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I had an interview at Barclays recently - got rejected for not having "enough commercial experience". I wondered if I needed the kind of experience, which has given them a £1.2bn exposure to the two Bear Sterns hedge funds, which nearly collapsed last week. Then I heard the Deputy BoE Governor say that low rates were fuelling a credit expansion. There seem to be a lot of complacent people in very senior positions, whose incompetence will be paid for by the rest of us.

People have short memories - this is 88-92 all over again. I see this week that the Law Society is investigating the record high numbers leaving the profession - easy really: if you overpay, then you have to overwork to get the revenue in.

I wish I was as clever as this lot, but what do I know!

Dave MBA

Trading collateralised debt is fine - until those doing the trading start to realise that the "collateral" is not worth anything near what they think it is. This whole credit/houseprice/prosperity thing is a huge illusion that will come crashing down like a house of cards. When and how remains to be seen but for sure it will and when it does, it will not be pretty.

The marriage between New Labour and its voters has been one of we will let you do whatever you want and the markets will decide how that works out.

This is the secret behind Gordon Browns successful economy - debt unrestrained by government fueling growth. We are not alone in this respect as other countries have worked this same economic model.

The dollar nor the pound are backed by gold. This has been the case for some while. They are in fact backed by nothing except perhaps equities and debt.

As some have pointed out, we walked of the edge of the cliff some while ago. Let hope we don't all wake up some time soon and see reality far below us.

Quite right, Gary E.There are still millions of people looking at the property market through rose tinted glasses or sleep walking their way to mortgage misery.

Boom/bust is a built in feature of debt based money. It's a feedback loop/non linear system. Live by the sword you die by the sword. No bailouts.

I'm sorry, you were expecting sympathy?

Just to cheer you all up interest rate rises won't be the only problem facing economies soon..

There's the inevitable increase in energy prices as demand continues to rise and the depletion rate of oil in particular is outpacing both demand and new production put together.

So liquid fuel shortages could be just around the corner and that will have a major impact on all economies everywhere.

And no - you can't hope that new bio-fuel production will fill the gap..

So - higher interest rates and higher fuel costs plus less of it.. That's the holiday plans snookered then..

Glad I don't have a mortgage though..

The vast majority of people in this country have been taken on a ride.

And no one did think of this before ?
When all said it was madness to expand credit this way ?

An no one was thinking of the opposite effect when rates were pushed lower and lower, and people were just slushing money from nowhere around them ? And no-ones got rich overnight lifting hefty loans or making smart deals.

Just go away.

Yes, it's all getting very hairy. Oh, if only I'd seen this coming a few years ago, avoided overstretching myself to buy property, and bought some precious metals and some energy stocks that will keep pace with rising oil prices.

Oh, wait, that IS what I did.

(Leans back and lights cigarette.)

This is Browns Britian, the UK economy has been handled like an 18 year olds first credit card and now we have to pay it off, right at a time when global economic pressures are at their worst.

Lets face it inflation is here to stay due to global inflation and expansion, global interest rates are rising as economys desperatly try to off load inflation onto someone elses economy. the winner is the one who can handle the higest rates to support their currency and ride it out. somehow I don't think that is going to be the UK.

Anyone with a large morgage is about to get clobbered! public sector employment will have to retract, unemployment ,house prices plummeting doom doom doom sorry!
Not really supprised Gordon was so desperate to move jobs quickly.

I wonder what it would take for the Government to take back control of UK interest rates from the BOE?

Don't understand the reference to the Law Society, though Dave,I agree about the aoorach of the larger banks, insurers and law and accountancy firms etc.

High Street lawyers are paid average wages.

Too much too fast.
Nice to see the ´óÏó´«Ã½ growing some balls finally though.

The UK housing market is underpinned only by supply and demand? Not really it has been possible for more than a decade to make more money for the average person each year by owning a property than from working at a full time job. In the past few years we have seen this second profit centre, which is tax free accelerate in its importance fostered by a seemingly ever increasing number of programmes on the ´óÏó´«Ã½ related to making money from houses and fostering a culture somewhat peculiar to the UK. As a result the whole of the UK property owning community count their wages each month and mentally add to that figure the increase in their property equity in assessing how well they have done. Extensions, loft conversions, all kinds of kitchen and bathroom improvements are no longer done because they improve the quality of life of the property owners but primarily because they will increase the value.

Most re-mortgages are taken out to refinance the homeowners, not to fund improvements but to pay off expensive debt such as credit cards or loans and as such short term debt is converted into long term debt.

If the tide turns and property values start to fall even modestly then this underpinning of the market will end and mortgage payers will start to count their losses each onth. If there is a sign of prices moving downwards and press speculation on a crash, then there may be a rash of people wanting to cash in on their castle, is short selling possible? Probably not with the length of time a sale takes under the England and Wales system but in 2007 we have the post war baby boomers turning 60 and with many of them having considerable equity and no doubt planning a down size to cash in on as much of it as possible by retirement or before, or even a move to somewhere next the Med and a full sale there could be a trigger situation soon where demand is reduced by many of this age group of property owners putting up the for sale boards and saying gracias and adios to the UK property market excerbating further falls. One thing is sure this group will not want to wait for prices to kmove back up if they are falling, they dont have the neccessary time.

In my opinion we are in for some changes and corrections in the UK and the current feedthrough from the US property market woes, although not directly related to the UK propertymarket could be the catalyst to start a new era.

I wonder - do we really need to have rate increases? Economists and pundits haven't really covered themselves in glory over the years and decades. If they got it right then we wouldn't have these frequent periodic episdoes - would we? If it is an inevitable result of the last few years "freedom" then why did they not keep rates high in the first place. The answer to that is that low rates enable the economy to grow, high rates make it contract. So why not leave rates high? The answer to that is that pay rise demands will increase c/f 1970's. Over the decades our economists and pundits either at the Treasury or press or....have always got it wrong. So why not let's get rid of them. If we live in a freemarket economy then that is what it should be. So let's have no rate increases, let's see what happens, if a crash occurs fair enough, if a crash doesn't happen then fair enough too. I am fed up with my family and I being encouraged to borrow and buy only to be brought to a shuddering crash by these people. We pay for them getting it wrong so why keep them? Please put this on the web site - all your comments are from people who sound like bankers/economists etc. I am not an economist but well educated to MBA level so am not ignorant just not convinced that these peole will get it right when so far over the years they haven't. Thanks

> Glad I don't have a mortgage though..

Me too. Business also only considers the small picture. Most seem to just want profits today, and who cares about society or carbon emissions?

But savers don't care about the bigger picture either. There are many out there thinking "higher interest rates ... bring it on". Perhaps they are doing us a service, by accident. It is almost taboo to mention the elephant in the room, but serious cuts in industrial output could have all manner of positive effects in the longer term, and an eventual move from consumerism to the next *ism is overdue, I would have thought.

History repeats itself again and again. There's nothing new under the sun, at least not here. Issuing bad loans to people who don't qualify is a long standing tradition among large banks, especially in the US and Asia. In Asia, it's due to nepotism, in the US there is pressure for banks to earn profits by making as many loans as they can. It was California which invented "creative financing." When I first went out there and saw it with my own eyes around 30 years ago, I could hardly believe it. People getting huge mortgages many times their annual salary with the banks as partners gambling on the value of their real estate spiraling upward at 20% annually forever. Had it not been for the strong yen and the huge real estate and stock market bubbles in Japan in the 1980s which made American real estate in Hawaii and California look like giveaways and the fear of Hong Kong instantly turning into a repressive Communist dictatorship when China assumed control, that real estate market would have collapsed long ago. But it survived. There was however a crisis of bad mortgages nationwide in the 1990s and it took a federal government agency to clean it up. A lot of other bad loans didn't including huge loans to third world countries in the tens and hundreds of billions which had to be written off as bad debt. Anyone remember Argentina?

Hedge funds like all other highly leveraged investments is a casino gamble. Conceived of as a way to reduce risk when stocks go down, it becomes an irresistable buy when times look good. It can make ordinary people look very smart...until the bottom suddenly falls out. Two American Nobel prize winners in economics took their investors to the cleaners losing billions for them and the once believed genius Robert Citron lost a couple of billion in equity for a government pension fund in California. He pleaded he was ignorant of the risk of these "structured notes" and I think there was a lawsuit against Merril Lynch. Banker's Trust, a large bank in New York went broke on structured notes.

Eight years ago, when the US economy was flying high and Alan Greenspan was pumping liquidity into the markets like it was going out of style to avoid any consequences of Y2K (anyone remember that?) trouble was brewing on the horizon. Remember his warning about irrational exuberance? Well even he fall for it and there was talk of a new paradyme. Dow 40,000 was just around the corner and by the year 2100 we'd see Dow 1,000,000. But by mid 2000, it was clear the economy was in a slowdown as Greenspan removed all the liquidity he'd added. European economists said Europe would not be affected by an American economic recession. Hah, the old truism when America catches cold the rest of the world catches pneumonia proved itself once again. By historic standards, the American recession was shallow and short but it was ancient history before Europe's economy started stirring back to life.

China is going to get a lesson in Americanomics. The huge American federal debt is being financed to the tune of one trillion dollars by China. What will the US do? Either recession which will crash a lot of export driven economies like China's or inflation which will wipe out the value of US debt. This often happens. We used to say the government printing presses worked around the clock printing money but there aren't enough printing presses in the world to print enough this time and it's all done electronically in the blink of an eye. The real value of China's debt along with a lot of other US debt will be halved, maybe even halved again. So will hte value of US currency. The worst is when we have both inflation and recession at the same time as we did during the 1970s, we called it "stagflation."

Where do you not want to be when inflation hits? US fixed long term debt (bonds), US currency, the stock market (except for gold stocks.) Where do you want to be? Real assets like collectable art, gold, and eventually if you can survive it, real estate. (Right now US real estate is a bargain.) If you can hold on to a job through the turmoil, a low fixed rate 30 year mortgage will also prove very desirable.

Another thought - the central banks warning us about the dangers of binging on credit is laughable. They lowered interest rates in the first place to create a consumption fuelled boom in the hope of staving off a recession - Keynesian economics fuelled by debt as one might say. And they would have continued to do this if China could have supplied consumer goods faster than the rate of increase in money supply. One side of the world consumes and has debt, the other makes things and has currency surplus. Who will weather the forthcoming storm best, one wonders.

On a £100k mortgage a 25 point int rate increase amounts to c£250 pa or £20 per month ie one less visit to the pub or one less takeaway for 2 per monthn etc etc.
People can easily cut down on discretionary/frothy/lifestyle spending if they have a mind to-but some won't of course and will slip deeper into debt.
How many would want to go back and face 15%+ int rates as has happened twice in my life.

This won't be " '88-'92 all over again" as Dave H has written, it will be more like 1929.
The worst is definitely yet to come from the collapse of these world-wide asset 'bubbles'.

Mark 2.02pm - best observations I've seen posted on any site.
Greenspan pumping liquidity and prospect of stagflation - agree entirely.

just off to cut my throat
see you later

A bit from a person whose job is to lend to B+ to BB+ (if I'm lucky;) companies in Europe (including CIS) for alarge conservative bank. This means holding these assets on our books and being there (seen it) in both good times an nasty ones for this, rusky, but most lively and energetic sector of the market. Althoug not a thing that a lot of people in the finance will say, a crunch is just what the system needs. Reasons - multiple. I tend to work in what is refered to (in physical lending) structured (read BIS II SL collateralised) finance. It is the effective structuring of lending in such a way that by application of real/physical collateral (based on its liquidity) and a stringent legal and monitoring structure we can get low pricing for our client with a very reduced risk for the bank (hence its shareholders) It is a bit complicated and time consuming, but it helps both companies and us get to the repayment together and in good shape (actual exposure (loss given default) after proper structuring can fall to as low as 5%). This is not done by what one of my colleagues on CDO/CLO market calls financial wizardry (structuring by parcelling debt up in tranches based on paper collateral and than selling it down), it is done by looking at a flow with a very, very cautios mind (almost receivership like thinking) in order to make certain that such lending is a lot more secure than anything one can achieve with a 50 page covenant plain vanilla lending (not to mention cov-lite, no-covs, or PIK loans going into CDO's/CLO's). Recently, I've had a chat with a head hunter looking for "structured financiers" on the hunt for math wizzards (although we have to do a lot of maths in our assessment, we are not producing incomprehensible equations, with a little work most people can understand them if they have higher maths A levels) that produce junk rated loans which when floated (after tranche allocation) look like at least A rated bonds. After being explained what a true conservative thinking structured finance is (this is following Basel II regulations on SL), his eyes glazed over and his comment can be summarized as, "but I can get a whizz kid out of the Old-boys uni get thim to trump up a model and get all this lending to companies without your collateral management systems, your in-depth knowledge of the customers&markets, your time consuming checks and balances, your extansive legal and physical due diligence, etc.....you don't need that today! You just need someone to repackage it and sell it to a hedge fund"...So such "financers" tend to lend to companies at unsustainable pricing, too large amounts (multiples of TO if you belive it!), pack it, without knowing who they are lending too or how the underlying collateral will act. This has led to a true binge in the marekt with some borrowers not fully made awware by such financiers of all the risks (such as base rate movements, etc). This will bite,it wil hurt. Who knows who will (me included) keep their jobs and who will not. But, please let it burst, let the damadge happen and we can go back to normal life. That will lead to more sustainable employment, returns, management of ressources, and, yes, your pension return (not to mention that that house you want might be back within normal prices and within your reach).........and if you are asking who to invest in....try some of the conservative banks still doing their job properly...also don't let your self be misguided by a financier telling you there are no limits and pricing will be so low you will not see it on the P&L for your future lending.....take my word and find yourself a true lender that will guide you, rather than just go for a quick buck.

Until a few months ago we had incessant adverts on satellite TV persuading everyone to borrow from nice people like Ocean Finance, even if your credit rating was bad. These adverts have now totally vanished, does the UK have its own sub-prime disaster waiting in the wings? I used to work in banking in more restrained times, current bank staff have only had to deal with the good times, they have not experience of a more difficult environment.

The question is where does all the debt come from? Much is written about the sources of private equity funds - pension funds, oil-rich states, wealthy individuals etc. But where do the banks get the money which is used for the debt element of these deals? Retail clients have minimal savings compared to the size of their mortgages, companies are almost always net borrowers and the UK government is in debt and taking on more debt all the time. Where does the cash come from? The only sources I can think of are pension funds again or the Asian states who run a trade surplus. Or perhaps the borrowing is circular between banks with no 'real' cash to underpin it. Any answers gratefully appreciated.

Hi John your answer is simply that the Fed has been printing money like crazy since 911 which makes the dollar drop in value and all other currencies expensive. The other countries, not wanting their exchange rate to too high also print money. Add that to "fractional" banking, which you questioned in the sentence ".. between banks with no 'real' cash to underpin it" plus some very clever hedge fund activity and you have Zimbabwe's economy being played out on a global scale.
Interest rates ,even now, are still below the real rate of inflation. This makes saving uneconomic, but taking out loans to buy assets in an ever decreasing value currency the only way to stay ahead.
Hence assets, from houses to M&A to art are inflating very rapidly.
I wouldn’t expect our chancellor to know about economics, socialists never do, it is a defining characteristic, but it is a bit of a surprise the Americans fell for it.

Just remind me....are we actually forced to borrow....i mean really made to?

Some bright spark will probably say that effectively we are for mortgages.

Any thing else is optional...as is borrowing more than one can afford to pay back. And yes, if you borrow on a variable rate you should consider what will happen if rates go up.

Just live within your means and learn to manage your finances.

I am also interested in all these people who have no mortgages. is that paid off? living with parents? or renting....renting is storing up trouble for reitrement when your income goes down. more self inflicted pain

PFI, PPP, or what ever you want to call it has ensured that every single person in Britain is inhock to thousands of pounds each, over the next 25 years, thanks to Gordon Browns Venture equity dealings in the Public Sector. The TUBE is but the tip of the ice berg, even Richard Branson is moving into the stock market, after hits on his Virgin Empire by these people.Interest rates on the never never. its going to be a massacre at some time and the stock markets are goinf to be the loosers. AND the share holders.Also the fact Brown is going to tax Endowment Policies with profits now that will really hurt.