Vague_Boy Posted February 7, 2012 Share Posted February 7, 2012 Much of the growth of the last decade was all down to lending money to buy houses. Because house prices were in a bubble. People were buying then "flipping". Houses were being built on bits of people's gardens that they'd sold to developers. Why? Because house prices were increasing. 100% 200% sometimes 300%. But those kind of speculative increases could only occur as long as credit expansion continued. It had stop stop somewhere. Before the insanity finally came to an end, 40 year mortgages, even multi-generational mortgages were being talked about. For what? To buy a house? The housing boom was what is known as malinvestment. A credit bubble always produces malinvestment since there is so much cheap money floating about, it has to go somewhere. The first destination was the stock market, in the form of the Dot.com bubble of the late 90s. When that burst, people were naturally put off the stock market so they turned to housing instead. Ask yourself this: All those reasons given for the housing bubble, "they're not making any more land", "immigration", more split families", "houses only ever go up". Have any of these changed at all? Yet the housing market has been declining since 2007, coincidentally the very point when the global credit taps were turned off. Ultimately it comes back to this defensiveness and an unwillingness to accept that Britain was operating a model that failed... it makes it more difficult for us to get through to the public about the scale of the problem. That is to everyone's loss." He said Britain's deficit was "only one of the symptoms" of the financial crisis. "We had the complete collapse of a model based on consumer spending, a housing bubble, an overweight banking system - three banks, each of them with a balance sheet larger than the British economy. "It was a disaster waiting to happen and it did happen. It has done profound damage and it is damage that is going to last a long time." Vince Cable, 21 May 2011 LINK An economy based 70% on consumerism and selling each other the same pile of bricks at ever increasing prices works fine, as long as the credit keeps flowing. The trouble is, it never does. Link to comment Share on other sites More sharing options...
green Posted February 7, 2012 Share Posted February 7, 2012 Sunny Hundal writes this in the Guardian today :- I have a confession to make: I wanted to be a banker once. While arming myself with a degree in economics, I dreamed of working at an investment bank arranging mergers and acquisitions. The growing size of M&A activity got us budding economists excited and I wanted a part of the action. But the dotcom boom of the late 90s lured me in instead and I missed out on the opportunity to ruin the world's economy. In a sign of the times, when I asked a university mate recently where he worked now, he replied: "Goldm- *cough* -acks" rather haphazardly. It seems not many want to be associated with the "great vampire squid" any more. Banker bashing has now entered its third year and become even more vociferous, spreading to bonus bashing thanks to Network Rail. Last week columnists at the Times and Financial Times wailed that all this a) was hurting UK's economic prospects and b) would have limited traction with the public. The second excuse is easy to dismiss: actually there is plenty of public appetite for banker bashing to continue. They want more and they don't think it damages our economic prospects. But is it right to continue this, ask critics? Who will think of the [privately educated] children? Let me offer several reasons to continue banker bashing. First, banking reform has been pitifully weak. If the crash were to happen again tomorrow, the government would have to bail them out again. They remain leveraged up to their eyeballs; remain "too big to fail" and too inter-connected to each other so most can't be allowed to go bust. Without public anger there is no impetus to push banking reforms further, which the Conservatives are stridently resisting and Labour is still reluctant to push too far. Secondly, the banker bashing begs a wider question – if finance has become the life-blood of modern economies, why can't we exercise more control over such a vital industry? Consider this: we pretend that banks are private businesses that should be allowed to run their own affairs. But they are the biggest scroungers of public money of our time. Banks are lent vast sums of money by central banks at near-zero interest. They lend that money to us or back to the government at higher rates and rake in the difference by the billion. They don't even have to make clever investments to make huge profits. At the height of the crash, US banks were simply given $13bn overnight. No repayment needed. We don't know what happened, because the details are kept secret. The entire industry is underwritten by guarantees from central banks. If threatened with systematic failure, which is becoming increasingly common, governments have no option but to bail them out. The financial system rules over our lives too, through our credit history. Everything could be choked off at a whim, through administrative error or for political reasons, and we wouldn't have democratic recourse. Organisations such as WikiLeaks were simply frozen out of the global financial system at the click of a button. Banks get special preferences like no other industry, and yet we don't even ask why these publicly subsidised yacht owners have so much control over our lives. Why not? Far from being the pinnacle of free market capitalism, banking is full of sorry executives who keep asking for more handouts to protect their deliberately bloated businesses. The solutions won't materialise if we go back to how things were. Public anger has grown because it is starting to dawn on middle England that while the rest of us are paying for the crisis, the people who caused the crash want to go back to 2007. Even the Daily Mail is starting to reflect this impatience. This recession is already longer than the 1930s and the stagnation will continue for maybe a decade. For from being over, the nightmare for the Goodwins and Hesters is just getting started. And quite rightly too. Link to comment Share on other sites More sharing options...
Longcol Posted February 7, 2012 Share Posted February 7, 2012 Money has not been tied to gold since the early 70's http://en.wikipedia.org/wiki/Nixon_Shock Britain left the gold standard in 1931. Link to comment Share on other sites More sharing options...
splodgeyAl Posted February 7, 2012 Share Posted February 7, 2012 Britain left the gold standard in 1931.Aye, and 71 was when pretty much the rest of the world followed Link to comment Share on other sites More sharing options...
MrSmith Posted February 7, 2012 Share Posted February 7, 2012 Building new houses to meet the demand of a growing population is a very different thing to bidding up the price of existing houses by buying them over and over again, paying ever more without producing anything new, not even improving them! The thing with house price inflation is that most of the increase is in the value of the land and not the bricks and mortar that sit on the land. Allowing the banks to supply cheap credit to inflate a housing bubble was part of the plan to give the impression the economy was strong. Link to comment Share on other sites More sharing options...
mart Posted February 7, 2012 Share Posted February 7, 2012 97% of the money in the system has been loaned into said system. Nobody on the face of this planet lives within their means, as the system will not allow that, so how do you suggest we "live within our means" without major banking reform Nobody? I do, and i know others that do too. Link to comment Share on other sites More sharing options...
chem1st Posted February 7, 2012 Author Share Posted February 7, 2012 The thing with house price inflation is that most of the increase is in the value of the land and not the bricks and mortar that sit on the land. Allowing the banks to supply cheap credit to inflate a housing bubble was part of the plan to give the impression the economy was strong. Increased value of land benefits nobody but landholders. It does nothing to encourage production, it merely hinders it. Land monopoly exists and one class of landholders feed off of the others. It is land value which should be taxed, not labour. For land value only exists due to the collective labour of the community (or in the most recent case, debt funded speculation). Link to comment Share on other sites More sharing options...
splodgeyAl Posted February 7, 2012 Share Posted February 7, 2012 Nobody? I do, and i know others that do too.No you don't. Your (and my) taxes pay off the National Debt, and we each currently owe about 30 grand Link to comment Share on other sites More sharing options...
mart Posted February 7, 2012 Share Posted February 7, 2012 I owe 30 grand? Now i won`t sleep at night. I wish you had not told me that. Link to comment Share on other sites More sharing options...
splodgeyAl Posted February 7, 2012 Share Posted February 7, 2012 I owe 30 grand? Now i won`t sleep at night. I wish you had not told me that.Ah, sowwy, mate Link to comment Share on other sites More sharing options...
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