Were you bovvered?

Did you feel like heading for the hills or did you just shrug? A Times poll taken even before yesterday’s mega rescue plan suggests that “on the brink ” panic was held at bay. “56 per cent in Britain, and 51 per cent in America, say they are not worried. Women are a bit more worried about the safety of their savings than men, 41 to 33 per cent.” Judging from the near-zero response to the crisis from Sluggerites, I guess many people were feeling fatalistic. After all, they’ve a lot more to worry about than mere money.. like …ah… The tabloids have decided to look on the bright side, the Sun stressing cheaper mortgages and the benign effects of tumbling house prices as a result of “Thunderbird’s look-alike Alisitair Darling’s international rescue effort.” The Mail warns about the effect of a sluggish stock market on pensions but their columnist Stephen Glover has his own view of the bright side: fewer immigrants competing for British jobs, cheaper football, maybe and “The recession should be good for Great Britain. The Scots, a naturally cautious race, may ignore the blandishments of Alex Salmond and the Scottish Nationalists, and consider the perilous fate of small countries such as Iceland and even Ireland during a global slowdown. Better be part of a large country weathering the storms than a vulnerable tiny nation buffeted about by them.” Meanwhile…In the eye of the storm, amazingly the good cheer was even infecting gloomy Gordon who was having his best day for years. You could see he was happy inside his own skin. Will it last? Peter Riddell in the Times intones: “ The rescue is about saving capitalism, not replacing it with socialism….. This muddies the ideological divide and, as yesterday showed, makes it easier for Gordon Brown, at his most commanding, to handle than for David Cameron. But a recession will be much harder for Mr Brown”. As I would expect, Will Hutton approves the deal; it was even bigger than he’d recommended. “Incredibly, it may have fallen to Gordon Brown to show the world how to avert a slump”.

Never mind Gordon, even the serious stuff that affects you and me has a sliver lining. The heavy commentaries are in broad agreement. We can feel just a little easier.. It’s still too early to work out the repercussions in much detail but again, there’s quite a lot of agreement. The Guardian says the £500bn of support for the banking sector may have surprisingly little impact on the public borrowing figures. Its the recession that follows what means taxes will rise and spending cut. The FT agrees. “The government can afford this plan. National debt is relatively low and the UK can borrow more. The price will, in all likelihood, be eclipsed by the cost of any significant downturn.”

  • Greenflag

    bw,

    ‘Better be part of a large country weathering the storms than a vulnerable tiny nation buffeted about by them’

    Perhaps . The world’s ‘safest’ banking system in the league table of banking systems is Canada – The USA currently ranks 50th with the UK 51st?
    More later on the league table .

    Gordon Brown’s move is at this moment being considered by the present White House incumbent as the stock market continues to tank .

    Meanwhile the Federal Reserve is throwing everything into injecting more ‘liquidity’ into a situation which in a very real sense owes it’s origin to an ‘excess ‘ of liquidity in the form of personal credit card debt and irresponsible levels of leveraging by the investment banks , hedge funds etc ec . Fighting ‘fire’ with fire as it were .

    The USA is clapped out financially . Never mind the public deficit – private debt has quadrupled over the past 8 years, much of it in response to President Bush’s urging of Americans to ‘spend ‘ patriotically after the 9/11 atrocity .

    The Republican Party is now being hoisted on it’s own petard and looks like it may also ‘tank’ in the Senate , and House as well as the White House .

    We can expect that this ‘crisis’ will run for another few weeks /months until the ‘wood ‘ is seen from the trees . Meanwhile Paulson keeps sending in the flamethrowers .

  • Dewi

    £500bn… a thousand quid each. The mining industry could have done with this type of investment in the eighties.

  • Brian Walker

    Dewi thank God it didn’t..

  • Dewi

    I was being slightly facetious – it’s just the scale is so worrying. I don’t hold much store by this “we’ll make a profit” thing. If that’s the case why arn’t companies buying these banks?
    Also concerned at the principle of a bail out without addressing the causal factors – how on earth did a bunch of highly rewarded bankers get involved in bundling and re-selling (and buying !!) parcels of toxic sub-prime debt. Nationalise them all (and the Railways while we are at it !!)

  • Greenflag

    dewi ,

    ‘how on earth did a bunch of highly rewarded bankers get involved in bundling and re-selling (and buying !!) parcels of toxic sub-prime debt.

    It goes back a long way Dewi to the Garden of Eden 🙂 when Eve allowed herself to be deceived by the snake 🙂

    In ‘modern times ‘ this ‘mess ‘ can be directly traced back to the Grantham Grocer a.k.a and her swooning acolytes across the pond in particular one former B actor with an easy gait and a good line in spin and lots of deregulation or more properly misregulation.

    Imagine a trickle down stream turning into a river and imagine that river flowing down a steep decline without any dams to break the flow of current . Now as the river enters the sea imagine the American homeowner already up to his/her neck in debt from a decade of wage stagnation trying to stem the flood by holding out his /her hand.

    The hairless chap battling in midflood still holding out an oar is none other than Paulson . Watching the spectacle from the sidelines is the rest of the world seeing the USA lose it’s once permanent dominance of the world financial system .

    Scary -you bet ! The next three financial ‘meltdowns ‘ in the USA are waiting to ’emerge ‘ once the present flood seems to recede .

    1) The bond market (already going )

    2) The Health Care system which is gobbling up 20% of USA GDP and transferring most of that to the private health insurance spivs and the drug
    companies .

    3) The Social Security timebomb which is ticking away and which will eventually take up every dollar of revenue raised .

  • Greenflag

    Cheer up folks it could be worse 😉

    CANBERRA (Reuters) – Canada has the world’s soundest banking system, closely followed by Sweden, Luxembourg and Australia, a survey by the World Economic Forum has found as financial crisis and bank failures shake world markets.

    But Britain, which once ranked in the top five, has slipped to 44th place behind El Salvador and Peru, after a 50 billion pound ($86.5 billion) pledge this week by the government to bolster bank balance sheets.

    The United States, where some of Wall Street’s biggest financial names have collapsed in recent weeks, rated only 40, just behind Germany at 39, and smaller states such as Barbados, Estonia and even Namibia, in southern Africa.

    The United States was on Thursday considering buying a slice of debt-laden banks to inject trust back into lending between financial institutions now too wary of one another to lend.

    The World Economic Forum’s Global Competitiveness Report based its findings on opinions of executives, and handed banks a score between 1.0 (insolvent and possibly requiring a government bailout) and 7.0 (healthy, with sound balance sheets).

    Canadian banks received 6.8, just ahead of Sweden (6.7), Luxembourg (6.7), Australia (6.7) and Denmark (6.7).

    UK banks collectively scored 6.0, narrowly behind the United States, Germany and Botswana, all with 6.1. France, in 19th place, scored 6.5 for soundness, while Switzerland’s banking system scored the same in 16th place, as did Singapore (13th).

    The ranking index was released as central banks in Europe, the United States, China, Canada, Sweden and Switzerland slashed interest rates in a bid to end to panic selling on markets and restore trust in the shaken banking system.

    The Netherlands (6.7), Belgium (6.6), New Zealand (6.6), Malta (6.6) rounded out the WEF’s banking top 10 with Ireland, whose government unilaterally pledged last week to guarantee personal and corporate deposits at its six major banks.

    Also scoring well were Chile (6.5, 18th) and Spain, South Africa, Norway, Hong Kong and Finland all ending up in the top 20.

    At the bottom of the list was Algeria in 134th place, with its banks scoring 3.9 to be just below Libya (4.0), Lesotho (4.1), the Kyrgyz Republic (4.1) and both Argentina and East Timor (4.2).

    RANKINGS

    1. Canada

    2. Sweden

    3. Luxembourg

    4. Australia

    5. Denmark

    6. Netherlands

    7. Belgium

    8. New Zealand

    9. Ireland

    10. Malta 11. Hong Kong

    12. Finland

    13. Singapore

    14. Norway

    15. South Africa

    16. Switzerland

    17. Namibia

    18. Chile

    19. France

    20. Spain

    40 USA
    44 United Kingdom

    ——————————————————————————–

    124. Kazakhstan

    125. Cambodia

    126. Burundi

    127. Chad

    128. Ethiopia

    129. Argentina

    130. East Timor

    131. Kyrgyz Republic

    132. Lesotho

    133. Libya

    134. Algeria

    SOURCE: World Economic Forum Global Competitiveness Report 2008-2009.

    (For the full World Economic Forum report click on: http://www.weforum.org/GCR0809_Browser )

    GF comment ,And not a mention of Zimbabwe 😉 where everybody who can hold a banknote in his/her fist is a billionaire

  • Dave

    “In ‘modern times ‘ this ‘mess ‘ can be directly traced back to the Grantham Grocer a.k.a and her swooning acolytes across the pond in particular one former B actor with an easy gait and a good line in spin and lots of deregulation or more properly misregulation.”

    Almost there. Let me finish the story:

    The grocer’s daughter and the actor knew that markets work best with free market principles and without interference from bungling ne’er-do-well politicians seeking to distort the market according to the needs of their particular social agendas, vested interests, pet projects, etc. But the people were scared of business and they wanted Nanny to watch over them, protecting them from such things as nasty credit-scoring models which were designed to ensure that money was only loaned to those who could afford to repay it. The people knew that government agencies such as the US Federal Reserve and the ECB could do wonderful things such as regulate the rate that the banks charged for loaning money and also regulate the credit-scoring models that determined who money was lent to. The politicians knew that because these government agencies had an obligation to advance government economic policy that the politicians could control the flow of money in the market if they set the appropriate policy, thereby nullifying free market.

    This was a wonderful discovery because now Nanny could make the banks fling money at the poor people and the poor people would show their gratitude for Nanny by electing the politicians who controlled Nanny. Couldn’t afford credit? No problem! Nanny knows that the US Federal Reserve has a duty to support economic policy, so Nanny will make the US Federal Reserve set interest rates at ridiculously low levels and this will make the banks lend money at ridiculously low interest rates and cheap credit will be aplenty! Couldn’t get credit? No problem! Nanny knows that the US Federal Reserve regulates the credit-scoring models that are used by the banks, so Nanny will make the banks use credit-scoring models that make them lend you money even if you don’t have the means to repay it! Don’t have a job so can’t get a mortgage? No problem! Nanny will make the banks count your Welfare check as earned income showing that you have the ability to repay a mortgage even if you don’t have a job! Isn’t Nanny wonderful? See what politicians can do for you when they interfere in the free market? Why, free money just floods forth in your direction!

    Sadly for Nanny, the greedy banks insisted that people repaid the money they had loaned to them, and they began repossessing their houses when the people were unable to do comply. This made Nanny very angry, so Nanny made the US Federal Reserve lower interest rates further so that people could afford to repay them. Sadly again for Nanny, the people were greedy and they borrowed vast sums of money to indulge in speculation in the property market, causing rapid house price inflation. Nanny thought that lower interest rates would make houses more affordable to poor people but Nanny got it badly wrong: low interest rates caused rapid house price inflation, making housing unaffordable to the poor. Nanny’s solution to its boo-boo was to lower interest rates again and to encourage the US Federal Reserve to devise more crackpot credit-scoring models to ensure than people could borrow even more money to pay the higher property prices caused by the lower interest rates.

    Now things weren’t looking too good. The banks had loaned trillions in equity to folks to invest in property that was vastly inflated in price by speculation by greedy house-buyers caused by low interest rates set by government intervention, and the banks would face massive a write-down on the value of their assets and hence massive losses and potential bankruptcy as soon as the property bubble burst – which it inevitably would. So why didn’t Nanny see all this coming as a direct result of its intervention in the free market? Because Nanny didn’t care. Nanny is run by folks who want to be re-elected and Nanny knew that cheap credit would help. The banks didn’t care either because Nanny gave them an implicit guarantee that Nanny would assume responsibility for all losses caused by the reckless lending practices that it promoted.

    Now Nanny points at greedy Wall Street and acts all surprised that greed exists among those socialist saints at all, blaming Wall Street and the banks for events that Nanny is responsible for. Nanny says you need more of Nanny because Nanny thinks she is the solution rather than the problem. Yes, Nanny is crazy, but so are the folks who elected her – and are now left with massive debts to repay thanks to her intervention in the free market.

  • Harry Flashman

    The Grantham Grocer’s daughter left office seventeen years ago, we’ve had eleven years of a Labour government since then, who else are you going to blame, Disraeli?

    Actually GF as you well know the whole sub-prime mortgage calamity is a direct result of government interference, more specifically US Democrat inspired government interference in the housing market, when the banks were ordered by law during the Clinton administration to lend money to people (more precisely people from ethnic minorities) who quite clearly could not possibly afford to repay the debts.

    It is no coincidence that both Fannie Mae and Freddie Mac were huge donors to the Democrat party and any attempts to reform them by Republicans were absolutely resisted by the Democrats. It’s now a bit nauseating to hear how Margaret Thatcher or George Bush are to blame for a colossal mess created by statist left wing politicians who couldn’t leave the free market well enough alone.

  • Dewi
  • lafcadio

    there was a good article on the WSJ recently about govt meddling with fannie and freddie:

    http://online.wsj.com/article/SB122298982558700341.html

    About halfway down on the left is a sub header called “Hear No Evil” – some quotes from congressmen on fmac & fmae, a must-read for all those who say that govts had nothing to do with all this, oh no siree, nothing to see here..

  • Greenflag

    Dave & Harry Flashman ,

    You guys must be identical twins . Your style of writing , syntax and sentence construct is so alike as to be hardly the result of chance .

    People need to be housed . If the market cannot supply adequate housing at a price that people can afford then it’s up to ‘Nanny ‘ to do what is morally and ethically right . The same applies to Healthcare and Education .

    ‘But the people were scared of business’

    And if you read the industrial and commercial history of corporate America over the past 100 years you might understand why their fear is legitimate .

    There is no ‘free market ‘ . Information is not perfect . Even Warren Buffet knows that !

    The ‘free market’ if left to regulate itself would have turned the the USA into a totalitarian fascist corporate State in the 1930’s . We saw what happened in Weimar Germany as the German middle and lower income groups were emisserated.

    And with the present USA administration and indeed over the past 25 years we have seen the steady and relentless emisseration of middle class and lower income americans .

    This is why Mr McCain and his ‘republicans’will not win in November .

    ‘Yes, Nanny is crazy, but so are the folks who elected her”

    So you favour the corporate state run by an oligarchy with one businessman one vote – no trade unions and another 3 million incarcerated in private sector managed prisons with all good paying jobs outsourced to Vietnam ?

    Thought so –

    Ye feckin gobshites !

  • Greenflag

    dave & hairy falseman ,


    when the banks were ordered by law during the Clinton administration to lend money to people (more precisely people from ethnic minorities) who quite clearly could not possibly afford to repay the debts.’

    Right . Bad Clinton . Imagine trying to help poor people be housed . Can’t be letting them coloured folks and spics have proper houses eh . Jest ain’t right according to the free market ‘doctrine ‘. Why back on the ole plantations these folks woulda benn happy to live in a leanto shack . Good enough fer them mah pappy said :(.

    Anyway why don’t these poor coloured folks and spics just go back to some f**king country they don’t come from eh and let the free market work there .?

    It’s not often one comes across such unreconstructed ultra right nutters on slugger posing as ‘jews ‘ of a central european background and ‘muslims ‘ of a Norn Ireland background 🙁

    A right pair of bollixes or should that be just the one bollix fer the two of yiz ?

    The age of Milton Friedman is over and it’s back to the drawing boards to construct a new ‘economic model ‘ that can work in a globalised economy .

    America is moving to the left having had enough of the ‘fairy tale ‘ of the Grantham grocer and her hero Milton Friedman and their devoted acolyte Ronnie ‘ invade Grenada ‘ Reagan . Not before time 🙁

  • Ulster McNulty

    “The tabloids have decided to look on the bright side…”

    So have I – terms such as “Celtic Tiger” and “Anglo Saxon model” and all the other ethnic / voodoo economic bullshit labels which were all the rage a short while are now surely gone (and “basket case” is no longer restricted to Northern Ireland, Germany and France).

  • Dave

    “You guys must be identical twins . Your style of writing , syntax and sentence construct is so alike as to be hardly the result of chance .” – Greenflag

    “It’s not often one comes across such unreconstructed ultra right nutters on slugger posing as ‘jews ‘ of a central european background and ‘muslims ‘ of a Norn Ireland background 🙁

    A right pair of bollixes or should that be just the one bollix fer the two of yiz ?” – Greenflag

    That’s funny, you paranoid conspiracy lunkhead – and you call Harry Flashman and I “nutters”! My syntax is usually botched and punctuated by misspelt, missing or disordered words, whereas Harry’s syntax is usually flawless. As for his belief in free market principles, that is due to his insight into human nature and solid his understanding of economics. Contrary to your self-serving delusions, the world has not ‘turned socialist’ and it remains possible for two people to believe in the free market without them being the same person. I seem to recall that you harboured a similar delusion about Ireland’s pro Lisbon Treaty disposition when you declared that the Treaty would be passed by an overwhelming majority and that you did not “know a single person” who intended to vote ‘No.’ As the majority voted ‘No’ I can only suggest that you depart from the damp solitude of your parent’s basement and meet more people.

    “People need to be housed . If the market cannot supply adequate housing at a price that people can afford then it’s up to ‘Nanny ‘ to do what is morally and ethically right .”

    No, it’s up to people to provide for their own needs. They have no automatic right to shift the burden for the welfare onto other citizens. That is immoral. If the State feels compelled to provide for their needs, then it should take care to do so in a manner that does not inflate house prices beyond the realm of affordability of low income groups or leave them with massive mortgages that they cannot repay – not to mention that the State should avoid bankrupting itself in the process. The lower income groups are now far worse off than they were before the State intervened in the free market to proffer its socialist agenda. They were not helped by the reckless actions of the State, they were seriously harmed by them.

  • Dave

    Here is the article that lafcadio linked to about “the role politicians and policy makers played in creating artificially high housing prices, and artificially reducing the danger of extremely risky assets.”

    [b]How Government Stoked the Mania[/b]
    [i]Housing prices would never have risen so high without multiple Washington mistakes.[/i]

    Many believe that wild greed and market failure led us into this sorry mess. According to that narrative, investors in search of higher yields bought novel securities that bundled loans made to high-risk borrowers. Banks issued these loans because they could sell them to hungry investors. It was a giant Ponzi scheme that only worked as long as housing prices were on the rise. But housing prices were the result of a speculative mania. Once the bubble burst, too many borrowers had negative equity, and the system collapsed.

    Part of this story is true. The fall in housing prices did lead to a sudden increase in defaults that reduced the value of mortgage-backed securities. What’s missing is the role politicians and policy makers played in creating artificially high housing prices, and artificially reducing the danger of extremely risky assets.

    Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income borrowers. For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target — 42% of their mortgage financing had to go to borrowers with income below the median in their area. The target increased to 50% in 2000 and 52% in 2005.

    For 1996, HUD required that 12% of all mortgage purchases by Fannie and Freddie be “special affordable” loans, typically to borrowers with income less than 60% of their area’s median income. That number was increased to 20% in 2000 and 22% in 2005. The 2008 goal was to be 28%. Between 2000 and 2005, Fannie and Freddie met those goals every year, funding hundreds of billions of dollars worth of loans, many of them subprime and adjustable-rate loans, and made to borrowers who bought houses with less than 10% down.
    Hear No Evil

    Fannie and Freddie also purchased hundreds of billions of subprime securities for their own portfolios to make money and to help satisfy HUD affordable housing goals. Fannie and Freddie were important contributors to the demand for subprime securities.

    Congress designed Fannie and Freddie to serve both their investors and the political class. Demanding that Fannie and Freddie do more to increase home ownership among poor people allowed Congress and the White House to subsidize low-income housing outside of the budget, at least in the short run. It was a political free lunch.

    The Community Reinvestment Act (CRA) did the same thing with traditional banks. It encouraged banks to serve two masters — their bottom line and the so-called common good. First passed in 1977, the CRA was “strengthened” in 1995, causing an increase of 80% in the number of bank loans going to low- and moderate-income families.

    Fannie and Freddie were part of the CRA story, too. In 1997, Bear Stearns did the first securitization of CRA loans, a $384 million offering guaranteed by Freddie Mac. Over the next 10 months, Bear Stearns issued $1.9 billion of CRA mortgages backed by Fannie or Freddie. Between 2000 and 2002 Fannie Mae securitized $394 billion in CRA loans with $20 billion going to securitized mortgages.

    By pressuring banks to serve poor borrowers and poor regions of the country, politicians could push for increases in home ownership and urban development without having to commit budgetary dollars. Another political free lunch.

    Fannie and Freddie and the banks opposed these policy changes at first through both lobbying and intransigence. But when they found out that following these policies could be profitable — which they were as long as rising housing prices kept default rates unusually low — their complaints disappeared. Maybe they could serve two masters. They turned out to be wrong. And when Fannie and Freddie went into conservatorship, politicians found out that budgetary dollars were on the line after all.

  • Dave

    [i]Continued[/i]

    While Fannie and Freddie and the CRA were pushing up the demand for relatively low-priced property, the Taxpayer Relief Act of 1997 increased the demand for higher valued property by expanding the availability and size of the capital-gains exclusion to $500,000 from $125,000. It also made it easier to exclude capital gains from rental property, further pushing up the demand for housing.

    The Fed did its part, too. In 2003, the federal-funds rate hit 40-year lows of 1.25%. That pushed the rates on adjustable loans to historic lows as well, helping to fuel the housing boom.

    The Taxpayer Relief Act of 1997 and low interest rates — along with the regulatory push for more low-income homeowners — dramatically increased the demand for housing. Between 1997 and 2005, the average price of a house in the U.S. more than doubled. It wasn’t simply a speculative bubble. Much of the rise in housing prices was the result of public policies that increased the demand for housing. Without the surge in housing prices, the subprime market would have never taken off.

    Fannie and Freddie played a significant role in the explosion of subprime mortgages and subprime mortgage-backed securities. Without Fannie and Freddie’s implicit guarantee of government support (which turned out to be all too real), would the mortgage-backed securities market and the subprime part of it have expanded the way they did?

    Perhaps. But before we conclude that markets failed, we need a careful analysis of public policy’s role in creating this mess. Greedy investors obviously played a part, but investors have always been greedy, and some inevitably overreach and destroy themselves. Why did they take so many down with them this time?

    Part of the answer is a political class greedy to push home-ownership rates to historic highs — from 64% in 1994 to 69% in 2004. This was mostly the result of loans to low-income, higher-risk borrowers. Both Bill Clinton and George W. Bush, abetted by Congress, trumpeted that rise as it occurred. The consequence? On top of putting the entire financial system at risk, the hidden cost has been hundreds of billions of dollars funneled into the housing market instead of more productive assets.

    Beware of trying to do good with other people’s money. Unfortunately, that strategy remains at the heart of the political process, and of proposed solutions to this crisis.

    [i]Mr. Roberts is a professor of economics at George Mason University and a scholar at the Mercatus Center.[/i]

  • Glencoppagagh

    Dave
    It looks like your informed argument has scared off Greenflag et al.
    You could also have mentioned the complex structuring that was necessary to place these securitised sub-prime mortgages. They were mixed with higher quality assets to make them more appealing to investors who often didn’t know or bother to find out just what was inside the wrapper. And obviously these things are almost impossible to value properly which has made them particularly vulnerable to the rigours of ‘mark-to-market’ accounting. If you have no idea what the asset is worth, the responsible thing to do is place a very conservative valuation on it.
    We’ll only know the true extent of the damage when these assets mature but unfortunately noone is willing or able to wait that long.

  • Dave

    Nothing will scare Greenflag away – he doesn’t have enough sense to know fear. 😉

    You’re spot-on about the uncertainty of value of those degraded assets. That is the real reason why banks are not lending money to those banks that have question marks over their solvency due to their exposure to those volatile assets, such as the Irish banks. State guarantees for the banks may help with short-term liquidity problems but it does nothing to remove the question marks about how solvent these banks are. Uncertainty will remain until those questions are answered, so these flawed acts of state intervention are really just obscuring the underlining dynamics and deepening the uncertainty (the real cause of instability).

    Incidentally, one of the major acts of organised lying that government, media, banking, et al, have engaged in is claiming that there is a global equity freeze wherein banks have stopped lending money to other banks altogether. This is a falsehood that is proffered to divert attention away from the actual underlining dynamics of troubled banks and onto ‘other’ causes such as some strange flu-like virus that has infected all banks simultaneously and that is spread by a means called ‘globalisation.’

    The US Federal Reserve reports bank loans on a weekly basis, and it shows no variation at all in the amount of loans that banks lend to each other. Nor is there any truth in the migration of trouble from ‘Wall Street to Main Street’ since the amount that banks leant to consumers during August was up by 9.5% on the previous year and the amount of money leant during week to September 17th “dipped insignificantly” but remained “much higher than [it was] a year earlier.”

    http://www.forbes.com/2008/10/01/interbank-lending-ted-oped-cx_ar_1001reynolds.html

  • Harry Flashman

    God love ya GF, had a few too many on the way home did you? Best to wait until one is in full control of one’s faculties before one types in anger, you only end up looking a wee bit silly, as you just did.

    Dave answers most of your economic points (such that they are beyond ad hominem ranting) but I will address your historical political points.

    As I said Margaret Thatcher left office in November 1990 (I was wrong above, she’s actually been gone eighteen years), Ronald Reagan who cleaned up Carter’s mess left two years earlier. Since that time we’ve had an eight year Clinton administration which as you clearly accept caused the sub-prime disaster, and eleven years of Labour which saw the destruction of the best run pension scheme in the western world.

    Furthermore I’m fairly certain that Mr Reagan and Mrs Thatcher had no executive role in Iceland, nor indeed in Spain, Ireland, Germany, Belgium, France, Australia or Italy many of whose governments were socialist for those years yet who all seem to be having equally as bad times of it recently as the UK and US. Get over it GF, Ronnie’s dead and Maggie’s on her way out, you can’t keep blaming them forever, you need to take off the blinkers and see what’s really causing this problem.

    As to your assertion that politics are moving left, this will come as a huge surprise to the peoples of France, Italy and Germany and soon no doubt Britain as they dump the failed socialist governments of recent decades which have landed us in this mess. As to the US, we’ll see, McCain hasn’t put up much of a fight and Obama’s fraudulent campaign has been given a free pass by the entire media so he might just pull it off, rest assured he will be a one term, lame duck president.

    I’m intrigued by your ludicrous assertion that the US could have gone fascist in the ’30s, which is strange because the only nations which didn’t have some sort of corporatist, socialist, fascist regimes at that time were the US and the British Commonwealth democracies, who pursued largely free market, liberal democratic policies while the state control over which you get so onanistic led to Franco, Mussolini, Hitler, Petain and all the rest of the grisly Euro thuggocracy.

    Talk about standing history on its head!

  • Harry Flashman

    Jesus Christ Dave! We’ve posted at the same time again, fuck me GF will be convinced he’s smoked us out now. What the fuck are you doing up at this time?

  • Dewi

    I’m now bovvered Terrible start on Footsie also….

  • Rory

    In ‘modern times ‘ this ‘mess ‘ can be directly traced back to the Grantham Grocer a.k.a and her swooning acolytes across the pond in particular one former B actor with an easy gait and a good line in spin and lots of deregulation or more properly misregulation.

    With this remark, Greenflag, you pre-empted the US economist, Fukiyama, who opined on Today on Radio 4 this morning that the current crisis was not “a capitalist crisis” per se but “a Reaganite crisis”. He went on to say that the earlier collapses in the Far East were seen by them not as their own failures but as failures of the policies forced upon them by the IMF which they were obliged unhappily to accept.

  • Greenflag

    Dave & Hairy

    ‘Contrary to your self-serving delusions, the world has not ‘turned socialist’’

    I did’nt say it has . However your fellow neo con nutters in Libertas and the ultra right wing nutters in the USA are accusing the Bush administration of going ‘socialist ‘. Wall St and the banking industry are begging for more government intervention not less or haven’t you noticed ?

    ‘and it remains possible for two people to believe in the free market without them being the same person.’

    I actually believe in the so called ‘free market ‘ too up to a point . It’s just that being a natural skeptic my belief in it is not based on doctrinaire ‘principles ‘ such as yours and your alter ego hairy falsehood’s is . That kind of belief would and has condemned millions of people to abject poverty , starvation, genocide and dislocation . It has also endangered our democracies by it’s bloody minded search for ‘profit’ regardless of the societal consequences .

    ‘As the majority voted ‘No’’

    27% is not a majority .

    ‘My syntax is usually botched and punctuated by misspelt, missing or disordered words.

    Really ? I had’nt noticed . I’ll give you 9.9 out of 10 which is more than I’d give myself .

    ‘whereas Harry’s syntax is usually flawless.’

    Did you check this assertion with your other half ? i.e Oul hairy hisself ;)?

    to be continued

  • Harry Flashman

    “to be continued”

    If infantile name calling is the best you can manage GF, I wouldn’t bother.

  • Steve

    The failure of the sub prime mortgage sector is not down to minorities or poor people as they tended to borrow small amounts for modest houses.

    the failure infact is because the american middle class kept borrowing money they didnt have to accomadate lifestyles they couldnt afford.

    As the value of their houses increased they were allowed to borrow more money to pay off the money they couldnt afford from before and infact they were adverising mortgages for 125% of the value of their houses.

    few of the lower to lower middle classes appear to be in trouble its the people with the $400,000.00 and above houses that are hurting

  • Greenflag

    Dave & glencoppagh

    ‘Nothing will scare Greenflag away ‘

    This is true :).

    Your copy and paste of Robert Mason’s piece is fair enough but only as a ‘part’ explanation for the present crisis . Roberts conveniently leaves out the ‘pre history ‘ of how the USA became addicted to debt from the 1980’s onward . As I said earlier the USA is clapped out on ‘credit ‘ and the ‘clapping out’ has speeded up dramatically since Bush II inherited the throne .

    In 1980 total credit market debt as a percentage of USA gross domestic product was approx 130% . It had remained at that level approx since 1950 . With the ‘triump’ of Reaganomics in 1980 the ‘debt mountain ‘ rose and has continued to rise almost vertically so that now it approximates almost 400% of USA GDP .

    Source Barron’s Feb 21 , 2005 .

    The ‘politicians ‘ on all sides in the USA strove to continue to prime the pump for the American economy by using ‘housing ‘ as their tool for ‘saving ‘ the world economy . As more and more Americans used their homes as ATM machines the Wall St casino merchants exploited every nook and cranny they could find in the system to ‘hide’ the growing monster of subprimes by wrapping them in nice packages and selling them to whoever they could to ‘reduce ‘ the risk .
    However it’s not just a question of ‘sub primes ‘ anymore . Now one in six American mortgages are underwater i.e treading negative equity at the same time in recent days – many have lost almost half their retirement savings .

    I’m not going to defend Fannie Mae or Freddie Mac excesses . They too jumped on the Wall St bandwagon as it careered downhill in a free for all as the former created ever more complex financial tool mechanisms to ‘hide ‘ the lie .

    The political blame for all of this should be laid at the door of Reaganomics but it won’t be .In the popular mind it will be laid at the door of the present administration . This administration of made matters worse by indulging in an unnecessary war in a barely disguised attempt to reduce the price of oil but instead somehow managed to achieve the exact opposite , by quadrupling the price and plunging the hard pressed and maxed out American into an even worse position . Beset by a decade long wage stagnation , negative home equity , disappearing retirement savings and huge increases in health care premiums , and overwhelming credit card debt the ‘free market’ has achieved it’s objective in reducing America to a two class system . The few ‘haves’ and the many ‘have nots ‘ The political impact of this will be dramatic come November .

    I recall Bush senior referring to Reaganomics as voodoo economics during the ‘primary ‘ in 1980. Bush Sr must have a similar epithet to describe his son’s and the republican party’s policies over the last 8 years.

    Welcome to ‘Zombie’ politics whereby the Republican candidate McCain wants to pursue more Reaganomics by cutting even more taxes for the oil company CEO’s and throw more money at the private health insurers ‘

    It’s that ‘free market’ fanaticism again ye see . It’s never satisfied until it’s consumed by it’s own greed 🙁

    T

  • Greenflag

    Dave ,

    ‘No, it’s up to people to provide for their own needs. They have no automatic right to shift the burden for the welfare onto other citizens. That is immoral.’

    Ahaha so there was nothing ‘immoral ‘ in one million mid 19th century Irish starving to death while they watched the ‘free market’ export food to those who could afford it in England ?. Likewise the 27 million Indians who died in the mid 19th century Indian famines were just as ‘principled ‘ as their Irish imperial cousins by ‘starving ‘ for the ‘free market ‘

    ‘No, it’s up to people to provide for their own needs.’

    I take it that you have no problem with the cities of Europe and the USA being surrounded in the future by millions of shanties just as they are in many of the third world countries of today ?

    You forget the fallacy of composition. Your vision of world seems to be a worldwide cross between Beverly Hills and the Gaza Strip whereby the former live lives of ever increasing prosperity-where technolgy serves an incresingly wealthy minority who will of course need it toensure their own physical protection . Meanwhile the Gazan strippers of the planet are stripped of ever more of their rights and while the ‘rich’ hunt them for ‘sport ‘ or harvest their ‘healthy ‘ organs to extend the lifespans of the ‘greedy geckos ‘.

    While the above scenario may be allowed to play out in the countries of the third world it’s a scenario that will not be allowed to come to pass in Europe or the USA or Japan . The people of these islands along with the French , Germans , Scandinavians , Italians etc will not sit ‘idly by’ during your proposed ’emisseration ‘ politics

  • runciter

    Furthermore I’m fairly certain that Mr Reagan and Mrs Thatcher had no executive role in Iceland, nor indeed in Spain, Ireland, Germany, Belgium, France, Australia or Italy many of whose governments were socialist for those years yet who all seem to be having equally as bad times of it recently as the UK and US.

    Which kinds of spoils the wacky claim that it was all the fault of US Democrats.

  • Greenflag

    Steve ,

    ‘the failure in fact is because the american middle class kept borrowing money they didnt have to accomadate lifestyles they couldnt afford.’

    Very true . So why did’nt the american middle class of the 80’s , 90’s and 00’s not have the money to afford the lifestyle their predecessors had in the 50’s, 60’s and 70’s ?

    There are ‘books ‘ written on the subject which give many interlinked reasons ranging from real income stagnation via underestimated real inflation figures on the part of the Governments to real labour productivity increases during the period going to the corporate execs, rather than the ‘middle class’, to the disempowering of trade unions since the 70’s . You may also recall the rise of Thatcherism in 1979 followed by Reaganomics in the USA of the 1980’s . Globalisation is now thrown into the complex mix to help ‘soften ‘ and make excuses for the ‘inevitability ‘ of the ‘American credit splurge .

    One thing is sure . The failure of Fannie Mae and Freddie Mac and Lehman Bros can be accused of
    setting fire to the pile .

    But the ‘pile ‘ itself has been building up since 1980 . It’s just that the people who benefitted from being on top of the pile did’nt want it to collapse during their sojourn at the top 🙁

  • Greenflag

    Rory ,

    The Japanese ‘property collapse ‘ in the 1990’s arose at a time when the Japanese ‘real ‘economy was doing very well .

    ‘He went on to say that the earlier collapses in the Far East were seen by them not as their own failures but as failures of the policies forced upon them by the IMF which they were obliged unhappily to accept.’

    There’s a lot of truth in his assertion . And a propos the Japanese they have just now emerged from the earlier collapse of their own property meltdown to now be assailed by a worldwide stock market equivalent 🙁 It never rains but it pours eh ?

    It’s going to take a world wide major economic power agreement to stave off a 30’s era collapse .

    So far there are no former Austrian housepainters come would be artists wearing bushy mustaches who have discovered the ‘simple ‘ solution at hand to national financial woes . No doubt some will arise if not in the west then in those parts of the world where the struggle for scarce resources is at it’s most intense .Now is not a good time to be part of a wealthy ethnic /religious /cultural minority in many parts of the worlds emergent economies .

    History is not at an end 😉 It’s just beginning again .

    Free market ‘fundamentalism ‘ has been just as successful as it ‘s communist or fascist equivalents except of course in terms of the ‘body ‘ count . I guess the Wall St ambulance emergency services are in a state of high alert as people gaze skyward in the hope of seeing a purveyor or two of ‘paper’ wealth plunge
    to the street minus golden parachute and preferably minus any parachute 😉

  • Harry Flashman

    Here’s a little quote from that bastion of right wing conservatism, the New York Times, as early as 1999 discussing the lunacy of Clinton forcing banks to lend money to people who couldn’t afford to repay the debt;

    “In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s,”

    But yes, it is all Reagan’s fault.

  • Greenflag

    Even hairier falsehoods ,

    ‘ I’m fairly certain that Mr Reagan and Mrs Thatcher had no executive role in Iceland, nor indeed in Spain, Ireland, Germany, Belgium, France, Australia or Italy many of whose governments were socialist for those years ‘

    When exactly did Ireland have a socialist government ?

  • Greenflag

    hardly fashionable,

    Who had the majority in Congress and the Senate in 1999 ? Here’s a clue -It was’nt the Democrats .

    By the time he was inaugurated in Jan 1993 the ‘financial services sector ‘ was already running riot with America’s debt fueled splurge built up under Reagan . Clinton’s principal economic adviser Robert Rubin (ex Goldman Sachs ) funny how the name GS keeps cropping up in’t it ?,
    persuaded the new President to ‘defer’ to the debt markets, prompting Clinton’s famous reply
    to Rubin

    ‘You mean to tell me that the success of my economic program hinges on the actions of the Federal Reserve and a bunch of f**king bond traders !

    Americans did’nt elect Greenspan or Rubin but they might as well have by 1993 so far had the debt spiral climbed .

    Bush II is just ‘lucky’ enough to be President at a time when the overall debt spiralled out of control, intersected with a property meltdown an met up with unnecessary and costly war while all three merged into a worldwide stock market collapse , all timed to perfection to juxtapose with the Presidential election .

    Napoleon was always keen never to appoint ‘unlucky’ generals . It seems that the American neo con nutters were ‘raptured’ into electing a Master of Disaster in 2000 .

    This President ‘ not only broke the mould but has burnt the plant down as well 🙁

  • runciter

    But yes, it is all Reagan’s fault.

    I thought you were arguing that it was Clinton’s fault?

  • Greenflag

    runciter ,

    Don’t be harsh on harriet flashy . He’s only following his masters voice . No two minds on slugger have ever ‘thought ‘ more like one than these pair of neo con cheer leaders for war, destruction and greed 🙁

  • Harry Flashman

    GF, if you can’t discuss the issues with a minimum of personal courtesy, and it now seems clear you can’t, then I see no point in continuing the discussion. Your childish name calling merely proves you are incapable of honest debate.

  • Dave

    “Which kinds of spoils the wacky claim that it was all the fault of US Democrats.” -runciter

    The Democrats played a large role in US woes, mainly in the form of passing legislation that compelled the GSEs to assume more mortgages from high-risk, low income groups as a means of provide ‘affordable housing’ to those groups and as a novel form of private-public partnership that was intended to act as an alternative to outright socialist social housing schemes such as are popular in the UK and Ireland, etc. These interventions do not work; and, rather obviously, regulation made housing unaffordable to low income groups because those groups used the cheap credit to seek profit from inflating the house prices – the common man undone by his own greed and foolish policy, alas. Unlike other models of government, opposition parties in the US have considerable power even when not serving in the executive branch of government. So it’s possible for these events to happen under a Republican president and to happen as a result of Democratic action.

    In addition, banking is the most regulated of businesses, so blaming it on a lack of regulation is nonsense. Indeed, what were the political class doing when they had the power to alter the regulation as appropriate? They were interfering in a reckless manner to serve their own agendas, much as they are doing presently. In case you failed to notice, not a damn thing that government has done to stabilise the markets has been successful. All they have done by these latest acts of intervention is throw good money after bad, exposing the taxpayer to great risk while protecting the stockholders and private business from loss. This uncertainly is predicated on uncertainty about the value of assets and the solvency of the asset holder, and they will remain until the free market prevails and weak banks collapse, thereby removing the uncertainty.

    There is nothing to fear in this process. It is right that the stockholders should be wiped out and that the banks should be recapitalised by new stockholders injecting capital, thereby restoring their liquidity. Most of these banks will be acquired by other banks that have not exposed themselves to reckless lending practices that where proffered by the government regulators and by the government agencies setting very low interest rates in order to promote the credit splurge.

    What those countries have in common is low interest rates, and that is also government policy, since the relevant agencies, the Federal Reserve, the European Central Bank, the Bank of England, etc, are responsible for setting those low interest rates to promote the government’s economic policy. The ECB followed the practice of the US Federal Reserve in order for the EU to stay competitive with the US, and the UK (which is not part of the Eurozone) followed the practice of the EU in order to stay competitive with the EU.

    Ireland, which surrendered sovereignty over its monetary policy to the EU, could not set its own interest rate, so it became a victim of the inappropriate rate that was set by the EU’s ECB. The correct interest rate for Ireland should have been at 6% by the Irish Central Bank under the Taylor at a time when the ECB set it at 2%. The result was that Irish banks loaned money too cheaply, and this allowed folks to borrow it cheaply and inject that equity into property, causing rapid house price inflation, exposing the lenders to the risk of losses from assets that were overinflated in value, and removing equity from more productive uses within the monetary system. If the rate was set at its correct level, then Ireland would not have traded a solid growth economy for a boom-and-bust economy, since you will find (oddly enough) that folks are less inclined to borrow money for property speculation if the mortgage payment is 4500 per month instead of the artificially low 1500 per month. Indeed, they tend to hand back the keys when it reaches its correct level. 😉

  • runciter

    reckless lending practices that where proffered by the government regulators

    The government may have failed to restrain them, but it was the lenders who acted recklessly.

    Your attempts to muddy the waters are not fooling anyone.

  • Harry Flashman

    “The government may have failed to restrain them, but it was the lenders who acted recklessly.”

    Have the borrowers no responsibility in all of this?

    Do you believe it is the job of the government to intervene in all consensual transactions carried out between consenting adults? Where would you draw the line?

    Does the man from the ministry always know best? Given that this government oversaw the selling off of billions of pounds worth of gold at the bottom of the market (and my wouldn’t it have been nice for the treasury to have that gold right now) and that they destroyed the British pension system, the jewel in the crown of western pension systems and now we learn that local government officials had invested eight billion pounds in the dodgy Icelandic banks I’m intrigued to find out exactly where your faith in the good sense of government officials comes from.

  • Greenflag

    ‘In addition, banking is the most regulated of businesses, so blaming it on a lack of regulation is nonsense. ‘

    More of the same oul shite Dave . You are repeating yourself .

    Banking was regulated up to 1999 at which time the USA’s ‘deregulation’ broke down many of the barriers which formerly protected borrowers and lenders . The expansion of credit (i.e debt) and money supply already well under way in 1999 was given an accelerated boost by the proliferation of hedge funds , derivative spinners and all manner of debt peddlers in what has been called the ‘shadow banking ‘ system .

    Lending which was once tied to banks was now partly assumed by the ‘shadow banking ‘ system .

    USA ‘regulators’ caught up in ‘deregulation ‘ theory either didn’t understand what was happening or because of the ‘Republican ethos’ of the free market refused to interfere with the ‘magic of the marketplace’

    Federal Reserve Chairman Greenspan sat idly by while while hedge funds , derivative merchants profited immensely from the new ‘mortgage ‘ gambit .

    Greenspan ignored the clamour surrounding the abuses of mortgage lenders .

    This is why it took a European, Axel Weber President of the German Bundesbank to become the first central banker to explain that the august 2007 crisis was just like a classic banking crisis or run – except it was taking place in the non bank financial system – the Bear Stearns ,Merril Lynch’s , Lehmans -hedge fund purveyors , etc etc etc .

    Washington ignored him .

    Meanwhile the ‘shadow banking ‘ system i.e your ‘free market ‘ took over the some of the ‘creating money’ duties formerly the prerogative of banks . Thus was debt and credit leveraged to even greater amounts in the building up of the ‘greed pile’

    Mohamed El Erian president of the Harvard Management Co wrote in early 2007 –

    ‘Over the past two years 2005 -2007 markets have developed powerful ‘liquidity ‘ factories in forms ranging from private equity to hedge funds as investors have embraced ‘debt’ in an attempt to increase the impact of their investments -.

    David Tice at the Prudent Bear Fund said credit derivatives had enabled a ‘ a credit apparatus unlike any in history with endless capacity to create ‘money’ like debt instruments .

    Derivatives expert Satyajit Das called the new quasi currency ‘candy floss ‘ money , saying that by the early 2000’s this new ‘liquidty ‘ factory had created a money pyramid that had no parallel in history

    This explains one of the reasons why despite the efforts of the US Government to date the ‘credit crunch’ refuses to budge and why Finance Ministers of the world’s G-7 are meeting in Washington this weekend .

    The financial ‘innovations ‘ developed by the voodoo practitioners of Wall St and the City of London have been the main instrument in upending the world’s financial system.

    Derivatives and structures with three and four letter abbreviations CDOs, CLOs, ABCP, CPDOs, SIV’s can and did take a depositor’s dollar and unlike in traditional banking multiply by five or six in the magical act of reserve banking -instead multiplied the depositors dollar by 25 times and even more .

    The Federal Reserve Bank that supposedly regulates the system could not compete with that level of ‘dollar ‘ printing 🙁

    All of the above has been underway since 1999 and even before .

    This Republican administration sat idly by – the previous Democratic one ignored the debt build up and the Reagan administration set the disaster train in motion by showing ‘Wall St ‘ that running up ‘debt’ mountains was a way to make money and that even more money could be made off the money that was made by creating ever bigger ‘debt ‘ mountains .

  • Greenflag

    harry,

    There’s no need to drag yourself out of bed at 4.00am ( can’t sleep eh with this market collapse ?) to tell me that you are upset and regret having lost your deposit on a McCain /Palin victory in November ?

    Anyway Flashman sounds so much like Fleischman that for all I know you might be in Tel Aviv ;)?

    Lighten up oul son . There’s worse to come 😉

  • Greenflag

    harry flasheart ,

    Your post 14 above presumes that borrowers knew who they were borrowing from . On the face of it they did but they did’nt see the 18,000 dollars commission being pocketed by the mortgage broker for the ‘heavy’ task of over estimating people’s income or job status -After all why would the broker worry for within as little as a month or two the ‘sub prime ‘ mortgage would have been packaged as a high earning security and marketed in’ tranches’ along with hundreds of others to an ‘investment’ bank in Iceland or some hedge fund who would sell it on further . At each stage in the sales process the commissions became ever larger until finally at the top of the Lehman tree (just one example of many ) the CEO could pocket 480 million dollars while presiding over a worthless heap of debt 🙁

    As I said earlier the average American or European for that matter is not a financial expert and aware of the vast web of corruption which has lurked beneath the facacde of either Wall St or the City or other financial capitals around the world .

    If the USA Federal Govt and the UK’s government could be hoodwinked by the ‘shadow banking industry’ why would you think the ordinary ‘borrower’ would have a chance ? Many were just too eager to build their ‘little’ piece of paradise in the suburbs and stop paying rent . As we know from our Anglosphere culture a man’s home is his castle and this is a common trait in the UK, Ireland , Australia , USA , New Zealand and Canada . Possibly comes from a long standing historical experience of seeing ‘natives’ being dispossessed in colonial days . We Irish just have an extra dollop of the ‘trait’ as many of us were ‘dispossessed’ as recently as the mid 19th cemtury.

    ‘Where would you draw the line? ‘

    A good question and one which is behind much of the current political debate worldwide and particularly now in the USA where we are treated to the spectacle of right wing republicans raging against the bail out and seeming to wish to bring a total economic collapse which would destroy not just the ‘gangsters of shadow bankdom’ but even themselves as well . One is reminded of Samson bringing down the temple pillars on both his enemies and himself .

    We all know that Government does not work effectively or efficiently in some areas . But we know that when looking for instance at Health care in the USA that were it not for Medicare (for the retired over 65’s) millions of elderly Americans would be dying in the streets because they could not afford a by pass surgery which could cost at ‘free market prices ‘ 100,000 dollars .

    Health Care , Education and National Defence and the Banking system should be under government control or strict regulation. There can be room for the private sector to cater for the 1 or 2 % of the population who can afford to pay for the very latest expensive ‘gadgets’ which will prolong the lives of the very wealthy on average from 85 to 87 ? . Same in education .

    There is no such thing as free health care nor for that matter free education . Because resources i.e taxpayers money is scarce then it behoves government to spend such taxes so as to make the most beneficial social impact. handing out ‘free education ‘ to the child of a multimillionaire in Ireland is ‘unfair ‘ . Forcing lower income background students in the UK and USA to take out debilitating loans to finance their higher education seems to me to be even more unfair .

    As I said earlier Thatcher’s move to the extreme right and America’s unthinking follow on of her example set the stage for today’s ‘cul de sac ‘.
    Globalisation and the free flow of unrestricted capital around the world on the face of it sound like a good thing at least in so far as it spurred economic development in poorer countries .

    Alas much of that ‘capital ‘ was borrowed and leveraged out on a pile of mathematical voodoo that now has capitalist chickens around the world looking for the fox who has ravaged everybody’s henhouse , i.e retirement savings , home equity ,economic futures , expansion plans etc et etc .

    The waters are muddy but we may see a clearing up next week . If we don’t you can start digging your winter veg patch 😉

  • Dave

    [i]”…reckless lending practices that where proffered by the government regulators…” – Dave

    “The government may have failed to restrain them, but it was the lenders who acted recklessly.

    Your attempts to muddy the waters are not fooling anyone.” – runciter[/i]

    As I pointed out (and as you ignored because it wrecks your argument): banking is the most regulated of all businesses. Banks don’t act ‘recklessly’ when they follow credit-scoring models that are devised, approved and monitored by the regulators. They simply follow government guidelines. If the policy of government is reckless, then the outcome of that state intervention will reflect that reality.

    In the US case, you had government promoting cheap credit (via the Federal Reserve); promoting crackpot credit-scoring models that were engineered to allow lower income groups to borrow money at great risk to the lender; promoting GSEs that would absorb the high risk mortgages from the lenders, and you had government giving an implicit guarantee to private businesses that the state would assume responsibility for all losses caused to the shareholders, thereby ensuring that there was no risk to the lender since the lender could not, by definition, act recklessly (no risk = no reckless action). On top of these fuck-ups by government, you have the common man using the regulations that were designed to create affordable housing for his ilk to generate profit via property speculation, thereby accelerating house price inflation and making housing unaffordable. Banks don’t visit house sellers and buy houses; each individual buyer does that. It is the actions of those buyers, incentivised by government policy, who inflated the value of the banks’ assets, not the banks.

    It is the same gormless gombeens who created this mess by state intervention who would have us believe that those gormless gombeens can solve this mess by state intervention. They can’t, and their efforts have failed. That guff (let’s blame ‘globalisation’ because that implies non-local responsibility) may impress the plebs but it doesn’t impress investors. They know that the actions of the governments are merely obscuring the underlining dynamics re solvency, and thereby exacerbating the problem rather than ameliorating it.

    Here is the chairman of the Federal Reserve, Alan Greenspan, instructing the lenders in 2005 to take “advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers” and to continue proffering “a multitude of new products, such as subprime loans and niche credit programs for immigrants.”

    “With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. The widespread adoption of these models has reduced the costs of evaluating the creditworthiness of borrowers, and in competitive markets cost reductions tend to be passed through to borrowers. Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent of the number of all mortgages outstanding, up from just 1 or 2 percent in the early 1990s.

    For some consumers, however, this reliance on technology has been disconcerting. Credit-scoring models are complex algorithms designed to predict risk. Consumer advocates have raised concerns about the transparency and completeness of the information fit to the algorithm, as well as the rigidity of the types of data used to render credit decisions. Consumer advocates contend that the lack of flexibility in the models can result in the exclusion of some consumers, such as those with little or no credit history, or misrepresentation of the risk that they pose.

    To address these concerns, some firms have worked to customize credit-scoring systems to include new data and to revalue the weight of the variables employed. Also, new organizations have emerged, developing new systems for collecting alternative data, such as rent payments and other recurring payments that will enable creditors to evaluate creditworthiness of consumers who lack experience with credit.

    Improved access to credit for consumers, and especially these more-recent developments, has had significant benefits.”

    That, of course, is proffering a political agenda. His only problem with the policy and lending practices of the banks (as devised by his Reserve) is that they are not lending even more money to even poorer people!

  • Harry Flashman

    GF, I have no desire to debate someone whose level of argument is silly name calling, stop being a twit and I’ll be happy to engage in an adult discussion about the issues.

  • runciter

    Have the borrowers no responsibility in all of this?

    Individuals have responsibility for their own individual behaviour.

    The people who run institutions have responsibility for the behaviour of those institutions. That is why they were paid so highly when things were going well. It is natural that they should also be accountable when things go wrong.

    I’m intrigued to find out exactly where your faith in the good sense of government officials comes from.

    It is the proper role of governments to regulate markets. It does not follow that one must necessarily “have faith in the good sense of government officials”.

    Just as believing in trial-by-jury does not mean that one must necessarily have faith in the good sense of juries.

  • Harry Flashman

    I’ve dealt with government workers, as I am sure you have, I’ve seen how they operate, they’re just as lazy, self serving and incompetent as many employees of private firms but the difference is that at least when I encounter useless service from private businesses I know I can try and get a better deal or better service elsewhere, and more to the point I know that the private sector employees can at least be sacked if they make a mess of things unlike government workers and I will not be paying for their pensions as well as my own when they comfortably retire after a lifetime of crap service.

    So again I come back to my basic point; in what way do you think transforming private businesses and employees into government departments and civil servants will improve the situation?

    When they nationalised the British car industry did British Leyland suddenly start making fantastic models that showed the Japanese and Germans how cars should be built?

    Will nationalised British banks be the envy of the world like British Leyland?

  • runciter

    So again I come back to my basic point; in what way do you think transforming private businesses and employees into government departments and civil servants will improve the situation?

    I don’t think I have advocated the nationalisation of banks on this thread.

    However, the reason that nationalisation is on the cards is that the banks have behaved so irresponsibly that they have brought their industry to the brink of destruction.

    We are at the point where the only institutions with the economic capacity to address the situation are national governments. If governments invest in the banks to prevent economic collapse, then they must get something in return. And what have the banks left to give, except equity?

    Of course, if the markets had been properly regulated in the first place then this unfortunate situation would never have arisen.

  • Dave

    Repeating flawed arguments doesn’t make them any less flawed. There is no laissez-faire system in banking: every aspect of it is controlled by government regulation. There are already over 12,000 people employed full time in Washington DC to regulate financial markets, and doubling that number won’t make any difference – nor will adding more layers of regulation to an already over regulated business.

    As usual, the socialist drones repeat after every financial crisis that more regulation is needed; and as usual, after more regulation is passed, another crisis comes along which the extra regulation fails to avert. For example, the Savings and Loan crisis in the late 80s and early 90s spawned the Competitive Equality Banking Act of 1987; the Federal Deposit Insurance Corporation Improvement Act of 1991, and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Now we have another financial crisis caused by government intervention, and the typical response of government and said drones is more government intervention.

    Perhaps is government didn’t intervene to lower the interest rate from 6.5% to 1% between 2001 and 2003, and didn’t threaten and cajole banks to loan money to lower income groups, providing government-sponsored entities such as Freddie Mac and Fannie Mae to absorb those risky loans and expand the sub-prime market, then banks wouldn’t be in a situation where their assets were inflated by the actions of government and the private property speculators that low interest rates spawned and where those assets are now subject to uncertainty related to their value and write-downs that will likely leave a multiplicity of banks insolvent?

    Indeed, perhaps if socialists had a brain cell between them they’d realise that US government intervention in the free market with the intention of making housing affordable to low income groups had the exact opposite outcome, making housing unaffordable to those groups and leaving others of that ilk with massive debts that they are unable to repay now that artificially low interest rates (as low as 1%) have proved to be unsustainable, and that when government makes such an utter mess of things in such a transparent manner that government should be strongly discouraged from further intervention, not encouraged. Did government intervention to make housing affordable to low income groups prove successful? No, so did government fuck things up royally. Yes. There is the simple reality of it but alas dogmatists are impervious to reality.

    Lastly, I think it is wonderful that socialists would de facto argue that poor people should subsidise the rich by agreeing to guarantee their cash reserves. It is very sweet of a man who probably has no more than a few thousand in a bank to agree to work for the rest of his life in order to repay all losses that may be suffered by a man who has circa 50 million in it. Indeed, I think it is also sweet that socialists do not want to see private businesses go bankrupt and their shareholders lose out. For, alas, if the private business went bankrupt, then its shareholders would be wiped out and the business would be recapitalised by new shareholders thereby restoring the bank’s liquidity. No, it is far better that liquidity is injected by the taxpayer rather than expose wealthy capitalists to the risks. How sweet of them, eh?

  • runciter

    every aspect of it is controlled by government regulation

    Asserting that banks bear no responsibility for their actions is not going to wash.

    It is no coincidence that lending institutions made huge profits while this credit bubble was being inflated.

    Also, it is not necessarily the quantity of regulation (which you like to focus on) but rather its effectiveness which is the issue.