Hi again Deano.
I think you meant the credit crunch was caused by banks lending too much money ....
I share your desire to keep things simple and confess I love to kiss(keep it simple stupid) where ever I can. However there are large sections of society who rely on their savings for their income who will struggle desperately with tumbling interest rates. Incidentally savings deposited can be lent out again at rates more readily acceptable to borrowers and savers.(ok subject to liquidity equations but maybe there's room for creativity here)
My assessment of the the situation is that those fortunate enough to be solvent will be scared stiff of what faces them so will be doing all they can to put money aside in case they lose their jobs and therefore have something to fall back on .Then there are those that have over extended themselves and are swimming as hard as they can just to stay afloat, sadly many won't.
Just wait until your council tax bills start landing on the door Gordon does another smoke and mirrors trick.
The key to exiting the recession will be about confidence . No body is going to expose themselves to taking on debt again until they believe that the economy is turning the corner.
Neither Brown nor Cameron are capable of taking us to that point imho.
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Quantitive Easing
Should we be quantitively Eased?
too simple...."the banks lending too much money"
the financial institutions were deregulated in the early eighties. part of regulation, for a chartered bank, was a limit on "fractional reserve lending" if anyone wants to discuss the issues of...fractional reserve lending, interest, compound interest, money supply, credit/dept, derivitives etc. feel free. very simple. if the populist get to know and understand what has happened, there will be outrage and at least, jail sentences. dave
the financial institutions were deregulated in the early eighties. part of regulation, for a chartered bank, was a limit on "fractional reserve lending" if anyone wants to discuss the issues of...fractional reserve lending, interest, compound interest, money supply, credit/dept, derivitives etc. feel free. very simple. if the populist get to know and understand what has happened, there will be outrage and at least, jail sentences. dave
I feel what most people dont understand about the cause of the credit crunch is the fact that fixed income structurers and traders were filling banks books with risk that senior management didnt understand.
Those traders collected large bonuses based on volume and then more often and not moved on to other banks as "star" traders leaving large residual risks using the much maligned Credit Default Swap and CDO squared (and CDO cubed. The nature of these instruments, like all derivatives, is that one loan can spawn 1000 instruments. If that loan goes bad then the losses (and profits) multiply.
Bottom line is bank management structure...senior bankers have no clue what risks the traders are filling the banks book with...until its too late. It only needed a few mortgage books to go bad and hey presto...the knock on effect is what we are now witnessing.
A useful lesson for regulators and the future...?
Those traders collected large bonuses based on volume and then more often and not moved on to other banks as "star" traders leaving large residual risks using the much maligned Credit Default Swap and CDO squared (and CDO cubed. The nature of these instruments, like all derivatives, is that one loan can spawn 1000 instruments. If that loan goes bad then the losses (and profits) multiply.
Bottom line is bank management structure...senior bankers have no clue what risks the traders are filling the banks book with...until its too late. It only needed a few mortgage books to go bad and hey presto...the knock on effect is what we are now witnessing.
A useful lesson for regulators and the future...?
the rate, speed, acceleration (exponential) of the growth of multiple fractional reserve lending by finance houses, brokerage,commercial and subsequently chartered bank's with INTEREST,FEE'S AND COMMISSION'S PAID, due to deregulation, (10 to 1 fractional reserve), has brought about this "mother of all crises" quote of paul volker (ex federal reserve chairman, now on obama's team), about ! it is unresovleable short of war (the destruction of the means of production).sorry. subjective, just my opinion.
Its really like the emperor's new clothes - we did see this coming just no one wanted to say it.
Really this goes back to the 80's when the me me me brigade was created and the importance of a local community was put under pressure.
We are now a service industry. Northern Irelands economy relies totally on services - a huge amount of the workforce are working for public services. We got rid of engineering and construction courses at colleges and Uni's again too expensive. However as a consumer, I can get to a superstore within minutes! My town centre is dead but my superstore can sell me everything I could possibly need! If it cant the internet will. How good has that been for small and medium size businesses? Crass. But it will only continue.
Printing money we havent got goes back through the centuries.
We havent had a decent war to cause the need for a major rebuilding programme and to downsize the population.(ps decent means as in world wide not as in good).
Ok this all sounds doom and gloom.
Its not.
We will find a solution to this downturn in the economy but the world will be different.
I am sad my son is having his house repossessed. He is 22 and has worked 50 hours a week and still its not enough. Why wasnt it enough? Because the house price was so ridiculous in the first place. Greed breeds greed and the next generation reaps the greed of the last 20 years.
Rant over . Good post NGDE xxxx
Really this goes back to the 80's when the me me me brigade was created and the importance of a local community was put under pressure.
We are now a service industry. Northern Irelands economy relies totally on services - a huge amount of the workforce are working for public services. We got rid of engineering and construction courses at colleges and Uni's again too expensive. However as a consumer, I can get to a superstore within minutes! My town centre is dead but my superstore can sell me everything I could possibly need! If it cant the internet will. How good has that been for small and medium size businesses? Crass. But it will only continue.
Printing money we havent got goes back through the centuries.
We havent had a decent war to cause the need for a major rebuilding programme and to downsize the population.(ps decent means as in world wide not as in good).
Ok this all sounds doom and gloom.
Its not.
We will find a solution to this downturn in the economy but the world will be different.
I am sad my son is having his house repossessed. He is 22 and has worked 50 hours a week and still its not enough. Why wasnt it enough? Because the house price was so ridiculous in the first place. Greed breeds greed and the next generation reaps the greed of the last 20 years.
Rant over . Good post NGDE xxxx
