[Closed] And we wont be fooled again...

People didn't really KNOW why things went wrong. They just thought 'grrrr rich bankers!' when it was in the news, now they think 'grrr immigrants!'

Say something often enough and loudly enough and it becomes the truth. I blame Labour for being absolutely useless in trying to set the story. Dare I say we'd be better off if some of the more unpleasant spin types from the Labour party of the 90s were still running the show...

(to be clear, I actually blame those putting the stories out but I wish we had a more effective opposition)

Zero hours contracts are the biggest scandal.
How long before we have to stand outside the factory and auction ourselves off for the lowest price?

with financial products that they didn't really understand

What makes you think they didn't understand what they were doing ?

Perceived wisdom now claims that offering 125% mortgages is not sensible, do you honestly think that previously no one understood the risks involved behind offering 125% mortgages ?

Don't confuse the risks a gambler is prepared to make with them not understanding the risks.

Offering big mortgages isn't much of a risk in a rising market. Some will default, but overall the bank will make a killing.

😀

do you honestly think that previously no one understood the risks involved behind offering 125% mortgages ?

Well apparently the people who bought those products didn't.....

But it's all alright now isn't it.
Relatively short sharp recession with Political Parties claiming the high moral ground and standing steadfast when firms went to the wall, Banks bolstered by Billions are now being paid back with interest, families getting what they want in both financial and moral terms, easing interest rates with lots of pre warnings about rises giving forewarning they will go up in the next year "so you better get ready and make provision" A new order in Financial control that now has some bite but the main change is all the old guard that were so prolific in the industry have been sidelined, retired, gorton rid of and a fresh new culture emerging.
So it's all all right now isn't it. Isn't it?

There's definitely an element of people figuring that if "everyone" is doing it, it must be ok. Or at least, I won't be on my own if it goes tits up (which always seems scant consolation to me).

Markets dont rise for ever and capitalism is nothing but boom and bust as a quick glimpse of a graph will show anyone.

People didn't really KNOW why things went wrong.

What is worse is that the are voting for a party more right wing and with policies that will hamper the poor more than even the Tories

UKIP is not about helping poor ordinary people it is about making sure only poor ordinary indigenous people get screwed by big business rather than immigrants.

It is like Turkeys voting for Xmas

Basically those who have all the money and all the power are happy to have us scapegoat immigrants and the EU rather than camp at St Pauls and try and hold them to account

So they knew what they were doing and let it happen anyway...?

The people selling the mortgages didn't care the risk was under-priced the risk, because they were on big commission.

The people who financed the mortgages initially didn't care because they wrapped up the sub-prime with good mortgages into collateralised debt obligations.

These were miss-rated as AAA by the ratings agencies then sold on and repacked and sold on. The people who ended up with them didn't know what they were buying, didn't understand the risks. But with the nature of financial markets and speculation bubbles, money makes money very quickly as the herd instinct kicks in - until the wheel comes off. This is pretty mainstream analysis - there is lots written on it.

Warren Buffet claims he didn't understand what was going on, and I think he knows a thing or two about financial investment

In a sense that doesn't matter - it was failings of a small number of people who were not as clever as they thought they were, making money out of financial trading, that brought down the real economy in which we all work and we are still paying the costs - but somehow blaming poor people and immigrants.

So they knew what they were doing and let it happen anyway...?

Yes, because they knew they'd make a mint.

Just like in the dotcom bubble. People were asking why investors didn't see it coming - well, they did. Everyone knew it was going to crash, but they also knew that before it did they could make a ton of money if they got out in time.

I think he knows a thing or two about financial investment

Sure, but he doesn't know everything. I know a lot about software engineering but I don't know exactly how Barclays run their online banking site or if it's well written.

It was certainly some dodgy dealings within the banking industry that lead to the financial collapse, and strangely, the rich are now richer...

It's almost as if the ruling elite have realized that with modern technology, people have access to a lot more information that lets us think for ourselves and realize the exploitation that occurs globally; in order to counter too much thinking, they create a climate of financial insecurity to keep everyone fearful and working harder...

Well now the cynical theory is out of the way, there is a positive way to combat some of the inequalities inherent in the current system:

olddog - Member
So 5 years ago the world's economy crashed as a result of very rich people gambling with financial products that they didn't really understand to make themselves even richer

Well if that was all that went wrong, it would be pretty easy to solve! BUT, if we misdiagnose the reason from the crisis we are unlikely to find the correct solutions.

why has everyone forgotten why things went wrong?

They haven't. It's just that there is no quick fix solution and lots of conflicts between policy choices.

Still under a Tory government no less, we will soon be paying £1billion a week on interest payments!

Well apparently the people who bought those products didn't.....

Read the posts a bit more carefully and you'll see that the claim was made that "very rich people gambling with financial products that they didn't really understand to make themselves even richer" doesn't refer to "the people who bought those products".

The people who took the risks by offering dodgy credit knew exactly what they were doing.

Who's more stupid? the people who borrow 125% of what a house is worth, or the bank who lends to them?

Who's more stupid, the people who borrow five times their annual income, or the bank who lends to them?

Who's more stupid, the bank who lends five times someones income at 125% of the value , or the people who invested their savings in that bank, either as shares or deposits?

Who's more stupid, the government who all bails all the above out, rather than suffer the consequences of their actions, or the people who voted for them?

dotcom bubble was peanuts in comparison.

By 2008 there was $600trillion in annual trading on derivatives (including CDOs) against world GDP of about $55trillion. That is hugely distoring even when it is making money.

The who were wrapping up the bad debt into CDOs knew what they were doing. The people rating it and buying it didn't understand the risks - the models for measuring the risk were seriously inadequate

I can't believe that the traders at Northern Rock thought hhmmm lets buy all this junk stock so we can make some money now and bring down the bank in a couple of years. They may not have cared and so didn't look beyond the immediate because the incentives were wrong, but I think they were primarily greedy/stupid rather than evil.

ernie_lynch - Member
The people who took the risks by offering dodgy credit knew exactly what they were doing.

Having worked with them, I only wish that was true!

Zero hours contracts are the biggest scandal.
How long before we have to stand outside the factory and auction ourselves off for the lowest price?

Whats a factory Dad ?

Labour pissing our money down the drain was not caused by bankers. We overspent for too many years, racking up huge debt on credit. The "No Cuts" placard-waving brigade are still in denial.

zippykona - Member
Zero hours contracts are the biggest scandal.
How long before we have to stand outside the factory and auction ourselves off for the lowest price

Whats a factory ?

Seems to me the biggest scandal is the decline of manufacturing inthis country

Zero hours contracts have been around for Donkeys years... it's just the name that has changed ... used to be called agency work, had 2 spells of that over 20 years ago and not only did I not know when I was working from day to day , quite often I didn't know where 🙁 or even IF 😥

What recession?

Having worked with them, I only wish that was true!

Yes of course, those responsible for issuing 125% mortgages couldn't possibly have predicted what might go wrong. Specially so soon after the recession of the early nineties which resulted in historical levels of homes being repossessed and a multitude of people stuck with negative equity for years.

🙄

Zero hours contracts have been around for Donkeys years

Of course but the scandal is the number of workers now on them against their will.

Yes, they got it wrong. Many were muppets and even more believed in what they were doing. That's not to deny there were the truly cynical involved at the same time. I find the elevation of AJ and Barclays into a Mister Nice Guy given his response to the crisis (more than the build up) truly abhorrent.

I worked for the last UK bank to go tits up and not be rescued in 1995. The level of ignorance about what was happening was breathtaking. Combine that with greed and you have a heady cocktail.

Still we had authorities deliberately holding interest rates artificially low (to cover up their failings in the past) and flicking the markets with liquidity. Ensure that risk is mispriced and then encourage folk to take it. brilliant. Thank goodness the same thing isn't happening again. Oh, wait a minute.....

The "No Cuts" placard-waving brigade are still having their wages paid by the overspend.

FTFY, possibly.

Yes, they got it wrong.

You mean that to give someone more money than their home is worth, because they don't have much money and are a little short of cash, is just "wrong" ?

Why ? Explain it to me. I don't quite understand. It sounds ever so complicated.

Don't do yourself down Ernie, you understand fully. But not getting into a convoluted debate. The only point I was a making that it is unwise to assume that bankers fully understood the risks they were running. Ditto the authorities that were meant to be regulating them.

P.s. Remember where the policy that your are highlighting originated and why.

You mean that to give someone more money than their home is worth

Thats not quite fair though - originally they were loans meant for 'fixer uppers' - the money was there to renovate the properties and therefore the value of the house would increase and cover the loan.

but people took the piss and spent it on new cars and TV's, fuelling Gordon's economic miracle - 'No more boom and bust'!

and thats why the Government never moved to stop it!

So who has / had the power to control this mess - the gov. But they failed to put the controls in place.

Blaming greedy people for being greedy and stupid people for being stupid is pointless. We should look to those who are meant to govern.

Sadly though, the government seems to be made of greedy and stupid people.

So the global credit crunch occurred because people spent money on cars and TVs instead of renovating their properties ?

Well I never....every day's a schoolday as they say.

The Credit Crunch wasn't the cause of the crisis, it was just the crisis making itself known.

Postwar economic growth slowed up in the 70's and 80's but rather than accept that and in order to meet our expectation of a continued rise in standard of living, we de-regulated Finance and got rid of the Gold Standard in order to generate 'wealth'.

The added pressure of the rise of China from 1980's onwards only encouraged this strategy...

Human nature being short-termist as it is, and a generally low standard of education in economics and finance meant we all - bankers, companies, consumers etc fell for this illusion and spent well beyond our means... the credit crunch was the natural conclusion when the whole ill-formed scheme finally fell apart.

The system is too complex for one party to bring it all down and you can hardly blame bankers and politicians when we all run around getting ourselves into unaffordable levels of debt to support some kind of consumerist 'dream'

ernie_lynch - Member

So the global credit crunch occurred because people spent money on cars and TVs instead of renovating their properties ?

Well I never....every day's a schoolday as they say.

Yep and Gordon was responsible for the sub-prime fiasco in the US, apparently.

when the whole ill-formed scheme finally fell apart.

Actually, on reflection, and as per the OP - it hasn't fully fallen apart. The recent insanity in the London housing market tells you people still seem to think they can borrow their way to an unreasonably high standard of living, and banks/government seem unwilling to tell us the hard truth.
Which isn't that we're skint, just that we're going to have to work harder and smarter and accept a lower standard of living now that globalisation's changed the balance of global power in favour of developing economies

So the global credit crunch occurred because people [b]Borrowed money that they didn't have and[/b] spent it on cars and TVs instead of renovating their properties ?

FTFY

Gordon was responsible for the sub-prime fiasco in the US

Nope, exactly the same thing was going on in the US and other countries, Gordon was perfectly happy for it to happen here and didn't move to insulate the UK from it in any way, and his biggest crime of all was to bail people (both investors and borrowers) out of the mess they created for themselves - and thats why its still going on

a generally low standard of education in economics

You mean like believing that we got rid of the Gold Standard because of an economic slowdown in the 70s and 80s ?

ninfan - Member

Nope, exactly the same thing was going on in the US and other countries, Gordon was perfectly happy for it to happen here and didn't move to insulate the UK from it in any way, and his biggest crime of all was to bail people (both investors and borrowers) out of the mess they created for themselves - and thats why its still going on

While the tories cried that he wasn't going far enough with the deregulation that allowed this to happen.

Not a fan of Gordon but FFS it's a completely spurious narrative.

exactly the same thing was going on in the US, Gordon was perfectly happy for it to happen here

Don't forget Iceland and most of Southern Europe has gone pop too.

The big problem IMO with the analysis of our situation is that it's somehow caused by a single group or person - politicians/bankers/Gordon Brown.

It's a systemic problem with Western economies loaded up with debt and an illusion of wealth which has been building for 3+ decades... hence no one government or political party appears able to articulate a solution

It is true the sub-prime problem was the tripping point in a deeper malaise. But the financialisation of economy which it represents is the bigger problem.

Basically, money was and is still increasingly being used to make money, rather than finance making real things that are then sold to make the money + profit back. The profits from financial services have been growing whilst from manufacturing falling (they crossed in the US in the mid 1990s) and wages as a proportion of GDP have been falling since the late 70s. This means that there is a lot of capital kicking around that is looking for somewhere to be invested - in the run up to the crisis it was (a) consumer debt, to make up the shortfall in wages and keep consumption/aggregate demand in the economy up (b) housing speculation. Clever packaging of financial products hid the increasing riskiness of it all for a while - but just made it worse when it crashed.

This problem hasn't been solved as far as I can see - but inequalities ie wages falling behind GDP growth are recognised as a real economic problem. Trouble is it is hard to see what the answer is without fundamentally changing the nature of capitalism

It is a lot more complicated than this to be fair - but I am supposed to be writing a paper rather than posting on the internet.

So we dont add value by making stuff anymore, its made by cheap labour in the third world. So they can grow their economy by producing real products which we buy because they are cheaper than we could make them.

How do we afford this, well we borrow the money.

Its a merry-go-round of a mess really.

Best to insulate yourself from it. Pay off your debts, save for when your out of work and keep riding your bike.

Basically, money was and is still increasingly being used to make money, rather than finance making real things that are then sold to make the money + profit back.

olddog - Will Hutton had a great phrase for it 'The present economy is just money, talking to itself'

The finance sector, since the crash, has relentlessly lobbied both main parties to ensure theres no real reform, and its business as usual. So the political establishment (both parties are far too cosy with the City, and too dependent on it for their funding) have caved in and given them all their wishes, cynically placing their paymasters interests far above the electorate which has genuinely suffered as a result of their folly (while they haven't).

Yesterday A load of people basically said 'none of the above', to the main parties and voted UKIP (a party run by a former banker - truly beyond Irony). But most people didn't even bother to do that

I'm sure its all completely unconnected 🙄

Best to insulate yourself from it. Pay off your debts, save for when your out of work and keep riding your bike.

And learn to pitch a tent, catch fish and make fire 😀

The London house price bubble suggests neither government, banks or consumers have learnt a thing from five years ago, which doesn't bode well for sustained economic growth in the future...

So we dont add value by making stuff anymore,

Fortunately, not true

olddog - Will Hutton had a great phrase for it 'The present economy is just money, talking to itself'

Great (sic) quote but quite untrue

So we dont add value by making stuff anymore,

Very not true.

What we do though is buy the simpler parts that go into the products that we design and build here. The ones that require skill and knowledge to do. FWIW, that's why IP protection is so important and why the US has recently decided to start going after Chinese people stealing that information.

It does make me laugh that we have a political party in power, and a rabid press, that says the unions were/are too powerful, but is so relaxed about the power and influence of the financial industry. You really couldn't make it up

Basically, money was and is still increasingly being used to make money, rather than finance making real things that are then sold to make the money + profit back.

A Victorian invention afaik.

It's not a right wing conspiracy, this, just a natural progression. Everyone in the west who's in charge, and everyone who's not currently in charge but might be next year, has an interest in maintaining the status quo. And everyone who doesn't, isn't in a position to change it. It's just natural that the machinery of change tends to end up belonging to those with the least reason to use it.

Trimix - Member

So we dont add value by making stuff anymore,

Interesting fact for you- UK manufacturing measured by value added reached an alltime high just before the recession. I've not got current figures, fair to assume they'll have fallen but the trend is still going to be growth not decline let alone death. The UK remains one of the world's biggest manufacturers despite its relatively small size. That won't last, it's built on the historic advantage and it's basically impossible for us to outcompete the developing world in the long term... But that's no criticism. Brazil might well have passed us in the last few years, no wonder.

What we do though is buy the simpler parts that go into the products that we design and build here. The ones that require skill and knowledge to do.

Worth repeating.

Lots of high value stuff made here in UK.

Much of the low value stuff that goes into the high value stuff is made elsewhere.

So the global credit crunch occurred because people Borrowed money that they didn't have [b]and couldn't afford to pay back[/b] and spent it on cars and TVs instead of renovating their properties ?

Think I FTFY properly.

Think I FTFY properly.

Thanks. I'm starting to understand why the banks and financial institutions across the world collapsed much better now.

I think the term everyone is looking for is Global Value Chain.

Northwind - how were the figures calculated and were they adjusted for inflation? It may be that the added value of manufacturing sector has been increasing, but doesn't mean that financial sector hasn't been increasing much faster.

It is true that the West tends to contribute to the top of the value chain and that is where the big money is - but the problem is that a lot of the money we make from production isn't in manufacturing as we would think about it.

It's primarily two things: (1) design, R&D, engineering - (2) things like brand development, management and promotion, sales and marketing and a load of financial stuff that sits around manufacturing now. This is highly profitable as long as you protect your brand identity, and creates high value jobs - but these are relatively few in number. Think about the Apple model - where all the jobs are and where all the money goes. The labour is in China and that is where the real value is added, but he money comes back to the US where a relatively small number of high paid workers do very well as do the shareholders (albeit that Apple is a bit weird in this respect with its odd dividend policy)

The problem is you end up with an apparently wealthy nation, but with lots of people without meaningful work

olddog - Member

It may be that the added value of manufacturing sector has been increasing, but doesn't mean that financial sector hasn't been increasing much faster.

That's it in a nutshell- manufacturing has grown as an absolute but declined relatively. But realistically, since we already punch above our weight in manufacturing, increasing that at an even higher rate is hugely difficult so if you want to rebalance the economy, that's likely to mean weakening the economy.

The problem is you end up with an apparently wealthy nation, but with lots of people without meaningful work

I work in Marketing and can also confirm that these kind of jobs where you don't produce physical, easy-to-quantify-the-value-of outputs are full of people who just bullshit for a living - and any value they may or may not add is ephemeral and therefore easy to give an illusion of value whilst actually not doing anything which adds to the wealth stock of the nation 😀

I'm sounding more and more like my Dad but I get the horrible feeling our wealth is a total illusion and the whole pack of cards could come down shockingly fast when people realise just how much of an illusion it is...

It's lazy to blame "the bankers", "the rich" etc etc.

How about personal responsibility? Let's look closer to home to the idiots who borrowed more than they could afford to repay? What happened to honestly appraising your own circumstances, rather than trying to keep up with the Jones's and debt loading?

andyrm - folk ripping the arse out of their credit card(s) and then defaulting is pretty annoying, though I'm not sure it was at the heart of the financial crisis any more than traders winding up companies to make the debts/responsibilities go away. That was mortgages mostly wasn't it ?

if their bank or financial adviser says "go for it (and pay me my commission) - at the rate prices are rising you'd be mad not to, and those repayments will look tiny in ten years", why would they doubt that advice ?

Best to insulate yourself from it. Pay off your debts, save for when your out of work and keep riding your bike.

What he said!

You can't really insulate yourself from it though, I've never been an irresponsible borrower but it didn't stop the company I worked for almost going out of business and me losing my job (that's not a moan incidentally, I got a bag of redundancy money and I hated the place, but it's a good example)

Let's look closer to home to the idiots who borrowed more than they could afford to repay?

But luckily bankers were far too clever to lend these idiots money, right ?

So what went wrong ?

No they were not, that's a key point. Furthermore gov and regulators put incentives in place to encourage them to do this in the past

(If you don't learn the lessons of history.....)

Ditto, if IR were to return to "normal" levels now rather than the artificially suppressed current ones, the gov policy of encouraging home owners might prove to be short-sighted once again. The stats are scary on the impact on the UK mortgage market.

The stats are scary on the impact on the UK mortgage market.

And what depends on the UK mortgage market?
1. Consumer confidence
2. Consumer spending (underpinning the current 'recovery')
3. Retail banks' revenues? A collapse in which would likely lead to another financial crisis.

The more I read the more it seems we're in a hell of a bind - if house prices don't keep rising, the recovery is over, if they do the bubble will pop and we'll be in crisis. If IR increase, we'll be in crisis, if IR stay as they are, the house price bubble will pop...

Didn't I hear excessive lending led to a housing market crisis which led to a massive global meltdown a few years ago? 😯

You don't have to think about this too hard to realise that if Gideon felt it necessary to launch as risky a policy as Help To Buy as his pre-election pitch, then the underlying recovery clearly doesn't exist and we must be in some very serious trouble underneath

It will take a long time before we are out of the woods. We are currently reliant on "exceptional" monetary policy, mis-priced risk and the theft of money from savers. The lesser of several evils "some" might say.

The wealth effect of rising asset prices (houses, equities etc) on consumption is obvious as is the reverse. Sadly, the current growth is a typical ST UK version - plus ca change....

Meet the new boss, same as the old boss. 😀

It's all too serious. In no more than 5 words, tell us what caused the financial crash. I'll go first

"Clever people, working in finance"

Lipstick on a financial pig

"Artificially low rates, excess liquidity"

Capitalism is boom and bust

Labour carried on with deregulation.

Capitalism is boom and bust

No, capitalism is risk

boom and bust is [u]greed & self delusion meeting reality
[/u]

Edit: and theres your five words

People = short term thinking