Why Do We Need Cuts Anyway?

[Hector]

yes, its those nasty borrowers faults for asking banks to design loans with a 1% teaser rate that after 5 years resets to 6%. Those nasty nasty borrowers demanding banks sell these products. yes, its 100% clear the fault lies with the citizenry who demand these products.

So the teaser loans / interest only loans / self cert loans / etc were highly popular even though borrowers didn't want them?

[Ologhai Jones]

The deficit is due largely to the government bailing out the banks. Yes, Labour spunked wads of notes over the public sector, but the deficit, in the main, is a result of the banks' greed.

If you mean by this that the deficit is directly caused by the money that the tax-payer has had to spend in order to keep the banks afloat, then I think this is incorrect.

AFAIK, the £700bn debt and the £150bn or so deficit are in addition to any monies used to bail out the banks.

Can someone else confirm this?

yes, its those nasty borrowers faults for asking banks to design loans with a 1% teaser rate that after 5 years resets to 6%. Those nasty nasty borrowers demanding banks sell these products. yes, its 100% clear the fault lies with the citizenry who demand these products.

I don't think 'nasty' is quite right, but shouldn't folks take some responsibility for the money they borrow?

Wanting everything yesterday, and spending your next few years' (potential) earnings to get your dream holidays, cars, home cinema, and on and on -- which some people have done via MEWing, for example -- isn't the most responsible thing to do.

[alexw]

So the teaser loans / interest only loans / self cert loans / etc were highly popular even though borrowers didn't want them?

you'll find the branch managers and mortgage arrangers were told to push these loans, also that they targeted individuals who were less financially aware with these products.

You also seem to not get that we have rightly or wrongly devolved our monetary system to the banks, thus the power, knowledge, and responsibility lies with them

[LiveinHope]

yes, its those nasty borrowers faults for asking banks to design loans with a 1% teaser rate that after 5 years resets to 6%. Those nasty nasty borrowers demanding banks sell these products. yes, its 100% clear the fault lies with the citizenry who demand these products.

Do the borrowers not take responsibility ? The product may have been crap, but they didn't have to buy it and splurge, although 'together' they wrecked the economy.

Perhaps there should have been better regulation of the banks irresponsible lending.

But in the absence of the regulation, I have no sympathy if a daft borrower gets burned. You have to take your own responsibility.

In the same sense that I didn't take part in the borrowing over the last decade or more and don't see why I should now suffer for others, if I do get caught up in the fallout it will be because I did not avoid it through foresight. Fair do's

Edited June 8, 2010 by LiveinHope

[Hector]

You also seem to not get that we have rightly or wrongly devolved our monetary system to the banks, thus the power, knowledge, and responsibility lies with them

The reason "I don't get it" is because it is an assertion which is simply untrue.

Millions have not devolved anything to the banks and have made their own decisions on what they can afford, accepting personal responsibility for their own decisions and the consequences of those decisions. If more had behaved like that perhaps we would not be in this mess.

Edited June 8, 2010 by Hector

[Tired of Waiting]

I have seen more threads on the current level of HB and benefits in general than I have seen on topics discussing how and why we should be looking elsewhere to furnish the national coffers. I don;t live here though so maybe I have missed them all.

Where does the Government spend our money?

( Edit. Larger magnification here: http://www.improving-visualisation.org/vis/id=301 )

From The Guardian.

( Originally posted by 'LeeT', on the pinned Charts Thread, on 07 June )

Edit. Larger magnification here: http://www.improving-visualisation.org/vis/id=301

(...)

Regarding income / government receipts, see 2nd and 3rd charts, below.

Total Gov Expenditure (671 billion) and Receipts (496 billion), for 2009-10

SOURCE: http://news.bbc.co.uk/1/hi/8417205.stm

Edited June 8, 2010 by Tired of Waiting

[50sQuiff]

What I meant was that in the mid 90s (1993/1994?) the deficit was 8% of GDP and everyone was freaking out making catastrophic predictiosn

Then a few years later by the time Major left it was all OK again

And we didn't seem to particulalrly have harsh cuts

...because the biggest credit boom in history was just about to kick into high gear. You're making the simple mistake of drawing on your own limited experience and extrapolating. That's not a crime - it's basically how our whole economy and education system works. But if you seriously think we can just get away with freezing spending and then rely on a disinflationary environment and high economic growth this time, you are very much mistaken.

[Tired of Waiting]

...because the biggest credit boom in history was just about to kick into high gear. You're making the simple mistake of drawing on your own limited experience and extrapolating. That's not a crime - it's basically how our whole economy and education system works. But if you seriously think we can just get away with freezing spending and then rely on a disinflationary environment and high economic growth this time, you are very much mistaken.

A deficit peak of 12% may generate more than double the debt of a 8% peak.

Both Labour and Tories were planing to halve the deficit in 4 or 5 years. That means a deficit reduction of around 1.5% per year. Suppose a situation where the deficit:

Starts at 12%: 12 + 10.5 + 9.0 + 7.5 + 6.0 + 4.5 + 3.0 + 1.5 + 0 = 54% of GDP

Starts at 8%: 8 + 6.5 + 5 + 3.5 + 2 + 0.5 = 25% of GDP

And that doesn't consider the fact that before the peaks, the same may happen, when the deficit was growing.

Of course it will depend on the "angles", of ascent and descent, but it is very difficult to cut too fast.

Edit: Besides, there are also the problems of households debt and companies debt. I think ours are the biggest in the world, in relation to our GDP. That means that the government can't tax us much, to reduce their deficit.

Edited June 8, 2010 by Tired of Waiting

[wonderpup]

Yes it was caused by borrowers borrowing. Yes the total amount borrowed was easily enough to cause the banks to crash. Yes the banks were irresponsible for lending too much - but they could not have done so without irresponsible borrowers. Businesses make bad decisions all the time, usually they simply go bust.

CDS etc enhanced the banks' ability to lend irresponsibly, but that only made irresponsible borrowing easier.

Nobody forced borrowers to borrow.

I'm not saying the banks were innocent. But it's wrong to blame them as the sole cause. We should blame the hangover mainly on the drunkard, not the barman.

The bankers claimed their huge remuneration was based on their rare and valuable skill to assess risk. The public, not being specialists, took them at their word and trusted the banks when their loans were approved.

Now the bankers turn around and insist that in fact their judgement was flawed, their expertise a lie and seek to blame the public for the faith they had in banker wisdom.

We are a society of specialists- if the bank approves a loan, based on the expertise of the 'rare talents' it employs, the borrower is entitled to depend on that expert assessment of the loans viability.

It is entirely pathetic for the banking sector to pretend to itself that it was a greedy public that brought about their demise- the simple reality is that a generation of overpaid idiots screwed up their jobs and revealed themselves to be laughably incompetent at the one task that was/is central to their claims of professional credibility- the ability to accurately asses risk.

A banker who cannot assess risk is as useful as a tube of non stick glue. Pretending that all those nasty borrowers were at fault is a joke.

If the borrower is to be tasked with the role of evaluating loan viability, what are all those bankers employed to do exactly- make TV commercials?

[Sourman]

Yes it was caused by borrowers borrowing. Yes the total amount borrowed was easily enough to cause the banks to crash. Yes the banks were irresponsible for lending too much - but they could not have done so without irresponsible borrowers. Businesses make bad decisions all the time, usually they simply go bust.

CDS etc enhanced the banks' ability to lend irresponsibly, but that only made irresponsible borrowing easier.

Nobody forced borrowers to borrow.

I'm not saying the banks were innocent. But it's wrong to blame them as the sole cause. We should blame the hangover mainly on the drunkard, not the barman.

Sorry but I just cannot believe that. Have you any figures to help prove it?

Let me get this 100% clear! You're saying the total amount these borrowers borrowed, exceeded the total resources of the banks that lent it to them, is that correct?

Now I know the banks didn't actually have to lend their own money to do this, they lent ours a hundred times over, but even so I find that very hard to believe. And you say the banks responsiblity is minimal?

[Tired of Waiting]

Sorry but I just cannot believe that. Have you any figures to help prove it?

Let me get this 100% clear! You're saying the total amount these borrowers borrowed, exceeded the total resources of the banks that lent it to them, is that correct?

Now I know the banks didn't actually have to lend their own money to do this, they lent ours a hundred times over, but even so I find that very hard to believe. And you say the banks responsiblity is minimal?

Actually the main cause of this debt bubble (and of any debt bubble), was that monetary policy was too lose, with interest rates too low. That is why the sheeple borrowed too much, to buy houses that "would only go up". In many cases monthly mortgage payments were close to, or lower than rents, and that is all the sheeple can see.

[Executive Sadman]

The truth is the economy hasnt been growing since about the turn of the century. Only between 2000-7 it was businesses and private individuals running a 10%+ of GDP deficit, since then its been the public sector.

Only way out is resetting everything to how it was in 1997.

[Liquid Goldfish]

delete

Edited June 8, 2010 by newdman

[Sourman]

I'm still at a loss to understand this.

So the banks lent out lots of money apparently, to "us", and "we" defaulted on our loans and caused the whole world to teeter on the edge!

I can smell something and it's not perfume....

It sounds like we've all bought into a lot of crap. Does any of this go against anyone elses common sense?

How many people in the USA and UK borrowed money? And then defaulted?

[bogbrush]

I really just don't get something. Why is everyone harping on and on about cutting this and cutting that, making a massive fuss about £6 Billion in savings? The mire we're in now wasn't caused by people claiming housing benefit or childrens funds or wanting pay rises. No the sh*t we're in now was caused by people with million pound pay packets and companies with multi billion pound turnovers, so why can't we just take the whole lot back from them?

If I stole all your lifes savings from you, and then said I'd lost it on a 3 legged horse at Epsom, you can bet the outcome would be very different wouldn't it? Why aren't we chasing every bank and financial institution who lost money or was helped by the BOE to repay that money? What the **** is going on in this country?

Barclay's Bank alone made £11Billion in profits this year. If they took an active part in the events that led up to the current state of affairs and If they benefitted from the past 12 years of lax deregulation, why can't we just grab £6 billion from them?

Surely the government cannot let the banks walk away from all this unrepremanded and without paying back something?

Am I missing some really important information that would explain this complete and utter madness?

Yes, what you're missing is that all the loose credit is the only thing that's financed the government for years.

The true problem is not the banks, it's the size of the state.

[Tired of Waiting]

The truth is the economy hasnt been growing since about the turn of the century. Only between 2000-7 it was businesses and private individuals running a 10%+ of GDP deficit, since then its been the public sector.

Only way out is resetting everything to how it was in 1997.

Good summary.

[Tired of Waiting]

I'm still at a loss to understand this.

So the banks lent out lots of money apparently, to "us", and "we" defaulted on our loans and caused the whole world to teeter on the edge!

I can smell something and it's not perfume....

It sounds like we've all bought into a lot of crap. Does any of this go against anyone elses common sense?

How many people in the USA and UK borrowed money? And then defaulted?

Haven't you noticed this Forum main topic? House Price Bubble / Crash ? !

It was a credit / debt / property prices bubble.

Hundreds of billions of pounds were lent to millions of people, to buy, or MEW (Mortgage Equity Withdraw), properties.

All that money got into the economy via the sellers, and, in a huge "Mary-go-round" stimulated the whole economy, and that generated lots of taxes for the government, etc. But we, as a nation, were borrowing, hundreds of billions, from foreigners (a lot from China).

The party is over now. And we have 2 problems:

1) We no longer have this fresh new money coming in.

2) We will have the to pay back -at some point - all that money we borrowed.

Sorry.

The "b@nksters" were just the middle men, borrowing from the Chinese, and lending to millions of UK pwoperty buyers - and taking their commissions.

[Tired of Waiting]

Yes, what you're missing is that all the loose credit is the only thing that's financed the government for years.

The true problem is not the banks, it's the size of the state.

+ 1000

[abharrisson]

I really just don't get something. Why is everyone harping on and on about cutting this and cutting that, making a massive fuss about £6 Billion in savings? The mire we're in now wasn't caused by people claiming housing benefit or childrens funds or wanting pay rises. No the sh*t we're in now was caused by people with million pound pay packets and companies with multi billion pound turnovers, so why can't we just take the whole lot back from them?

If I stole all your lifes savings from you, and then said I'd lost it on a 3 legged horse at Epsom, you can bet the outcome would be very different wouldn't it? Why aren't we chasing every bank and financial institution who lost money or was helped by the BOE to repay that money? What the **** is going on in this country?

Barclay's Bank alone made £11Billion in profits this year. If they took an active part in the events that led up to the current state of affairs and If they benefitted from the past 12 years of lax deregulation, why can't we just grab £6 billion from them?

Surely the government cannot let the banks walk away from all this unrepremanded and without paying back something?

Am I missing some really important information that would explain this complete and utter madness?

While a small part of the govt overall debt is down to bank bailouts.. the budget deficit for the most part isn't.. it's down to the simple fact that the stae spends more than it earns.... now of course if we wanted to earn more we could quite simply tax more which in essence is your suggestion.... but labour have doig that for the past 13 years... spending loads, wasting loads and taxing loads and its got us to this position... the problem lest you missed it is 13 years of labour not the bankers ( they were a mere symptom of the bigger malaise.... a ruinous labour govt.

[R K]

The truth is the economy hasnt been growing since about the turn of the century. Only between 2000-7 it was businesses and private individuals running a 10%+ of GDP deficit, since then its been the public sector.

Only way out is resetting everything to how it was in 1997.

Doesn't make much difference what Dave does.

Depends what China does.

The rest is just rearranging deckchairs I'm afraid.

[tim123]

Without the bailout of the banks where would we be now? Can anyone provide figures that cancel out the massive amounts used to ease the banks problems?

We wouldn't be any better off at all because we would have spent the same money guaranteeing deposits.

But there would be a few thousands less bankers taking million pound bonuses.

tim

[huw]

We wouldn't be any better off at all because we would have spent the same money guaranteeing deposits.

Deposits were only a part of the banks' liabilities. All that short-term debt that Northen Rock couldn't roll over and that took it to the edge* ... it wasn't deposits.

*edit: and that the UK state took onto its own books

Edited June 8, 2010 by huw

[Liquid Goldfish]

Deposits were only a part of the banks' liabilities. All that short-term debt that Northen Rock couldn't roll over and that took it to the edge* ... it wasn't deposits.

*edit: and that the UK state took onto its own books

is this now part of the national debt or have they managed to find some way of avoiding counting it?