Confidence

A few minutes earlier, George Osborne was no better - repeatedly refusing to say whether he thought AD's measures would do the trick.

The problem for all politicians is that a yes or no answer to virtually any question will come back to bite them.

Maybe the answer is to give them all a fixed term - say 20 years - with no entitlement to stand again. Then maybe they'd start to take the long view.

But throughout this particular crisis, we shouldn't forget who actually got us into this mess. Otherwise, it's a bit like blaming theft on the police and the legislature.

On Wed, 08 Oct 2008 11:09:34 GMT, "Martin"

But who is that ?

The banks for lending to people who couldn't pay the money bank ? The borrowers who borrowed money they couldn't pay back ? The journalists who did their best to undermine confidence in an industry which can't operate without it ? The politicians who meddled in a situation they didn't understand and made it worse ? The estate agents who helped talk house prices up to dangerous levels ? The planners who restricted the housing market so much that the laws of supply and demand pushed prices up ?

Cheers,

John

It's tempting to say all them. But, while few are totally blameless...

No. We all (well, most of us) borrow in the expectation of a continued income stream. If the borrower shouldn't rely on continuing income, then no-one should ever borrow anything.

The industry's confidence should be based on facts. That's why they employ tons of researchers. It was the "facts" within the industry which were ignored in favour a fast buck.

Agreed, they didn't seem to understand. But I'm not sure they did meddle and make it worse. Indeed, many argue they should have meddled more.

I despise them, but they're just salesman doing their job. I don't believe they pushed up house prices. Rather, I believe house prices are largely academic. For the great majority of people, the real issue is "how much can I afford each month?" It's the monthly payment which (depending on the interest rate) determines the house price. Monthly payments are a "real" expense, whereas house price is little more than a figure on a piece of paper.

No. Prices haven't crashed because planners are suddenly approving everything. So I can't see how the reverse argument can be applied. Indeed, there is currently no shortage of supply, which suggests they've done a rather good job - if only in anticipating the crash.

Yes - that's them!!

But not so much for the reason you suggest (as in my "continuing income stream" comment above) since (mostly) people could pay back when the loans started. But, above all, surely it's their (the banks') willingness to provide inadequately secured borrowing, compounded by trading all the worthless pigs in pokes without looking inside, which is at the root of all this?

In message , Martin wrote

The Police blame the victims for theft. If you didn't have something to steal the criminals wouldn't have targeted you!

Yeah. Both of them.

If a system requires something as nebulous as confidence to work (and I agree that fractional reserve banking does) then the system should be blamed, not the guy who says "I can see the Emperor's willy!"

The banks had a good run with fractional reserve banking (just as we are with a fiat currency?). It always ends the same way though because whenever anything causes a problem for a bank, everyone knows that a bank that loans out 12 or 33 times its assets is only going to be able to repay the first few depositors through the door.

Brown and Darling say they'll do whatever it takes to ensure this doesn't happen again. Anyone ready to bet that they'll abolish fractional reserve banking?

That's their job innit?

Look at:

Amid the carnage, there were buy-backs of stock by investment trusts, desperate to shore up their share prices. This resulted in a massive outflow of cash, just when liquiditywas at its most precious. They bought their own worthless stock wrote Galbraith. Men have been swindled by other men on many occasions. The autumn of 1929 was, perhaps, the first occasion when men succeeded on a large scale in swindling themselves.

Then tell me that governments aren't repeating this error with banking shares and our cash.

Shucksters all. Find the ones who signed forms with lies about income on them, then jail them and their co-conspirators for fraud.

Hang them. Definitely.

FoFP

The mathematicians who thought up ever more complex and bizarre derivatives that no-one could understand, thus turning the toxic waste of irrecoverable mortgages into AAA rated bonds? Was this the modern day equivalent of alchemy?

Or the regulators who let them?

Neb

They can't reply 'yes' because no-one could honour such a guarantee. The Financial Services Compensation Scheme can only cover lost deposits of £4bn per annum and that is by a levy on all member financial institutions. (And who is going to be left to pay the levy if several major banks fail). It might cover the failure of a rather modest institution if it stopped trading before any significant hidden debts accrued. With Northern Rock having £20+bn in savers deposits, HBOS £250+bn and B&B £20+bn, it is understandable that they were rescued rather than the actual scale of FSCS trying to cope. The FSCS is already £14bn in the red after having to borrow from the government to guarantee transfer of B&B savers account to Santander.

All they can try and do is 'whatever it takes' in response to events, not give open guarantees for which money is not available, either from the FSCS or from what is finitely possible for the government

Similarly, it is hardly surprising that Iceland possibly can't honour it's guarantee - there was probably never any concept it would be called to account on the current scale.

Toom

Thus, without a guarantee confidence cannot be restored.

Just ask yourself this - when was the last time you had confidence in someone when they said they'd try and do whatever it takes to resolve the situation, without you secretly doubting it and devising a an alternative course of action as a plan b, lest it didn't all work out? That's what's happening here - there's no trust precisely because there are no guarantees.

If guarantees cannot be made, then we're stuck in a loop until a) someone takes a risk and believes the best efforts mantra or b) we wait until there is enough money to make a guarantee.

Hopefully a) will take place first eventually, with b) being the ultimate aim of governmental action over the long-term and across successive governments, historically and worldwide to prevent this from happening again.

Or until enough debt is repaid and defaulted upon that the ratio of credit to wealth in the world economy is once again stable. That's the essence of a deflation. Fortunately deflations are self-limiting. There is some level of prices which will bring this to a stop. Most likely where assets are concerned, those prices are well below current prices.

It'll happen again, but it won't be as bad as this again until the grandkids of people working today are adults and go mad on debt.

FoFP