The Real Culprits?

Being discussed on the Big Question now.

Greatnan I was trying to remember what it was that caused the massive housing boom back in Thatcher's time - thank you - it was MIRAS. We had just moved to London from the north when that happened. The price of houses was going up practically every day. Luckily, we didn't buy right at the top of the market, but people who did then saw the value plummet. That was OK if they didn't have to move - they just sat it out in negative equity for a few years - but for those, like a work colleague of mine, that did have to sell (moving for work, broken relationships, etc. etc.), it was a nightmare.

The media often presents rising house prices as a good thing. Those who have bought feel happy that their "asset" is increasing in value, but unless you are going to sell your house and move to a much cheaper area, there is really no benefit in house prices rising year on year. All it does is make it more difficult for people to make their first purchase and everyone's liability for stamp duty increases too.

Financial institutions didn't really care that the transactions they were allowing were unsustainable, because they were making money from them, and when everything went pear shaped the institutions were just bailed out with taxpayers' money.

I remember

You're so young.....
I well remember the total chaos in 1988 when Nigel Lawson announced in his April budget that MIRAS (Mortgage Interest Relief at Source) would cease to be allowed to both borrowers in August. Naturally, there was a mad scramble to get mortgages whilst double interest relief was still available - employers were begged to lie about wages, house prices soared. Shortly after it was announced that interest was going up to 15%.
Tens of thousands of new home owners found themselves with negative equity and mortgage repayments that had risen beyond their means to pay. Some tried to give back the keys to the Building Society but found that they were still liable for the full loan. They lost everything. I am sure many people will say it was their own fault.

If I am being kind, I will say it was pure stupidity on Lawson's part. If I am in my cynical mood, I would ask who benefited from the rise in house prices.

Most of us probably also remember interest at 14% too Greatnan. I am sorry to say that 2.5% never figured in my mortgages.

The average cost of a terraced house in the UK is £200,000. Many lenders are restricting mortgages to 70% - not of the sales price, but of their own valuation. So what chance have a couple on average salaries got of ever saving up a minimum of £60,000? So, no first time buyers and therefore no movement in the house chain.

Most of us on here are of an age when deposits could be as low as 5% and interest was 2.5%. I am sure most of us had to make do and mend, borrow furniture from our parents , buy secondhand, etc. Weren't we lucky?

My own daughter kept her last suite for 14 years, in spite of 6 children and dogs and cats. She is a very good manager and takes good care of all their belongings. So what? I really don't think anecdotal tales of how wonderful our children are has any bearing on the culpability of the banks and building societies.

So, borrowers should not have asked for so much. They were naive and possibly trusted the professionals too easily. I cannot see how that makes it any less monstrous that the lenders who made so much money have escaped any personal punishment. That is like blaming somebody who leaves a window open for any subsequent burglary. Yes, they were careless, but does that mean the burglar is any less culpable?

Contentment = true happiness. Greed = ongoing misery.

Most people these days worship money far too much. And I'm not talking about the ones who haven't got much. I'm talking about the comfortably off who want more, more, more.

Greed is at the heart of a lot of today's financial troubles.

#contentment

Of course there is no 'need' Anno, but there is an 'expectation' - same for foreign holidays, etc- that it is a 'right' and due- whatever the consequences.

Very proud of our daughter who is working so hard to bring things around. She will work day in, day out, 7 days a week - to get herself back on her feet, like the little red hen. She could have given up - but never has, and never expected others to pick up her tab.

Years ago when we were first buying a house on a mortgage there was a formula by which the building society calculated the maximum amount of money you could borrow irrespective of the price of the house you wanted. It was directly linked to your basic salary - started off at two and a half times that of the the main earner ( usually the husband) and then started to include half the salary of the wife - in time this increased to once the salary of the wife. The two figures added together told you the money you could borrow - very easy and you could do it yourself before you went to the building society. The repayments on these calculations were thought to be the maximum you could comfortable afford to repay and still live adequately.
There were of course less people with a mortgage but these figures were almost written in stone and we did not have all the problems unfortunate people encountered in later years when able to borrow the percentage against the house price - bit ridiculous really when you think about it as the income you have is what will determine the amount you can pay back.
Aspiration is good but needing to have everything immediately and not make do for a while has been the shredding of so many dreams. There are so many books, magazines, TV programmes and the like showing the latest fashions in house and clothing that the 'change everything and have new' has taken over. Personally I like things which have sort have grown comfy round me and sometimes I could cry when old favourites wear out and I hate needing to find out how the new TV, washing machine etc works.
I wonder what life will have to offer our young grandchildren however clever they are and however hard they work.

It is quite easy to avoid the scripted hard sell of professional sales people. If the initial contact is made by phone. Put the phone down. DH has been receiving calls from boiler rooms wanting to sell him fake shares for years. None of them get passed asking for Mr Peter FlicketyB. Nobody except boiler rooms call him Peter, he has always been called Pete.

The same with people on the doorstep. Just say you don't buy on the doorstop but if they have a leaflet you will have it - then shut the door.

As for financial products. DD has a simple mantra. If you do not understand clearly what the product is even after reading the small print say no and never reach a decision in the presence of the financial advisor, whether bank, building society or professional financial advisor. Go home and talk it through with a trusted friend or relative or think it through on your own before making a decision.

Nobody is perfect and we all make mistakes but take responsibility for your mistakes and don't just blame them on other people.

I bought shares in RBS because the service I got at my local branch was so good I wanted to invest in the company. Fortunately it wasn't a huge sum, but it has taught me to ALWAYS look at the wider picture and not invest in companies just because I like the product.

There is no need for young couples to break the bank furnishing their homes. As I think I've said before, DS1 and his wife - both professionals on a decent salary - make copious use of EBay and charity shops for clothing, furnishings, appliances and bikes - anything but beds. Their house is comfortably furnished with good quality pieces, many of which have stood the test of time better than anything from Ikea is likely to do. Their first new TV was bought last year. They have a big second-hand caravan in which I have been invited to share several lovely holidays with them and will do so again this summer.

Of course it does not - but many young people want it all, and they want it now. My daughter is very intelligent, well educated and very hard working - and nobody ever forced her to take a mortgage over her head, nor buy spanking leather furniture, large flat screen tvon % interest, etc. But the expectations of many, too many, youngsters are in line with Hello magazine, etc- whereas we used to make do. We made a lot of our furniture when we got married, had second hand prams and kitchen tables, etc, and slowly built up. I can assure you that every school in the land makes sure they teach about loans, interests, compound interests, etc - and that many of the youngsters who get into debt know exactly what they are doing, and were not 'mis-sold' anything by anybody - and have to take responsibility too - the greed of others also fed their greed and unreasonable demands.

Salespeople with bonuses/commissions to make versus financially-naive borrowers. Hm.....
How lovely it would be if everybody was clever, sensible, oranised, financially-savvy. Unfortunately they are not, but does that give the banks, etc. the right to mis-sell products to them?
One newspaper has printed the script that SEE salesmen had to use to bamboozle customers.
Yes, wealth creation is essential, but surely it can be done fairly and ethically and without ripping off the vulnerable.
I ran my own business, paid my staff well above the normal rates and charged very reasonable fees to clients. I didn't make a fortune, but I had happy staff and happy clients and a good conscience.
Nothing excuses the cynicism of big business and those in political power who defend the excesses.

I do not think it reasonable to think that if a financial institution is willing to lend you can reasonable assume you will be OK.

Everybody must make their own decisions about how much they think they can borrow. Ever since we took out our first mortgage in the late 1960s mortgage lenders have always been prepared to lend us more than we were asking for. But every time we moved house we carefully calculated how much we could afford to borrow and ignored offers to lend us more than that amount.

I understand the pressure on first time house buyers to stretch themselves beyond their limits because they want to get their foot on the housing ladder before prices increase beyond their reach, but even then they should be realistic about what they can afford.

It is too easy for people to shrug off their own responsibility for the messes they get into by blaming the banks, the credit card companies, etc etc. But unless a person is mentally incapable of reaching decisions they have a duty to consider every decision they make and not be seduced by the blandishments of sellers, whether selling financial products, cars or clothes. Many millions of households and individuals do this quite successfully already, it is not an unreasonable demand to make.

Isn't it reasonable for people to have assumed that if a financial institution was willing to lend them 100% of a mortgage then that institution had done the appropriate calculations. Of course, we know now that bankers here and in the USA were making vast amounts of "virtual" money with these risky transactions and then selling them on in "toxic packages" to other financial institutions, who, in turn off-loaded them until the whole thing fell apart.

Personally, I feel very sorry for young people like granjura 's daughter who got in over her head and who were encouraged to do so. Given the huge cost of renting these days, I can quite understand why people feel they ought to try and buy rather than pay a landlord's mortgage. What a terrible shame that those who can't get help from their parents will be stuck in rented accommodation for ever.

We're not just talking about the banks encouraging unwise borrowing but also committing acts of dishonesty such as fixing the libor rate, deliberately misselling a multitude of complex policies etc., etc.

DH refers to these people as 'banksters' and like all bank gangsters they should be made to take responsibility for their actions.

I am a trustee of a small educational trustee. As a trustee I am responsible to the full amount of my assets for any financial mess the charity gets into. I can see no reason why the Directors of any company that is brought down by the reckless behaviour of the Directors should not also be held personally responsible to full amount of their own assets for the actions of the company.

No, its not greedy to want to buy your own home - but you still have to be realistic surely. Here you have to have 30 to 40% of the price saved before you can buy and get a mortgage, in order to stop people getting indebted beyond their means. It is cruel to encourage people to get into debt knowing they are very likely to fail - like our youngest did, and having that chain around her neck forever. The lenders were to blame, but so was she for wanting that 'dream' home, knowing full well she couldn't afford it - and she suffered so much for it.

it's 'funny' how we can see that strikes and refusal to make changes in Greece, Spain, etc- is obviously seen by most of us as futile and making things worse, stabbing themselves in the foot comes to mind - despite the fact they have also been the victims of the Fat Cats. And yet can't see it for the UK - even though most of us agree the 'people' were not responsible for the we are in.

Brown comes a good Protestant ethics background - where, like with our past Quaker business people, it is believed that those who can have the duty to create wealth, and then share it with those who are not so able. To run social services and welfare, schools and the NHS - you NEED WEALTH - which has to be generated- so business is hugely important. He actually is too honest and good a man, and I am sure believed that the bankers and investors would create wealth fairly - become rich in the process, but also create wealth for the country, and for all the above. One thing the old style socialists never seemed to be able to grasp. So many hate New Labour - but they understood that wealth as such is not a dirty word- and that wealth is needed to support services. Brown was a victim of his true honesty and 'Protestant Ethics' - which he passionately believed in. One could even say he was 'naive'. I cannot bear to hear wealthy Conservatives blame him for all, and New Labour to boot. I loved Michael Foot and his traditional labour values, - but how can one produce the necessary wealth, and tax, to support services for all, including the 'poor'. Can anyone hazard how many Labour supporters were among the Fat Cats who took us to the wall and made huge money in the process?? I'd say none.

Of course it's not greedy to want to buy a house. But trying to climb ladders before you have the ability is not good. Sometimes we have to be content. And wait.

Is it greedy to want to buy a house? I thought home ownership was encouraged as a method of making people responsible. People were led into believing that house prices would inevitably rise and did not know their jobs would be in danger.
Yes, the people who sold the mortgages were paid on the number they sold, not on whether they were eventually repaid.
This is not a matter of right versus left - Blair and his minions were as deeply enmeshed with the rich and powerful as any Tory government has ever been. Gordon Brown was quite proud of his 'light touch' regulation.
And as for auditors.........they were hardly likely to make unfavourable (or honest) reports on the very businesses that were paying them millions in fees.

Yes - I've not heard anyone on Gransnet claiming that welfare spending is the sole cause of the UK's present financial predicament.

Who is blaming welfare benefits for our present economic meltdown?

The whole tenor of this government has been: in order to tackle the economic crisis we have to get to the root of the problem. And - flying in the face of all the evidence - according to Cameron, Osborne, et al, they continually point to public spending (not just welfare) as being responsible for our current situation, rather than reckless private speculation.

That is why people on Gransnet keep bringing up the matter of the financial sector's conduct - because welfare benefits (of which the greater proportion goes to pensioners) are being blamed for our present economic situation, as opposed to the "casino banking" which is widely acknowledged (not just by left wingers) to have caused an economic meltdown.

I'm no apologist for Labour - they were at fault in a lot of ways and got too cosy with big business and the financial sector. Ironically, the Conservatives now blame Labour for the lack of regulation of the finance sector, when at the time they were urging that regulations should be significantly reduced.

I am making two separate points.

Firstly that investment bankers (not the other decent sort) were greatly to blame for the present recession. I was not making a point about the national expenditure on anything.

Secondly, I was pointing out why this Condem government has chosen to demonise (and I stick to my use of that word - just look at Osborne's comments disgracefully describing Philpot as a product of welfare) anyone who is quite legitimately claiming benefits.

Yes, they want to be elected. Yes, all parties use slogans. Yes, they are simplistic.

But this one, the Strivers and skivers is in my view immoral and disgraceful. It plays on people's fears. And while I accept that debate here is more informed than in many other places, it cannot be denied that supposition and surmise based on poor information or extrapolating general principles from one or two personal anecdotes is common elsewhere.