll be dead before this
stuff works its way thru...

  • 91.
  • At 12:56 PM on 06 Apr 2008,
  • Ele Brown wrote:

As a mortgage broker I take my clients' affordability very seriously as I would hate to have someone laying the blame at my feet after they get repossessed. But there are always people that will find ways to allow people to borrow what they want. At least what is happening right now may change people's expectations. Why should someone who has defaulted on numerous loans and failed to pay mortgages in the recent past be able to borrow at similar rates to someone who takes care to always pay up on time.
Credit may have been far too cheap in recent years but individuals must learnt to take responsiblity for their own finances. Play the banks at their own game and use credit cards at 0% only when you have the same amount of fuinds sitting getting you interest in a savings account. If you can't afford something, save up!

  • 92.
  • At 02:29 PM on 06 Apr 2008,
  • James Cook wrote:

One simple maths lesson to be learned is that if interest rates rise by 2%from say 4% to 6% that is actually a 50% increase in the cost which you the borrower has to pay.An increase of 2% from 10% to 12% is only a 20% increase. These days everyone seems so proud to say they don't undertand or enjoy maths but without some basic knowledge you are lost. As regards overall liquidity, what a pity this Government cannot cut tax rates and give back to people more of what they actually earn. At least the U.S. can do that. The immediate question asked by interviewers is 'what services would you cut' In my opinion the waste at present is so gigantic that a cut could easily be afforded if there was the political will.

  • 93.
  • At 03:45 PM on 06 Apr 2008,
  • Ken Broadhead wrote:

Wait a minute, lots of great comments but something is missing. The Bank of England bails out the banks who have loused up with dodgy paper tricks with respect sub prime smoke and mirrors---in turn the banks hammer the normal run of the mill borrower to jack up problems that the banks themselves have caused.

Can someone come up with a list of lending institutions which have not had their trotters in the trough by sub prime shenanigans or similar devious business transactions? My cash will be with them in a hurry.

  • 94.
  • At 04:14 PM on 06 Apr 2008,
  • Fernsy wrote:

Why is no-one here talking about Fractional Reserve Banking? The cycle of generation of money from debt (check out the many resources on this issue) ultimately leads only to unconscionable debt, of individuals, of communities, of countries. Debts to whom? Banks, of course, who then gaily step in and greedily assume control of homes, of land, of possessions, distributing them to whomsoever they please. The industries that flourish are those the banks will lend to, and if they don't feel like lending, they withhold and cause a 'depression', such as is happening at the moment.

There are some excellent videos on this subject: check out "Money as Debt" (in easy, ten minute chunks), found with any good search engine, or "The Money Masters."

The gravity of this situation, it must be remembered, transcends blame. It's too late for that. It's up to people to educate themselves, and it's up to the media in general to grow up and remember their responsibility to educate the public.

The idea that "We must pay off our debts" is fine in theory, but we are lectured on this point by banks and corporations who don't have a shred of mercy, whose directors get very rich indeed, far richer than they will ever spend. Is that a system you want a part of? Is that a system you want to legitimize by accepting *all the blame* for your interest-created debts? Will you swallow wholesale the banks' moral stance on debts?? Are bankers that rich because they are the best people?

  • 95.
  • At 04:14 PM on 06 Apr 2008,
  • ken Broadhead wrote:

Wait a minute, lots of great comments but something is missing. The Bank of England bails out the banks who have loused up with dodgy paper tricks with respect sub prime smoke and mirrors---in turn the banks hammer the normal run of the mill borrower to jack up problems that the banks themselves have caused.

Can someone come up with a list of lending institutions which have not had their trotters in the trough by sub prime shenanigans or similar devious business transactions? My cash will be with them in a hurry.

  • 96.
  • At 04:40 PM on 06 Apr 2008,
  • Ian Mace wrote:

Why all the complainers?

When I married and bought my first hose in 1965, it was only Building Societies that gave mortgages and at only two and a half a man's salary. Hence lower house prices were pegged to realistic incomes.

Banks then entered the market, upped the "anti" then 2.3 4, times income (including spouse). Result escalation in property values.

Result:-

Impossible to start on the property ladder at low income. Property owners living to the hilt, expecting the utopia of growth to continue and banks giving them every encouragement to do so.

What a sad state of affairs .. Greed from the banks and "I'm going to have a good time, regardless" from the now overstetched punters.

I have no sympathy with "good time Charlies' living off credit. Someone has to pay, its now their turn.

"Earn a pound, spend 95p and sleep at night"

Why should prudent savers suffer for the greed of others.

  • 97.
  • At 06:00 PM on 06 Apr 2008,
  • Martin wrote:

The banks seem to have assumed that loan account future salaries would pay back for the credit extended. So, the total credit repayments they hypothecated to profit. This was done with no regard for employers who might have an interest in keeping personal incomes down, for inflation that might erode future values, for people actually living in houses, or for the use of cash. Coupled to a system of fractional reserve banking, Banks were creating a structure not unlike the failed Enron business: securitzed debts shifted about in the hope of future profit. In short, this was a radical, systematic failure of business management at the highest levels. Why are Publically Appointed Governments expected to clean up the mess? Nobody voted for these Bankers at the last general election and yet they can call on the Public to bale them out? If the Government raised taxes, these would be the same people demanding answers. Serious questions need to be answered about Banking Business practices. The time might have come for Depositors to start asking banks to mutualise - to remove the "credit is profit" mentality.

  • 98.
  • At 07:26 PM on 06 Apr 2008,
  • Paul Clarke wrote:

Reap the whirlwind all you greedy people , everyone deserves aplace to live unfortunately everyone now wants to make a buck from property and they dont give a monkeys about anyone else, good on you all!!!

  • 99.
  • At 07:27 PM on 06 Apr 2008,
  • bloggsy wrote:

Why blame the banks? If you were dumb enough to borrow beyond your means to repay....sorry, it's your own fault.

I don't have any debts, not because I'm lucky, not because I have an incredibly well-paid job (I don't) but simply because I've applied some common sense in managing my money and my lifestyle. If I can't afford it, I don't buy it. Simple.

  • 100.
  • At 08:23 PM on 06 Apr 2008,
  • Mark Gobell wrote:

Credit Crunch ?

Sounds like a confectionery bar that, when you eat it, makes you fat.

Manufactured of course.

  • 101.
  • At 10:50 PM on 06 Apr 2008,
  • David wrote:

In response to the comment number 15 Two jobs are executives and footballer's who get paid for failing

You Missed the most glaring example of people who get paid for failing

POLITICIANS

  • 102.
  • At 11:51 PM on 06 Apr 2008,
  • Ron Smith wrote:

Robrt, I've always believed your grasp of economics and economic history to be minimal- this post just adds more evidence. I work for one of the major banks and having just gone through the results 'season' - nowhere have I seen that the deliquency rate is going up more than normal. And how can you say 'So arguably our banks have behaved in a way that may seem rational for each individual bank but may be irrational for the economy and all of us.'? Our whole economy is based on the sum our individual financial and economic activity - be we an individual, small business or corporate. I am being told hat both for my Bank and for our competitors that mangement of debt is good, if not great. ou are just (once again) scaremongering based on faulty analysis and lack of understanding of how our economy works. Just explain to me and other how you propose to regulate banks during te good tims to restrict heir leanding? And then let lose during the bad times? It is nonsense. What we are seeing now is a financial economy WORKING as planned. Get rea, Robert and learn the lessons of history, just like opur Banks have done.

  • 103.
  • At 01:16 AM on 07 Apr 2008,
  • glorfindel wrote:

banksters are common loan sharks with suits.

  • 104.
  • At 07:34 AM on 07 Apr 2008,
  • Joe wrote:

All the news at the moment is the risks of a decline in economic activity being touted as justification by economists (the people who can predict nothing in the Worlds economy without a pin and a wing and prayer) for the BOE to drop interest rates.
Since when did the BOE get more flexibility in its' mission statement.
I was under the impression it was given its' rate setting responsibilities to ensure CPI remained within the 1-2% range.
If that is the case and with an anticipated blow out in inflation, how can the economists be right.
Confuses the hell out of me that hard and fast rules can be ignored by the commentators, and seemingly by the BOE as well.
Surely if they do reduce rates and ignore the 1-2% remit, then surely it must be seen as an indicator that the mess is alot bigger than people in the know are admitting.

  • 105.
  • At 07:50 AM on 07 Apr 2008,
  • harry e wrote:

As Mervyn King has indicated: banks will be required to hold more capital. Secondly, lending will have to be visible...i.e. not hidden in off balance sheet vehicles where the capital requirements are less.

You have these rules throughout the cycle. They constrain lending on the way up and protect you on the way down.

its too late to do anything - let it fall rather to have short term policies and build from the scratch.

  • 107.
  • At 09:34 PM on 07 Apr 2008,
  • Onlooker wrote:

It would be a great mistake if the BOE cuts interest rate, because central banks of major economies such as ECB/Australia/Japan/Chindia are not cutting the rate. The UK economy is fundamentally strong. The unemployment rate is all time low. The housing market is not that bad(atleast nobody is in negative equity).Therefore, the prime concern for BOE should be controlling inflation which is hovering around 3%. Dont listen to speculators who are pitching for a rate cut.

  • 108.
  • At 05:07 PM on 08 Apr 2008,
  • T.Kash wrote:

In response to 101.
Hi David
I did consider this field of work but i wouldn't want to shoot myself in the foot now, would i? If i'm to be well paid in future a career in politics may be the ideal solution to be able to pay for a second house, never mind trying to save and get a foot on the property ladder. I'd love to join the masses that are angered by this but i shall play within the rules that are already here. Its the only way to win.

In response to 102.
Hi Ron Smith
You even sound like a nice (_)anker (prefix the appropriate letter). Think i saw your advert, it doesn't work like that! Apply this to your thoughts on the way an economy is suppose to work. Really don't think you want to take that stance, you may not have a job soon. Do you intend living off your bonuses while the rest of the country has to pay for it? and for the loose controls on banks and lending practices that result in this mess in the first place. Regulation and greater powers to enforce have a big part to play in the financial sector or are you averse to assessing risk correctly? The idea of a 'working economy' is communism. It isn't a bad word as such, the idea has just not been successfully implimented in the modern age. Watch Hugo Chavez, a man who looks after his people. Nationalising a countries' profitable industries instead of making the public pay for after effects. In summary to make a simple economic point of equally distributing wealth to create a fair world to live and work in would mean the necessity to have some form of regulation to come into effect. If a few planes come out of the sky and thousands lose their lives would it be acceptable to say its a risk we take or would we have strict checks to ensure safety? Rules are for all, banks and financial services are no exception!

Keep up the good work Robert!

  • 109.
  • At 01:53 PM on 09 Apr 2008,
  • Nick wrote:

The "banks and other lenders" are responsible for the credit boom and now the subsequent credit crunch. I say the "banks and other lenders" are responsible, but really it is the greedy people at the top of those financial institutions that are really responsible! You can rest assured that those same individuals money will make money out of the crunch. Of course the market place will be blamed! Is regulation the answer - no because it is in effective! What needs to be done is far more radical. in short, given the problems with the climate and resources what really needs to be done is to work to replace capitalism, because in reality it doesn't work.

  • 110.
  • At 01:25 AM on 10 Apr 2008,
  • spiros wrote:


..as I understand it the big banks and financial corporations bear most if not all of the blame for the financial crisis we are in by lending way too much to people who were not credit worthy.
We as bank customers and citizens now have to pay for their folly.
I feel the media isn't making enough of a point out of this and are letting the banks off the hook too lightly for the outrage they've heaped on us.

  • 111.
  • At 03:54 PM on 10 Apr 2008,
  • Peter wrote:

The banks have only themselves to blame, they are responsible for the ridiculous rises in house prices to start with. By offering 100% mortgages and more,up to 125% I hear, is the fuel to rising house prices in the first place. If the first tme buyer can only get a 90% mortgage, for example, the market would adjust, prices would have to start at a sensible level, lending people more and more money to buy just causes the prices to rise. The banks lend the whole value or more on the assumption that the property will continue to rise in value over a short term and thus secure the loan, all of course assuming the borrower can meet the payments in the meantime and that property prices do continue to rise, which they will while the banks continue lending freely.
Now what happens when the banks realise they have to change tact, oh yes, they stop lending freely silly amounts of money, thus drying up the demand at the bottom rung of the property ladder, then prices start to fall, then there are lots of borrowers with negative equity, meantime housekeeping prices are rising, household budgets get tight, payments start being made late or missed, banks start righting off millions to cover the bad debt they have essentially created in the first place.
I also believe the consumer doesn't help himself by living way beyond his means in many cases happy in the knowledge that his house price is rising? I dread to think what the average personal debt is, excluding mortgages, in the UK these days.

  • 112.
  • At 09:58 PM on 10 Apr 2008,
  • Mad Max wrote:

What is stopping Libor rates from falling?

Could it be that lowering central bank interest rates is working to increase bank profits?

  • 113.
  • At 01:17 PM on 11 Apr 2008,
  • Robert wrote:

No single person, group or institution is to blame - surely it is a question of foolish borrowers, foolish lenders and foolish regulators / politicians. Can also substitute 'greedy' for 'foolish'

  • 114.
  • At 05:15 PM on 13 Apr 2008,
  • Dan DruffDan wrote:

Bling Britian comes to mind
i never was one for bling
i always thought it tarnished to easily
looks like the bubbles about to pop for a few
some of the sparkle will be gone for many
people are going to be hurt and angry
im sorry about that
Anger circling your mind,
it will do you no good

Dad always told me
to cut my cloths to my means not my needs
my needs might be great, but means are low,
so my cloth is sack like
everything i treasure fits into a small one
so i carry it lightly and happily
then i was thinking
a fortune could be made
a sack cloth factory of my own
sales may rise... then fall.. and where would i be
with my health and loved ones
i could think of worse.

  • 115.
  • At 01:40 PM on 14 Apr 2008,
  • Brian wrote:

The people who caused this problem, greedy bankers packaging sub prime mortgages and selling them on as top quality investment paper and Mortgage Brokers, selling mortgages to people and not explaing the full implications to the borrowers walked into the sunset with huge bonuses in their back pockets a couple of years ago.
As usual the rest of us will pick up the tab.

  • 116.
  • At 08:38 PM on 14 Apr 2008,
  • Eric Blair wrote:

Fernsy (94) is spot on.

The result of Fractional Reserve Banking is that money is invented from nowhere by the very act of the banks giving you mortgages and/or loans. You are lent the Principle value of the loan, but then must return the Principle AND the Interest. The only way the money for this additional Interest can be found is by you or somebody else borrowing more and more money.

Put simply, the total debt in any currency is always increasing and can never be paid off.

This system came to pass in England in the 17th century with the formation of The Bank of England. (A private bank chartered by Royal Decree).

There is much speculation that many of the original share holders defaulted on the initial share purchase and only £750,000 of the original price of £1.25m was paid, but thats a different ironic story.

In the U.S. the same system, (that the bankers only have to have a small percentage of the money they lend, 10% now I think), was forced in with the First United States Bank in 1791. But this charter was only meant for 20 years. But a second war against the British (Sometimes called 'The Forgotten War') in 1812 forced more Fractional Reserve Banking and the U.S. 'Second National Bank' was set up. (There would be no gain for the bankers from Europe in this war? Nah, shame on me for thinking it).

Anyway this struggle for fiscal control went on for a while, and by 1913 the U.S. got its permanent 'Federal Reserve Bank' (Which is also a private bank). The rest as they say is history.

A debt that can NEVER be paid off and bankers can back both 'horses' in every war. A never ending 'Business Cycle' can be engineered so bankers make money on the way up AND the way down!

These people have everyone thinking 'National Banks' are truly national and pieces of cotton paper have a value.

Thats nice work if you can get it.

If you don't believe this listen to the horses mouth:

'Give me control of a nation's money and I care not who makes her laws.'
Mayer Amschel Rothschild.

Guess which family is thought to be a major share holder in these 'National' banks. ;)

  • 117.
  • At 02:46 PM on 15 Apr 2008,
  • Frank wrote:

Some have suggested that we need a radical change - yes, to expunge greed from the systems and organisations of society. In short, perhaps, to move on from Capitalism. G.K Chesterton came up with Distributism - a system based on the simple principle of giving according to ability, receiving according to need. Go on, look it up!

  • 118.
  • At 04:44 PM on 15 Apr 2008,
  • Sandy Anderson wrote:

Why are Brown and Darling pressing the banks to lower Mortgage interest rates? Why do they not spare a thought for the depositors who provide the cash for the banks to lend? Many depositors rely on a reasonable rate of interest in these difficult times and they should not be required to subsidise an interest cut for overstretched borrowers.
Sandy Anderson

  • 119.
  • At 08:57 AM on 16 Apr 2008,
  • David Worth wrote:

Why in all this mortgage fiasco don't the government remove the extra burdens of buying a place to live. For instance for single home owners get rid of stamp duty but increase it on multi home owners and landlords. I will not move as it will cost me the price of a small car if value of the property I want to buy is over £250000.

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