Monday, 13 October 2008

I'm on my soap box

There is an old maxim which says that when one finds oneself in a hole, one should stop digging. I suppose by extension, it could be said that there is no point worrying about how one fell into a hole until one has successfully extricated oneself from it.

The whole world, it seems, is in a hole - a financial hole. The British Government has indicated that it will pump £400 billion into the banking system to bring about stability to the financial market. Whether those billions are British or American (the American billion has ‘only' nine noughts whereas the British has 12) it is an awful lot of money - equivalent, I understand, to about £13,500 for each tax-payer in the country. But surely even the Government doesn't have that sort of loose change lying around and will have to borrow it. Who from? The banks?

I am fortunate that I am not in a financial hole personally - at least, not yet - but with the benefit of that most exact of all sciences, hindsight, I can see that signs and portents of the current economic difficulties have been building up over many years. When the Old Bat and I bought our house, the most we could borrow was 2½ times my salary plus once the OB's or 90% of the value of the house (not necessarily the purchase price), whichever was the lower. Over the years, building societies and banks increased the amount they would lend to as much as five times salary or 110% of the value of the house. This, of course, led to an increase in house prices. And all the while the price (value) of houses was going up, people felt safe to borrow more on hire purchase or credit cards. They could always increase their mortgage if they needed to: after all, the value of the house just kept on going up.

And even now stores are telling people to buy their furniture now with nothing to pay for 12 months!

I don't pretend to understand the current financial markets: I know what short selling is, but haven't the foggiest idea what hedge funds or derivatives might be. I'm still convinced that all this is nothing less than gambling - and gambling with other people's money.

I'm probably being naive, but I think it's high time we returned to old fashioned banking principles: if you want something, save up for it.

OK - it's time to get off the soap box.

1 comment:

Uncle Skip, said...

I agree that we shouldn't spend what we don't have. It is unfortunate that
credit had become so easily obtainable because that has mad the concept of saving that much more difficult to get across to folks. Worse it has become a case of measuring success by how much 'stuff' we have.

Yeah, you should climb down. Someone's dog may come along and use the soapbox for what dogs do.