大象传媒

The UK really needs to get rid of these people.

Start increasing the reserve ratios and simultaneously print replacement notes to stave off the resulting deflation.

Then kick the leeches out.

I think Robert Peston's article is spot on. But this being the case what would make banks lend again? The amount of bad debt will increase as credit retracts; this will lead to probably more punitive rates of lending; which will lead to more bad debt, hoovering up money from the economy. We'll have (I suspect have already) a debt cycle.

Given the situation with Lehman Brothers there are a couple of tentative conclusions to draw. The banks aren't focused on expansion: they're focused on survival. (Getting into a bunker and remaining a going concern.) The other conclusion is that investors are becoming averse to assisting even large banks and if that is the case the credit noose will keep on tightening.

No one's answered my question about why this whole process isn't inevitable given the fractional reserve banking system? Or what can re-start the lending processs?

(Please don't say banks coming clean about their balance sheets - they don't know what the state of their balance sheet is or will be and there's a chance that some are already insolvent: at this early stage! And it would probably lead to a crash.)

Hi Robert, despite the drop in the IR in the US the 30yr fixed rate remains above 5.8%.

The logical follow on to this article would be to state that if banks aren't lending then they wont need as many employees.

If want an illustartion about how nervous lenders are, look at Nationwide's personal loan rates:-

拢1,000 - 拢2,999 17.4%
拢3,000 - 拢4,999 15.9%
拢5,000 - 拢7,499 10.9%
拢7,500 - 拢14,999 8.9%
拢15,000 - 拢25,000 9.9%

Note how the rate goes UP above 拢15,000 - think they're trying to tell us something ?

I think all we need to get our heads around is the fact lending standards were terrible for 5 or 6 years and now we're in a mess not seen possibly ever. 95, 100, 100%+ mortgages should never have existed.

We have to take the pain sooner or later and the more people try and pump the bubble up again, the more painful it will be.

The worry really is how big the recession will be. This is why banks don't want to lend - they know a lot of people are about to lose their ability to pay the money back.

Shame they didn't think of it 3 or 4 years ago but then their bonus was calling...

Suddenly we find that the whole economic system is a disaster waiting to happen. I suppose we can't complain. We reaped the benefits of globalisation, we got drunk on debt, now comes the hangover. Does anyone remember how to create useful things?

2. At 8:16pm on 09 Sep 2008, GrouchoMarxist1 wrote:

"No one's answered my question about why this whole process isn't inevitable given the fractional reserve banking system?"

It *is* inevitable. Debt is exponential and must always consume the credit which is created at the same time and must always leave additional interest to be paid.

e.g.
5% interest per year is (1+0.05)^N, where N is the number of years.

The money on the other hand neither increases nor decreases by itself, but simply moves from one person to another.

The conventional (300 year old) solution is to create new money and new debts to pay off the old debts. That is, to persuade people to indebt themselves further to the banks. Nice little earner there when you have the national government enslaving the population to your profits. And you thought the government was there to serve the people... How naive.

Of course, in the real world... The one with physical limits, eventually all exponential functions must hit one of those limits. For example, the number of people who are able to pay the interest on loans. Debt is exponential, to pay the old loans and interest, the money supply must expand exponentially, inflation must expand exponentially, the number of people with debt must expand exponentially, and eventually... They are offering debt to people with No Income, No Job, no Assets. That's when the system hits the wall.

Gordon Brown is a fool if he doesn't understand this. I suspect he understands perfectly.

There is another solution. Fundamental reform of the monetary system. Full Reserve Banking.

Please read Ludwig Von Mises "The Theory of Money and Credit", you'll find that this has all been well understood since around 1912.

Suddenly market price no longer equates with market value as far as the banks arte concerned

A reversal from the times when deposit free purchasers with 100-120%mortage offers were allowed to inflate market prices and incidentaly the level of general equity on which securitized loans could be advanced .

Had it not been for the usa subprime colapse where would the banks be now ....150% plus rolled interest payment mortgages to the self certified inhabitants of lunatic asylums

The jolly roger bone us culture has filletted itself and its customers reducing all to jellyfish floating in a sea of debt

Banks reluctant to lend?

Horse, stable door, bolted.

Everyone keeps talking about a return to normality in lending, and the "difficulty" in getting mortgages. The fact is that the last 6-8 years have been the OPPOSITE of normal, and we are RETURNING to normality, i.e have a half decent deposit, prove your income and borrow only a sensible multiple of it, actually pay it back rather than do interest only, that sort of thing...

Bankers ignoring these tried and tested ways of minimising risk in pursuit of vast bonuses (For once I agree with Darling today on that point) led us in to this mess in the first place. I welcome a reluctance to lend, long may it continue.

Banks will not lend money they cannot get.

The problem is that they are still living under the delusion that the insane ways of doing business in the past decade will return, and will be allowed to return by the regulators. They will not (in my opinion) and as soon as the Banks understand this they will be in business again.

Banks must borrow money to lend so they had better put up savings rates until they get the money they need to lend that is what banking is all about. The Building Societies have been doing this (to a small extent) to attract savers funds now the Banks must also do so. This is what the market is about.

(This will also apply to the Federal Reserve who will find that they will have to pay substantially more for future bond issues if they want to get them away.)

This is not optional; it is the imperative of the changed reality and the sooner the Banks understand this the sooner some kind of normality will return.

Hmm, #8, so full-reserve banking is the answer?

Why would a bank pay interest on deposits that it was not allowed to lend? And where would a person requiring funds for their business go to get those funds? The fact is that lending and borrowing money is a genuinely useful economic function that no other institution than banks can adequately fill. It allows more businesses to flourish, thus improving the REAL economy.

The system isn't perfect as it stands, and more regulation may be necessary, but a return to a pre-industrial system isn't the answer.

It's all quite simple. The banks are commercial enterprises. They need to show a profit. They have fixed costs; buildings and wages. They have variable costs; cost of borrowing from other banks and also the cost of some defaults.
Their input is related to the amount of loans outstanding and at what rate they are lending at.

To show a profit they either need to keep their costs down, lend more or keep the rates up.
I suspect they have kept their costs down as much as they can without doing as fireyshandy pointed out and start sacking staff.
They will be real careful about who they lend to, that will limit the amount of new lending.
That leaves keeping the rates up so that they can show a profit.

Meanwhile the politicians struggle to increase the size of the pond that the bankers are swimming in. Why do you think the EU has been expanding? So that we can all go to more holiday destinations? Nope. It's being done so that more and more people (in the new EU states)can get a taste of debt and take loans out from banks.
Banks need expansion if the system is to function.

I trust this latest data from the Bank will help convince the Government of the reckless futility of providing further taxpayer support for the mortgage market.

The plain fact is that we're finally experiencing the long overdue correction to what was clearly a massively inflated housing market. The best thing the Government can do is stand back and let the market return to a more affordable level.

It's called reality, if you are not a good bet you can't have the money. Ah, forgot to mention, they also do not have the money, so it is all somewhat difficult. The banks are busy trying to fill their coffers and attract funds, and are being extra cautious about whom they lend to. It will not go away overnight and is long overdue. It is how business used to be done, and now is as good a time as any to return to good practice. Boring, but safe.

This housing market is a dying swan.

I think that all of you are right on target.

For all of the reasons posted above, we have
a classic liquidity trap in progress. It doesn't
matter how much money is provided to banks
if they are unwilling to lend.

It can't really end until underlying assets are
repriced by the market.

It would be better for everyone if we just realized
this from the get-go, instead of just waiting until
more and more people and businesses go under.

In response to 16, no, not dying just resting, re evaluating, and taking serious stock. Bricks and mortar are not to be taken lightly, they provide a space for us all to express ourselves and that iswhy we all want to own a piece of it.

There is absolutely no reason why anyone should try to interfere with the debt bubble correction. Hands off! Remember, money is supposed to represent economic achievement, in other words work! If you want infinite funding again, go and rob banks. The profit is high, and the risk... ...well just ignore it like you did before...

Post no. 8 'true-liberal'
has just described the whole situation so succinctly that I wished I had written it myself (but alas I'm not so eloquent).

I'm an engineer and I like to think I understand numbers well i.e. numbers relating to mathematical equations, functions and mathematical relationships ....and 'true-liberal' is 100% correct as far as his description of money as debt, interest and it's exponential tendancy is concerned.
And as an engineer I also understand physical limits. This is why globalisation is so important with regard to enslaving the whole planet to the banks and debt.

Given Alistair Darling's Marxist/Trotskyist leanings in his earlier life (ref. Private Eye 1218) and Gordon Brown's far left leaning background, I too suspect that they fully understand the dominance and control that the western banking system has imposed on the UK and US governments over the last 150 years.

Unfortunately, certain (brave/foolish) prominent public figures have paid the price of assasination for just proposing 100% reserve banking for e.g. Abraham Lincoln and John F Kennedy!

Those of you that cannot understand why the US and UK governments are so ready to bail out the banks just don't get it!

The COMPLIANT are well rewarded AFTER their tenures in office (for e.g. 'six houses' Blair and his GBP5M pa appointment with JP Morgan after only 9 months from leaving office).

So the 'banks won't lend to us'. No - the banks won't lend to people who they think are likely not to repay a loan. About time sanity returned. There is still considerable money available for loans. The banks are still sending unsolicited letters out offering loans.

Who is going to pay for the mess created by a very inadvisable banking sector policy of lending to people who are now going to very predictably fail to repay the ill thought out loans made in the past few years? Guess who - the people who can afford to repay loans - the ones who can't pay their dues won't be doing it and the loss has to be recovered from somewhere. Those still standing will also have to pay for those who default.

House prices fall. Well it's called market adjustment, house prices shouldn't be as high as they have been, they have been pushed up by funny money. They may well overshoot in the slump spreading misery to others that do not deserve it. That is, unfortunately, not unusual.

Instead of focusing on so called 'recovery' in loan lending levels and housing price 'recovery' more effort should be given to asking for the penalising of the UK banking sector for what looks like an effective cartel and the recent deliberate dodgey mortgage sales policy which looks to involve gross mis-selling.

The Banks are in a better position to judge the short term future vulnerbility of a borrower and the soundness of a house market than the borrower (who doesn't have acces to the same level of information). The banks have clearly been light on their duty to make risk assessment. A borrower has considerable responsibility, but they shouldn't expect to be suckered by a Bank.

I really cannot see how a 125% mortgage should ever have been sold by a bank, let alone aggressively marketed. Northen Rock grew in size by selling dodgey loans. If it had had a sensible sales policy it would have remained small. And our Chancellor has his mortgage with that bunch of clowns, sounds like a man with good judgement, just fit for running our economy!

The question is - What will stop this mess happening again? The banks? The very people who have encouraged this mess. The Government? - Dream on - they want people to have the illusion of wealth, it makes for a happy voter. The Regulator - If you have ever dealt with them they are useless, toothless, their solutions even with very basic problems take years.

It is about time that people really, and I mean really, woke up to the fact that the Banks do not exist without selling debt, that is their only business.

In other words the Banks in their usual inimitable fashion go too far again, only in the opposite direction this time. They have an outstanding ability to push the limits far too far when they see what seems like a brilliant idea i.e CDO's et al and vastly overcompensate when the house of cards comes crashing down around their ears.
We have been here before in my lifetime and every time it boils down to the same basic reasons - Greed tempting otherwise eminently sensible individuals and organisations to wander from their core business values and try their luck in ventures which they can seemingly make vast quantities of dosh without really having to work for it.

Who ends up bailing them out - Yep their customers and shareholders, oh, and this time the taxpayer - whilst the cowboys, sorry, dealers and their bosses skip over the hills and far away to some very pleasant tropical island or whatever.

All everyone wants is for financial organisations to behave in a conservative and responsible way not like they are trying to break the bank at a casino. Will they ever learn, sadly, probably not.

A slight change of tack here ... I am outraged to see that the balanced and objective reputation of 大象传媒 reporting seems to have descended into a circus with the "tabloid" style report on Graham Beale's statement regarding peak to trough house price falls. He actuallly said, " ...could be as high as 25%."
I was therefore amazed to see the headline grabbing report by Robert Peston stating,
"When he made his prediction that the peak-to-trough fall in house prices over the current cycle would be 25 per cent ...".
Get a grip - the 大象传媒 should not take a worst case statement and misrepresent it (via headline TV news) as a central projection. It is sensationalist, inaccurate and totally unhelpful in the context of an economic climate where sentiment is a strong driver of consumer behaviour.

The panic to buy houses with an ATM on the side is over

The banks have removed them from the homes of potential ram raiders of the lost arc with 80 -120% mortgages

Wthout the extra liquidity it provided ,potential new purchasers have no hope of reammortising debt in a declining market should interest rates rise or jobs be lost

For the ATM to be reinstalled house prices will have to halve


Which they probably will ,optimisticaly speaking

Anyone who thinks that the banks are not shedding staff is sadly mistaken! They are not daft enough to announce large scale redundancies which would alert everyone to their activities. Instead, it is more "death by a thousand cuts" - removing small numbers here and there, natural wasteage, managing out below average performers etc etc.

If the banks are doing less business, then rest assured, they need fewer people to do it!

It's times like this that my offset mortgage (overpaid) coupled with savings suddenly looks really good. My mortgage lender is still willing to lend me back the overpayment plus a bit more (so I can effectively get a loan at my mortgage rate with minimal paperwork), and the savings balance reduces the effect of interest rate rises. And it tracks the Bank of England base rate, so no failing to drop the rate when the base rate goes down.

Of course, I probably couldn't get an equivalent deal now, so I'm not planning on moving house at the moment.

"The shortage of credit will persist, because banks only want to lend to a minority of borrowers who are rock solid"

Surely, in rational money markets, that is how it should be.

Pre-credit crunch, the Banks thought that they could make risky loans - so long as they charged a higher interest rate to cover the additional risk. The flaw in this nutty policy is that once a loan is made the terms of the deal are fixed, but the risk can (and will) change over time. What is more if the economy becomes less benign (which, as night follows day, it surely will) the risks on ALL loans will rise in concert. That is the cause of the credit crunch in a nutshell.

The Credit Crunch is the day after the night before. It was one hell of a party while it lasted, but now many of us are left with empty wallets and stonking hangovers.

We all (individuals, companies and Government) have to adapt to the new reality (called living within your means). Morosely hankering after the good old days of hyper-house inflation, achieves nothing useful.

The Government should not be doing anything to encourage financial irresponsibility.

The only way to restart the UK economy is for Employers to give their Staff fair pay rises.

If employees receive below Inflation pay rises then they cannot buy goods in the shops, pay for work to be done or buy Houses.

The Government could kick start a recovery by paying a fair Inflation rise to the Public Sector.

Of course, this would only cost a couple of hundred million.

They would rather spend Billions on propping up parts of the economy directly !

Now, one other question why are MP's worth more than other Public Sector employee's ?

MP's have hardly been successful with the economy over the last few years so why should they have special treatment ?

Come on Mr Brown don't be remembered as the Pinch penny Minister !

Perhaps it would help if the banks offered a decent return to savers. At a time when banks are desperate for funds my bank recently lowered the rate on my savings account. The press is always commenting on borrowers problems, but rarely mention savers. how about a rise in rates to encourage saving. It was low rates that got us into this mess so why is everyone clamouring for more of the same....do they never learn?

An interesting and by and large accurate analysis of what is going on. The issue that infuriates me is that the Government is now acting like it is a hapless victim of the world markets and is having to bail out the large financial institutions with taxpayers money.

Fundamentally, the Government should have intervened a decade ago to regulate bank lending practices to stop 125% mortgages and Ninja loans / liar loans and such like.

Instead it sat back and allowed irresponsible lending to take place - fuelling the credit crises that will put our economy in a tail spin for some time to come.

Their response which involves bring forward spending plans to build even more homes at a time of no demand seems ludicrous. As does allowing local councils and other agencies to buy equity stakes in distressed mortgage properties because it is effectively buying into the housing market at the peak!

What we actually need is a long-term (20 year) view of events and policy choices to match, not short term finger-in-the-dyke fixes.

I had to check the date of this article as it appears not so much to be "yesterday's news" but at least 3 months out of date and appears to be heavily influenced by some bloke Robert met in a pub.

If Mr Peston cared to undertake the most basic of research he would have found that mortgage rates to new borrrowers started to soften from early July and in the past two weeks have taken a significant tumble, as bank CEOs have returned to their desks from their credit crunch week in Bognor Regis.

As at today, it is currently perfectly possible to pick up a tracker, variable or indeed a 2 year fix loan at sub 5%. The attendant fees have also softened.

Sure there is a focus on a decent sized deposit and increased margins, but again this is slightly easing.

No doubt the end of the world is nigh for Robert, but then for him it it always is.

We must remember that once this is all over and things begin to stabilise that the Germans will still have Siemens, VW, Porsche etc and that other countries will also still have their important global manufacturers whereas the UK will still have nothing of note in the manufacturing sector other than a couple of niche companies.

Indeed we could end up with less than nothing given the enthusiasm this industrially treacherous, short termist and visionless Govt maintains for encouraging foreign takeovers of strategically important UK companies.

Spot on Robert. The Banks have got to sit on their hands as Balance Sheets have to be repaired and the true exposure to toxic securities is probably still not known. As always the Banks over react and we go from feast to famine.

However we have been here before, in different guises, it's just the mix that's different. The real danger is that Prudence, now in No.10, decides to save his backside by letting the dogs of "inflation busting pay rises" loose. Then we will be in real trouble. Read the history of the 70's for scenarios that could happen.

鈥淭hus last July the average monthly interest rate for two-year fixed rate mortgages with a requirement for a 25 per cent deposit was 6.07 per cent. In August the same loan was priced at 6.08 per cent.鈥�

As most of UK mortgages are on fixed rates, is this not an indictment on the supposed independence of the BoE to set its own interest rates, as the mythical benefit of being out of the Eurozone.

So let鈥檚 be clear then about the *net* effect of the BoE鈥檚 interest rates reductions on the economy over the past year or so:

1. As far as reducing the cost of the average fixed rate mortgage, the answer is NIL points, or no effect whatsoever (e.g. Preston鈥檚 quote above)
2. As far as stoking up inflation, every interest rate reduction has a knock on effect on the pound鈥檚 exchange rate against other major currencies. Because the UK is a net importer, the effect is obviously a net negative.
3. As an indirect effect of lower interest rates, the devaluation of the pound was hailed as a shot in the arm for British manufacturing through increased exports, yet we hear that manufacturing is also in recession.

Can Robert Preston perhaps attempt to quantify these factors in a future blog as it seems to me that BoE interest rate reductions have had precisely the opposite effect to that intended, i.e. they have just fuelled inflation, particularly on food an energy, most of which is imported.

Its not just the lack of money to lend, its the lack of affordability to borrow too.

The average person, earning the average wage, has no chance of affording the average house price today. A reduction of 25% over the next two years is a very conservative estimate in my humble opinion, and its more likely to be 40% over the next two years to make borrowing and lending more sustainable.

The question we should be asking is 鈥渉ow much debt do you want to be in? and for how long do you want to be in it?鈥�

The answer then comes down to, retaining responsible lending and borrowing and allow prices to fall to a more realistic level, or return to irresponsible lending and borrowing to prevent further falls.

Now that we haven鈥檛 all been sucked into a man made black hole, it鈥檚 time to return to worrying about money!

The benefit of 100pc (or >100pc) mortgages was that it allowed first time buyers to get onto the housing ladder without having had the opportunity to save for a deposit. I took a (now infamous) Northern Rock Together mortgage in 2003 which allowed me to purchase a property immediately. My income ratio is around 1.5pc and my property has increased in value to the point where it would need to fall by 50% before I have negative equity. I am approaching the end of my term and, as with all 鈥済ood鈥� Northern Rock customers, I鈥檒l be leaving asap. I can comfortably obtain another loan, and have several offers. The issue is not the lending of 100pc mortgages (which was an enormous help to me), it is the ridiculous income multiples that were employed as banks relaxed their lending criteria to allow ever more risky loans on the books to increase their market share. That and the ridiculous and unrealistic (greedy) aspirations of many borrowers.

Banks would not have been able to sell these products if there was no consumer appetite. Unfortunately, the appetite for 4, 5, 6x income multiples was misguided and will now lead to an enormous crash!

random-poster in #35

raised the question of affordability:

I believe that it is sensible to argue that the affordability test for a family home is such a price that under all circumstances can be afforded by the average working man on a single income such that there is sufficient to pay for reasonable costs of keeping a minimum family of a wife and child.

(You can substitute 'woman' for 'man' and 'husband' for 'wife' above, but the argument is that for a stable society, families must be affordable.)

This situation has not prevailed for the last decade or more.

My guess is that a ratio of three and a half times income for the ratio of house price to income will prove to be about right.

We cannot sustain a situation where only the very rich and the very poor (through social benefits) can afford children - to do so is to wilfully decide on the destruction of the Nation.

My solution is to limit future bank mortgage lending security to 3.5 times the borrowers income. If lending above this level is unsecured the bank will most probably not lend. This will make sure that lenders check the income of borrowers properly and will put a cap on reckless lending and borrowing and hence house prices.

The downside will be prolonged paralysis in the housing market and considerable negative equity, but we have this already!

The banks have reduced mortagage lending because now they have to tolerate more of the risk themselves, the fact that people cannot repay their loans has become an issue to them. Cue outcry for taxpayer money to prop up prices where they are.

Of course there is a much easier answer to getting the market moving again than risking billions of pounds taxpayers money. Simon Embley of LSL Property Services has stated that prices need to fall by 25% in cash terms this year and further next for transactions to return to normal volumes. Let it happen and legislate to ensure we don't get into this mess agin.

Nice to see supercalmdown back on form in post 28.

After all a little bit of inflation will soon solve everyone's debt problems! Obviously excluding all of us that have saved diligently and borrowed sensibly or those with savings and no debts.

I am amazed that anyone is at all surprised by the banks actions. History has shown us that every few years the so called intelligent bankers find a new way to lose billions of investors money. They then come back with another hairbrained idea that "makes" billions of profits and pays them millions in bonuses before it all goes wrong again and costs us all much more.

The current actions of the banks will be manna from heaven to those who will spin out analogies of banks being someone who will lend you an umbrella when it is sunny and want it back when it rains.

In a previous post I described CDO's and their like as little different than the LMX spiral but much much bigger. We are all in for a very rough ride.

Can the last sane person in the country please turn out the lights before they go?

Banks don't want to lend money to risky borrowers from their own balance sheets. But if they can securitize them, take a profit and pass on the risk, why not?

Investors don't want to buy mortgages secured on risky assets. But if they are government guaranteed, but have higher returns than government bonds, why not?

This article doesn't explain to me why a government guarantee on mortgage securities won't encourage the banks to lend more money, at greater risk, provided the terms are right for them. (Which almost certainly means wrong for us, the taxpayers.)

Mangetout, 31. Absolutely right.

Mr. Peston is also wrong about his central point, that banks would not use measures designed to increase liquidity to lend more. Banks have vastly scaled back their lending in many areas of their business, not because of a lack of decent, credit-worthy opportunities but becasue of a lack of liquidity.

We should also not be surprised - unpalateable though it might be - that the banks are attempting to improve their margins to offset this shortfall in volumes. It is the only sane thing for them to do.

I'm afraid this is just plain sloppy. As is the way he insists on continuing to translate "could be as high as 25%" as "will be 25%".

I think as you've pointed out before Robert, higher deposits for mortgages tell us what we need to know about what banks really feel about the future direction of the housing market. It's good to see some sanity return to their lending criteria. Painful? Yes, but long overdue. A 25 percent reduction? Give it another year and this may seem a tad optimistic. We'll see.

But don鈥檛 banks already have this liquidity, drawn from the taxpayer in the form of the secret loans they took from the BOE? The same facility which Northern Rock was so vilified for? It was my understanding that other financial institutions subsequently took similar loans, but since R Peston didn鈥檛 have a personal grudge against their Chief Executive, it wasn鈥檛 deemed newsworthy by the 大象传媒? In addition, they had access to the European Central Bank, as they had registered assets abroad. A trick NR missed by not registering its Southern Ireland operation. A classic example of third division managers trying to control a Premiership operation. As was!

Again, the risk of lending >80pc LTV is only borne by the bank if they have been irresponsible, or lax, with their risk analysis and lent at ridiculous Income Multiples. If someone can comfortably afford the repayments, and wants a house as a home not an asset, then they don鈥檛 care about negative equity and could borrow 150pc LTV comfortably at 2 or 3x Income Multiples, with very low risk of default. The return to 75pc LTV and huge deposits is because banks continue to loan, albeit at a slower rate, to people at 5 or 6x their salary because houses are STILL too expensive.

I think no one is talking about the other half of the story so I'm going to say it.

The crunch happened because banks AND people got greedy. We can blame the greedy banks for offering the loans but the fact is we need to take responsability for borrowing ourselves to the hilt and leaving no room for anything to go wrong.

The banks are moving back to 'normality' in terms of lending but people need to make the same shift, start living within their means and saving for when times like this hit.

The problem with the banks is that they refuse to be open and honest about their plight. Believeing the man/woman on the street hasn't a clue in understanding the complexities involved. Wrong!

Joe Pubic has shown a phenominal ability to put gobbledegook into lucid english.

The banks a;lways preach housekeeping but allowed their own houses to become so unstable they are now in effect screwing the government for a safety net.

The problem with eth banks is that they have so much off balance sheet liabilities they are too frightened to do anything except hope they can write it down year on year or when they are really up the creek write some back, as per RBS. Such activity could not be allowed without the nod form the regulatopry authorities (a group of individuals who have eitehr never experienced an economic downturn or are - as the records have shown - plain incompetant) and HM Treasury

Banks also refuse to amend their margins which in an economic down turn any normal business would have to do, and they appear oblivious to selling assets to pay for the damage they self inflicted.

The irony is that hey have no compunction in lecturing everyone on how to run their finances and ther respective businesses and spinning the line that all this is not their fault!!!

It isn't helped by a government whos economic track record was again pure spin and haven't a hope in hell of getting us out of this rut inless it borrows so much future generations might as well chuck in the towel now simply because the cost of financing that debt will take away any quality of life.

So we taxpayers are left between a rock and a hard place, with heart bleeding banks kidding us there is nothing they can do, not true; and a Government void of any ideas and refusing to cut back on demented and wasteful spending.

Is there a silver lining? Yes most certainly, teh key will be to pressurise do as the would expect any party they have lent to, and that is come clean, stop teh bull and effect management change so the madness of the past does not repeat itself.

How is it that in any self respecting business has suffered a major loss through incompetant management one or a group of top men are booted out. Yet with banks those who head the board that totally lost the plot, through greed, short sightedness and incompetance; are more likely to be secure in their jobs than anyone else.

It take nothing to be a banker just good common sense and they certainlyt do not justify the salaries, guaranteed bonuses and pensions being paid today.

There need to be a major clear out but perhaps if they are all in the same lodge that is going to be pretty hard. The US will come out of this mess because they know what must be done.

We in the UK unfortunatley are deluding ourselves on our chances of success simply because the banks have abused the system through classic mismanagement and show no signs of doing the right thing. Until they do that i.e be honest their reputation will sink still further as will their profits.

None of this is the taxpayers fault and falt can be laid fairly and squarely on our banks both clearing and investment, together with the treasury under its previous chancellor the previous prime minister, who was first lord of the Treasury and regulators who have no experience of the real world or business.

The days of big = beautiful are now officially dead and we need to get back to street level and common sense. That is not to say I am expousing a little Englander approach but I am saying that until heads roll and people see their is no benefits paid fopr failure we will all stay up the creek without a paddle.

Getting out of this mess isn't rocket science but we must not believe the banks are incapable of sorting out themselves without state and taxpayers help. They can, they must be made to and we must accept what has happened can not repeat itself.

Surely the simplest way for the banks to recover from this is to sell assets and lose staff, as every other sector will be forced to do. The only difference is the other sectors will be doing it because of the banks. The banks have no one to blame but themselves!

Someone else is always to blame.

I recon its the voters fault for believing what reporters say.

#44. Absolutely! I said exactly the same thing in #36!

These products appeared to fill a vacuum, created by consumers requiring a greater debt facility.

Whether due to neccessity or greed, Joe Public was eager to snap up 125pc of the value of his property. The banks should have employed greater controls, certainly, but we are as much to blame!

House prices rose as people realised that others were willing to artificially increase the value of a house by 25pc because the cash was available. Now that it isn't, the prices will crash.

I would be in favour of migration towards a full reserve (Islamic style) banking system for one reason alone.

It would take politicians, via 'monetary policy' completely out of the loop.

That alone is enough to convince this poster.

Had it not been for the NINJA[No Income No Job or Accounts ]and sub prime in usa leading to the collapse of mortgage banking, then the next phase in the plan of the satirical geniasses running the politico/financial cystem were JIHADI mortgages for those living on park benches

Jobless
Incomeless
Homeless
Accountless
Depositless
Illegal

A plan which will now reqiure the help of existing governments banks and future taxpayers [ yet to be born]
The game is forever up for the sodukomiterrorists and the fictional reverse banking that got them boneases

However

Without their help the housing ladder will become a housing snake

Er, Nationwide is now offering 90% LTV at 6.28% with low fee (5.73% for 60% LTV with same fee). Something does not compute here - if they are so worried about prices why are they offering this competitive rate for high LTV?

If you want to borrow 95% the interest rate raises to 7.98% (Halifax)

Also - to borrow 95%. They add nearly 5 grand in higher lending charges and a 1 grand arrangement fee!

Could it simply be that banks have worked out that property is wildly over-priced (and a very dodgy risk).

how is this news

this was always going to be the problem as soon as house prices STARTED to fall.

And given how much prices had gone up and how unaffordable they had become they had to fall.

As soon as they started to fall then banks would stop lending 110% mortgages and then 100% mortgages and the 95% mortgages and so on.

This would then become a self fulfilling prophecy in that if mortgages became more difficult to get then prices would fall and so mortgages would get more difficult to get and so on and so forth.

I have been warning anyone who has an ear to listen for the last 3 to 4 years what was going to happen. Some listened.

I didn't forsee the actual credit crunch as I was unaware of how the markets actually worked on short term finance.

However the spiralling downwards of house prices because of banks being reluctant to lend in a falling market and hence causing the market to fall was surely predictable.

It was going to happen whether started by sub prime in USA or some other way. The sitiuation was inevitable given unaffordability. Our Government has been lucky that they have been able to blame global factors for something that was going to happen here, come what may

What I find speechlessly unbeleivable is that this could not have been seen by the banks leaders or our political leaders (they could have outlawed 100% plus mortgages for a start)

The cynic in me actually beleives that GB could see it coming and did nothing to try and stop it ( indeed he tried to help it continue ) because to have admitted that there was a major problem would have meant he would not have got into no 10.

This would also explain why towards the end he was almost desperate for TB to go as he was running out of time before the disaster struck.

Any truth in this, and I beleive there is then what a damning indictment.

The question is was GB incompetent in not seeing this coming or did he choose to prolong the myth in order to get his name in history.

12. At 9:59pm on 09 Sep 2008, PorterRockwell wrote:

"Hmm, #8, so full-reserve banking is the answer?

Why would a bank pay interest on deposits that it was not allowed to lend? And where would a person requiring funds for their business go to get those funds? "


Um... Go read up on Full Reserve Banking.


At the moment, *Fractional* Reserve Banking says that you can have your cake, and eat it as well:

You can put your money into a bank account, you can gain interest on it and you can take it out at any point, even though it has been lent to someone else......

Haven't any of you thought about that? How can you earn interest on money which has been loaned out to someone, but still gain instant access to it?

It's the fractional reserve component. The banks hold back ... get this... 3% (in the UK) of cash as a reserve and loan out the rest. They don't have your money at all, anything you take out comes out of that 3%...

And if everyone tries to take out their money at the same time? 97% of you will be out of luck... Banks are by definition, insolvent.

On the Other Hand...

In a Full Reserve Banking system, the bank holds on to *all* of the money and loans out the *full* value of it. This means that you don't get access to the money in your account. It's either loaned out to someone earning interest for a fixed period OR it's in an instant access account with no interest.

You don't get to have your cake AND eat it as well, you either get interest payments OR instant access.

This would by the way, also halt inflation and deflation because no money is being created, or destroyed it is simply moving.

No booms, no recessions.

Nationwide

And without asking me what deposit I'll be putting down, they will give me 4.25x my on my own salary.


Oh, I'm a nationwide customer but they never asked me that either, the banks are presently cleaning up after spreading panic, isn't that right Mr Peston ;-)

Alongside the various and many financial aspects of the enormous problem of "The Credit Crunch" being well aired in this blog--- and across many others---- is a kind of shadow issue relating to "Character"

The Government is now busily unpacking a set of ideas about "character" as a newly discovered part of what employers may be looking for in possible employees, over and above paper qualifications (now they are very widely seen as a devalued yardstick of value).

As with most of these ideas the Government seems to latch onto they are either totally crackpot...or simply re-stating the blindingly obvious in a convoluted way..

But in reality it wasn't a disembodied entity called "The Banks" that caused this debacle.

It was real people in Senior management and on the Boards that actually made those decisions, and created the climate in the Financial "services" sector in which those decisions were rewarded.

As they now slope off dragging their suitcases of compensation cash while loudly blaming anyone and everyone but themselves------ I think that indicates where a (large) part of the problem lay---just old-fashioned, lack of any moral or ethical framework----in other words;a lot of people in important positions with poor characters.

Where does the banks reticence to lend get them in the end ? There is a perfect example a few doors from me :-

1. Householder couldn't pay higher mortgage at same time as overtime cut.
2. House repossessed .
3. House for sale 15% below last years value.
4. Still on sale with no interest as according to estate agent 'buyers are waiting for further price falls' and 'can't afford higher deposits'.
5. Bank will have to reduce price even further to sell it .
6. Bank takes a loss as outstanding mortgage already > offer price.

Banks need to be sensible . Indirectly colluding in reducing property values will ultimately hurt them.

Banks cannot lend without property prices first declining to a level[above o level]that would make their mortgage book glaringly insolvent ,hence the mperrors latest transparent fashion accessory....a proposed negative equity stake of up to 30%

Bankers will increasingly derive their bonuses from the ballooning mortgage rates and arrangement fees[t] on the diminishing solvency of remortgageers caused by the financial equivalent of coastal errosion .

Those with 30% mortgages need not worry........till after the 2012 olympics
where Britains success of failure in the silly walk will decide matters .
At which time reposessed houses will be given away free with conflakes costing 拢100,000 per box

Charles Dickens summed up the situation of most of the over indebted UK population: "Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

In the 60s, it was customary for young marrieds-to-be to save a 20% home deposit and then borrow 3x annual income for their first home. How times have changed.