[willhollin]

Originally Posted by SteveC

Here's why it happened.

At the start of New Labour's term in office, one of the first decisions Gordon Brown made as Chancellor was to make the Bank of England responsible for managing interest rates and gave the BoE Governor a target of 2% inflation.

At the same time Gordon legislated a new method for calculating inflation, that ignored property prices.

Indirect tax increases were introduced that gradually eroded people's spending power, with the result that people tended to spend less. This was reflected in a very low inflation rate. In order to 'stimulate' the economy, the BoE reduced interest rates, which should have reduced mortgage repayments and allowed people to spend more. Unfortunately, a shortage of houses meant that people were competing with one another to buy properties and typically offered above the asking price. This caused house prices to rise, but due to the fact that interest were coming down, mortgage payments remained flat.

Although house prices were inflating dramatically, the Chancellor had removed its impact from the inflation calculation and the BoE continued to see a relatively low inflation rtate, allowing them to continue decreasing interest rates, which continued to fuel house prices.
We now had a situation where house prices were increasing by 20 - 30% per annum and money was costing 3%
The Chancellor announced that he had abolished boom and bust and the people, including the bankers believed him.
With boom and bust abolished, people assumed that 3% interest and 20% growth in the value of property was here to stay.
Banks offered people loans of 100 - 125% of the value of properties based on their believe that prices would comtinue to rise. People with existing properties who saw their mortgage repayments going down while their property doubled in value within 5 years were encouraged to release equity in their homes in order to raise cash for cars, holidays, extentions etc.
Low interest rates and increased borrowing fuelled the economy, which continued to grow, without showing any signs of overheating (inflation)

The buy-to-let market was born on the basis that you could borrow 100% of the finance needed, pay back nothing (interest only mortgages), wait 2 years then resell the property with a 40 to 50% profit. Banks sought cheap finance from other banks and bent bover backwards to find customers to lend it to.
Propertyy prices climbed so high that first time buyers were priced completely out of the market.

The whole market was now completely dependant on cheap loans and booming property prices.

Of course, this can only go on for a limited time. With house prices more than doubling in 5 years and with people borrowing more and more money, inflation finally began to edge up and the BoE began slowly to raise interest rates.
Unfortunately a lot of people had borrowed everything they could afford, based on unrealistically low rates of interest. A 1% interest rate rise increased their repayments by 33% on a 3% mortgage. The rate of inflation of house prices started to slow and few people began to default on their loans

The BoE continued to increase rates and house prices prices really started to cool.

At exactly this time, the World heard the expression sub-prime loans for the first time, as America discovered that the Banks had been lending money to huge numbers of people who were unable to bear even the smallest of interest rate rises. As rates increased, an increasing number of people defaulted on their loans. Property prices began to tumble. Loans guarantedd on the basis of high property prices suddenly looked very insecure. Banks began to wonder how much of this bad debt they had on their books. Suddenly banks who'd been willing to lend 100 or 125% of a property's value became far more cautious and refused to finance more than 80% of its value. Property prices continued to fall and experts agreed that 30% falls were quite likely. Banks pulled in their horns yet further and refused to lend more than 70% of a property's value. Now people who'd borrowed 100% or more were unable to refinance their homes and faced reposession. Banks realised that they had to recover their losses, so increased their interest rates. Confidence in the market dropped and bad debt increased. Banks became even more afraid of loaning to other banks in case the bank they lent to could not repay the loan due to its having too much bad debt on its books.
Builders found that they could not sell properties and that the value of the land they held for future building projects was suddenly devalued by 40 or 50%. With no demand, their work forces were far too large so mass redundancies began. With people worrying about their own jobs, and with credit almost impossible to get, demand for capital goods dropped across the board. Companies like Woolworths, with weak business models went to the wall and car manufacturers for their inventory not moving. Short work weeks were introduced, more workers laid off and salaries cut in an effort to align costs with income. The UK economy found itself in a downward spiral. Normally what fuells recovery is an increase in demand but the UK population is so heaviliy in debt and over taxed, that that is unlikely to happen in the near future.

Is there a lesson to be learned?. In my opinion there is. If you want an economy to run well, remain healthy and grow steadily, don't put a couple of lawyers in charge.

Basically the country is fucked up at the mo.

[FieldingMellish]

Originally Posted by SteveC

Here's why it happened.... [a lot of stuff we all know]... Is there a lesson to be learned?. In my opinion there is. If you want an economy to run well, remain healthy and grow steadily, don't put a couple of lawyers in charge.

So you see, children, it *is* all New Labour's fault after all.

And then we went home and had our tea.

[Steve A]

The outlook for my company seems very positive. We are on course and it seems likley that 2009 will show well over 100% growth over 2008.

Ive just taken on another 3 staff this week now upto 30.

People seems to be spending money. However i put this down to a really sound sales program i designed that aims at contstant training and development on new geographical areas for growth.

I have had businesses in the past that went to the wall. i have been in a position where i didnt have 2 pennies to rub together. I have learned from my mistakes. It WILL NOT happen again, whatever the market conditions.

Good flexible businesses will survive. Poorly run businesses with bad management / models will not.

Its a dog eat dog world, stop FUCKING whinging about shit and go and do something about it. If you cant than look at yourself and dont try to blame others for YOUR decisions in life.

BTW just spent a week in the Austrian Tyrol skiing and it was fantastic. Anyone who likes shkiing cant go wrong.

[dxb335d]

Glad things are going well for you Steve.

You coming OOO KAY 7?

[Steve A]

Originally Posted by dxb335d

Glad things are going well for you Steve.

You coming OOO KAY 7?

thanks Carl

and yes i am.

[dxb335d]

Right cool. Add yourself to the calender bud. Cant wait to see the EMM six.

Checked and confirmed hotel etc. Sha moan.

[Serjames]

Originally Posted by SteveC

Here's why it happened.

At the start of New Labour's term in office, one of the first decisions Gordon Brown made as Chancellor was to make the Bank of England responsible for managing interest rates and gave the BoE Governor a target of 2% inflation.

A........ lesson to be learned?. In my opinion there is. If you want an economy to run well, remain healthy and grow steadily, don't put a couple of lawyers in charge.

Very well written - I'm impressed.

SJ

[NFS]

Originally Posted by SteveC

Here's why it happened.

I agree with much of your post, but raise a few points of debate:

1. I think the decision to pass control of interest rates to the bank of england was a very sensible one. The reason we had rates of 16% in the 1980's was that the government used it as a political lever. Imagine where we would be with the current situation AND high interest rates. Not pretty.

2. Affordability (because of cheap credit) has played a part in the housing bubble, but that is not the whole story. Values soared because of supply and demand. The roots of this are in Thatchers council house sell and the 'illusion' that we could all become property owners. The concept that an Englishmans home was his castle. In the 1970's property ownership was not considered to be a measure of success and council housing was not a 'bad' thing. Historically, the vast majority of property was owned leasehold or rented. Property as an asset was backed against money not debt. It's value was held low, because, although demand was there, the concept that people would take on massive debts to own it was alien.

3. The 'bad debt' issue was primarily related to securitisation, the bundling up of loans for sale as a financial commodity. Securitised debt swirled around the banking industry until no-one was quite clear who was borrowing from who and what against. The whole mess collapsed in on itself primarily due to a loss of confidence. Some banks are broke, because of their actions on property. Many more are in financial stress because they lost vast reserves of cash on a falling market. At the moment, no-one knows which banks are safe, so they will not lend to each other. That's frozen the financial system, which in turn has frozen the world economy.

4. As a finite resource, where demand outstrips supply, property and land in the UK will always appreciate in value. It's over appreciated recently and we are in the grips of a major price correction. A 30% drop in values from the peak will put us back to 2002-4 prices - not back to the 1920's. This is the true impact of the labour, 'no more boom and bust' philosophy. They smoothed out the financial cycle stretching out the boom into a long run of steady growth. You can't fight the cycle though and the longer the crash is held off the harder the correction. That's where we are right now.

5. The bigger problem for the UK is a lack of products. We make nothing of any significance and we import much more than we export. The main thing we have been able to offer the rest of the world in recent years was North Sea Oil (which we are running out of) and financial services (which don't work any more). Coupled with our low interest rates, that is why Sterling is so under-valued.

[roofer]

You forgot the overiding fact, that the policing of the banking system was removed from the BoE. Eddie George predicted the current outcome.

[lons]

All very good and valid points. I'm in the construction industry but in a small way and I'm not suffering too much as work is still there if you have a good reputation. Have noticed a lot of competitors heavily undercutting. not always wise as customers wonder how long they will be in business! My family have been affected but I'm lucky that my mortgage is paid up, however what about the other side of the coin where poor b******* like me with savings now not not safe and attracting interest at much less than the rate of inflation? As an aside to RockIt - We're going to NZ and Australia in November. If your sisters' guest house is anywhere near Christchurch, we've booked flights but not yet accommodation so could be interested

[FieldingMellish]

Originally Posted by NFS

The bigger problem for the UK is a lack of products. We make nothing of any significance and we import much more than we export. The main thing we have been able to offer the rest of the world in recent years was North Sea Oil (which we are running out of) and financial services (which don't work any more). Coupled with our low interest rates, that is why Sterling is so under-valued.

Indeed. And which British political party was responsible for - to put it mildly - shifting focus away from industry (manufacturing and otherwisse) and towards financial services? Clue: it wasn't Labour.

[FieldingMellish]

Originally Posted by roofer

You forgot the overiding fact, that the policing of the banking system was removed from the BoE. Eddie George predicted the current outcome.

Roofer, with respect, George didn't predict the current crisis, neither did you, me, Gordon Brown, or anyone else. The situation is too complex, for starters. You can, for the sake of discussion, pick out any one particular contriburoty strand and you will be able to find many people who warned against it - a wide range of economists were warning for years, for instance, about the inherent dangers of hyperderegulated markets, and you'd have to have been blind not to see that restructuring, and repakaging of debts, such as went on in the sub prime market in the US, and to which British banks recklessly subscribed, was not a good idea.

But nobody predicted this crisis as a whole. And nobody knows when, or even how, it will end, because for one thing, we have never been here before.

[Hotcoupe]

Originally Posted by FieldingMellish

Roofer, with respect, George didn't predict the current crisis, neither did you, me, Gordon Brown, or anyone else. The situation is too complex, for starters. You can, for the sake of discussion, pick out any one particular contriburoty strand and you will be able to find many people who warned against it - a wide range of economists were warning for years, for instance, about the inherent dangers of hyperderegulated markets, and you'd have to have been blind not to see that restructuring, and repakaging of debts, such as went on in the sub prime market in the US, and to which British banks recklessly subscribed, was not a good idea.

But nobody predicted this crisis as a whole. And nobody knows when, or even how, it will end, because for one thing, we have never been here before.

Another day of sledging and snowball fights to come, but later on methinks.

Good comments to date Fielding, and you are putting up a valiant defence of Messrs Brown and Darling, however a couple of points:

With the exception of Roofer, little mention has been made of the FSA.

When did what was the SIB evolve (no not get remapped!) into the FSA?

Perhaps if the Authority had been paying more attention to what the Banks were doing, and to what they were getting involved with, maybe the British banks would not have got themselves into such a mess, especially with their exposure to the American sub-prime markets.

Even today after the Govt have poured millions of tax payers money into their depleted coffers, the Banks still refuse to fully explain the situation,nor the level of continuing exposure that is undoubtedly still to be fully revealed, and just how deep their ankles are continuing to sink in the rapidly rising pile of shite.

I'll agree with a lot of your comments, it is a complex situation and, in the voice of any Labour MP "Is a global crisis", (but the UK is going to be hit harder than most developed countries) however, as when Nero played with his Todger whilst Rome burnt, the buck has to stop somewhere, and unfortunately that buck is in Brown's pocket.

[FieldingMellish]

Originally Posted by Hotcoupe

Another day of sledging and snowball fights to come, but later on methinks.

Good comments to date Fielding, and you are putting up a valiant defence of Messrs Brown and Darling, however a couple of points:

With the exception of Roofer, little mention has been made of the FSA.

When did what was the SIB evolve (no not get remapped!) into the FSA?

Perhaps if the Authority had been paying more attention to what the Banks were doing, and to what they were getting involved with, maybe the British banks would not have got themselves into such a mess, especially with their exposure to the American sub-prime markets.

Even today after the Govt have poured millions of tax payers money into their depleted coffers, the Banks still refuse to fully explain the situation,nor the level of continuing exposure that is undoubtedly still to be fully revealed, and just how deep their ankles are continuing to sink in the rapidly rising pile of shite.

I'll agree with a lot of your comments, it is a complex situation and, in the voice of any Labour MP "Is a global crisis", (but the UK is going to be hit harder than most developed countries) however, as when Nero played with his Todger whilst Rome burnt, the buck has to stop somewhere, and unfortunately that buck is in Brown's pocket.

Oh yeah, no way can Brown escape blame. And I'm not really mounting a defence of him, or Darling, or Blair. I really do not like or trust them at all. I am just sick of all the comments from right-wingers, blaming the so-called 'Labour' government for the mess and ignoring the fact that it was Tory policies which caused it. That those Torie policies were not discontinued by New Labour is to their eternal shame.

AS for teh FSA, teh same sort of people who now criticise it (and by extension Blair/Brown) for not 'doing its job', are the very same people who would have cried loudest had Brown (or any PM) tried to give the FSA real teeth. Before this crisis hit the public consciousness, anybody siginificant in public life who'd suggested tougher regulation of banks and markets would have been shot down by the overwhelmingly right-wing press, the same press who now blame Labour.

It gets very tiresome having to hear this sort of thing all the time, but more than that it's frightening - the old adage about those not learning from history being doomed to repeat it holds ever truer here - a radical rethink is required, the free market ideology has to be recognised as defunct, and lessons have to be learned. BUt a lot of people on the rigt seem to want to pass of the current (and still emerging) crisis as just some sort of 'blip' or 'flaw', blame it all on Labour, elect another right-wing government - maybe under the utterly clueless leadership of David Cameron - and then carry on as before. Not smart.

Another argument I hear a lot is, "oh well, we didn't know the banks would be so greedy and stupid and reckless, and get into all this obviously toxic sub-prime debt etc...". Which is a bit like leaving half a dozen pigs in a room full of turnips and then coming back a week later and expressing shock that the turnips had been eaten!

Right, off to look at some pictures of snow. No snow in Cheadle or Knutsford or points in between today. Just ice in the door sills of my acr, making a crackling sound all the way to work....

[Steve A]

Q. If the credit crisis is about the banks not lending. And banks needing billions of tax payers money to stay afloat. which i see a usless as the banks still arent lending. Then Why dont the governments (all around the worlds) nationalise the banks and start lending again, If they are prepared to gurantee loans?


im not talking about all banks, only the ones that need money to stay in business.

[Hotcoupe]

Originally Posted by FieldingMellish

Oh yeah, no way can Brown escape blame. And I'm not really mounting a defence of him, or Darling, or Blair.

A:Really,are you sure?

I really do not like or trust them at all.

A:From your posts, it does not come across like that

I am just sick of all the comments from right-wingers, blaming the so-called 'Labour' government for the mess and ignoring the fact that it was Tory policies which caused it.

A:How long have Labour now been in power?

That those Torie policies were not discontinued by New Labour is to their eternal shame.

A:If as you say all the problems that we now face were caused by Tory policies, surely Labour could/should have rectified the situation, after all Labour have had since 1997 to sort it.
I'm sure Gordon mentioned that he done away with Tory 'Boom and Bust',or did that comment have as much meaning as 'British jobs for British workers'? (sorry, off topic, or is it?)

AS for teh FSA, teh same sort of people who now criticise it (and by extension Blair/Brown) for not 'doing its job', are the very same people who would have cried loudest had Brown (or any PM) tried to give the FSA real teeth. Before this crisis hit the public consciousness, anybody siginificant in public life who'd suggested tougher regulation of banks and markets would have been shot down by the overwhelmingly right-wing press, the same press who now blame Labour.

It gets very tiresome having to hear this sort of thing all the time, but more than that it's frightening - the old adage about those not learning from history being doomed to repeat it holds ever truer here.

A:Indeed, given Labour have had since 1997 to do something about the situation, I'd agree, Labour have learnt nothing.

- a radical rethink is required, the free market ideology has to be recognised as defunct, and lessons have to be learned. BUt a lot of people on the rigt seem to want to pass of the current (and still emerging) crisis as just some sort of 'blip' or 'flaw', blame it all on Labour, elect another right-wing government - maybe under the utterly clueless leadership of David Cameron - and then carry on as before. Not smart.

A:I'm not saying that the Tories or indeed the Liberals would do better, in fact I'd rather elect my local Scout group as the next Government,they could not do any worse, in fact, I think they would do better.

Another argument I hear a lot is, "oh well, we didn't know the banks would be so greedy and stupid and reckless, and get into all this obviously toxic sub-prime debt etc...". Which is a bit like leaving half a dozen pigs in a room full of turnips and then coming back a week later and expressing shock that the turnips had been eaten!

A:See my earlier comment about the FSA, you confirm my earlier point.

Right, off to look at some pictures of snow. No snow in Cheadle or Knutsford or points in between today. Just ice in the door sills of my acr, making a crackling sound all the way to work....

Have a good day Fielding , I'll be heading out later with my sledge, and no doubt getting mullered by the local kids by snowballs!Can't wait............

Happy daze

[FieldingMellish]

Originally Posted by Hotcoupe

A:How long have Labour now been in power?

Have a good day Fielding , I'll be heading out later with my sledge, and no doubt getting mullered by the local kids by snowballs!Can't wait............

Happy daze

I think you are being slightly disingenuous. Yes, labour have been in power a long time, and for that reason (among many) they have to sholder some blame.

When I said the economic policies which caused tis crisis were Tory ones, I was careful to make clear (I hoped) that these policies had been continued by New Labour. In order to get into power in 1997, Labour ditched a lot of what made them Labour, they ditched a lot more than they needed to, because by that stage the electorate were sick to the bacl teeth of the Tories.

If you honestly think I sound like I am defending Brown or Darling, them let me be unambiguous: I have hated New Labour since ling before they were elected, I 'knew' or at least suspected, that they were not going to be the party that all of us who had suffered so much through the Tory years had hoped for, not by a long chalk.

But there was a long period, under New Labour, of prosperity. There were no multiple recessions, as under the Tories. There was no deliberate mass unemployment, no concerted attempt to destroy the fabric of society, etc.

So I'm not pro-Labour. I'm just anti-Tory.

[Hotcoupe]

Originally Posted by FieldingMellish

I think you are being slightly disingenuous. Yes, labour have been in power a long time, and for that reason (among many) they have to sholder some blame.

When I said the economic policies which caused tis crisis were Tory ones, I was careful to make clear (I hoped) that these policies had been continued by New Labour. In order to get into power in 1997, Labour ditched a lot of what made them Labour, they ditched a lot more than they needed to, because by that stage the electorate were sick to the bacl teeth of the Tories.

If you honestly think I sound like I am defending Brown or Darling, them let me be unambiguous: I have hated New Labour since ling before they were elected, I 'knew' or at least suspected, that they were not going to be the party that all of us who had suffered so much through the Tory years had hoped for, not by a long chalk.

But there was a long period, under New Labour, of prosperity. There were no multiple recessions, as under the Tories. There was no deliberate mass unemployment, no concerted attempt to destroy the fabric of society, etc.

So I'm not pro-Labour. I'm just anti-Tory.

Fair enough Fielding, and it's not personal, just a healthy debate.
I'll agree, the two main parties traditionally went in opposing ways,but as you have highlighted,both Tories and Labour are hell bent on meeting head on with the resultant mess that we now find ourselves in.

Oh by the way,I'm not a Labour fan by any stretch, nor do any current Tory policies seem to offer any real hope, hence my earlier comment re: The Scouts!

However, please enlighten me:

There was no deliberate mass employment?

Expand please

no concerted attempt to destroy the fabric of society?

I'm assuming you are stating the Tories were guilty of this pre 97?
If so, how?

And...........I would level the same charge at New labour now, but I'll let you explain first

[FieldingMellish]

Well Mrs Thatcher famously declared that there is no such thing as society, and that statement was much more than a provocative soundbite - it reflected the social policies of that generation of Tory politician.

Mass unemployment was a deliberate element of Moneterism...

[FieldingMellish]

> Fair enough Fielding, and it's not personal, just a healthy debate.

Absolutely agree, I very much want to keep this friendly and civil.

[NFS]

Originally Posted by Steve A

Q. If the credit crisis is about the banks not lending. And banks needing billions of tax payers money to stay afloat. which i see a usless as the banks still arent lending. Then Why dont the governments (all around the worlds) nationalise the banks and start lending again, If they are prepared to gurantee loans?

im not talking about all banks, only the ones that need money to stay in business.

The USA and Ireland chose to underwrite the banks debt. I personally believe that was a mistake because taxpayers money was thrown at the problem, with no upside.

In contrast the UK Government became a major stakeholder in most banks. The Tories are talking a load of arse in respect of the debt this will pass on to our children. Because the Govt has in effect 'part nationalised' the banking system, when it starts working properly again, the taxpayer will see an upside on their investment. It's also unlikely that the maximum investment that has been discussed will actually be pumped into the system.

In reality, what you are suggesting has already happened. It's just that the Govt has stopped short of full ownership of individual banks. I think that's right because further nationalisation will only make the real problem worse.

The issue now is that some of our banks are technically insolvent. But we don't know the depth of the problem because the Govt cash is still washing around the system making everything look OK.

For this reason other economies are not going to go any further than us. This is as good as it's going to get in terms of measures to improve liquidity.

I think we will now see situations where the Govt act as funds themselves (ie as banks) for major infrastructure projects (road, rail, schools etc.).

This is what Obama is proposing in the US and because it will get money into the system directly without involving the banks I think it will become quite important in the next few months.

[FieldingMellish]

Originally Posted by Steve A

Q. If the credit crisis is about the banks not lending. And banks needing billions of tax payers money to stay afloat. which i see a usless as the banks still arent lending. Then Why dont the governments (all around the worlds) nationalise the banks and start lending again, If they are prepared to gurantee loans?


im not talking about all banks, only the ones that need money to stay in business.

Your question is a very valid one. I have heard a couple of people ask a very similar one several times recently. i personally have no answer 'why not' but 'Nationalisation' is still a very very dirty word, for New Labour as much as for anyone else.

It does seem mad though to throw public money at failed banks and 'hope' they act reponsibly and sensibly from here on in, without a proper level of conditionality, if any. It does seem more logical to use that public money to create public banks....

But if the govt let banks go to the wall, there would be huge impacts which we/they would still have to deal with. It's not as though the problems these banks have caused can be confided to those banks.