The Recession Megathread

[Dave650]

So why start another?

 

I thought the mods would dump the rest of them onto here tbh.

What are your thoughts on the recession?

[slickwitch]

No. Which is why the Govt has tried to attach strings to the latest bailout to say that the money must be used for lending. The fact that no-one wants to borrow it and would probably be extremely unwise to, has escaped their minuscule minds.

 

As I suspected. Thanks for that.

 

.

[Dave650]

From what I've heard from depressed shop owners their view of the loans are that 'immigrants' will start up a business borrow the money and clear off.

[slickwitch]

From what I've heard from depressed shop owners their view of the loans are that 'immigrants' will start up a business borrow the money and clear off.

 

Hardly likely is it? All loans need securing.

 

That kind of nonsense rumour needs nipping in the bud.

[BasilRathbon]

Hardly likely is it? All loans need securing.

 

That kind of nonsense rumour needs nipping in the bud.

 

No! As a Daily Mail reader myself I've been waiting for a way of blaming asylum seekers for the credit crunch; now we've found one can't we at least have a thread about it?

Give it a couple of days then, once we've found there's no substance to the story, we can move on to blaming gypsies or something.....

[Tricky]

There is something not queit right whith the money situation,i am not clever enough to work it out but not daft enough to believe it i think the press have as usual blown it up out of all proportion and the people going bust and laying people off are doing it because its convenient and no stigma attached at this time i cannot remember a time when mfi were not in trouble but this time they go bust thats just one of several i could mention if the money has gone tell me where its gone the whole episode stinks i hope the truth will come eventualy brown says its worldwide so why is the pound suffering against the rest of the world currency "its not you dave whose got the money is it"

 

Where's the money? Whose money?

 

It's not ours, we just borrowed it.

 

Here's my take on it for what it's worth:

 

 

Fractional Reserve Banking - For every pound that a bank holds in reserve, it lends out many pounds, Barclays recently had a ratio of 20 to 1. I.e. it lent out £20 pounds for each pound it held in reserve.

The banks expect to receive interest on these loans, i.e. for a typical mortgage, the bank will receive back double the amount it originally loaned over 25 years.

 

Boom and Bust (the business cycle) - The rate of interest the banks charge is always far higher than the rate of growth of the economy. Let's say the banks lend at 5%, and that stimulates economic growth at 3%, the level of debt overall is going to increase by 2%ish per year. At some point the cost of repaying that debt is going to become too great a burden for the economy to handle and you will get the bust of the boom and bust.

 

So what makes this time different? - Instead of allowing the economy to shrink the authorities and the financial industry colluded to keep pumping the economy with ever more money by lending it to ever more people and hoping that they'd spend it. The more people you lend to, the riskier they are, so you relax the conditions and start lending them 125% of their assets at 6x earnings. So we've got to the point where we're looking at a nasty recession now rather than a mild one in 2001.

But then, and here's where it goes horribly wrong, what the finance houses did was to package all of the debt into bundles and sell it to other financial institutions. These institutions then put them on their books at 100% of the value of the underlying assets and then lent against them. So all those dodgy self certificated mortgages in America have been going on the books of our banks as if there would be no defaults and then our banks have lent 10x or 20x that value to us.

 

And what did we do with this money? - Well we bought BMWs, Audis and Mercedeses; electronic goods from Japan; crap from China: and houses, lots and lots of houses. Nothing too wealth creating certainly.

 

Now the Americans have been defaulting on their mortgages left right and centre so the banks assets are worth much less than they are stating which means the only people stupid enough to buy their shares are the Govt in the name of you and me.

It also means that the banks are in desperate straits, they are trillions in debt, and need their money back and it's certainly not in their interest to lend any more to a nation who are already massively in debt. A nation who don't want to borrow any more anyway as they're worried about hanging on to their jobs not building a conservatory with money they haven't earned.

 

So the money isn't ours, the banks magicked it out of thin air so that they could lend it to unsuitably high risk people so that they could make money from them from the interest.

 

Gordon Brown wants us to give all of our wealth and future generations' wealth to the banks to compensate them for the mistakes they made. Some of us think that is the wrong thing to do, Labour politicians and bankers disagree.

[slickwitch]

Where's the money? Whose money?

 

It's not ours, we just borrowed it.

 

Here's my take on it for what it's worth:

 

 

Fractional Reserve Banking - For every pound that a bank holds in reserve, it lends out many pounds, Barclays recently had a ratio of 20 to 1. I.e. it lent out £20 pounds for each pound it held in reserve.

The banks expect to receive interest on these loans, i.e. for a typical mortgage, the bank will receive back double the amount it originally loaned over 25 years.

 

Boom and Bust (the business cycle) - The rate of interest the banks charge is always far higher than the rate of growth of the economy. Let's say the banks lend at 5%, and that stimulates economic growth at 3%, the level of debt overall is going to increase by 2%ish per year. At some point the cost of repaying that debt is going to become too great a burden for the economy to handle and you will get the bust of the boom and bust.

 

So what makes this time different? - Instead of allowing the economy to shrink the authorities and the financial industry colluded to keep pumping the economy with ever more money by lending it to ever more people and hoping that they'd spend it. The more people you lend to, the riskier they are, so you relax the conditions and start lending them 125% of their assets at 6x earnings. So we've got to the point where we're looking at a nasty recession now rather than a mild one in 2001.

But then, and here's where it goes horribly wrong, what the finance houses did was to package all of the debt into bundles and sell it to other financial institutions. These institutions then put them on their books at 100% of the value of the underlying assets and then lent against them. So all those dodgy self certificated mortgages in America have been going on the books of our banks as if there would be no defaults and then our banks have lent 10x or 20x that value to us.

 

And what did we do with this money? - Well we bought BMWs, Audis and Mercedeses; electronic goods from Japan; crap from China: and houses, lots and lots of houses. Nothing too wealth creating certainly.

 

Now the Americans have been defaulting on their mortgages left right and centre so the banks assets are worth much less than they are stating which means the only people stupid enough to buy their shares are the Govt in the name of you and me.

It also means that the banks are in desperate straits, they are trillions in debt, and need their money back and it's certainly not in their interest to lend any more to a nation who are already massively in debt. A nation who don't want to borrow any more anyway as they're worried about hanging on to their jobs not building a conservatory with money they haven't earned.

 

So the money isn't ours, the banks magicked it out of thin air so that they could lend it to unsuitably high risk people so that they could make money from them from the interest.

 

Gordon Brown wants us to give all of our wealth and future generations' wealth to the banks to compensate them for the mistakes they made. Some of us think that is the wrong thing to do, Labour politicians and bankers disagree.

 

Much as I hate to blow smoke up your ass of all peoples Tricky

 

I am very impressed by such a summary and it's possibly the first time all the bits have slotted into place for me. Thank you. Why couldn't such simple summaries of the situation have been made available to Maths numpties like me by the Media!!!

[Dave650]

Hardly likely is it? All loans need securing.

 

That kind of nonsense rumour needs nipping in the bud.

 

Indeed I put my two pennys in.

[Dave650]

Where's the money? Whose money?

 

It's not ours, we just borrowed it.

 

Here's my take on it for what it's worth:

 

 

Fractional Reserve Banking - For every pound that a bank holds in reserve, it lends out many pounds, Barclays recently had a ratio of 20 to 1. I.e. it lent out £20 pounds for each pound it held in reserve.

The banks expect to receive interest on these loans, i.e. for a typical mortgage, the bank will receive back double the amount it originally loaned over 25 years.

 

Boom and Bust (the business cycle) - The rate of interest the banks charge is always far higher than the rate of growth of the economy. Let's say the banks lend at 5%, and that stimulates economic growth at 3%, the level of debt overall is going to increase by 2%ish per year. At some point the cost of repaying that debt is going to become too great a burden for the economy to handle and you will get the bust of the boom and bust.

 

So what makes this time different? - Instead of allowing the economy to shrink the authorities and the financial industry colluded to keep pumping the economy with ever more money by lending it to ever more people and hoping that they'd spend it. The more people you lend to, the riskier they are, so you relax the conditions and start lending them 125% of their assets at 6x earnings. So we've got to the point where we're looking at a nasty recession now rather than a mild one in 2001.

But then, and here's where it goes horribly wrong, what the finance houses did was to package all of the debt into bundles and sell it to other financial institutions. These institutions then put them on their books at 100% of the value of the underlying assets and then lent against them. So all those dodgy self certificated mortgages in America have been going on the books of our banks as if there would be no defaults and then our banks have lent 10x or 20x that value to us.

 

And what did we do with this money? - Well we bought BMWs, Audis and Mercedeses; electronic goods from Japan; crap from China: and houses, lots and lots of houses. Nothing too wealth creating certainly.

 

Now the Americans have been defaulting on their mortgages left right and centre so the banks assets are worth much less than they are stating which means the only people stupid enough to buy their shares are the Govt in the name of you and me.

It also means that the banks are in desperate straits, they are trillions in debt, and need their money back and it's certainly not in their interest to lend any more to a nation who are already massively in debt. A nation who don't want to borrow any more anyway as they're worried about hanging on to their jobs not building a conservatory with money they haven't earned.

 

So the money isn't ours, the banks magicked it out of thin air so that they could lend it to unsuitably high risk people so that they could make money from them from the interest.

 

Gordon Brown wants us to give all of our wealth and future generations' wealth to the banks to compensate them for the mistakes they made. Some of us think that is the wrong thing to do, Labour politicians and bankers disagree.

 

It made sense but it hasn't comforted me much.

[marshlad]

Unemployment is now over 2 million, I know the figures published today say it is under 2 million but they only go up to November and thats not including 2 million people on incapacity benefit the majority of which are swinging the lead, so it is probably nearer 4 million. This is worse than under Thatcher!!