2%

[Cambon]

What planet are you on? The BoJ's rate is currently 0.1%.

 

A planet where people actually read a post before replying

 

Or cushion the fall making the difference in saving some businesses or losing them all. With the G7 average base interest rate at 1.1%, what do you know that the worlds leaders don't?

 

Encouraging people who are already seriously in debt to go further into debt is going to make the situation worse for all of us, not just a million or so who will lose their jobs.

 

The whole credit crunch has been caused by people taking on more debt than they can afford. How is taking on any more going to help? Perhaps you know? Or, more likely you have been taken in by the spin in the papers.

 

And people have the nerve to call be a Daily Mail reader!

[Slim]

A planet where people actually read a post before replying

 

I read your post. When did japan raise their rates to stimulate the economy?

 

Encouraging people who are already seriously in debt to go further into debt is going to make the situation worse for all of us, not just a million or so who will lose their jobs.

 

No, you're helping the people already in debt to get out of it by reducing the costs. Nobody's lending, so there's no new debt, the borrowing figures are publicly available.

 

Once again, you're just making stuff up.

[Cambon]

No, you're helping the people already in debt to get out of it by reducing the costs. Nobody's lending, so there's no new debt, the borrowing figures are publicly available.

 

Once again, you're just making stuff up.

 

 

What a load of cock. Granted it reduces some people's costs - in particular many of those with mortgage. However, for the majority of people - those in rented and council properties, and those who own their homes outright, their costs remain the same.

 

So old Mrs. Kelly in her commissioners house, who lives on state pension and income from savings is either going to have to eat into her savings or put more borrowing on credit. Anyone retiring this year and having to buy an annuity for the rest of their lives is fucked as well. They are going to have to borrow to survive.

 

Even you - You might save £100 a month on this last rate cut. But, when was the last time you bought something that cost £100 and did not pay on credit card?

 

You can look through your rose tinted glasses and try to believe that the government are doing the right thing but all they are doing is delaying the inevitable.

[Cambon]

No, you're helping the people already in debt to get out of it by reducing the costs. Nobody's lending, so there's no new debt, the borrowing figures are publicly available.

 

Once again, you're just making stuff up.

 

 

What a load of cock. Granted it reduces some people's costs - in particular many of those with mortgage. However, for the majority of people - those in rented and council properties, and those who own their homes outright, their costs remain the same.

 

So old Mrs. Kelly in her commissioners house, who lives on state pension and income from savings is either going to have to eat into her savings or put more borrowing on credit. Anyone retiring this year and having to buy an annuity for the rest of their lives is fucked as well. They are going to have to borrow to survive.

 

Even you - You might save £100 a month on this last rate cut. But, when was the last time you bought something that cost £100 and did not pay on credit card?

 

You can look through your rose tinted glasses and try to believe that the government are doing the right thing but all they are doing is delaying the inevitable.

[pongo]

The whole credit crunch has been caused by people taking on more debt than they can afford.

 

I disagree. I believe that has been a side effect of the new mechanisms which were dreamed up for the securitization and repackaging of essentially valueless debt - mechanisms which, on paper at least, seemed to create profits out of nothingness.

[Sebrof]

The whole credit crunch has been caused by people taking on more debt than they can afford.

 

I disagree. I believe that has been a side effect of the new mechanisms which were dreamed up for the securitization and repackaging of essentially valueless debt - mechanisms which, on paper at least, seemed to create profits out of nothingness.

 

They are two completely separate and distinct problems, which unfortunately coincided.

 

Securitisation did not encourage NR to offer 125% mortgages. They kept them on their books. That's why they are in such trouble.

 

S

[Slim]

Are you going to answer the point about Japan?

 

What a load of cock. Granted it reduces some people's costs - in particular many of those with mortgage. However, for the majority of

people - those in rented and council properties, and those who own their homes outright, their costs remain the same.

 

The people without debt? As you said yourself, we're in this mess because there was too much borrowing. Now all of a sudden there's a majority of people without debt? Make your mind up!

 

So old Mrs. Kelly in her commissioners house, who lives on state pension and income from savings is either going to have to eat into her savings or put more borrowing on credit. Anyone retiring this year and having to buy an annuity for the rest of their lives is fucked as well. They are going to have to borrow to survive.

 

It's unfortunate for these people. The alternative is to leave rates high, have more people go bankrupt, a collapse of the banking system and savers would lose everything. Is that better for Mrs Kelly Cambon?

 

Even you - You might save £100 a month on this last rate cut. But, when was the last time you bought something that cost £100 and did not pay on credit card?

 

Don't use credit cards personally. Look, I'm not a big believer in debt, I don't have any loans other than my mortgage and only use credit cards online and pay off the balance. We're deeply in the shit because of cheap credit, and on the face of it it looks daft to provide cheaper credit. But I understand the mechanism here is designed to soften the blow. Hopefully that will lead to more responsible lending in future, having tried to renegotiate my own mortgage recently I know for a fact that they simply aint lending at all right now, and the national figures back this up. For the first time in decades, we're actually paying off more equity than we're borrowing.

 

You can look through your rose tinted glasses and try to believe that the government are doing the right thing but all they are doing is delaying the inevitable.

 

No, they're attempting to soften the effects of the inevitable and speed the recovery. If we need businesses to still be around when things pick up, they need credit.

[Chinahand]

I don't think the two issues are "completely separate and distinct" Sebrof - that's too strong - they've fed on each other.

 

My understanding is that after the tech bubble burst interest rates world wide were too low, plus Asia with high savings rates and export dominated economies intervened in the bond markets to finance their trade surpluses further lowering rates.

 

With cheap money there were housing booms and banks developed new ways to fund these - mainly by creating what I call a funding escalator where rather than waiting for deposits to fund new mortgages they securitized and sold their existing mortgages on and used the cash to lend as new mortagages. With cash cheap and a seeming never ending boom people were willing to hand cash over to the banks to keep the escalator going.

 

One point in this is that the politicians actively encouraged this - in the US laws were brought in demanding certain proportions of mortages were lent to minorities - which given racial and economic realities meant government mandated lending to people with bad credit ratings.

 

When people say the banks need to be regulated this is a very important point - they were being regulated previously - with very BAD regulations which encouraged bad lending practices.

 

By having Feddie Mac etc be seen to be government backed - and by calling its MD into congress demanding more lending - a reckless atmosphere was encouraged with the state implicitly seen as carrying the can.

 

Homeowners were encouraged to be reckless (turning good renters into bad borrowers) and banks were encouraged to find ways to fund them. And cheap money from global imbalances funded it.

 

These imbalances have to work their way out of the system - but letting that all happen at once would shut down the world economy - you can't reduce discretionary spending by something like 50% in the west (which is what is needed, though the figure is plucked out of my head so don't nitpick on it!) without devistating economies. So how to reduce its impact?

 

Keynsian ideas says the government should step in and spend in place of the consumer, or fiscally provide cash through tax cuts, increased benefits etc - BUT governments have no spare cash to do this and so are having to increase borrowing.

 

Monetrist ideas say to stimulate the economy you should cut interest rates allowing people and businesses to borrow more cash - but governments can only influence interbank borrowing and then only weakly - the base rate is irrelevent if the interbank rate and corporate bond rates aren't inflenced by it. Which they aren't being due to the continuing credit scare.

 

Its a dangerous time and vastly inter linked - I would not like to be trying to produce policies which will effectively unblock the mess - there is no such thing as "separate and distinct" problems and solutions which make things better in one area may actually make them worse else where - the result policy paralysis and beggar you neighbour policies like bailing out US owned car plants etc.

 

It isn't the 1930s - but also its a unique mess and its going to take alot to get things working again - it'll be a whole new world when we emerge from the tunnel!

[Cambon]

First of all - well said Chinahand.

 

Are you going to answer the point about Japan?

 

Ok, I was not going to because you changed it's meaning twice, but - see link - rate from 2001 was 0.1, economy did little. 2006 they started to raise rates, just a little, and it helped stimulate the economy.

 

http://www.globalbaserates.co.uk/interest_...p?country=Japan

 

The people without debt? As you said yourself, we're in this mess because there was too much borrowing. Now all of a sudden there's a majority of people without debt? Make your mind up!

 

Again you change my words. What I said was that the majority of people do not have mortgages and will not benefit from interest rate cut.

 

It's unfortunate for these people. The alternative is to leave rates high, have more people go bankrupt, a collapse of the banking system and savers would lose everything. Is that better for Mrs Kelly Cambon?

 

That is what the UK government would like you to believe. In reality total collapse of the banking system will not happen. Other than KSF IOM, name me one other bank that has gone pop and people have lost money in this credit crisis?

 

Don't use credit cards personally. Look, I'm not a big believer in debt, I don't have any loans other than my mortgage and only use credit cards online and pay off the balance. We're deeply in the shit because of cheap credit, and on the face of it it looks daft to provide cheaper credit. But I understand the mechanism here is designed to soften the blow. Hopefully that will lead to more responsible lending in future, having tried to renegotiate my own mortgage recently I know for a fact that they simply aint lending at all right now, and the national figures back this up. For the first time in decades, we're actually paying off more equity than we're borrowing.

 

So you don't uses credit cards, but you do use credit cards! You are not a big believer in debt, and then you are trying to renegotiate your mortgage, most likely for a better/cheaper deal, which will no doubt extend the term of borrowing.

 

Slim, I will now give you some good, solid advice. Forget the rate of interest on your mortgage and take advantage of this ridiculous situation to clear as much of the capital as you can before the rates go back up. Because when they go back up you will be paying probably the same large amount per month and hardly reducing the capital at all.

 

You might think I am an idiot, that is your prerogative, but I am an idiot with who does not own a credit card and who managed to pay off his mortgage 9 years early by using the above method last time.

[Slim]

Ok, I was not going to because you changed it's meaning twice, but - see link - rate from 2001 was 0.1, economy did little. 2006 they started to raise rates, just a little, and it helped stimulate the economy.

 

You're bleating about low interest rates, and stating Japans 0.1 to 0.3 example as a stimulating rise? You're on crack.

 

Again you change my words. What I said was that the majority of people do not have mortgages and will not benefit from interest rate cut.

 

They will benefit, just not directly. They benefit from their banks not going under, the benefit from businesses staying open.

 

That is what the UK government would like you to believe. In reality total collapse of the banking system will not happen. Other than KSF IOM, name me one other bank that has gone pop and people have lost money in this credit crisis?

 

Icesave?

 

So you don't uses credit cards, but you do use credit cards! You are not a big believer in debt, and then you are trying to renegotiate your mortgage, most likely for a better/cheaper deal, which will no doubt extend the term of borrowing.

 

I don't pay interest on credit cards, which is what you were talking about. I use a credit card for purchase protection, not for credit. I'm not a believer in debt but I do believe in saving money, so my deals coming to an end and I'm trying to renegotiate. Not to extend it, I'll actually pay off some capitol to shorten it. Turns out there's no deals anyway, so I'm probably just going to go onto SVR.

 

Slim, I will now give you some good, solid advice. Forget the rate of interest on your mortgage and take advantage of this ridiculous situation to clear as much of the capital as you can before the rates go back up. Because when they go back up you will be paying probably the same large amount per month and hardly reducing the capital at all.

 

Heh, I'm not thick. I've got it covered, thanks. Don't forget you get tax relief from a mortgage too.

[Cambon]

Heh, I'm not thick. I've got it covered, thanks. Don't forget you get tax relief from a mortgage too.

 

But only a fraction of what you pay.

 

SVR and overpaying IS always the best way to go with a mortgage. If you cannot afford repayments and the risk of rate rises on a SVR mortgage, basically you cannot afford to take out any mortgage.

[Slim]

But only a fraction of what you pay.

 

Quite a large fraction! It all helps. Course it's better to not have a mortgage at all, but with interest rates so low it's not such a huge drama to pay it off.

 

SVR and overpaying IS always the best way to go with a mortgage. If you cannot afford repayments and the risk of rate rises on a SVR mortgage, basically you cannot afford to take out any mortgage.

 

Get away with you! Currently a discount tracker is the best way to go, and the overpayments in a savings account. If you're on a base rate discount costing 2%, you're getting additional mortgage tax relief on this interest, and your banks paying you 3.5% interest on your savings wich is liable for tax, how are you better off paying your mortgage? Care to explain those maths to me? SVR is only worth having currently because the deals are so bad. This might improve a little now that the rate drop was lower than the expected 1%.

 

I'm just gutted my tracker rate ends soon and I'm forced to go to svr. I've a mate who's got a 1.5% discount tracker fixed for 3 years, the smug git!

[Sebrof]

I don't think the two issues are "completely separate and distinct" Sebrof - that's too strong - they've fed on each other.

 

My understanding is that after the tech bubble burst interest rates world wide were too low, plus Asia with high savings rates and export dominated economies intervened in the bond markets to finance their trade surpluses further lowering rates.

 

With cheap money there were housing booms and banks developed new ways to fund these - mainly by creating what I call a funding escalator where rather than waiting for deposits to fund new mortgages they securitized and sold their existing mortgages on and used the cash to lend as new mortagages. With cash cheap and a seeming never ending boom people were willing to hand cash over to the banks to keep the escalator going.

 

One point in this is that the politicians actively encouraged this - in the US laws were brought in demanding certain proportions of mortages were lent to minorities - which given racial and economic realities meant government mandated lending to people with bad credit ratings.

 

When people say the banks need to be regulated this is a very important point - they were being regulated previously - with very BAD regulations which encouraged bad lending practices.

 

By having Feddie Mac etc be seen to be government backed - and by calling its MD into congress demanding more lending - a reckless atmosphere was encouraged with the state implicitly seen as carrying the can.

 

Homeowners were encouraged to be reckless (turning good renters into bad borrowers) and banks were encouraged to find ways to fund them. And cheap money from global imbalances funded it.

 

These imbalances have to work their way out of the system - but letting that all happen at once would shut down the world economy - you can't reduce discretionary spending by something like 50% in the west (which is what is needed, though the figure is plucked out of my head so don't nitpick on it!) without devistating economies. So how to reduce its impact?

 

Keynsian ideas says the government should step in and spend in place of the consumer, or fiscally provide cash through tax cuts, increased benefits etc - BUT governments have no spare cash to do this and so are having to increase borrowing.

 

Monetrist ideas say to stimulate the economy you should cut interest rates allowing people and businesses to borrow more cash - but governments can only influence interbank borrowing and then only weakly - the base rate is irrelevent if the interbank rate and corporate bond rates aren't inflenced by it. Which they aren't being due to the continuing credit scare.

 

Its a dangerous time and vastly inter linked - I would not like to be trying to produce policies which will effectively unblock the mess - there is no such thing as "separate and distinct" problems and solutions which make things better in one area may actually make them worse else where - the result policy paralysis and beggar you neighbour policies like bailing out US owned car plants etc.

 

It isn't the 1930s - but also its a unique mess and its going to take alot to get things working again - it'll be a whole new world when we emerge from the tunnel!

 

I am afraid you have completely missed the mark, Slim.

 

There are a great many Labour supporters trying to sell the idea that the present crisis is nothing to do with Britain (and therefore Gordon Brown), and everything to do with cash surpluses and complex derivatives.

 

I don't deny that there has been a lot of cash swilling around, and I don't deny that some very funny financial instruments have caused enormous problems.

 

But the biggest problem in Britain is the massive housing bubble (which has now burst), which was caused by outrageously risky lending practices on the part of the mortgage providers. The fact there was loads of cash swilling around did not provide a justification for this behaviour.

 

Gordon Brown's culpability arises because he did nothing to prevent the bubble getting bigger and bigger. It was blindingly obvious to everybody with half a brain that there was going to be a mighty crash when the bubble finally burst, and burst it has.

 

Prudent bankers would not have lent so much and to such unworthy borrowers, and a prudent chancellor would have curbed their excesses as soon as they became apparent.

 

I suspect that Brown never imagined it would take so long for the Tories to become electable (I'm not sure if they are now), and thought he would be back in opposition by 2005, having left a nicely baited trap for the Tories. That's if he thought at all, which is open to doubt.

 

S

[Chinahand]

Sebrof - I think you need to be disagreeing with me rather than Slim over the above post! And again I've not *completely* missed the mark - I've contexturized it to the international situation. Yes Brown allowed a housing bubble to develop - but so did Spain, so did the US etc.

 

I agree I have been reading Economist articles for years worrying about its effects - but it was not clear how to pop the bubble and I do not think it is totally obvious which policies Brown went wrong with [and before you accuse me of being a New Labour supporter or Brownite, I'm a life long, non-card-carrying, liberal Tory].

 

In the US case its easier to see what went wrong - Congress's behaviour over Freddie Mac etc was significant in creating the crisis through it demanding inappropriate lending. The simple size of the US financial market AND its relationship with China are the main causes of this being a global problem.

 

No matter what you say I still feel that this is a worldwide financial crisis where individual countries may be worse off that others, but its causes were global imbalances. Do I blame Brown for making things worse in the UK - I'm not sure - I do not think anyone appreciated the seriousness of what was occuring in the early years of the century - I do blame him for being very confused in his early response to NR and to taking a huge risk in his plans to reinvigorate the economy.

 

Also, while I agree Northern Rock's collapse may be mostly due to the UK's failings, I am not convinced RBS's or Barclays' difficulties entirely are - the effect of the world's credit crunch is also significant. This is also true for the more general economic wows in industry etc which are now becoming apparent.

 

Plus Sebrof you really don't need to include someones entire post when you reply - if you'd identified me correctly it would be obvious which post you were referring to.

[Sebrof]

Sebrof - I think you need to be disagreeing with me rather than Slim over the above post! And again I've not *completely* missed the mark - I've contexturized it to the international situation. Yes Brown allowed a housing bubble to develop - but so did Spain, so did the US etc.

 

I keep doing this. In my defence, I am so used to Slim disagreeing with me that I just naturally assumed it was him replying to my post!

 

Contexturized = contextualised?

 

Anyhow, to the point.

 

Yes, housing bubbles were allowed to develop by complacent authorities in a number of countries. That does not absolve the authorities from their guilt in permitting these aberrations to occur.

 

........... it was not clear how to pop the bubble and I do not think it is totally obvious which policies Brown went wrong with...........

 

It was very clear to me how to stop the bubble. I would simply have instructed the BoE to call a meeting of all bank chairmen and instruct them to stop lending imprudently, failing which legislation would be passed to force them to behave. One way would be to make a repayment of a loan unenforceable if it could be shown to have been irresponsible - as defined by a number of criteria.

 

I think that would have been a better aproach than to have included house price inflation in the B0E's remit. RPI instead of CPI. The two are not connected.

 

In the US case its easier to see what went wrong - Congress's behaviour over Freddie Mac etc was significant in creating the crisis through it demanding inappropriate lending. The simple size of the US financial market AND its relationship with China are the main causes of this being a global problem.

 

No matter what you say I still feel that this is a worldwide financial crisis where individual countries may be worse off that others, but its causes were global imbalances.

 

Don't disagree, and I don't disagree that there is a global problem. However, it has been massively exacerbated in Britain by the domestic housing bubble.

 

I do not think anyone appreciated the seriousness of what was occuring in the early years of the century.

 

This is where I totally disagree. It has been as clear as the nose on your face that Armageddon was coming. It is why I sold my home in 2005, and rented. As for Brown's response to the crisis, it was all part of his total myopia.

 

The illusory rise in house prices encouraged huge numbers of people to increase their mortgages and spend the money. Now they have nothing to show for it but higher debt, and the businesses that geared themselves up to service the consequent increase in demand now find themselves high and dry.

 

Also, while I agree Northern Rock's collapse may be mostly due to the UK's failings, I am not convinced RBS's or Barclays' difficulties entirely are - the effect of the world's credit crunch is also significant. This is also true for the more general economic wows in industry etc which are now becoming apparent.

 

NR would have happened without the credit crunch. It was just a question of when. As for RBS and Barclays, I would say that RBS's woes are down to hubris. It was absurd to stretch themselves so much when the various housing bubbles were all visibly close to bursting. Barclays I am not sure about. The malaise in the global economy would have caused trouble for them, but they would be in a much stronger position if there was no house price problem.

 

Plus Sebrof you really don't need to include someones entire post when you reply - if you'd identified me correctly it would be obvious which post you were referring to.

 

Is this better?

 

S